Matt Bruenig — Institutions Matter Except When They Are Socialist

Robert Solow once remarked:

Every discussion among economists of the relatively slow growth of the British economy compared with the Continental economies ends up in a blaze of amateur sociology.

This is the final move of right-wing economists whenever the assumptions of their ideologically-infused policy prescriptions end up contradicted by observed reality. After a few forays into some exotic economic indicators, they eventually propose strange half-assed sociological theories that, quite remarkably, end up concluding that laissez-faire capitalism is still definitely the way to go....

My only argument with Bruenig is that in conventional economics, institutions don't matter, only individuals do, that is, the representative individual. Institutions are socialist.

Oh, and Piketty's work shoes that inequality in core European nations would be worse than the US if it were not for social democracy. This is what the neoliberal eurocrats are trying to "fix."

Matt Bruenig
Institutions Matter Except When They Are Socialist

Paul Robinson — Institutions Rule, But Which Ones?

A couple of pieces published last week – one by John Herbst, director of the Dinu Patriciu Eurasia Center of the Atlantic Council, and the other by Forbes’ Russian affairs blogger Mark Adomanis – provide a neat contrast which aptly displays the illusions of many Western liberals about the prerequisites of economic progress. Before getting to them, however, we first need to make a little digression into economic history.

As I explained in my book Aiding Afghanistan, in the 1950s, 60s, and to a lesser extent 70s, economists on both sides of the Iron Curtain tended to believe that economic development was a simple matter of capital accumulation. The reason why underdeveloped states were poor was thought to be that they lacked the capital to get the process of accumulation going. Development assistance therefore consisted of providing them with financial capital (normally in the form of loans) or physical capital (dams, roads, factories, etc) in order to kick-start the process.

By the 1980s it had become blindingly obvious to almost all concerned that this wasn’t working. Economists therefore had to revise their theories. Rather than capital, what matters, some concluded, is ‘institutions’, a word which is somewhat misleading as it includes not just what ordinary people consider to be institutions (government, banks, etc), but also less tangible matters such as laws and culture. You can pour almost any amount of capital into a country, but if the correct institutions are not in place, it won’t make a jot of difference.

But which institutions? To those in the West, the answer was evident – Western ones. Clearly, the prerequisite for economic growth must be the establishment of a set of institutions similar to those in Western Europe and North America. That meant that in order to prosper, underdeveloped states first had to introduce democracy (multi-party elections, a free press, transparent government, etc), liberalize their economies (via privatization, elimination of price controls, the opening of borders, etc), and liberalize their societies (granting equal rights to women, racial minorities, etc). Success would surely follow.

What could possibly go wrong?

Following the collapse of communism, the purveyors of institutional economics found a market for their ideas in Eastern Europe. Things did not quite work out as planned. Institution-building is a slow process and inevitably involves a transition period in which some institutions are present and others are not. This can create some strange incentives as well as significant distortions in the economy. Meanwhile, the establishment of a new set of institutions requires the destruction of the old set, but if these are destroyed too rapidly before the new ones are in place, economic and social collapse may ensue. This is indeed what happened in many post-communist countries....

Did reason and common sense prevail?

At that point, the logical response might have been a pause to reflect whether one size really does fit all. Instead, the West has by and large chosen to redouble its efforts in the same direction as before. If institution-building hasn’t worked as planned, then that must be because it wasn’t pushed hard enough.....

Irrussianlality

Institutions Rule, But Which Ones?
Paul Robinson | Professor, Graduate School of Public and International Affairs at the University of Ottawa

Lars P. Syll — Understanding capitalism

Each year, about a million college students take introductory economics courses; their textbooks are selected from among some two dozen on the market. But this apparent magnitude of choices, Roosevelt says, belies the sameness in their explanation of economics. “Class,” for example, is not an independent entry in the index of the most popular traditional textbook. “In our book,” says Roosevelt, “class is not only in the index, but it has more references to it than almost any other word. 

”There are power groups, power interests, and much of the world is made up of power relationships. Class is about power relations. We think introductory courses should educate people about the economic system in which we live. This concept is central to this book, and that’s what makes it different.”

Putting sociology into economics.

Lars P. Syll’s Blog
Understanding capitalism
Lars P. Syll | Professor, Malmo University

See also Samuel Bowles and Herbert Gintis, Democracy and Capitalism: Property, Community and the Contradictions of Modern Social Thought (Routledge, 1987) and Arthur MacEwan, Neo-Liberalism or Democracy?: Economic Strategy, Markets, and Alternatives for the 21st Century (ZED, 2000).

