Is socialism feasible? What is the future of heterodox economics after the financial crisis? In this episode of the Governance Podcast, Mark Pennington (King’s College London) sits down with Geoffrey Hodgson (Loughborough University London) for a wide-ranging conversation on the nature of social democracy, neoliberalism, and new paradigms in economics.
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The Guest
Geoffrey Hodgson is a Professor in Management for the Institute for International Management at Loughborough University London. He is a specialist in institutional and evolutionary economics, with a background in economics, philosophy and mathematics. His research has applications to the understanding of organisations, organisational change, innovation, entrepreneurship and economic development. Hodgson is also the Editor in Chief of the Journal of Institutional Economics (ABS rank 3). He has published 18 academic books and over 150 academic articles. He is the winner of the Schumpeter Prize 2014 for his book on “Conceptualizing Capitalism”.
Skip Ahead
0:55: You’ve actually got two books out in the last year — Is Socialism Feasible? and Is There a Future for Heterodox Economics? I wonder if we could start by you talking us through– first of all, how do you write two books in a year, but also the rationale for these two particular books?
8:44: I’d like to follow up on that last part and link it to the motivation for writing these books– you’re very clear to make a distinction between socialism and social democracy, so you do see yourself as a kind of social democrat who has been influenced by arguments in the liberal tradition. I wonder if you could say something about why you think, following the crash, there’s been a movement toward going back to what you describe as ‘big state socialism’ as opposed to embracing a radical Keynesian view or some kind of interventionist or redistributive politics, which isn’t about nationalising or controlling everything from the centre.
14:45: I really enjoyed this section of the book where you’re talking about the use of terminology– how the use of this term ‘neoliberal’ has meant that you almost can’t have a conversation in certain areas because anything turns out to be neoliberal if it isn’t full blooded socialism and I think there’s a wonderful line in the book where you say that if you follow this kind of reasoning, when Lenin introduced the New Economic Policy to save the Soviet people from starvation, this would have been described as a neoliberal policy by some of the contemporary left.
16:34: Why do you think that label [neoliberalism] has become so ubiquitous?
18:17: You mention some heterodox thinkers using the term, dismissing certain things as being right wing just because of that. Perhaps we can connect to the second book– could you talk about the rationale for writing it?
26:32: Can we pursue that more, this issue about how effectively methodological questions seem to get confused with policy positions or ideological views in heterodoxy? This is something that’s always frustrated me– I consider myself to be quite heterodox in the sense that I’m very influenced by the Austrian school ideas. There are lots of debates I’d like to engage with people who are post-Keynesians or post-institutionalists or evolutionary thinkers, and I feel that we should have a club identity around those themes. But because we might divide on policy issues that seems to come apart.
29:59: There is so much within neoclassical economics which promotes, if not radical socialism, although you could interpret some general equilibrium theory in that way, but it certainly promotes interventionism — it assumes away all the problems of tacit knowledge.
30:33: You’ve given reasons why you think heterodox economics as a set of broad theories is not in as good a shape as you’d like it to be, and that’s one of the reasons you’ve written this book– I wonder if you could address institutional economics, which on some readings is a kind of subfield within the broad heterodox camp, but arguably with things like new institutional economics there are some overlaps with the mainstream.
34:46: I would have thought there should be more overlap between some of the concerns of institutional economics– you think about the role that soft institutions or beliefs play, or the way ideas are communicated, with a lot of the work that takes place in cultural studies or communication studies, these kind of areas which often see themselves as being antithetical to economic ways of thinking, but they’re actually dealing with questions about how ideas spread, how norms change, and you’d think this is terrain where they should be interested in the kind of insights you’d get from these fields.
39:07: This connects back to our earlier discussion about the socialism book– within our research centre here we’re very much concerned with governance questions. Of course within that area we focused on themes like markets and private property, state ownership. But one of the great contributions I think of institutional economics, certainly of people like Elinor Ostrom, is to point out this whole space that many people have missed, which is between markets and states. And there’s even been the argument made that to speak in terms of markets and states is a kind of outdated mode of analysis, that we actually need to be seeing all solutions to social problems in some sense as being some form of hybrid. Do you think that is one of the most important contributions of institutional economics?
41:33: I’m struck by how few politicians are able to articulate that kind of language. You could say that some people used to talk about the third way as something different, but people spoke about a third way or looking for some notion of hybrids.
46:50: Is there a way in policy terms where people can conceive of allowing different institutions to coexist so that we don’t see this as being a choice between all markets or all something else; we actually have different kinds of organisation coexisting in a society? If you think about a solution to religious conflict — it’s to tolerate the fact that people have different religions. If we can tolerate the fact that some people prefer different institutional forms, we’ve got to figure out some way allowing them to coexist rather than seeking victory for one side.
52:09: To reflect a bit on what is happening to economics — to think about those questions post-crisis– I remember the financial crash, there was a huge amount of activism by students and people in the profession saying that economics needs to rethink itself. Some of the issues we’ve talked about get to parts of that, but my understanding is that economics hasn’t changed much at all these 15 years. Do you see any signs of change?
