Patomaki CriticalRealistApprochtoGlobalPoliticalEconomy(2006)Ppt

8/2/2019 Patomaki CriticalRealistApprochtoGlobalPoliticalEconomy(2006)Ppt

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Critical Realist Approch toGlobal Political Economy

Philosophical underlabouring &

building bridges between(heterodox) economics and GPE

Global Political Economy (GPE)

In response to the problems of mainstream Westernapproaches to International Political Economy (IPE),Robert Cox introduced the neo-Gramscian approach.

(1981) Social Forces, States and World Orders: BeyondInternational Relations Theory, Millennium: Journal of

International Studies, 10, 2: 126-155 (1983) Gramsci, Hegemony and International Relations,

Millennium: Journal of International Studies, 12, 2: 397-401

Cox developed more thoroughly historicist conceptssuch as relations of production, social classes andforces, forms of state, world orders and hegemony.

also to provide an alternative to the World-SystemsAnalysis


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Global Political Economy (GPE)A few years later, inspired by Coxs termworld political economy, Stephen Gill andDavid Law coined a new term, GlobalPolitical Economy (GPE)

the focus should not be on the actions of a few

collective actors, particularly states, but rather onthe underlying socio-economic processes and

structures deeper and larger historical processes

(of production in particular) determine, in part,

forms of state and world orders

Critical Realism: enriching GPE

CR: enriching GPE approach in three crucial ways:

1. Critical realism enables the building of bridges betweenheterodox economics and GPE

what tends to be lacking in GPE is economic theory proper

GPE-scholars have been better at analysing power-relationsin the world economy and, for example, determination ofstates economic policies than: efficiency growth ecological effects of production and consumption income distribution Inflation (un)employment business cycles exchange rates fluctuations economic crises


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The argument, part 2iii. Towards an adequate GPE methodology

introducing the critical realist notions of action,structure, causality and open systems; as wellas falsification, iconic model, existential andcausal hypothesis, and evidence.

these and related concepts provide aframework within which GPE can be mademore systematic and open to falsification and

revisions; and within which economics andpolitical economy could be re-united

iv. Concretising these points: explaining theinstability and powers of global finance.

Telling historical stories

Coxs Production, Power and WorldOrder(1987): account of the rise and,subsequently, crisis and demise ofthe Bretton Woods system.

GPE in general: the most common themehas been the neoliberal transformationthat has swept the world since the 1970s

in the 1990s, the main focus has been inthe establishment and locking-in of thisneoliberal transformation


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Telling historical stories, part 2The main method of GPE has been to tell ahistorical story of developments of worldcapitalism by using a set of theoretical conceptsand a number of (mostly) second-hand sources.

explicit existential or causal hypotheses are rare

the use of empirical evidence tends to be casual andinterpretative

systematic use of evidence: aiming at the falsification ofvarious hypotheses

however, there are exceptions, i.e. GPE-studies based onoriginal empirical research

can components of the post-Gramscian stories betested and falsified, whether qualitatively orquantitatively

can the stories thereby be revised?;

is it possible to tell better stories about political economy?

Where is economic theory?

Although GPE may sometimes, at least in part, rely on someideas and claims of heterodox economics, the subject matters ofthese two related disciplines are different.

GPE appears to be only indirectly concerned with production,economic efficiency, ecological effects, (un)employment,

business cycles, financial crises, or distribution of income, orany of the other traditional topics of economics.

These economic developments form the background ofinterpretations of history rather than the explanandum of studies.

This may seem to indicate that GPE is, at best, complementaryto (heterodox) economics.

Of course, to the extent that it can help to explain forms ofstates and the formation of regimes of regulation, both crucial todetermining economic outcomes, GPE can also make animportant contribution to economic analysis.


