Can university education in economics contribute to strengthened democracy and peace?

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By Peter Söderbaum

School of Economics, Society and Technology, Mälardalen University, Västerås, Sweden                                                                                                                          

Abstract

Mainstream neoclassical economics is specific in scientific as well as ideological terms. With its emphasis on markets, this economics is close to neoliberalism. In relation to sustainable development, a different conceptual framework and ideological perspective is needed. As an attempt in this direction a version of ecological economics is presented.

In mainstream economics “value” normally refers to “monetary value”. As alternative to “monetary reductionism”, the concept of “ideological orientation” is emphasized. It is argued that economics in relation to present challenges of sustainability and peace need to move in a “democracy-oriented” direction where ideology and ideological orientation is discussed openly. As an example, “efficiency” and “rationality” is regarded as a matter of an actor´s ideological orientation and differs between “pro-growth” and “pro-sustainability” ideologies. A pro-growth ideology is well institutionalized and made legitimate by the monopoly of neoclassical economics while the newer challenge of sustainability may require support by a new conceptual framework. Economics education needs to move from present monism toward pluralism.

Key words: political economics, neoclassical economics, ecological economics, ideological orientation, pluralism, democracy, “pro-growth” ideology, “pro-sustainability” ideology, Cost-Benefit Analysis, Positional Analysis

Introduction

In all societies there is a tension between democracy and dictatorship. In some countries democracy is well institutionalized and the threat of dictatorship is successfully kept at a distance. In other societies, a system close to dictatorship is quite established and democracy is regarded as a threat. Today, we witness a confrontation between Russia, a nation close to dictatorship and Ukraine which appears to move toward strengthened democracy.

In this essay it is assumed that a strengthened democracy is preferable to dictatorship if one aims at a sustainable and peaceful relationship between single nations and regional assemblies of nations. Does the economics taught in universities play a positive role in strengthening democracy or is the idea rather for economists to be neutral and leave democracy to other disciplines, such as political science?

Two observations concerning the state of economic science

Until about 1870 economics was understood and referred to as, “political economics”. From that time onwards, a group of economists preferred to see themselves as objective and neutral comparable to how they understood the role of scholars in disciplines such as physics and chemistry. So called “neoclassical economics” was born as a theoretical perspective that claims to be more objective and neutral in terms of values than its forerunners. And neoclassical economics developed into a mainstream. “Political economics” became just “economics”.

My second observation refers to one of the leading textbooks in neoclassical economics by Gregory Mankiw (2011). How does this book deal with “democracy” as an essential part of our society? I checked the “Glossary” and the “Index” but “democracy” was absent from the long list of essential concepts. I then looked for the concept “ideology” which is essential in understanding democracy but made the same observation. Democracy and ideology appear to be outside economics or not sufficiently relevant to be dealt with. One implication of this is that the neoclassical conceptual framework is thought of as being as applicable in autocratic as democratic societies.

Economics is always “political economics”

It is here argued that the transformation from “political economics” to “economics” was a mistake. Economics is always political economics. Mainstream neoclassical economics is specific in value or ideological terms and the same is true of specific kinds of heterodox economics, such as the ecological economics perspectives advocated in this essay.

There is no value-free or neutral economics. “Valuations are always with us” as argued by Gunnar Myrdal:

Valuations are always with us. Disinterested research there has never been and can never be. Prior to answers there must be questions. There can be no view except from a viewpoint. In the questions raised and the viewpoint chosen, valuations are implied.

Our valuations determine our approaches to a problem, the definitions of our concepts, the choice of models, the selection of observations, the presentation of our conclusions – in fact the whole pursuit of a study from beginning to end (Myrdal, 1978, pp. 778-779).

Rather than reference to values, I will refer to “ideology” or “ideological orientation”. In mainstream economics, “value” has become so much connected with “monetary value”. A kind of “monetary reductionism” characterizes large parts of neoclassical economics.

There is certainly a role for objectivity in economic analysis but there is always a choice about what to describe. In a society there can be ways of measuring progress (or the lack of it) accepted by many, such as Gross Domestic Product (GDP). But should one rely on GDP as a single indicator or do we need other indicators as well? Sustainable development as a recent challenge suggests a broader set of indicators and that GDP is downplayed a bit. While there is a role for objectivity in measuring according to a specific indicator, choosing among indicator or monitoring systems is certainly an ideological issue.