Full Transcript
Mark Pennington
Welcome to the Governance Podcast from the centre for the study of governance in society. My name is Mark Pennington. I’m the Director of the Centre and the Head of the Department of Political Economy at King’s College London where the Centre is based. We’re very pleased to have with us here today for the podcast, Professor Geoffrey Hodgson. Geoffrey is Professor of Management at the London campus of Loughborough University. He’s also the Editor in Chief of the Journal of Institutional Economics, and one of the world’s leading experts on institutional and evolutionary economics. There are so many books that Geoffrey has written that I’ve actually lost count to them. So Geoffrey, it’s very nice to have you with us here today. You’ve actually got two books out in the last year: Is socialism feasible? and Is there a future for heterodox economics? I wonder if we could start the conversation by you just talking us through, well, first of all, how do you manage to write two books in a year, but maybe the actual rationale for these two particular books
Geoffrey Hodgson
It takes longer than a year. One has notes and ideas and thoughts, which should develop through time. I happen to do two books simultaneously, but it does take a much longer period of time to complete them. Anyway, so let’s try and talk about what’s in them as you asked. The book on socialism is prompted by the political events of the time. I start the book by actually saying that while several thinkers, leading thinkers had pronounced socialism dead in the 1990s has had a remarkable revival. Largely attributed to the economic crisis after the crash in 2008. And other reasons as well, but they have led together to a radicalization in thinking, most notably perhaps in the UK and the US. With the rise of Bernie Sanders and other people on the left of the Democratic Party in the US, Sanders himself being a presidential hopeful candidate in the last round and also the current round, and also in the UK with the transformation of the Labour Party after Jeremy Corbyn was elected leader in 2015. But it is not confined to two those two countries, it is also present in continental Europe and elsewhere. So this revival of adherence to socialism, what other people mean by, is a remarkable consequence of the crisis of the last 15 years or so.
The book takes that as its cue, a lot in the book is not original. I rely on other thinkers like Hayek. But there are some elements of originality. Partly in the way the books organised, I make a distinction between what I call big socialism and small socialism. Big socialism reflects the statist version of socialism, which first fully emerged with Marx and Marxism. And took root and became more prominent than the the other version. The other version, small socialism, relates to the original use of the term socialism in the context of the Owenite communities in Britain and in the US and these were relatively small scale, up to 1000 or a few hundred more people but relatively small scale. In fact, remarkably, the Owenites didn’t have any vision of how these multiple communities would interact or link together. And in fact, they hated competition and market. So, one wonders how it will be done. And in fact, there was silence on the issue but nevertheless there have been numerous experiments with small socialism which are occupy the first part of the book and these include the Israeli kibbutz, I also discuss the Yugoslavian experiment which the more I looked at it, everyone imagines that the Yugoslav experiment was a experiment in self-managed work cooperatives, and the more I investigated this I found that actually wasn’t the case, these were not legally autonomous units. There was still a strong statist element in the Yugoslavist system, despite the toleration of markets, and market relations. So that’s another case, I traced the failure Yugoslavian system in part to the incomplete evolution of power to legally independent units. The conclusion of the book is that small socialism is viable, as long as you fully accept markets and legal autonomy, but I also dwell on the, what I call the agoraphobic tendencies in socialism, which are fairly ubiquitous, as kind of rejection of markets, rejection of competition, rejection of property rights. And this was true for Owenites, it was true for other subsequent socialists. And that circle can’t be squared. You cannot limit markets and have true devolve power. So that’s basically the argument of the first section.
The second section is about large scale state-centred socialism. And everyone knows that if you put to a Marxist or an advocate of this position, well look what happened in the Soviet Union. Look what happened in China, they became dictatorship, horrible things happened, purges and famines and so on. The virtually unanimous response as well, it will be different next time because these were distortions, these were oddities, these were due to leaders or external circumstances. And I tried to debunk the argument, not an original point, but I think is important to be made and remain that there are tendencies within large scale socialism, which will lead inevitably or without conceivable resistance, particularly adequate resistance to a concentration of political power and so the concentration of economic power and an undermining autonomy, diversity, and so on. So these tendencies are imminent in that project. So unlike some critics, I think the large scale socialism is feasible, but not democratic large scale socialism. So some might say, it’s not feasible at all, I would predict slightly differently. Yes, it is feasible, but it’s not, it cannot be democratic. And for the reasons I just briefly touched upon.
So that basically is the argument in the first two thirds of the book and then last third, I make a case for some social, political, social democratic liberalism or some version of liberalism, which accepts a significant interventionist regulatory role of the state as we found for example, with Keynes who was a liberal and a socialist and with someone who is prominent to the book because Michael Klein, in contrast with brother, Carl, and I use their arguments and the arguments of others like Hobson, more interventionists liberals to make that argument and say we have to look at the terrain of capitalism and compare capitalism and learn what’s best, and try and develop the best features of capitalism and minimise its worst features. That’s basically the argument.