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Is GPE based on scientific realism?Neo-Gramscian GPE may be in someregards close to critical realism.

the idea of early Marx: agency and structureare interdependent

there are real powers in the social world, notreducible to individuals or discourses, including

forces of production (economy) and destruction(military)

yet ideas, theories and myths do matter Cox mentions that social systems and history

are open

GPEs historicism and the call for pluralism areconsistent with CR

Is GPE based on scientific realism?Part 2

Yet there is little at the level ofphilosophical reflection that would makethis critical realism explicit. Coxs famous essay on method never mentions

any method there is nothing about, say, open systems,

causality, explanation, hypothesis, or empiricalevidence

it is merely an attempt to derive some potentiallyuseful concepts from Gramsci for a revision ofcurrent international relations theory

Cox even talks about historicism and opposes it tomore abstract and systematic forms of knowledge


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The estrangement of positivist/orthodox/mainstream economics

The neo-classical orthodoxy in economics hasbecome insulated from all other strands of socialsciences, including political economy.

The reasons for this include:

i. ontologically, the positivism of classical economicsgrounded both the capitalist conception of man and thenotion of invisible hand leading to the automaticharmony of interests between atomist markets-actors

ii. rhetorically, the mathematical conceptions of neo-classical economics, developed in the late 19th century,revolving around the concept of equilibrium,simultaneouslyimplied the quality of being scientificand reinforced [i]

Classical orthodoxy

Hume developed many components of classical economics.

A constant conjunction: Hume claimed he had found in theeconomic field include a simple claim that the prices ofcommodities are always proportioned to the plenty of money.

This quantity theory of moneyhas been later taken to imply thatfree capitalist market economy always tends to full employment.

Humes famous hypothesis of the price specie mechanism is anapplication of his quantity theory of money.

this hypothesis says that gold standard ensures that international freetrade is always balanced

in gold standard, payments for imports and exports are made in gold

surplus countries would have more gold-money circulating in themand therefore rising prices; and vice versa for deficit countries

a change in relative prices; since demand depends on price, theexports of the surplus countries will go down; and vice versa for thedeficit countries markets are self-correcting


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Towards deductivist modelling Despite the emergence of social atomism and the notion of

self-correcting markets, the classical school discussed allaspects of human behaviour simultaneously

economic problems were tackled under the rubric of moralphilosophy, history or politics

David Ricardos Principles of Political Economy and Taxation(1821) might, however, be seen as the beginning of thediscipline of modern economics.

Ricardo a controversial liberal-minded figure in his time was a deductive thinker who used drastically simplifying

assumptions, systematic thought-experiments and movedwithout hesitation from premise to conclusion

Ricardos models tended to abstract away from history, law,international power politics or anything that might intervenewith the laws of his models.

Neo-classical models Augustin Cournot, Stanley Jevons, Alfred Marshall, Leon

Walras and Vilfredo Pareto developed notions such asmarginal utility and marginal costs; elasticity of supply anddemand curves; and general equilibrium analysis of price-determination.

From the outset, the standard was to start from theassumptions, however arbitrary, that reinforced the laissez

faire-conclusion of Hume and Smith. The key, it was presumed, was in understanding the way the

price mechanism functions in an economy with manyconsumers, producers and commodities.

how does the price mechanism guarantee an optimalallocation of given resources?

does the system have a unique and stable equilibrium?

The price mechanism could be studied by using formalmethods derived, first and foremost, from probability theory,differential calculus and Newtonian mechanics.


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Consequences of the neoclassical revolution

Firstly, in contrast to the classical political economy of Adam Smith,Thomas Malthus, John Stuart Mill and others, the economy wastotally separated from the rest of society (and implicitly assumed tobe concomitant with the area of a nation-state).

Secondly, the practical real-world problems of classical economistsfaded in the background and economics developed something akinto a branch of mathematics.

Thirdly, the more the neoclassical economists began to focus on theformal mathematical properties of various hypothetical economies,the more self-evident the conceptual foundations of their narrow andspecific approach started to appear to them.

for instance, Keyness general theory was quickly

transformed into a formal IS-LM apparatus (Hicks 1937),which conveniently made the Keynesian theory just aspecial case of the orthodox theory.

