TRANSITION ECONOMICS

Transition to what? Transition to what? Reflections on Capitalism as an ideologyReflections on Capitalism as an ideology

David R. Harvey, David R. Harvey, School of Agriculture, School of Agriculture,

Food & Rural Development Food & Rural Development & Centre for Rural Economy,& Centre for Rural Economy,

Newcastle UniversityNewcastle University

INTERNATIONAL CONFERENCE: INTERNATIONAL CONFERENCE: CORVINUS, BUDAPEST, November 4CORVINUS, BUDAPEST, November 4thth, 2010., 2010.

Transition““The destruction of the Iron Curtain on November The destruction of the Iron Curtain on November

9th 1989 is still the most remarkable political 9th 1989 is still the most remarkable political event of most people’s lifetimes…(But) Western event of most people’s lifetimes…(But) Western capitalism’s victory ..does not ensure it an capitalism’s victory ..does not ensure it an enduring franchise from voters. .. the magic of enduring franchise from voters. .. the magic of comparative advantage can be wearing—and comparative advantage can be wearing—and cruel. It makes the wealthy very wealthycruel. It makes the wealthy very wealthy.”.”

{Economist, Nov. 5, 2009}{Economist, Nov. 5, 2009}

Are we conceiving, teaching and promoting Are we conceiving, teaching and promoting Economics (and Capitalism) properly?Economics (and Capitalism) properly?

Markets’ Evolution Markets as an Evolutionary systemMarkets as an Evolutionary system – – socio-economic environment socio-economic environment ‘‘selectsselects’’ (adopts) (adopts)

survivors (firms & products/services), survivors (firms & products/services), ‘‘profitsprofits’’ ephemeral, unpredictable, accidental ephemeral, unpredictable, accidental But, imitation & innovation (conscious But, imitation & innovation (conscious

adaptation) enlarge the scopeadaptation) enlarge the scope Diversity, Diversity, notnot homogeneity; difference is the homogeneity; difference is the

driver – driver – ‘‘level playing fieldslevel playing fields’’ are not the point are not the point ‘‘OptimalityOptimality’’ is a possible (but not guaranteed) is a possible (but not guaranteed)

result – result – notnot a driver of the process a driver of the processRefs: Alchian, 1950; Blume & Easley, 2002. (see, also, Larry Blume’s home page for more Refs: Alchian, 1950; Blume & Easley, 2002. (see, also, Larry Blume’s home page for more

in the same vein)in the same vein)

Implications Market systems are not necessarily optimal, and Market systems are not necessarily optimal, and

are volatile, even dynamically unstableare volatile, even dynamically unstable Require governance (or cultivation)Require governance (or cultivation) Capital & Labour are Capital & Labour are ‘‘naturalnatural’’ attractors for attractors for

necessary government ambitions.necessary government ambitions. Proposition 1: Proposition 1: Useful Economics Useful Economics has tohas to include include

PoliticsPolitics;; Corollary: Corollary: We need a more common story of how We need a more common story of how

this works.this works. Implication:Implication: without a more common story – we without a more common story – we

(social scientists) remain part of the problems.(social scientists) remain part of the problems.

A More Common Story?

Capitalism’s Evolution Capitalism -> divorces ownership from operation Capitalism -> divorces ownership from operation

& deployment of (physical) capital& deployment of (physical) capital Capital markets are inherently in perpetual Capital markets are inherently in perpetual

disequilibriumdisequilibrium & are virtual rather than real& are virtual rather than real & shave margins from transfers of ownership& shave margins from transfers of ownership & enshrine the circularity of capital valuation & enshrine the circularity of capital valuation

(reflecting the endogeneity of the selection (reflecting the endogeneity of the selection criteria)criteria)

Survival of the fattest, not the fittest, Survival of the fattest, not the fittest, with no (limited) supply response to demand shiftswith no (limited) supply response to demand shifts

Implications Capital markets the critical link between current Capital markets the critical link between current

activity and potential futuresactivity and potential futures & capture the residual returns (profits) from & capture the residual returns (profits) from

efficient real (goods & services) marketsefficient real (goods & services) markets But have the least customer or citizen control or But have the least customer or citizen control or

feedback (cf. current consumption decisions)feedback (cf. current consumption decisions) Suggests they need greater (not less) social control Suggests they need greater (not less) social control

than real markets?than real markets? But how, and by whom?But how, and by whom? Seeds of tomorrow are necessarily either Seeds of tomorrow are necessarily either

destruction or sustainable prosperity – but which?destruction or sustainable prosperity – but which?

Questions arising: How, exactly, does society benefit from survival How, exactly, does society benefit from survival

of the fattest? of the fattest? Do capital markets really provide:Do capital markets really provide:

– more secure and stable savings opportunities? more secure and stable savings opportunities?

– more intelligent & productive investments?more intelligent & productive investments?

If so, how, exactly, and if not, why not?If so, how, exactly, and if not, why not? Is (any) conventional regulation likely to be a Is (any) conventional regulation likely to be a

sustainable answer?sustainable answer? What are the roles of philanthropy (Gates & What are the roles of philanthropy (Gates &

Buffet) &/or sovereign wealth?Buffet) &/or sovereign wealth?

The current ‘ common model’Social Behaviour needs to reconcile private and public lives:Social Behaviour needs to reconcile private and public lives:With Economics being very distinctly limited in its scope.With Economics being very distinctly limited in its scope.

Necessary Transitions?Social Behaviour needs to reconcile private and public lives:Social Behaviour needs to reconcile private and public lives:

BUT some major institutions (negotiation systems) are MISSING:BUT some major institutions (negotiation systems) are MISSING:

Conclusions Without a more convincing, comprehensive and Without a more convincing, comprehensive and

compelling common story, our economics (and compelling common story, our economics (and social sciences) will continue to be part of the social sciences) will continue to be part of the problem rather than part of the solutionproblem rather than part of the solution

We need to change our perspectives, as well as our We need to change our perspectives, as well as our tools and rulestools and rules

(Agri)cultural economists are – I suggest – well (Agri)cultural economists are – I suggest – well placed to do so.placed to do so.