Mark Pennington
That’s great. So that’s, that’s a wonderful summary. Maybe I could just follow up on maybe the last part there and link it to, you know, the motivation for writing the book. So you’re very clear to make a distinction between socialism and social democracy. So you do see yourself as a kind of social democrat. Also one who is clearly influenced by arguments from the liberal tradition. I wonder whether you could say something about why you think following the crush, there’s been a movement towards now sort of going back to what you described as big state socialism, as opposed to embracing some form of radical Keynesian view or some other kind of, you know, interventionist or redistributed politics, but which isn’t about nationalising everything or controlling everything from the centre. Why is it that the left in the in the countries that you’ve mentioned has veered towards considering, you know, models that it’s not that long since they were abandoned? Why they moved in that direction rather than in the direction that you seem to think is actually the one that…
Geoffrey Hodgson
That’s an interesting question. I think there’s many issues involved here. And one issue is the factor social democracy itself is a loose term and contains a number of diverse strands. It would include, at least in my view, Tony Blair, brown and the previous pre 2015 leadership of the Labour Party, as it could include people like the Clintons, and Carter and other other US presidents who have strong social democratic pinches to the liberal think. But Blair would say he was a socialist of a kind, but I think more accurately the social democratic label fits him. So, to some extent, in the eyes of many, rightly or wrongly, maybe a bit of both, that that tradition element has been discredited.
So this is discourse about people describing rather inaccurately and loosely as the neoliberalism, accepting austerity policies. So they allege that these elements within social democracy, portray or compromise that tradition. So some truth in that, so the truth is having an effect, that perception, that narrative had an effect on the Labour Party and other elsewhere and other countries. That’s one reason. The other reason is, I think there’s been immense terminological confusion over the meaning of the basic terms here, social democracy and socialism. A lot of people I personally in the Labour Party, they call themselves socialists, which in fact, my terminology would be social democrats. One thing I do in the book is in chapter one is to look at the meaning of socialism. And I think historically I established two points: the meaning is fairly consistent through time. With a few exceptions I will come to in a minute, man, the abolition of private property and some form of common ownership on a big scale as possible. And I use it I send a lot of evidence from Peter and also thinkers and surveys and people say things.
A lot of people don’t take that view. There’s kind of this fudged view of what socialism is, and they say I’m a socialist, but they don’t think that way. According to people like Owen Smith who challenged Corbyn at the leadership debate and Andrew Adonis who’s also a critic of Corbyn, they are just schools of socialists, but they don’t believe in that stuff. Now there were challenges to this, but you can see they’re unsuccessful in the history of The Labour Party and also elsewhere. Whereas by contrast, the term social democracy, which originally meant something similar to socialism, changed its meaning radically. And one of the big moments in this was the Bad Godesberg Congress of the German Social Democratic Party when it declared in 1959, that the default position of that party was markets and competition, the default position, right? And what we intervene where it is deemed necessary, if we can’t see a reason to intervene, then we’ll leave it, leave it with all the caveats, the amounts of social justice, redistribution, all the other things Social Democrats want to do.
And so, as a consequence of that social democracy changes meaning. I mean, that was underlying the formation of the Social Democratic Party in the 80s, which eventually match with elements of Democrats. So I think it’s a convenient label which you can differentiate from socialism. The Labour Party is ironically left with the socialism term. It was actually installed in the constitution for the first time by Tony Blair. The irony of irony. He rewrote clause 4, the 1980 version didn’t have the term socialism in. And Blair rewrote it to say we need markets and whatever. But the word socialism in labour is a Democratic Socialist Party, it says. So this, this feeds the hard left, the hard left our truer to socialism than the motherland, the modern left described them, so they’re fighting over something that’s always gonna win the argument, because it’s true to that tradition. So that’s another reason why I think there’s a complete mess and it’s always been very difficult for Labour to escape from the legacy of this terminology.
Mark Pennington
If I can interject at this point, I mean, it’s also I think, I really enjoyed the section of the book. The earlier chapters were talking about the use of terminology how the use of this term neoliberal has meant that you almost can’t have a conversation. It’s hilarious because things that describe anything turns out to be a neoliberal if it isn’t full-blooded socialism. And I think there’s a wonderful line in the book where you save it. Now, if you follow this kind of reasoning that when Lenin introduced the new economic policy to save, you know, the Soviet people from starvation, this would have been described as a neoliberal policy by some of the contemporary left, actually.
Geoffrey Hodgson
Yeah. And furthermore, and there’s an academic who David Harvey was originally a geographer, a Marxist, and he’s written a book called A Short History of Neoliberalism. And he says the first neoliberals was Deng Xioping, the great reformer. Yeah. And then Xiaoping actually, when he was trying to introduce more introduced trying to turn the entire Chinese economy away from the central planning system too much more to my market orientated economy with the private sector. He said ‘Get me the tax or Lenin’s new economic policy’, which Lenin implemented in 1921. So I want to learn from that, to inform my policy. Lenin behold, David Harvey describes Deng Xiaoping shopping as the first neoliberall. That’s inaccurate, Lenin was the first neoliberal. There’s another crazy book, which actually says, Joseph Tito and the Hungarian reformers were the first neoliberals, neoliberalism begins in socialism. And the whole thing is absurd. It’s just ridiculous.
Mark Pennington
Why do you think that label has become so ubiquitously used?