If economics is political economics, then it follows that economics need to be “democracy-oriented”. The discipline should not be organized as a dictatorship where only one paradigm (with its theories, methods and connected ideological orientation) is presented. Today, neoclassical economics is in a close to monopoly position with connected ideology. Can education at university departments of economics be made more compatible with democracy? Let us tentatively redefine economics from “allocation of scarce resources” to “multidimensional management of limited resources in a democratic society” (Söderbaum, 2017, p. 22, 2018, p. 13). This “democracy-oriented” view of economics is presented as part of a pluralist perspective. There are competing and sometimes complementary ideas in economics. A conceptual framework that claims usefulness dealing with inflation and aspects of monetary policy is perhaps not the best choice for sustainability policy and vice versa. As economists we face different categories of problems.

Neoclassical economics as narrative

Let us look at neoclassical economics as taught in university departments of economics. Mainstream neoclassical economics can be described as a story or narrative about individuals and organizations related to markets for commodities, labor and capital. Individuals and organizations are assumed to maximize self-interest or otherwise narrow interests and search optimal outcomes in each market situation. The individual as “consumer” maximizes utility of possible combinations of commodities and the organization as “firm” maximizes profits when producing and marketing its commodities. Markets are understood mechanistically in terms of supply and demand. Among organizations, only profit-maximizing firms are considered in neoclassical theory and method. Governmental and Non-governmental organizations (NGOs) are excluded as being of little relevance. Today we (hopefully) know that such organizations are needed in relation to peace and sustainable development.

In addition to consumers and firms there is a national government that can regulate markets in various ways, such as taxes, charges and prohibitions. Consumers and firms are then regarded as mechanistic entities that are manipulated through government intervention.

This way of presenting neoclassical economics is simplistic but claims to demonstrate essentials of the perspective. At issue is now how neoclassical economics relates to democracy.

Neoclassical economics in relation to democracy

Democracy is about listening to many voices and about participation in decision-making at various levels from the family to the local, regional, national and global society. Those who are affected by, or concerned about, the impacts in a decision situation are encouraged to participate and present their views and arguments. In relation to democracy the individual is not exclusively regarded as “market-oriented” but as much, or primarily, looked upon as a citizen and actor guided by an “ideological orientation”. As part of our political economics perspective, the individual is furthermore not just mechanistically reacting to market signals but can actively contribute to policymaking.

The concept of “ideology” and “ideological orientation” may at first appear alien to ideas about economics. But there are single well-known economists who have used this terminology. In her early book “Economic Philosophy”, Joan Robinson argues that economics as taught in universities “has always been partly a vehicle for the ruling ideology of each period as well as partly a method for scientific investigation” (1962, p. 3). Self-interest is not enough to keep societies together but neither its opposite, the expectation of a completely altruistic individual, is realistic. “A society of unmitigated egoists would knock itself to pieces, a perfectly altruistic individual would soon starve” (Ibid. p. 4).

In a recent book, “Capital and Ideology”, Thomas Piketty defines “ideology” as follows:

I use ideology in a positive and constructive sense to refer to a set of a priori plausible ideas and discourses describing how society should be structured. An ideology has social, economic and political dimensions. It is an attempt to respond to a broad set of questions concerning the desirable or ideal organization of society. Given the complexity of the issues, it should be obvious that no ideology can ever command full and total assent: ideological conflict and disagreement are inherent in the very notion of ideology. Nevertheless, every society must attempt to answer questions about how it should be organized, usually on the basis of its own historical experience but sometimes also on experiences of other societies. Individuals will usually also feel called on to form opinions of their own on these fundamental existential issues, however vague and unsatisfactory they may be.” (Piketty, 2020, p. 3-4)

When compared with this definition by Piketty, I use ideology and ideological orientation in a broader sense as “ideas about means-ends relationships”. It is about “fundamental existential relationships” referred to by Piketty but also relevant in commonplace situations. We need an economics also for everyday decision making. While there are stable elements in an actor´s ideological orientation, there is also some variability depending on situation or context.

