The “Nobel Prize” for Economics 2019… illustrates the nature and inadequacy of conventional economics

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from Ted Trainer

The 720,000 pound Prize has been awarded for studies carried out in “developing” countries over several decades, applying randomised trials to determine the effects of interventions like school meals, small monetary incentives for school attendance and work motivation (Nobel Media, 2019.) Especially noteworthy are devices for reducing “…purchasing of temptation goods”, (…conceivably also of use in rich countries.) These are identified as “nudges”, only likely to make small differences in the right direction but claimed to be capable of adding to significant effects in large populations. Much if not all of this work would seem to be unambiguously worthwhile, such as exploring how to improve vaccination rates. But there are disturbing criticisms which go far beyond these studies to indict the tunnel vision and ideological nature of conventional economic theory and practice.

The focus in these studies is on getting individuals to perform better within the system. The faulty individual is the problem; as Mader et al. (2019) say, “The idea is to ‘help’ poor people overcome supposedly irrational ‘risk aversion’ in order to be more entrepreneurial, or more ‘time-consistent’ and save for a rainy day.” Even leaving the issue of fault aside, this focus on individualism is the first problem; like “micro-finance” which helps the budding entrepreneur to invest and get ahead, it is about helping the most able and energetic to succeed, presumably on the assumption that if enough do so a good society will eventually result. This is to ignore the possibility that the problems are due to faulty social structures rather than faulty individuals, and the possibility that the best solutions would involve collective effort to establish radically alternative structures and systems.

Thus the second major problem is that the approach takes conventional development theory and practice for granted. It reveals a complete absence of interest in the possibility that these are technically and morally unacceptable and a legitimization of structures and practices which have condemned billions of people to suffer extreme poverty for decades, and which continue to do so. Mader et al. reject the “behaviourist” approach to the study of poverty and argue that the concern should be “…the political, social and cultural questions about what causes poverty and inequality.” Kvangraven (2019) recognizes that poverty alleviation is not development and that while “…small interventions might generate positive results at the micro-level, they do little to challenge the systems that produce the problems.”

In other words, this kind of focus has powerful ideological significance; it distracts attention from the way economic orthodoxy takes it for granted that there can be no conceivable alternative to the current approach to “development”.  It is necessary here to briefly outline a critique of the dominant perspective.

Few if any areas of economics are as open to criticism as are conventional “development” theory and practice. The source of the problem lies in the taken for granted conception of what constitutes “development”. There could be many perspectives on what the goals of development might be, and what the means to them might be. However almost all contemporary discussion centres only on one conception. Its essential assumptions and principles are;

• The goal, or at least the one that enables the achievement of all others, is increasing the amount of producing and consuming going on, i.e., growing the GDP.
• Poor countries must therefore plunge into the global market economy. They must find something to try to sell, if only cheap labour, competing against all other poor countries. Only if something can be sold can the money be earned to import what is needed.
• It is not possible to develop without capital. People who have capital must be attracted to invest it in setting up farms, factories, fishing fleets and mines, to produce exports.
• These ventures will produce whatever the investors think will maximize their profits within the global market economy. (Foreign investment never goes into producing to meet urgent local needs.)
• Foreign investors will not come in unless there are ports, power stations, roads etc. So the government must go into debt to build these.
• Before long the loan repayments will probably have become impossible, but the friendly people at the IMF and World Bank will come to the rescue with more loans…and Structural Adjustment Packages which will require the country to gear its development more closely to the interests of the foreign investors; i.e., de-regulate, devalue, sell off industries cheaply to foreign corporations, enable sale of land from peasants to corporations, cut subsidies and welfare so loan repayments can be made.
• The result is that the country will develop a lot of factories and plantations, but none of them are likely to be producing anything the poor majority want or can afford. The country’s resources will mostly be flowing into the production of goods to sell in rich world supermarkets.
• If the country does not have any logs left to export and can’t attract foreign corporations in, then unfortunately it can’t have any “development”.
• It is imperative that market forces be allowed to determine the country’s fate. Business turnover and GCP will be maximised if there is minimal regulation, subsidies, protection or other interference with market forces. So, free corporations to invest in what makes most money for them. Ignore the fact that markets will always deliver scarce resources to the rich, because the rich can always pay more for them, and will always develop industries that produce what the rich want to buy.
• All this is cast as not just legitimate, it is inevitable … it’s just the way the market system works. People with capital to invest are not going to come in and produce beans for hungry peasants making negligible profits when they can invest in soy exports and make good profits. You can’t expect high royalties on your copper exports when other countries are willing to accept lower royalties because they are desperate to pay off their debt.
• The impoverished masses are told to accept these processes because they will benefit via “trickle down”. They are not told that in fact very little ever trickles down or that it is not the case that the mechanism is lifting large numbers out of poverty (except in China, which has taken the exporting capacities other countries once had and thus raised unemployment rates there; see Hickel, 2017.) Nor are they told that global resource limits rule out any possibility of trickle down ever raising billions of impoverished people to tolerable living standards, let alone to rich world levels.

After 70 years of this approach to development about four billion people are very poor, around 800 million are hungry and more lack clean water, thousands of children die avoidably every day… and half the world’s wealth has now been accumulated in the hands of less than 20 people. Leahy’s work (2009, 2019) is unusual in pointing out the futility of mainstream African development efforts to get impoverished farmers to succeed in the intensely competitive global “free market” food export arena. (Let’s not draw attention to the fact that US agribusiness is subsidized $20 billion every year.)

This conventional approach is a delight to the world’s rich; development cannot take place unless the owners of capital get opportunities to invest in profitable ventures, and Third World productive capacity goes into stocking rich world supermarkets and not into producing what the people urgently need. Even worse, it prevents them from using the resources around them, the soils, forests, rainfall and their own labour and traditional skills, to produce for themselves basic goods they need. “Development” theory rules this out; there is no alternative, indeed no alternative is conceivable. This is just as well; imagine how disruptive it would be if Third World people worked out how to develop satisfactorily without having anything to do with investors, banks, debt, export industries, or the IMF. But the risk is slight as all the experts and advisers have studied conventional economics.  read more