I = S [planned investment equals planned savings]

Md = L(r,Y) [money demand depends on interest andincome]

The implicit realism of heterodoxeconomics

J.C.L. Simonde de Sismondi coined theterm economic orthodoxy

Many strands of heterodoxy have been

based on realist intuitions. criticism of economic theory in the name ofcommon sense or realism of assumptions(Veblen, Keynes, Galbraith etc).

e.g. future is open and must also remainunknown in the calculations of the capitalistentrepreneurs and financial actors genuineuncertainty plays an important role also inmarket economy


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The implicit realism of heterodox

economics, part 2

Moreover, at least in the Marxist tradition, therehas been a quest to go beyond appearances, togo deeper into the historically evolving socialrelations and complexes.

however, there is a limit to how far Marx can take us

a key problem for the Marxist theory: the labourtheory of value and the consequent transformationproblem: how to get from the values to the prices?

moreover, although Marx may have appeared to be ascientific realist about laws etc, many of theconditions for CR did not exist in the 19th century

CRITICAL REALISM AS A POTENTIALFRAMEWORK FOR RE-INTEGRATINGECONOMICS AND GPE

What is fundamental in the turn to critical realism is not onlyphilosophical realism per se, but

i. the attempt to articulate a realist conception of causality astransfactually efficacious powers and real production ofoutcomes

ii. and to develop a better grounded social ontology, based onconcepts such as open systems, action, structure and power

Epistemologically, CR also implies a quest for more pluralist, yetsystematic explanatory modelling, involving

i. explicit hypotheses

ii. reflective use of metaphors and narratives

iii. and assessment of empirical evidence

This methodology makes it possible to relativise, analyse andassess any claim made in economics/GPE

to integrate different claims

to maximise capability for learning, innovation and newsyntheses.


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The ontological contribution ofcritical realism

Economists try to apply ideas and methodical tools thatwould be suitable only to closed systemsof directlyobservable phenomena

But if constant conjunctions (empirical invariances) do notoccur, what should political economists be looking for? does not the notion of open systems undermine causal analysis?

CR: causal analysis must focus on those entities andstructures that possess real causal powers, and thereforeare capable of producing effects across actual contexts.

We need also a social ontology, specifying the kinds of

parts we should be looking for in society. there is always a structured complex of intra- and interrelated entities:

actors, actions, rules, resources, practices and social systems(including collective actors such as corporations or states).

all these parts should be conceived as products of on-going processes

they have particular characteristic ways or dispositions of actingand producing effects there are real tendencies also in society

Contrastive demi-regularities Any outcome is typically co-determined by numerous

parts of complexes.

Intra- and interdependence of some of these partscan create wholes that can be described asmechanisms.

in principle, any part can be changing over the relevant time

Lawson has, however, argued that it is nonethelesspossible to observe non-spurious, rough and ready,partial regularities

Tony Lawson (1997) Economics and Reality, London:Routledge

Lawson calls them demi-regs, or contrastive demi-regs, because they are usually defined in terms of acontrast to another outcome, tendency or process.


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Demi-regs require explanation Examples of contrastive demi-regularities (demi-regs):

compared to men, women are usually more concentrated insecondary sectors of labour (low or unskilled jobs)

the productivity growth in the UK has frequently been slower, overthe last century, than other comparable industrial countries

the growth rate of the world economy seems to have been slowingdown steadily since the late 1960s

These patterns may provide grounds for forming (always-uncertain) expectations about future developments.

Most importantly, however, these contrasting patterns seem to

require a causal explanation an explanation must be constructed in terms of relevant parts of a

causal complex

relative parts include relatively enduring reasons for actions,social structures and mechanisms that have tendentially producedthe effects that seem to form the observed systematic patterns

The epistemological contribution of CR

Models are projective, i.e. explicit descriptive andexplanatory models of something real in the world.

An iconic model: existential hypotheses; stipulations ofinternal relations and action-possibilities; descriptivestatements; and causal hypotheses.

