Friday, August 08, 2008

Are there cracks appearing in the neo-classical stranglehold on Australian policy development?

I would like to think the answer is yes but it may be too early to tell. On a recent trip to Canberra I met up with a scholar, recently arrived in Australia, whose work I knew. I had not met him before and naturally enough the conversation turned to how he was faring in Australia. I had genuine concerns, well-founded it seems, that he as an individual and his form of economics might not be receiving a warm welcome! It turns out he was receiving a warm welcome but not in the sense of Australian friendliness and conviviality.

He told me how he, as a heterodox economist, had been subjected to harassing emails, phone calls and letters from a group of young liberals who were systematically attacking academics who taught or embraced alternatives to the neo-classical or rationalist economic position. This I felt was totally unacceptable, but it was only part of what was happening. The following national advertisement to recruit a heterodox economist attracted an attack by a former Treasury Secretary in a letter to the Canberra Times:

We are seeking an enthusiastic researcher with a strong background in heterodox institutional economics to work as a part of an interdisciplinary team on the application of institutional analysis to the understanding of markets, their spread and the articulation of environmental values.

You will apply old institutional approaches to the impacts which market institutions have on environmental and social values. Non-price making markets would be analysed using an anthropological-historical-institutional economic approach. The development of new institutions for articulating environmental values in the policy process would be explored with empirical testing expected as part of team work. History of thought research would also be conducted with respect to ecological economics.

I interpret the action by the former Treasury Secretary as symptomatic of the gate keeping behaviour of many in the economics profession in Australia. It is also a reflection on their ideological commitments to particular orthodoxies.

I was frankly appalled by the story told to me, particularly given how different it is in Europe. I am gratified that this week a few chinks in the armour of the mainstream view are becoming apparent. David Spratt in today's Age explores why we should not be seduced by the modelling outcomes that will be used to inform climate change policy. Modelling, particularly econometric modelling is one of the main tools within the neo-classical paradigm as practised in Australia. He makes the point that:

'The nature of the modelling process means many issues that should be part of rational decision-making will be excluded, because only market events with strictly quantifiable prices will be included.

Garnaut has recognised the "conventional economic effects that are not currently measurable, the possibility of much larger costs from extreme outcomes, and costs that aren't manifested through markets". For example, Garnaut explicitly says the multibillion-dollar impact on the tourism industry in northern Australia from the loss of most of the Barrier Reef (now inevitable) and of Kakadu (through salination) will not be modelled.'

Earlier in the week in The Australian, Luke Slattery in an article entitled 'Abstraction to application' explores the divisions within the economics profession which are strangely similar to that of the Systems field i.e., ' between the soft and the hard; between economics with a social orientation and economics that aspires to the status of value-free science'. He goes on to make the following well-founded observations:

'...the discipline's mainstream appears vulnerable to criticism of a disconnect between its scholarly enthusiasms and real-world economic ills.

Mark Dodgson, director of the University of Queensland's Technology and Innovation Management Centre, argues, along with McKinsey & Co economic adviser Eric Beinhocker, author of The Origins of Wealth, that the intellectual field of economics is on the cusp of a big transformation. "Mainstream economics is increasingly being seen to be detached from reality," Dodgson says. "It's assumptions about equilibrium, rationality in human behaviour and the primacy of market forces that are mysteriously asocial make its predictive power extremely limited.'

"The way many academic economists are concerned primarily with the mathematic purity of their models, rather than their usefulness, and economic policymakers are so tied to an orthodoxy that fails to answer the important problems that confront them, are sure signs of a failing discipline.

"New approaches, such as evolutionary economics and the study of economies as complex, adaptive systems, are much more useful in addressing the big economic challenges of generating growth and productivity through innovation in ways that are sustainable and socially equitable." '

Slattery engages with a set of important issues that are vital to how Garnaut and the government respond to climate change. From my perspective I see little heterodox economic thinking informing either. Given the story at the beginning of my post I cannot share Slattery's conclusion that 'these interdisciplinary disputes suggest that the discipline of economics, despite appearances to the contrary, is enjoying a period of robust good health'. He seems to me to miss the point - it is our health and wellbeing and that of the planet that is at stake - not the future of economics!

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