ISSN 1822-8011 (print)
ISSN 1822-8038 (online)
INTELEKTINĖ EKONOMIKA
INTELLECTUAL ECONOMICS
2012, Vol. 6, No. 1(13), p. 811–816
On the challenges to economic science:
Are we on the brink of revolutionary changes in the
economic profession?
Ona Gražina Rakauskienė interviews Povilas Gylys
Q. Just recently in Vilnius University’s journal Ekonomika you published an
article with the provocative title “Anti-economy, economy crisis and crisis of economics.” What is the gist of this article?
A. For almost a decade I explored (investigated) the phenomenon that I have
named “Anti-economy.” Anti-economy is the negative side of our reality, which (as can
be concisely defined) represents the appearance and the flow of economic—private and
public—bads as well as the wasteful behaviour of economic agents. Regrettably our
profession wasn’t able to conceptualise these negative aspects of economic life, and this
has led to immense cognitive and, consequently, practical losses. Many factors, processes and outcomes remain, for this reason, unrecognized, undetected, and therefore
many economic diagnoses suffer from one-sidedness, reductionism. As a result, our
actions, the decisions of policy-makers and business people were less effective, sometimes destructive and misled. With the introduction of the concept of anti-economy,
new cognitive and economic policy opportunities open. One of them is the possibility to widen the concept of economic crisis and to demonstrate that our profession is
in a critical situation. That recognition requires a serious review of axiomatics, of the
paradigmatic foundations of economic science and, especially, of its neoliberal part. In
short, we argue that the shortcomings of economic theory are the root-cause of massive, gigantic losses in real economy.
Q. Could you elaborate more specifically on the cognitive side of the problem
(anti-economy)?
A. At the beginning of my scientific (academic) carrier I encountered the notion
that nothing is more practical and useful than good theory. Already at that time I complemented this postulate by adding: “Nothing is more damaging than bad theory.” Bad
theory is misleading theory. It leads to wrong practical actions and, finally, to losses.
Prof. Hab. Dr. Ona Gražina Rakauskienė: Intellectual Economics Editor in Chief, professor at the Department of Economics, MRU.
Prof. Hab. Dr. Povilas Gylys: Head of Theoretical Economics Department, Faculty of Economics, Vilnius University. President of the Lithuanian Association of Economists.
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Plentiful evidence exists that entire nations under detrimental influence of, for instance,
Soviet economic doctrine, have experienced huge damages.
Another, more recent (actual) example is the influence on economy of methodological individualism. The latter is paradigm, philosophy which is based on the presumption that the only actor of (in) the economic life is the private individual with
his self-interest and that communities, nations and other collective entities are just the
figments of imagination of the opponents of individualistic worldview. From this individualistic presumption logically follows that there are (exist) only individual needs
and correspondingly only private goods which satisfy those needs. As far as the market
is the best regime to produce private goods-commodities, it, the market, encompasses
the whole economic life. In other words, according to this way of thinking, the market
and the economy are synonymous terms. But it is a huge misconception of economic
reality, because economy does not coincide with the market. Economy is the sphere of
social reality which exists for one reason. That reason is the limitedness, scarcity of resources. This misconception—identification economy with market—is a kind of public
bad which should be attributed to anti-economy. Economization means the search for
optimal ration between benefit and input of scarce resources and it doesn’t coincide
with marketization, privatization etc. They are different, though sometimes overlapping, concepts (notions).
Q. What are practical consequences of application of methodological individualism?
A. Assuming that the only economic actor is individual with his-her egoistic interests and needs, and denying the very existence of collective entities means that the
whole world of public life with its common needs and wants, with its regimes of solidarity, regimes producing public goods etc. is excluded from the scope of economic
deliberations. This thinking leads to a surrealistic paradox—although, in theory, on a
paradigmatic level mainstream economists presume that economy should be reduced
to market, but in practice it is impossible to avoid issues and phenomena such as state
budget, which by definition are not market elements.
Nevertheless the very treatment of the public sphere as non-economic is very
harmful because it causes a negative attitude towards the public sector with its schools,
hospitals etc. The very notions that “unproductive” public sector is the “burden” to
economy i.e. private business is immensely harmful. The public sector is a legitimate
part of the economy. Firstly, it has to economize because it (functions) lives in conditions of scarcity of resources and, secondly, it produces a specific kind of economic
goods—public goods—and, thereby, contributes to the wealth of societies by producing these goods. Thus marginalization of this sector leads to the loss of this kind of
wealth.