Geoffrey Hodgson
I think, I mean, there’s a tendency, even in academia, where we’re trying to be a little bit more precise about things to use words, to, to summarise or tag issues without going into detail. Like I can remember when I was at Cambridge, the, the heterodox economists or left the economists in Cambridge used to make an argument ‘Well, you know that’s right wing’. Okay, so no further discussion required. Yeah, just just put the label on it. So putting a label neoliberal on something, no further discussion required. It’s bad. Yeah. And similar things happen with financialization. I mean, I’m concerned about over marketization of society, of a commercialization of society, of Christmas, anything else. And so I may be worried about some aspects of that. But simply to assume that financialization is a bad thing, is a bad mood. But most heterodox economists studying financialization, simply assume that’s the discussion? So there’s all this going on. It’s not not confined to the word neoliberalism. But yeah, the most notorious case. There’s an article which surveyed the use of the term neoliberalism found more than half the academic orders didn’t even bother to define it. In this case, we’re using the term in a restricted context, we’re not clear about its meaning. But if you don’t bother to find it, you’re not signalling anything. Yeah. It has been severely degraded by over years.
Mark Pennington
You mentioned that some heterodox thinkers using the term, dismissing certain things have been right-right just because of that. Perhaps we could connect on to the second book, which is, is there a future for heterodox economics? I wonder whether you could talk through briefly the the rationale for writing that book,
Geoffrey Hodgson
You know, that that was brewing for a longer time because I, I started studying economics in the late 60s, and more formally in the 70s with a master’s degree and so on. And I always saw myself as a critic, and there’s things I didn’t like, about mainstream economics, but I was interested in making the third dimension economic. I tried to learn it the best I could. With some of the reasons I’ve changed my mind on some issues, see, virtues, which I didn’t see before. And I see defects which I didn’t see before. But it’s not a criticism. So after 50 or so years, I’ll remain a critic. So I always revolved around heterotrophs communities and a number of things struck me. Way back. One is that there was an agreement about what heterodox meant or what the principal criticisms of mentioned economics were. Exactly, there was a strong emphasis that wasn’t universal. There’s a strong emphasis on policy issues. Policy became the front end of that. Now, the anomaly here is the Austrians who are, in my view, not mainstream in the sense that they assume linear cortical core assumptions have a richer view of how markets operate and so on.
Politically they tend to have a different view. So the heterodox left has always had a problem , an issue about whether Austrian economists are they heterodox, are they part of the group or not. And that’s not resolved and it’s for some they’re in for others they are out and that’s a problem. But with that caveat aside, the rest of heterodoxy has been generally politically Lenin and again, making assumptions about the viability of some policies and approaches without going to depth. So the whole core of assumptions are just part on the table in a box, you know, not being opened up. And so that’s struck me, the other thing that struck me was that heterodoxy wasn’t making progress. It’s probably increased dramatically in numbers and also I think is really exciting right to see new writers of heterodoxy grow I, I was there and involved in the rise of institutional approaches, particularly in the 80s and afterwards also similarly for evolutionary approaches which post 1982 with Nelson Winter’s book was a, became prominent. It’s definitely been an exciting ride. But despite this rich legacy from heterodox scholars, progress is limited, by some measures it’s backwards. Although they’re counting more in number, if you count the number of people who describe themselves as critics or heterodox, they’re dispersed all over the place and not so much an economic department. And in any case, they have less influence over mainstream or more prestigious economics departments, particularly in the English speaking world. The loss of heterodox control of the chemistry department is one, one case amongst many. And so why did that happen? So that led me to either training and philosophy before, and I became more interested in the philosophy of science and the social aspects of philosophy science, including what you might call the sociology of science, read Kiter’s book on science, which came out in the 90s. Then, shortly after I discovered Michael Plenty again, who emerges and the other book says that Michael is a hero, but both of these books in a way, for different reasons, because Michael Plenty was a great contributor to our understanding of how science works, and what he emphasises and one of the things is the opponents of authority. Authority is important, one to establish some consensus because you do need some consensus, and secondly, to screen out low quality, cranky stuff, which clogs up the system.
So we don’t necessarily like authority, but it’s necessary to make the system function.
Then Kitter makes a similar point. Not without referring to Plenty saying there’s kind of a diversity that if you have too much diversity, then you get nowhere. You need some consensus to establish a core agreement upon which you can cumulatively build. And these accounts for me were very striking and applied immediately to heterodox economics. This is failure to have sufficient consensus. So though I had been involved and without regret in agitation for greater pluralism and economics, and I still support that, I think the other side of the coin is we do need to create consensus, which leads me in the book to the end to the final chapter to consider a number of possible strategies to answer the question the title for the book is there a future and I design strategies for recollect but in the first two, actually, one is to engage with mainstream economics, you know, one is to separate mainstream economics. I think both will fail.
So a rather odd position, you do one thing, you do the opposite which will also fail. Why? I mean engagement with would improve heterodox dialogue and sharp and it critically, but it would fragment at the same time because on key questions, different academic scholars were very different answers. An O would have a very different answer from a Straffian, a different answer from institutionalists or from the Marxist, they would fragment on these key theoretical points of the core. So it’ll lead to fragmentation and lack of identity of heterodoxy. So that’s not necessarily bad, but that’s a consequence of doing, those that stress the importance heterodoxy of surviving as a community, I think will be disappointed.