I am not saying that the neoclassical perspective is useless, but it is not sufficient in relation to present challenges of avoiding war and transforming development toward sustainability. If we want to seriously deal with these issues, we need an economics where competing ideological orientations are respected and seriously considered. Neoclassical economics is a kind of market fundamentalism which in ideological terms is close to neoliberalism. This perspective is certainly one among options in a democratic society, but there are other alternatives.

Neoclassical economics (with connected ideological orientation) is in a monopoly position with respect to university economics education. This monopoly is a kind of partial dictatorship which should not be seen as innocent. In Western societies that otherwise exhibit many traits of democracy, students in economics become indoctrinated in an ideology close to neoliberalism. The neoclassical paradigm is presented as a general theory, relevant to all countries, be they democracies or dictatorships. Learning about neoclassical international trade theory, as an example, is then considered equally relevant for students in Russia and Sweden. Trade is proven to be beneficial for both trading nations. Today, it is understood that importing oil and gas from Russia to EU is not only a matter of reduced monetary costs per unit of oil but a political choice and a matter of peace and war.

Democratizing economics education where pluralism exists concerning theoretical framework and ideological orientation would be a way of implanting ideas that have the potential of influencing elites in countries that today are close to dictatorship (Reardon, ed., 2009, Decker et al. ed., 2020, Söderbaum, 2019, 2021).

The arguments in favor of democracy can then be summarized as follows. Concentration of power in the hands of single persons or the few, tends to systematically reduce the ideological orientations (perspectives) considered in decision situations. This is unfair to those who do not share the views of the regime. When actors whose views differ from those of the leaders are no longer included as part of dialogue, the possibilities of new and creative solutions are very likely reduced. Democracy appears furthermore to be preferable to dictatorship also from a security point of view. In a dictatorship, a person who acts in a role as maverick tends to be dismissed, if not imprisoned. Even countries that are close to dictatorship, such as Russia and China, depend on more democratic nations where dialogue is possible. In the extreme hypothetical case of all nations being dictatorships, peace and sustainable development will not easily be achieved.

Ecological economics: A different conceptual framework

In the kind of ecological economics advocated here, a “political economic person” as actor guided by her ideological orientation replaces neoclassical Homo Economicus. When dealing with complex societal issues, it is no longer enough to think of individuals as physical objects that can be manipulated through governmental intervention. In addition, the individual is understood in sociopsychological and cultural terms with concepts such as role, relationship, network, perception, cognition, dissonance, conflict etcetera. It is recognized that subjectivity and engagement is often essential in policy making. Citizens can indeed be regarded as actors and policy makers. The recent COVID-19 pandemic is an example. National governments varied in how much they tried to rely on the involvement of citizens when compared with so called “lock down” policies.

In the “political economic systems” that exist today, individuals and organizations can be looked upon as political economic entities that relate to each other in a democratic context. In addition to political economic persons (PEPs), there are “political economic organizations” (PEOs) guided by their ideological orientation or “mission”. All organizations need to consider monetary or financial outcomes of their activities. Business corporations (“firms” in neoclassical language) are according to law expected to focus on monetary profits and dividends to shareholders in monetary terms. But this does not exclude a concern for Corporate Social Responsibility (CSR), “fair trade” and other voluntary certification schemes. This suggests that the “limited responsibility doctrine” of joint stock companies is challenged by specific kinds of “extended responsibility”. In this way, business companies engage in politics and may reconsider their ideological orientation or mission. At the time of writing, a war and political conflict between Russia and Ukraine is going on where some European Union transnational corporations have decided to significantly reduce activities in Russia. At some stage, one may argue that exclusively focusing on monetary profits is no longer realistic.

Non-governmental organizations (NGOs) is a different category of Political Economic Organizations. As expected, they are not considered in neoclassical economics textbooks but their role in relation to peace and sustainability can hardly be denied. In relation to both ambitions, Greenpeace is a relevant NGO. It is not only non-governmental but also “non-business” in the sense of claiming to differ from corporations (Bode, 2018). Many citizens, politicians and political parties and other organizations in Western societies embrace a “pro-business” and “pro-growth” ideology made legitimate by neoclassical economics as theory and ideology. Other citizens, politicians and political parties point to climate issues and other environmental problems arguing that there is a need to control and regulate transnational companies in new ways.