Another negative consequence of the individualistic approach vis a vis public sector is an irrational instinct for its privatization. The public sector is inherently based on
the principle of solidarity whereas the private sector—on competition. Reckless privatization, marketization of public institutions means (shows) paradigmatic confusion
On the challenges to economic science:
Are we on the brink of revolutionary changes in the economic profession?
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similar to the one which took place in the Soviet past. Then reckless socialization of
regimes, elements which belong to the sphere of private matters, caused tremendous
losses, damages.
Q. Do you really reject any market elements, elements of competition in the
public sector?
A. Not at all. In fact the whole economic reality is a mixture of public and private
elements. For instance, knowledge produced and “consumed” in schools or universities
often have features of both public and private goods—they brings benefits both for the
individual and society as a whole. Therefore, alongside regimes of solidarity, regimes of
competition could be present in education and academia (academic sphere). In other
words, good education is, on the one hand, the individual’s desire and, on the other
hand, the sphere where common public interest is present.
The problem is how to find the optimal proportion between public and private
dimensions in schooling (education) or in universities. Unfortunately, under the massive influence of individualistic thinking, the drive for the marketization of this sector
of social life exceeded optimal proportions.
Q. From what you have said follows that the individual’s self-interest isn’t the
only motive of human action. Am I correct?
A. Absolutely. A real human being couldn’t survive if his activities, life would be
limited to personal interests and needs. In many cases, in order to survive, he has to
join groups, communities. A basic need which couldn’t be guaranteed by totally individual behaviour is security. Isolated from the community, a person wouldn’t be able
to protect himself from the majority (big part) of threats, be they military, criminal or
social. Thus, belonging to the group or society opens up opportunities to get common
goods like security, justice etc. But access to these goods in most cases requires certain
contributions in the form of taxes or direct personal participation in the production,
creation of these goods. That means that solidarity, collective choice and collective action is a prerequisite for the high quality of individual’s life.
Q. All of this contradicts the deeply ingrained in one profession understanding
of the concept of homo economicus as a self-interested, egoistic human being.
A. One of the main fundamental misunderstandings of the economic profession
is the reduction of economic motivation to the search for individual gain, to egoism.
That’s true—human beings are egoistic creatures. Without egoism, without the defence
of what is called “I” a person wouldn’t, couldn’t survive. It is an indispensable part of
people’s personality.
But reduction of human personality to egoism is a flagrant misconception of the
“economic man.” And it is caused by individualistic axiomatics, by the presumption
that the only reality is an individual with his private interest and that all kinds of collectivities—communities, nations—imagination of collectivists, organisists or, to use
the general term—holists.
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Human beings are a combination of characteristics, part of which belong to “I”
or “My.” Another part represents “We” and “Our.” Thus, human beings are egoists, individualists in some cases, but are capable of behaving altruistically, to demonstrate
solidarity in other circumstances.
Q. But we are used to thinking that solidarity belongs to the non-economic part
of social life. How do you explain your position in this sense?
A. If we accept an individualistic mode of thinking, assuming that economy and
the market coincide and ignore the fact that existence of the economic aspect of social
life is based on the scarcity of resources, the answer is evident. But if we admit that the
criteria of economic activities, both individuals and collectives live in conditions of the
limitedness of resources and therefore have to economise, then solidarity becomes a
legitimate part of economic inquiry. The regimes of economization differ in the market and in public domains, but the very essence is the same—private and communal,
public entities must be driven by the search for an optimal ratio between input of scare
resources and benefits.
Q. Could you present examples of how a theoretical blunder can lead to a serious negative outcome (consequence) to massive damage and waste?
A. The most vivid example is reforms in the majority of post-Communist count­
ries. A radical and revolutionary shift from extreme and coercive collectivism to an
individualistic paradigm, which is characterised as market fundamentalism, caused
many deformations. One of them is a derogatory attitude towards the public sector and
its reckless privatization. As a result, the procurement of public goods in these societies
was seriously jeopardised.
Another example is the recent crisis in the Euro zone and European Union as a
whole. In our view, the European Union, by definition, is a holistic project, but most
of its designers are guided by individualistic principles. They practically don’t use the
concept of public goods; instinctively identify the economy with the market. Solidarity
or social capital, for a big part of them, is more slogans than scientific concepts (notions). As a result, the European Union lacks viable public infrastructure, beginning
with effective political and administrative institutions and ending with pan-European
solidarity. Regimes of individualistic by nature realpolitik, instead, are playing dominating role.