The basic scheme of explanation in open systems:

the first step: the resolution of a complex outcome into itscomponents

the second step: redescription of component causes in terms ofanalogies, metaphors, idealisations, abstractions and, inparticular, appropriate categories of social ontology (context complex)

the third step: an analysis of a number of possible efficient andmaterial (formal, final) causes, some of them perhaps efficaciousover large time-space regions, or across many regions

the last step: systematic, yet reflectively interpretative empiricalassessment of these hypotheses about possible causalcomponents, and elimination of the weaker hypotheses


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An example: explaining the 1970s

return to orthodoxy Neoclassical hypothesis 1: Since the 1970s, policy-makers of the

OECD countries have adopted more modern and better economictheories as the basis of their policy-making; learning has caused theshift from Keynesian towards more monetarist or orthodox positions.

Neoclassical hypothesis 2: There are objective reasons for thislearning, for the Keynesian theory did not work in the long run;monetarist and orthodox theories explain the world better than theKeynesian theories.

GPE hypothesis 1: Since the 1970s, policy-makers of the OECDcountries have adopted monetarist and orthodox positions as aparticular, biased response to the perceived problems that haveemerged since the late 1960s; this particular and mostly false

response is best explained in terms of a change in power relations infavour of transnational capital.

GPE hypothesis 2: There are also objective reasons for this shift, forit originated, in large part, in changes in the relations of production,which can be summarised as a shift from the Fordist towards a post-Fordist regime of accumulation of capital.

Explanation in open systems

The four hypotheses are complex and loaded; the firststep would be the resolution of the complex outcomeinto its components.

Secondly, these components can then be re-describedin terms of an adequate social ontology and appropriate

metaphors and analogies. What is important in this context is that these

hypotheses also lead naturally to questions of economictheory, such as:

what caused the higher inflation of the late BrettonWoods era?

what explains the slow-down of world economicgrowth since the 1970s?


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Explanation in open systems, part 2

Whereas GPE may be apparently stronger in itshypotheses about the shift in economic policies,it is much more implicit and vague about the

underlying economic theory.

The point is that claims of economic theory can

be understood as:

time-space indexed hypotheses about relevant

contrastive demi-regs;

and as attempts to explain those demi-regs in terms

of meaningful social actions, structures, powers andmechanisms.

Telling better stories

There is nothing wrong per sewith telling historical storiesand combining conceptual work with empirical studies.

Social scientific explanations assume the form of anethico-political narrative, or at least imply such a narrative.

The point is to construct explanatory models more

systematically and reflectively. this must include articulation of different possible stories andcausal hypotheses explaining the same phenomenon

In the process of eliminating weaker hypotheses,plausibility control of assumptions and analysis of otherpossible theoretical anomalies must play an important role.

description of the causal components, and assessment ofhypotheses, requires always a great deal of empirical work

both quantitative and qualitative empirical evidence


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EXPLAINING ASPECTS ANDLAYERS OF GLOBAL FINANCE How to explain e.g. (global) financial crises and their effects?

The orthodoxy has assumed

i. that financial markets are determined by circumstances in non-financial markets (labour, production, consumption etc.), i.e. thatmarkets for credit, stocks and currencies correctly reflectdevelopments elsewhere

ii. that financial markets and other markets are in a simultaneousequilibrium, or are determined by an immanent equilibrium

Despite Marxs insights, he and particularly most of his followershave tacitly assumed that assumption (i) is mostly valid.

In contrast to this, heterodox economists such as Veblen, Keynesand Minsky have claimed that credit and secondary financialmarkets are partially autonomous and in no way synchronisedwith other markets.

Moreover, if left to develop freely, finance can assume powerover the way the capitalist market economy works and develops.

The Asian crisis One possible point of entrance to the problematic of global

finance is an attempt to explain the financial crisis thatbegan in Asia in 1997 and spread to Russia and Brazil in1998.

It led to loss of perhaps 6% of global output, to theimpoverishment of tens of millions of people, and to the

neoliberal restructuration of many of the Asian tigers.

How should we explain what happened?