The other strategy is to separate and the best living example we have of this is the Department of Cultural Economy. And not here but at the University of Sydney, now set up for entirely different reasons and different contexts. And it was set up in separation in opposition to mainstream economics. So I’m not against the political label on it, but consider that basis for separation. And members of that political economy department will claim that they are doing well like recruiting students, have interesting causes and so on. All which is true, but I think they’re very vulnerable, the highly vulnerable to strokers apart from some some dean who wants to rationalise resources in some way and put the two departments back together. Furthermore, pluralist, internally have different approaches. Ideologically they seem remarkably less so. They have fought their heads. Last year they had four honorary professors and three of them were Marxists. Again, this is hardly evidence of biological pluralism. So pluralism doesn’t seem to get into ideology. And if you look at the writings of the founders of this split off department, Frank Stovall and others, the writings about mainstream economics are very ideologically driven, I think in a rather nuanced way which would have been criticised. So I think there’s also severe dangers with that strategy to
Mark Pennington
Do you think we pursue that a little bit more, this issue about how effectively methodological questions seem to get confused with policy positions or ideological views and heterodoxy? Because this is something that’s always frustrated me I’m you know, I consider myself to be quite a heterodox person in the sense I’m very influenced by Austrian School ideas. There are lots of debates I would feel I’d want to engage with with people who are post Keynesians or institutionalists, or evolutionary thinkers, these sort of people that I feel we should have a kind of club of identity around those themes. But because we might divide on policy issues that seems to, to come apart from that, I don’t quite understand how people can’t come together on that aspect of the identity, the methodology side. Because I mean, ultimately in policy terms, you know, there isn’t really that much difference between somebody like Joseph Stiglitz. He’s a mainstream economist and some of the policy conclusions he has, and some heterodox thinkers in the same way that might not be that much difference between some of the policy leaders, I might have and some members in the Chicago School or whatever. So why can’t people get past that? And actually, you know, have an open conversation within a tradition that actually shares some commonality. So, to me, people who are heterodox inclined should be united against perhaps the methodology of mainstream economics, but put the policy questions aside why why can’t people do that?
Geoffrey Hogdson
Because I think for many People policy is the preeminent issue. Now it’s not necessarily a bad thing because policy this is a good thing. But if you think in terms of policy and ideologies behind policy, he might pay less attention to theoretical underpinnings and nonsense. So the fact that people like Stiglitz now put Keynesian style policies which are similar, as you say, to many who describe themselves as heterodox, is kind of missed. It’s also another thing which I go on about in the book probably too much is the fact that you know, the original equilibrium theories were socialists so the whole apparatus that was used in the 30s and 40s to promote a market simulation within the planned economy. And this is completely ignored and also in the book I point out this was never discussed in Cambridge. It’s ignored by Joan Robinson. This is also pointed out by my, like, one of my great heroes was Mark Blau. He may handle these points again and again. And he’s someone I actually miss a lot. He died about 10 years ago. But he was a great, great man, great economist. And he said these things and made himself unpopular. I remember people saying on those things that are critical of race ‘Oh he’s just right wing.’ And the conversations got to know him better. Actually, his politics are much more complicated than that.
Mark Pennington
It’s interesting. I mean, people are strange. I guess that’s the only conclusion that I can come to you from this. But I’m absolutely in agreement. I mean, there is so much in neoclassical economics, which certainly promotes, if not radical socialism, although you could interpret some general equilibrium theory in that way, but it certainly promotes interventionism, so many heterodox thinkers will be very sympathetic to it.
Geoffrey Hodgson
It assumes away all the problems of tacit knowledge and asserts a kind of omnisphere and rationality yeah look, which actually is conducive to planning.
Mark Pennington
Maybe taking on this on a little bit further. So I wonder whether you could say, you said there that you’ve given reasons why you think heterodox economics as a sort of broad set of theories, I guess, is not in as good a shape as you would like it to be. And that’s one of the reasons that you’ve written this, this book. I wonder whether you could say something more specifically about institutional economics which are kind of a subfield within the broad heterodox camp, but arguably with things like your institution there are some overlaps with mainstream, more mainstream theories as well. So could you have any thoughts on the current state of institutional economics?
Geoffrey Hodgson
You know, I came to the view 15, 20 years ago that the current heterodox strategy wasn’t working. So I’d already gotten so very much interested in institutional economics through the 80s and 90s. And also to things like evolutionary economics by subproblems and evolutionary economics as it has an organising label. So I am I, so my efforts became concentrated on the institutional side without neglecting and evolutionary economics as well. And I think this is a strong candidate for his disciplinarity, there are well established institutional pledges now in economics. We have Nobel Prizes being awarded to Williams and Ostrum and others for their work institutional economics, and often within framework, which is not exactly mainstream, but as strong elements, the mainstream, you know, and our original institutionalists before them.
So there’s a very strong tradition, but I, I’m of the view that because institutionalism now is such a broader issue within the social sciences, and others are making contributions outside economics, and political science, sociology, psychology and elsewhere, that an interdisciplinary approach is where we’re moving forward. And that’s one of the strategies I outlined in the heterodox economics book. And that’s why I’m contradicting my current efforts to a large degree. I mean, it may fail. We don’t know, it’s a complex changing world and its future’s unpredictable and all that so we don’t know. So this may end up in failure. But we have an important precedent because there are no moments in the history of academia where instant clarity has been created. And the example I use is innovation studies, which didn’t exist 30, 40 years ago, there was bits of science policy, bits of this, bits if that, history of science, all of this came together, technology studies and then innovation studies had lots of money thrown at it, top professors, green programmes, graduate studies and so on. Now, we stray ambitious to go that far. But even if a few steps in that direction were made, recognising the interdisciplinary project of institutional research, I think we could make enormous progress. I think we have to convince policymakers within universities and also people awarding grants in the private and public sector, that institutional or social technology is just as important as physical technology. You have to get the social rules right. You won’t do the inventing unless you’ve got the the social rules, right. And then when you have the inventions, applying them, getting the work, getting people to manage them and employees to work in the companies that produce them, use them is not possible without a system of rules of legal and informal rules and clear institutional incentives to people to act two ways which are consistent with our project. So we have to make the case that institutional innovation into institutional studies is just as important as technology, technological innovation and technology standards. And if even if we made modest moves in that direction, I think that would be tremendous.