Q. What is the alternative to individualistic thinking, to methodological individualism?
A. It is methodological holism or simply holism. Its axiomatic basis is different from
individualistic in the sense that holists recognize not only the individual, but collective
entities as well. A true holist explicitly admits that communities, nations, and states are
not figments of somebody’s imagination. They are part of the social and, thus, economic
reality. If he is not an extremist, a holist recognizes that an individual has his own private
needs, that private goods and markets are part of economic life. But, at the same time
On the challenges to economic science:
Are we on the brink of revolutionary changes in the economic profession?
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(alongside) a holist asserts that a fundamentally important part of the economy is the
public sector, the existence of which is based on common public needs. Needs for the
country’s security, for a national legal system, for roads, a post system and other networks, infrastructures are common needs, which are satisfied from public resources such
as a public budget or readiness of the citizens to act for the common good.
Q. What are the advantages of holistic approach for economic science?
A. Adoption of holistic thinking gives the opportunity to avoid major discrepancies between economic theory and reality. For instance, individualistic paradigms in
their pure form limit economic analysis to a micro-economic level, because macroeconomy deals with a supra-individual, aggregate phenomenon and does not fit the
individualistic worldview. Though Milton Friedman and other famous distinguished
members, representatives of individualistic thinking (camp) demonstrated their negative attitude to macro-economy, economic science would loose a sizeable chunk of its
explanatory and predictive power if such macroeconomic concepts as aggregate demand and aggregate supply, gross domestic product, fiscal, monetary policy are excluded from economic inquiry. Thus, we have a paradoxical situation: individualistic thinking and rhetoric prevail in our profession, nevertheless, textbooks in macro-economy
exist, macro-economic policy is pursued, executed.
Application of holistic paradigm allows avoiding this inconsistency. Holism admitting the very existence of supra-individual, higher levels of economic reality “legalizes” macro-economic analysis.
Q. Could you name other advantages of the adoption of a holistic world-view?
A. Another major cognitive benefit given by the adoption of a holistic paradigm
is legitimization of the public sector as part of the economy. For orthodox, neoliberal
economists, the public sector is a sheer nuisance. According to a strictly understood individualistic creed there are no such economic matters as public, common goods, public choice. But orthodox economists are forced to discuss such issues as public budget,
public debt, taxes which cannot be explained on the basis of a fundamental individualistic premise—that only the individual with his private needs exists. State budget,
taxes do not evolve from individual, private interests and needs. They are part of a
supra-individual, public, common life. But it is not visible through individualistic lens.
Therefore they are treated with dislike as “alien” to the economy i.e. market elements.
When a holistic approach is employed, this discrepancy between economic theory
and practice disappears, because holistic panorama encompasses both private and public matters, both market and public economy. Budget and taxes here don’t seem as alien
elements of the economy.
Q. Is this the end of the list of the advantages of a holistic approach in economics?
A. No, it isn’t. I would like to add at least one advantage of a holistic world-view.
That is the possibility to include in the scope of economic explorations the negative,
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“black” side of reality. In the framework of individualistic thinking it is assumed that in
principle the “economic man” acts rationally in pursuing his individual gain. At least
implicitly it is held that deviations from rationality are rare and minor. Thereby they
could be neglected, marginalized, pushed to the margins of the scope of economic investigations (science). So are the cases of harm and waste of resources.
But it contradicts our practical experience. Our individual, family, and national
life is full of damage and waste, thus, irrationality. That means that special attention
should be paid to these cases, otherwise our understanding of reality is “amputated,”
partial and too rosy. Introduction of the concept of anti-economy—which contradicts
the idealized world of pure market, but is quite appropriate in the holistic paradigm,
putting emphasis on the whole reality with all it sides—gives major gains both in cognitive and practical terms.
Q. It’s time to summarize, to make conclusions. What are the main challenges
for economic science in this respect?
A. Our profession is in a serious crisis. Some leaders of our profession concede
that. But the majority still is in cognitive inertia. They, mostly implicitly, hold that the
situation is normal and some partial improvements would suffice to calm down hete­
rodox economists and the general public. But, in fact, our profession needs a major
paradigmatic shift from individualism to holism. The fact that this challenge remains
undetected by the majority of economists and the conscious or instinctive resistance to
the shift (process) by all-mighty power centres (media and private corporations first of
all) proves the process of paradigmatic change won’t be easy. But it will take place sooner
or later. The worst scenario would be changes forced by massive economic shock.