Also, markets can be understood in political economic terms. PEPs and PEOs with their ideological orientations interact in market “relationships” and “networks”. Even non-market relationships and networks are potentially relevant. Relations (networks) can be cooperative or competitive where actors from government are sometimes involved. In a transaction one actor A may bother about the impacts on other actors B, C and D. The network perspective suggests that “no business is an island” (Håkansson and Snehota editors, 2017) and that competition can take place between networks rather than single organizations.

Decision making and management in a democratic society

Decision making takes place at various levels from the individual, the family, local organization, local government, national government to assemblies of nations, such as the European Union and the United Nations. How do actors as PEPs and PEOs make decisions?

Decision making is regarded as a conscious process where each actor´s ideological orientation, perceived alternatives of choice and expected impacts are involved. Each actor´s ideological orientation is “matched” against the expected multidimensional impact profile of each alternative considered. Sometimes there is a good fit; in other cases, the compatibility between ideological orientation and expected impacts is limited or absent. This idea of matching process is not new. Friedrich Schumacher referred to “appropriate technology” (1974). Management scholars, for example James March (1994) refer to a “logic of appropriateness”. In the labor market, available jobs are matched against the qualifications of applicants. In digital terms, one can refer to “pattern recognition” where an actor´s ideological orientation as a pattern is matched against the expected impact pattern of each alternative.

The “ideological orientation” is considered as relevant for decisions at all levels. The individual as consumer and worker matches her ideological orientation against perceived alternatives and their expected impacts. But for present purposes we will emphasize decisions at the public level and how they can be prepared. Neoclassical economists advocate Cost-Benefit Analysis (CBA) of a specific kind for investment projects in roads, energy systems etcetera. This method is built on a simple idea of aggregating all impacts connected with each alternative in one-dimensional monetary terms. The idea of correct prices in market terms of each impact for purpose of aggregation means that a specific ideological orientation is applied.

This limitation to one ideological orientation in preparing public decisions would be compatible with democracy only in cases where all affected and concerned actors share the ideological orientation built into CBA. But in the normal case of investments in infrastructure, there are different opinions. Two or more ideological orientations are relevant.

Positional Analysis (PA) is a method with the purpose of illuminating an issue in a many-sided way with respect to ideological orientations, perceived alternatives of choice and expected impacts (Brown et al., 2017). The existence of conflicts of interest between single actors and actor groups is regarded as normal and implies that more than one ideological orientation is respected. The order of preference between alternatives may vary with ideological orientation. The idea of “many-sidedness” is supposed to counteract corruption and one-sided manipulated ways of preparing decisions. While the result of CBA-studies is that one alternative is considered optimal, PA points to “conditional conclusions” about preference order among alternatives in relation to each ideological orientation identified and considered.

Neoclassical economists often argue in terms of “rationality” or “efficiency”. According to the present ecological economics approach, efficiency (rationality) becomes a matter of ideological orientation. Actors A and B may differ with respect to ideological orientation and therefore also ideas about efficiency (rationality). Those who have internalized ideas about the importance of mitigating climate change can be expected to think in terms of ideas of efficiency that differs from actors embracing a “pro-growth”, “pro-profit” ideology.

“Positional thinking” as part of positional analysis stands for a recommendation to avoid “monetary reductionism” and describe non-monetary impacts in their own terms. Inertia in the form of irreversibility, for example, should be described and presented for politicians and others concerned. There are reasons to think of decisions in multiple stages where the choice of one alternative today leads to a position (state) which opens and forecloses choice in future decision situations. Construction of roads and houses on agricultural land is not easily reversed, for example.

While the emphasis here has been on preparation of decisions at the national level, the ideas presented claim to be as relevant for decisions at the level of individuals, organizations, local governments and even at the levels of EU or United Nations.

It should finally be made clear that neither CBA nor PA will solve problems in any final manner. But PA will “illuminate” problems in new ways which may lead to constructive dialogue about relevant knowledge and ideological preferences. Too often politicians and other decision makers avoid a dialogue in ideological terms, preferring to continue along established paths. The analyst moves from the role of extreme expert in the case of CBA to a more decent role of expert, compatible with democracy.