Mark Pennington
I would have thought this, there should be more overlap between some of the concerns institutional economics, if you think about the role that soft institutions or beliefs or the way ideas are communicated, with a lot of the work that takes place in Cultural Studies or communication studies, these kinds of areas which often see themselves as being quite sort of antithetical to economic ways of thinking. But they’re actually dealing with questions about how ideas spread, how norms change, or whatever that you think would be absolutely the terrain where they should be interested in the kind of insights that you would get from these fields. But that’s something that very much interested me, why can’t they be more of an overlap between these kind of communication-oriented aspects of the humanities and institutional economics?
Geoffrey Hodgson
I agree with you entirely. I mean, we will find other areas where there’s big overlap, particularly management, management departments, and politics in history. It is institutional practice in history. And it’s a room rich potential for making these connections. Part of the problem again, though, is people use words differently, concepts even when similar words are similar or the same have different meanings. So what do you mean by norm, what do you mean by conventionalism? And you have to try and negotiate through that, you’re never going to get a perfect agreement of these things. But you have to at least see that there are some similarities.
And I’m not naive about multiplist plurality. It’s impossible for everyone to be multi. There’s a few people who think and work that way and synthesise big ideas from different domains. But a lot of science is hard slog: the detail, is doing empirical research, probing or testing different hypotheses, evaluating different approaches, using evidence, and that’s hard slog and the detailed technical stuff. And we need lots of people to do that, as well as the visionaries are going to synthesise and bring you theories together.
Mark Pennington
I mean, do you feel that The journal of Institutional Economics, which I think is a great success, on the way I enjoyed reading. Does that reflect the content about reflect? You think an increasing sort of interdisciplinary focus in the area, are you sort of broadly happy with the way that that is developing, are there things you would like to do, have more of it within the journal?
Geoffrey Hodgson
I’m happy that we have managed to include a number of disciplines, particularly politics and law. Leading people in those areas, also philosophers as well leading philosophers written on institutional themes in the journal so to some extent, I’m very pleased but there’s still a long way to go. Yeah, one of the problems is the word economics in the title. And we rock our heads about this all the time. So we added the the subtitle masthead, the multidisciplinary former forum for the study of research or research into economic institutions, to try and twist the meaning of economics to its own object-based meaning rather than its discipline-based meaning. So we don’t, we’re not promoting an economic approach like some of the stereotypes is approaching the study of institutions in the economy but having said that, and run it down many times, the misconception is signal to economists and to non economists, but through time, I hope we’ll be able to get more and more understanding of what the mission is. The mission is understood and adopted by the leading people involved in the journal, my co-editors and the board which runs the channel and this strategy is prominent. So hopefully we can pursue this and the journal is expanding very rapidly, more than 10% a year, more than the Chinese economy.
Mark Pennington
I think the next question I’d like to ask maybe connects back to, to the discussion we’re having about actually in relation to the socialism book Is Socialism Feasible?. So within this research centre, we’re concerned very much with governance questions. And, of course, within that area, we focus on things like markets and private property, state ownership. But one of the great contributions I think of institutional economics, certainly people like Ostrum, within that broad areas to point out this whole space that many people have missed, which is sort of between markets and states, has even been the argument made to speak in terms of markets and states as a kind of outdated mode of, of analysis, that we actually need to be seeing all solutions to social problems in some senses being some form of hybrid that there are very rarely pure types. Do you think that is one of the most important contributions of institutional economics to sort of emphasise that all institutions are actually interlinked with other kinds of institutions and so on rather than being a pure market type or a pure state type or or some other type for that matter?
Geoffrey Hodgson
Yes, I’m, I strongly agree with that. And I think recognition of this interpenetration, different kinds of institutions and mutual reliance and other and synergies and interactions is very important. It’s a point I’ve made myself several times. I don’t think the terms market or indeed state are obsolete but I think the recommend recognition of the independent penetration of the two and also in addition forms of organisation which don’t fit into either, as Ostrum does with her work on managing the commons. I think it’s a very important point. I think these less formal, less structured arrangements are crucial in any society. They existed in the centrally planned Soviet Union and they exist in market economists. So we have quite a complex set of overlapping forms in any complex, large scale complex economy. And I think that insight is very important.
Mark Pennington
But it seems to be one again for politically oriented or politically motivated people.
That seems to be something that people find quite hard to grasp. I’m struck by how few politicians are able to articulate that kind of language. I mean, you could say that some people used to talk about I think the third way was something different. But you could say that people who spoke about a third way were looking for some notion of, of hybrids. And you could even say, I guess, when David Cameron you to speak about the big society that he was talking about something that was neither markets nor states, but in general, I’m struck by how few political actors are able to use a language, which actually covers this terrain. And to put forward policy proposals that are actually reflected in some sense, is that because it’s just an inherently messy area, and it doesn’t lend itself to communication through the usual sort of political messaging that people tend to rely on.