Since the 1970s, there have been some 200 financial crises,and most IMF members have experienced dramaticcurrency fluctuations or serious banking sector difficulties atleast once.

Perhaps there are characteristic mechanisms or causalcomplexes that would tend to produce these kinds of crises?


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Demi-regs - evidence It is possible to identify some relevant contrastive demi-regsabout the way, say, the forex markets seem to function.

For instance, by the 1980s, monthly exchange ratefluctuations had grown three-fold compared to the 1960s.

The wider fluctuations, from months to years, have alsogrown.

What is perhaps most noteworthy is the exponentially growingvolume of forex trading:

this dailyvolume reached USD 1.6 trillion in 1998, with a

potential of growing to USD 3.6 6.2 trillion by 2010 this is a substantial part of the global annualGDP, which

stands at around USD 30 trillion in 2000

the growth of the volume seems to indicate that the poweroffinancial markets to undermine the economic path of stateshas grown manifold

Powers and mechanisms, 1 Simultaneous to the increased transformative capabilities of the

financial actors and markets, also new countervailing tendencieshave emerged.

All economic demi-regs, or contingent, tendential laws, dependupon transitory institutional arrangements

The key question: what are the essential parts and mechanisms ofthe markets, what currencies, loans, bonds, shares and other

assets are being exchanged around the world and the clock? Iconic model:

actors face radical uncertainty because of the opennessof systems and unpredictability of the future

financial agents are inter- and system-dependent; theiridentity, action-possibilities and resources are relationallyconstituted

financial decisions must be explained in terms of sensitivetrust in developments and highly reflexive strategicconsiderations


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Powers and mechanisms, 2 The financial multiplication processis a cause of financialinstability.

collective consequence of leverage building, mutual indebtedness andrapidly inflating prices

The multiplication process can easily grow into a bubble inparticular places and markets.

any suspicion of problems and changes can easily trigger the inter- andtrust-dependent financial actors to producea crisis

The triggers of crises and the mechanisms that can betriggered have often been confused.

triggers may also be extrinsic to financial markets; but the basicmechanisms are intrinsic

A further source of confusion stems from the consequenceof the openness of systems and contextuality of action:many things could have been otherwise in a given episode.

any of these elements can thus be taken up as theexplanation

the rest of the context is, then, either reified as exogenous facts ormisrepresented

Further explanatory steps

Explaining the powerof finance/financial actors

financial multiplication would be rather impotent without thecontinuous extraction of further resourcesinto the system

Explaining the structural powerof finance and hegemony

also the capacity to transform the economic policies of states,

and, more generally, social worlds By starting with a concrete historical episode, such as the Asian

financial crisis, an adequate explanation in terms of causalmechanisms and complexes leads to the uncovering of deeperaspects and layers of global realities

For further details, see also:

Democratising Globalisation. The Leverage of the Tobin Tax,Zed: London, 2001, chapters 1-3


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CONLUSION Critical realism makes a difference because it

enables

better and more hypothetical and revisable causalexplanations

a synthesis of some of the relevant insights ofheterodox economics and GPE

and a truly critical moment of social sciences (fordetails of this point, see the end of the paper; andch 6 of AIR)

Neither heterodox economics nor post-Gramscian GPE alone is quite up to thesetasks, although both can helpfully clarify manyof the existing processes and explanatorypossibilities.

The Centre of Excellence in Global Governance Research welcomesyou to a

GUEST LECTURE BY PROF. DANIELE ARCHIBUGI

"Can Democracy be Exported?"

Thursday 21.9.2006 at 16-18, at the University ofHelsinki, Unioninkatu 38, Lecture hall A 205,

2nd floor.Daniele Archibugi is Professor of Innovation, Governance and Public

Policy at the University of London, Birkbeck College, Departmentof Management. He is a Director at the Italian National ResearchCouncil (CNR) in Rome, affiliated at the Institute on Populationand Social Policy (IRPPS). He works on the economics and policyof technological change and on the political theory ofinternational relations.

More information on Prof. Archibugi can be found at:www.danielearchibugi.org

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