Henry A. Giroux — Capitalism Is a Tumor on the Body Politic: What's the Alternative? Beyond Mid-Election Babble

The biggest challenge facing those who believe in social justice is to provide an alternative discourse, educational apparatuses and vision that can convince US citizens that a real democracy is worth fighting for.

I think it is more appropriate to call it neoliberalism, neo-imperialism, and neocolonialism than "capitalism." This is much more about institutional power and its use than economic systems. Economics is a tool of politics, which is about the nature and use of institutional power in society. Economics is a manifestation of that power, analogous to the way the visible universe of phenomena is the manifestation of invisible energy underlying and causing phenomenal change. Physically we live in a universe of energy, and socially we live in a world of power.

In spite of what the established media claims, the election results contained a hidden order of politics that do not suggest a popular shift to the right, but a failure of both parties, especially the Democratic Party to address the popular needs and mood of the electorate. How else to explain that a number of states voted to raise the minimum wage. Joseph Kishore writing on the World Socialist Web Site gets it right in arguing:

"The Democratic strategy of appealing to affluent layers of the middle class on the basis of identity politics while working with the Republicans to step up attacks on workers' jobs, wages and living standards produced an electoral disaster. In a contradictory way, reflecting a system monopolized by two-right parties of big business, the election showed that appeals on the basis of race, gender and sexuality move only a small fraction of the population, while the broad masses of people are driven by more fundamental class issues—issues on which the Democrats have nothing to offer."

This is the problem for democracy of interest and identity politics based on exploiting wedge issues without addressing the needs of the social system. The result in never satisfactory, and people begin to conclude that democracy is a waste of time.

As Paul Buchheit points out, capitalism [I would say "neoliberalism"] is spreading like a tumor in US society and the key is to cut out its ability to convince people that there are no other alternatives, that the market should govern all of social life including politics itself, and that the government's only role is to protect the benefits of big business and the interests of the super-rich.

TINA and trickle down.

Truthout | Op Ed

Capitalism Is a Tumor on the Body Politic: What's the Alternative? Beyond Mid-Election Babble

Henry A. Giroux

Daniel Cohen, Thomas Piketty, and Gilles Saint-Paul — The Economies of Rising Inequalities

From New York Times best-selling author Thomas Piketty and noted Professors of Economics Daniel Cohen and Gilles Saint-Paul, comes an in-depth discussion of rising inequalities in the western world. It explores the extent to which rising inequalities are the mechanical consequence of changes in economic fundamentals (such as changes in technological or demographic parameters), and to what extent they are the contingent consequences of country-specific and time-specific changes in institutions.

Both the 'fundamentalist' view and the 'institutionalist' view have some relevance. For instance, the decline of traditional manufacturing employment since the 1970s has been associated in every developed country with a rise of labor-market inequality (the inequality of labor earnings within the working-age population has gone up in all countries), which lends support to the fundamentalist view. But, on the other hand, everybody agrees that institutional differences (minimum wage, collective bargaining, tax and transfer policy, etc.) between Continental European countries and Anglo-Saxon countries explain why disposable income inequality trajectories have been so different in those two groups of countries during the 1980s-90s, which lends support to the institutionalist view. 

The chapters in this volume show the strength of both views. Through empirical evidence and new theoretical insights the contributors argue that institutions always play a crucial role in shaping inequalities, and sometimes preventing them, but that inequalities across age, sex, and skills often recur. From Sweden to Spain and Portugal, from Italy to Japan and the USA, the volume explores the diversity of the interplay between market forces and institutions.

The Economies of Rising Inequalities
by Daniel Cohen (Editor), Thomas Piketty (Editor), Gilles Saint-Paul (Editor)

Oxford University Press, 2002 hardback, 2013 paper, Kindle

Noah Smith — On "Asian Values"

This might be a bit simplistic in that it assumes that a nation is composed of rather homogenous individuals that generally agree about how value should be prioritized personally, culturally and institutionally. In fact, this is the dialectical dynamic of the era based on the liberal trend since the Enlightenment and the political revolutions that were based on Enlightenment thinking. 

The challenge is to actually achieve E pluribus unum, and the currency cultural divisiveness manifesting in political divisiveness in the US is an example of it. The two chief forces are individualism manifesting as personal liberty, characteristic of libertarians of the right and left, and the desire for law and order and traditional values, characteristic of authoritarians. 

Add to this matrix, conservatives that emphasis inequality resulting from individual uniqueness and liberals that emphasize equality of persons as the basis of the rule of law and human rights and civil liberties. This is illustrated by the Political Compass matrix of the  at politicalcompass.org for example.

America is hardly unique in this, and it can be found in similar and also contrasting expression in other countries as well. It is even more pronounced in more traditional countries that the US, of which the Asian countries are good examples.