Geoffrey Hodgson
Sound bites become difficult when you have the qualifications and the hybridity of phenomena involved. But again, I think part of the blame comes down to academics. And because I think there’s a predisposition to pure solutions in academia, on both sides of the debate. And would people like to push in one particular direction without nuancing to play to a certain audience? There’s also a problem and I’m not the only one to raise this point is that the terms like market are not even well defined in mainstream economics. I just read an article on this publishing article, socio economic review. And I talked about mythical markets that use the market language to describe things that are not markets. And I explained why this is. I mean, it may be excusable if it’s purely metaphorical, that many of the cases I give are not obviously not purely metaphorical, they are intended to be stricter comparisons, or strict retributions of market characteristics, to know market phenomena, I actually argue this is policy terms quite dangerous, is misleading, at least. So, stripping away the metaphorical excuse, I think there’s a danger in that kind of thinking. This deinstitutionalized view of these phenomena which is incapable of saying what a market is, what property is, what exchange is, all of these core concepts, we have to understand what they are. And this is true, again, on both sides if the debate, across the globe.
Mark Pennington
It’s interesting you say that, I mean, I, I did a podcast over a year ago now, I think with Barry Weingast. And it was very interesting that he’s speaking in this specific context about development economics. And how much of basic theory assumes that markets just exist, so what he was trying to push back on is the notion that in the beginning there are markets, and then when we figure out whether there are interventions in them, or whether they are failing in some sense, and what policies we’re going to use to intervene in them. And he says, well, this is just completely wrong. In the beginning, there’s violence, yes. And you actually have to figure out a way out of this violence trap. And that opens up a completely different way of thinking about things. It doesn’t mean you ignore things like the role of the price system or spontaneous order or those kinds of issues, but it means that you approach the very notion of what you’re dealing with from a fundamentally different starting point. And that seems to me something that, again, people, irrespective of their policy position, ultimately find quite hard to accept.
Geoffrey Hodgson
But I think Weingast and his co-authors in the book on violence, Norton and Wallis, are right on that point. We can’t take these things for given. And while I disagree with some of the details of the analysis, I think the question they are posing about the origins of order and the marginalisation of violence are crucial to understand how scientists work. When you say in the beginning are markets you’re of course quoting Williams who’s another sort of new institutional economist and it shows a remarkable contrast, I think with him on the one hand, including Weingast and Williams and his father on the other? I think it’s a big mistake and but it’s very common this kind of market being natural thinking to have recreated, you find it all over the place. And even if you’re in favour of markets or not, I’m in favour of markets, I think you can’t assume that they’re automatically, they are naturally through interaction. You have to show the institutional and social condition into which become established and can function.
Mark Pennington
Well, I mean, we’ve we’ve had debates about this ourselves, and and I’m very much in favour of markets, but I’m also in favour of pluralism, you know, broadly conceived, and I think what, again, we’re really dealing with some of the themes we’ve been looking at in this conversation is to think is there a way in policy terms or in some broader sense, what people could conceive of allowing different institutions to sort of coexist. So we don’t see this as being a choice between it’s all markets or it’s all something else, we actually have different kinds of organisation coexisting in a society. You know, that’s really what if you think about that in sort of, I mean, I don’t hold a religious belief. But if you think about that as a solution to the problem of religious conflict, we just tolerate the fact that people have different religions. If we could tolerate the fact that some people prefer the different kind of institutional forms, we’ve got to figure out somehow a way of allowing them to coexist, rather than seeking a sort of victory for one side or another. But I struggle with myself with thinking through what does that actually mean in policy terms, but it seems to me that’s where the conversation should be going in the current climate,
Geoffrey Hodgson
I fully agree. I’ve been arguing this for a long time, in some ways is consistent with Hayek about the importance of experimentation, and the need for experimentation because of complexity and unpredictability, you don’t know how the surface works, you can’t design the blueprints. So you have to try and you have to be into incrementally try to improve them and adjust them as things as seen events occur, and so on and so forth but of course, you can’t experiment with everything, right? You have to have something given. So I understand the dilemma here. What do you take as given and where do you stop messing around? Where do you say, well, that’s good enough. Let’s leave it when you could be wrong. Right? You may not be able to deal with another crisis. But nevertheless, a system that gives more scope for diversity, the pluralists system, and experimentation would be much superior. And I think politics will be much better if we move forward. We’re still stuck in Britain with two big political parties, one of which says let’s nationalise it is going wrong, let’s nationalise it, and the other one is saying it’s going wrong, let’s privatise it to increase more competition and I think this is just crude logical stuff and they’re going into power and implement part of this and the other side by undo it. Never do we actually have a cool evaluated experiment.
For example, I’m interested in health economics and reformed health economic systems because these are incredibly complex. And there’s different systems and different countries have different attributes and performances and when the Blair government started radically to change the health system, why didn’t they experiment that in one region. They could do that, they could just experiment in one region. When the Conservative government introduced Universal Credit, why didn’t they experiment in one region? Why can’t we have experiments in basic income like we’re having now in Finland and other countries to see if it works? Learn the lessons, adjust it or whatever the case is.