Pro-growth versus pro-sustainability ideology

Many actors and nations are today emphasizing a “pro-growth” ideology. Entrepreneurship and business companies, be they small or transnational, are encouraged as ways of increasing the availability of commodities, employment and thereby prosperity. Actors in government organizations and business organizations as well as politicians agree about economic growth in GDP-terms as the major objective. “Sustainable Development” or sustainability has appeared as a competing ideology. Today pro-growth advocates are at best paying lip-service to other concerns. “Greenwashing” is an appropriate term.

These days an increasing number of actors point to the fact that present development is unsustainable in important respects. A different kind of “prosperity” (from that made possible by GDP-growth) is needed. With the so called Brundtland report, the concept of “sustainable development” was coined as an essential part of policy dialogue: “Humanity has the ability to make development sustainable – to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs” (World Commission on Environment and Development, 1987, p. 8). The authors of the report still expressed some optimism concerning GDP-growth suggesting that “technology and social organization” can “make way for a new era of economic growth” (Ibid. p. 8).

Later, United Nations has sanctioned no less than 17 Sustainable Development Goals (SDGs) with sub-targets and the 2030 Agenda for change (United Nations, 2015). One of the goals, number 8, is about economic growth but the 17 SDGs can still be regarded as an important move from one-dimensional monetary measurement and analysis to multidimensional, more complex, ideas of progress. Social scientists, economists included, are not neutral in value (ideological) terms – as previously argued – and some of us joined an “ecological economics” movement with connected global and regional associations (Costanza ed., 1991)

Measurement and monitoring systems must become multidimensional. Today, we are facing problems with climate change, pollution of air, land and water, loss of biological diversity, pandemics and in many other respects. Degraded human resources and natural resources that can be expected to have an impact on living conditions for future generations should be minimized or avoided. A focus on resilience of ecosystems and other kinds of irreversibility is recommended.

The war between Russia and Ukraine as a case

Russia is developing in an autocratic direction with Vladimir Putin and his friends in a leading position. There may be remaining elements of democracy, but Putin appears to aim at dictatorship rather than democracy. The ideological orientation of Putin is primarily one in terms of power and territory, rather than GDP.

In my understanding Putin has started a war by attacking Ukraine. This war of conquest is an excellent example of an unsustainable project. Civil society is attacked. Hospitals, houses where people live, factories etcetera are destroyed. Had Russia been a democratic society, attacks on neighboring countries had probably not occurred. In a country where dialogue is permitted and encouraged, there are many obstacles to tackle for those who look upon war as desirable.

University education in economics: Monism versus pluralism

Are scholars or teachers in universities completely innocent in relation to issues of dictatorship versus democracy and even war versus peace? Do we contribute to a strengthened democracy and thereby reduced probabilities of war?

My position is that we have a responsibility in relation to the mentioned issues and that few of us are doing what can be done:

1. “Democracy” plays a peripheral role in introductory economics textbooks at the university level. Behind this there is perhaps an implicit, questionable assumption that emphasis on markets mechanistically opens the door also for democracy. This appears to be too optimistic.
2. The existence of elements of democracy at university departments of economics cannot be denied. Universities are not completely cut off from the larger Western societies where democracy is an institutionalized idea. But the monopoly of neoclassical economics in introductory economics education can be described as a partial dictatorship. The generosity in relation to heterodox schools of thought is very limited.
3. Indoctrination in one paradigm, the neoclassical one, is a problem in itself. But this paradigm is a kind of market fundamentalism in ideological terms, close to neoliberalism. This means that departments of economics with their lecturers become part of political propaganda of a neoliberal kind. Politicians with a pro-sustainability agenda need a different theoretical and ideological economics.
4. Neoclassical economists claim relevance for their paradigm not only in Western countries but also in dictatorships such as Russia and China. Pro-growth strategies are as relevant and international trade is regarded as beneficial with few exceptions for all nations. The issue of dictatorship versus democracy is not discussed.
5. The neoclassical paradigm legitimizes pro-growth and pro-profits policies but does not go well with efforts toward sustainability or sustainable development. An “ecological economics” in the sense of “economics for sustainable development” is therefore needed.
6. No paradigm in economics will solve all problems. For this reason, university departments of economics need to take significant steps toward pluralism. Ideas of one paradigm as the single correct one, need to be abandoned. Paradigms can be complementary.