"Freedom and democracy" sound great as slogans, but they are extremely complex in themselves and in relation to other values. For instance, the Enlightenment values of liberty, egality, and fraternity (solidarity, community) are a difficult trifecta to harmonize culturally and institutionally and no nation has been highly successful at doing this in a way that pleases all constituencies. 

The neoconservative notion of exporting freedom and democracy along with a neoliberal political theory based on economic liberalism that has been characteristic of US policy has not been very successful in achieving the harmonization of this trifecta either in the US or abroad, and the cost of the experiment in terms of blood and treasure has been enormous.

There are many factors in play right now. The liberalization of society has been continuing apace since the Enlightenment and is going global. Innovation in technology and communications is resulting in a more unified world but on the way diversity is also clashing. Technology is also generating externalities that are now consequential enough to present an existential threat to humanity.

Humanity is now becoming self-aware as a species, on one hand, but on the other, huge resistance to greater unity is arising in order to preserve accustomed diversity. This is going on within groups and nations and regions, and among nations and regions. There are a number of divorce proceedings either in the works or being advocated, including secessionism and nullification in the US, as well as rejection of the president by a significant cohorts, for example, the rejection of Bush as a war criminal by the left and the rejection of Obama as a socialist dictator by the right.

Can we speak of East and West? Only in a very general way that easily falls into the pit of stereotypes. Both Easterners and Westerners are susceptible to this, too, just as Northerners and Southerners in the US.

Nor is Asia uniform. Take China and India, for instance, each with out the same size population, land mass, and natural resources, although very different climate, each coming into their own in the contemporary world at about the same time, India in 1946, and China in 1949. However, China is a one-party authoritarian state and India is multiparty liberal state. Which has had the better of it socially, politically, and economically, and based on what criteria? Both have made great progress but significant challenges remain. The US is recommending that China liberalize socially and that India liberalize economically. Is this appropriate for them or is this advice largely self-serving?

I don't think that there are easy answers to these issues, and I also don't think that the US is a position to be giving advice to other nations about how to manage their internal affairs if only because the US has shown itself to be unable to separate its own interests from what it preaches.

The world is in a phase transition between social, political and economic eras, in which the social challenge is increasing awareness of universality, the political challenge the consequences of this for rights as diversity groups with different values and priorities come into closer contact, and the economic challenge of birthing a new economic age, the digital era, which promises to be as revolutionary as agriculture and industry were. Just as these eras produced difference social, political and economic institutions, so will this new era we are entering as a species that is becoming increasing aware of itself.

Noahpinion
On "Asian Values"
Noah Smith | Assistant Professor of Finance, Stony Brook University

AP — Study: Millennials Less Trusting Than Gen X Was

A new study has found that, while Americans are mistrustful of each other and institutions -- from government to corporations and the media -- young people are among the least likely age group to have confidence in those institutions, especially since the terror attacks of Sept. 11, 2001.

AP — The big Story
Study: Millennials Less Trusting Than Gen X Was

Martha Irvine

Yves Smith — Philip Pilkington: Cody Wilson and the Language of Power

Yves here. This post on largely-hidden hidden power assumptions might seem wide of the mark, but it’s well night impossible to effect change without recognizing power dynamics and leverage points. One of our occasional themes at Naked Capitalism is the degree to which the coercive elements of capitalism aren’t acknowledged; they are so deeply internalized by most people as “that’s how things work” as to not be amenable to scrutiny.

Naked Capitalism
Philip Pilkington: Cody Wilson and the Language of Power
Yves Smith

Modern capitalism is dominated asymmetical (imperfect) markets in which power relationships enable the extraction of economic rents.  This should be the principal focus of economic critique. Neoliberalism and the neoclassical economics on which it rests denies asymmetry, power, and economic rent as forces that shape economics rather than law of nature operating through individual actors as rational free agents.

Andrew Gavin Marshall — Global Power Project: Identifying the Institutions of Control

The was posted yesterday at AlterNet and reposted today at Truthout.

The Global Power Project, an investigative series produced by Occupy.com, aims to identify and connect the worldwide institutions and individuals who comprise today's global power oligarchy. In Part 1, which appeared last week, I provided an overview examining who and what constitute the global ruling elite – often referred to as the Transnational Capitalist Class (TCC). In this second part, I will attempt to identify some of the key, dominant institutions that have facilitated and have in turn been supported by the development of this oligarchic class. This is not a study of wealth, but a study of power.

Truthout
Global Power Project: Identifying the Institutions of Control
Andrew Gavin Marshall, Occupy.com | News Analysis