Mark Pennington
Well, I mean, that’s it. That’s an interesting one because I think, actually a lot of politicians do nowadays, I think, talk about smaller scale experiments, what they, I don’t think they fully get what experimentation really means. So, as I see it, what you tend to have is, you might have an experiment, but then if it works in one place, you automatically roll it out. So you only have the experiment kind of once as opposed to an ongoing process, you know, challenge contestation. It seems to be a one-off kind of event Yeah, I think that’s what happened with Universal Credit and I think they did initially do a small scale trial. So then when they thought it worked, if they rolled it out everywhere and underfunded it
Geoffrey Hodgson
Yeah, I think another problem is advice again, from experts and academics, to promote their own reputation tend to say, this is the thing you must do without being modest. If you’re in consulting you say well on the one hand this could happen, on the other hand I’d be very cautious and mix it here. You don’t sound very appealing. Why are you going to pay someone thousands of pounds or dollars a day saying where it says on the one hand this.
It is much more marketable if you come out in favour of one bold solution and this is the big fix.
So we tend to gravitate all of us towards such simple solutions. Arguably, this is something which happened with the banking crisis. And the quants, the people doing the mathematical modelling, I can show you how to spread your risk. So you’re basically risk free across the board, and used by mathematical models and this will happen without revealing what the assumptions of the model are concerning sort of the impact of low probability events for example.
Mark Pennington
I mean, well, that might be a point where we could sort of move to, to wrap up the conversation, just have some reflections on what is happening to economics and the study of economics or the way economics is done in the contemporary world to think about those kinds of questions post post crisis. I mean, I remember after the financial crash, there was a huge amount of actually some activism by students by various people, sometimes in the profession, but more actually people outside saying economics needs to rethink itself in the wake of the crash. Some of the issues that we’ve touched upon in the conversation, get parts of that. But my overall sense is that economics hasn’t really changed very much at all. In this period, maybe 15 years, however long it is, isn’t long enough. But do you see any signs of sort of change within economics that makes you feel that it is equipped to deal with these kind of challenges or or not
Geoffrey Hodgson
There are many signs of changes in economics, we shouldn’t underestimate the adaptability and innovative days, you know, people work in the mainstream. So we have all these new things coming out all the time. They’ve really developed with every economic, happiness economics, I mean, every every two or three years or some big thing that comes out so it’s highly innovative. There’s a lot of change. But I argue two things, one is the core, the core which is basically your rational, maximising individual, even if he or she has now has some limitations now about the information available, all the risks involved or the cognitive capacities they may have been dealing with it. That’s now in the story, it still overestimates the nature of the beast. Rational economy is also consistent with the utilitarian approach which has a technical flavour or aspect to it that is not very good in dealing little things which Adam Smith went on about like duty, morality, justice all that stuff it sort of degrades them by putting them in a utilitarian framework. So, there’s continuity as well as change. I make this point in the heterodox economics book. And I get more pessimistic about the possibility of fundamental change at the core of the bit that’s continuous. Lots and lots of change going on. Very impressive innovation. The core actually just soldiers ahead. And things like big data, things like the political turn will not necessarily change that.
Mark Pennington
So you think these are almost like add ons?
Geoffrey Hodgson
Yeah, something that is basically a number of people made that observation about economics. People use boutique economics. You know, you can, you can shop if you go into the big store with all the franchises. You can buy this and that but it’s still the same person organising the whole thing? We’re setting the limits of what’s on sale. And it’s very much like that now. I’ve been very much involved with the post-crash rethinking economics students and several of them and given talks both in this country the UK and also abroad. And and they have tremendous energy and I think a lot of things they say over right on the button. But I gave a talk, for example, about a year ago in Germany on one of these rethinking meetings. Now I asked them to put their hands up. So how many of you are in or going to go into the economics department? It was a small minority. Many of these people outside economics they’re complaining about economics, the influence of economics but they are not within economics, and they have a right to do so and it doesn’t mean what they say is without value. But it does mean it’s difficult to change economics from the outside and that’s more and more the case.
Mark Pennington
I mean, I guess that relates in some ways to what we are trying to do here in this department. I mean, do you think that part of the answer is for people, not necessarily to strive to be economist but to be in other departments that are not economics departments, but to bring in nevertheless into those fields, insights that are recognisably from something like an economic point of view or something that’s informed by some of the debates or concepts that are in economics, you know, both mainstream and heterodox? That is the way to possibly take it forward.
Geoffrey Hodgson
Yes, worth experimenting with, I’m going back to the experiment word. But I think the biggest issues are establishing a precedence in some national and global community,
Mark Pennington
Because you don’t have a disciplinary basis?
Geoffrey Hodgson
You have to know and take to existing journals and existing discipline. Yeah, except The Journal of Institutional Economics of course. You are very welcome to submit your material, but that’s exceptional. The biggest public channels are largely disciplinary orientated. So it will be very difficult, but experiment away. Let’s see what happens with it.
Mark Pennington
Okay. Well, thank you very much, Geoffrey. That’s been really enjoying the conversation. So thanks very much for joining us here at King’s today. And to those people listening, I’d very much recommend that you think about buying these two books that just had out this year Is Socialism Feasible?, and Is There a Future for Heterodox Economics? So thank you very much, Geoffrey.
Geoffrey Hodgson
Thank you.