Concluding comments

Pluralism as opposed to monism at university departments of economics will not solve all problems concerning sustainability and peace. But in the present crisis situation, each one of us should be encouraged to consider what she/he can do. Even efforts that appear small can, together with those of other actors, contribute to desired change.

Economics is always political economics, and the ideological orientation of mainstream economics textbooks influences generations of economists, politicians and all others who are concerned about the development of our economy and society. In the present situation of a monopoly for neoclassical theory and ideology, we have a problem of far-reaching indoctrination of a conceptual and ideological kind. Pluralism and democracy has a significant role not only in university departments of economics but also in the larger society.

No society or nation can claim to have reached democracy in any final sense. It is always possible to strengthen democracy. These days we experience nations that are attracted to ideas about concentration of power, even in the European Union. The present war between Russia and Ukraine illustrates what can happen if the imperatives of democracy are no longer observed.

 

References:

Bode, Thilo, 2018. Die Diktatur der Konzerne. Wie die globale Unternehmen uns schaden und die Demorkratie zerstören. S. Fischer Verlag, Frankfurt am Main.

Brown, Judy, Peter Söderbaum Malgorzata Dereniowska, 2017. Positional Analysis for Sustainable Development. Reconsidering Policy, Economics and Accounting (Routledge Studies in Ecological Economics). Routledge, London.

Costanza, Robert, editor, 1991. Ecological Economics. The Science and Management of Sustainability. Columbia University Press, New York.

Decker, Samuel, Wolfram Elsner and Sonja Flechtner, eds, 2020. Principles and Pluralist Approaches in Teaching Economics. Towards a Transformative Science (Routledge Advances in Heterodox Economics). Routledge, London.

Håkansson, Håkan and Ivan Snehota, Editors, 2017. No Business is an Island. Making Sense of the Interactive Business World. Emerald Publishing, Bingley, UK.

Mankiw, Gregory N. and Mark P. Taylor, 2011. Economics (Second Edition). CENGAGE Learning EMEA, Andover, UK.

Myrdal, Gunnar, 1978, Institutional Economics, Journal of Economic Issues, Vol. 12, No. 4, pp. 771-783.

Piketty, Thomas, 2020. Capital and Ideology. Harvard University Press, Cambridge, Massachusetts.

Reardon, Jack ed., 2009. The Handbook of Pluralist Economics Education (Routledge Advances in Heterodox Economics). Routledge, London.

Robinson, Joan, 1962. Economic Philosophy. C. A. Watts & Co. Ltd., London.

Schumacher, E. Friedrich, 1974. Small is Beautiful. Economics as if People Mattered. Abacus, London.

Söderbaum, Peter, 2017. Mainstream economics and alternative perspectives in a political power game, Chapter 3, pp. 22-28 in Brown, Judy, Peter Söderbaum, Malgorzata Dereniowska, Positional Analysis for Sustainable Development. Reconsidering Policy, Economics and Accounting. Routledge, London.

Söderbaum, Peter, 2018. Economics, ideological orientation and democracy for sustainable development (2^nd Edition). World Economics Association BOOK SERIES, Bristol, UK.

Söderbaum, Peter, 2019. Reconsidering economics in relation to sustainable development and democracy, Journal of Philosophical Economics, Vol. XIII, Issue 1 (Autumn), pp. 19-38.

Söderbaum, Peter, 2021. The Challenge of Sustainable Development: From Technocracy to Democracy-Oriented Political Economics, Economic Thought, Vol. 10, No 1, pp. 1-13.

https://www.worldeconomicsassociation.org/files/journals/economicthought/WEA-ET-10-1-Soderbaum.pdf

United Nations, 2015. Transforming Our World. The 2030 Agenda for Sustainable Development.  https://sdgs.un.org/2030Agenda

World Commission on Environment and Development, 1987. Our Common Future. Oxford University Press, Oxford.

From: pp.2-7 of WEA Commentaries 12(2), August 2022
https://www.worldeconomicsassociation.org/files/2022/09/Issue12-2.pdf

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