Complexity and Community are crucial for rethinking economics

What could society look like if we do economics better?

Do mine eyes deceive me? I came across this post by Evan Davies on the BBC website, where he blogs about the changes taking place in economics. For those fond of the TL;DR, he says that economics has been, and still is, in need of a radical overhaul, given that most economists did not foresee the 2008 financial crisis, and that economics has not addressed its flaws in the decade since. Davies sets out the “two Cs” that make “neoliberal” or orthodox economics models risky (to put it mildly), and these are Complexity and Community. The short version is that people are Complex souls who live in Communities. Well, duh! Some of us have a been banging on about this for a while now.

Davies is clear not to make a straw man of mainstream economics though. And this is an important point. Microeconomics – the small-scale interactions between actors – has been remarkably successful in boiling down our collective lives into theories, formulae, and models that guide economists towards understanding how we act (and then nudging us in the right direction to make better decisions). But macroeconomics – the larger scale stuff that includes GDP, interest rates, international trade and investment and so on – tends to draw on the microeconomic theories and scale them up. But as we all know from experience, the more people you include, the more complicated it becomes to plan anything. And that’s before you start on complex interaction patterns across communities and societies.

Why have things started to change now? As I wrote in a previous post, change occurs gradually. Many successful careers have been built on the status quo of neoliberal or neoclassical, orthodox economics. The core of the academic economics community has developed, advocates, practices and teaches this approach. So revolutions, as in most areas of life, tend to be the exception. When we start to question the entire shape and direction of a discipline, there are myriad interests at play that all need to be reoriented. The mainstream journals, senior economists, and general momentum is geared towards neoclassical theory, and its implementation as neoliberal economic policy. In short, we are steering an oil tanker rather than a Mini Cooper.

Secondly, neoliberal economics is plugged into and reflected in the political mores of the day, and neoliberalism in politics remains in the ascendancy. A theory of economics that retreats from and questions this is bound to raise eyebrows. Perhaps then, eleven years might be a relatively short timespan for the reorientation, or evolution, of a discipline.

So what changes are actually happening now? The past decade has seen a wave of literature questioning the type of society we want to live in, both locally and globally, and the type of economics that might realise this.

But there are more recent projects turning explicitly to the way we do economics and its role in society that are much more exciting. The NIESR has a project underway Rethinking Macroeconomics, which is ESRC funded. The IFS is launching a project looking at inequality in the UK and targeting questions like the kind of society we want (a particularly timely question in the light of the most recent UN Report citing poverty as endemic in the UK). And then there are the centres rethinking traits of orthodox economic theory like the Paul Woolley Centre at LSE, the full title of which is “The Paul Woolley Centre for the Study of Capital Market Dysfunctionality”. The Centre essentially asks what happens if the frictionless markets featured in economic models suffer from, well, friction.

But what alternatives are there? If you’re familiar with some of my previous posts, you’ll know I’m a fan of socio-economic and econo-socio-legal approaches that take economics back into the social sciences. There are myriad alternatives though within these disciplines, including relational work, actor-network theory, community lens, network analysis, systems analysis, and many more. Zooming out somewhat, historical, geographical, psychological and anthropological approaches can also contribute to an understanding of economics as it really is performed in the real world.

But, why should we care? To make a bold, and controversial statement, economics is usually one cause of most social issues facing us today. What do I mean? The rise of populist politics caters to the anger and frustration of the “have nots” in society (economics). Austerity as a response to the financial crisis enacts neoliberal economic theories (economics). The lack of living wages and the rise of insecurity, the precariat, and the gig economy has resulted from technology and a reluctance of government to intervene based on neoliberal economic theories about the free market (economics). Climate change and global warming continue unabated because of the economic consequences of actions to tackle environmental issues head on (once again, economics).

In short, if we want to get society right, we need to get economics right. And that means a retreat from the belief that there is one “right” way of “doing economics”. It means recognising (or re-recognising) that economics is about how people act and interact. And that we do not always act rationally, or even in our best interests. Until economics models and formulae reflect this, we are left with a hollowed-out version of economics that cannot reflect the full complexity of real life. And this is something we all pay the price for. A broader, richer understanding might help us spot the next financial crisis looming on the horizon.

The Science of Economics? What Works, and How Much…

We do seem to be talking more about economics – what it should do and look like. But there is still a whiff of revolution about calls for the discipline to be more evidence-based and, well, scientific. This article, by Philip Aldrick in the Times yesterday, argues for more careful scientific approaches, and this is worth noting. Of course, in the natural sciences, this would be taken as read. Drugs need to be extensively trialled before they are sold and used to treat disease in humans. But for some reason, in the social sciences, theory and ideology have the ability to shape policy just as much as evidence.

Aldrick’s piece cites two studies launched by Nesta, a UK Innovation think tank, roughly seven years ago. The first was a retrospective review of the effectiveness of business clusters; do small businesses do better when they are closely located and can share location and labour advantages? The second was a randomised controlled trial on whether tax relief for small creative companies worked. The results of the studies were not their most important findings however.

For the sake of finishing a story, the first study proved relatively inconclusive, and could not find any clear correlation between clusters and growth. The second study found that tax and financial incentives were helpful in the short term for small creative businesses, but after 12 months any advantage had faded.

So, what was the main impact? The reason these two studies are remarkable are for their illustration of research methods. While retrospective reviews – generally the majority of most empirical work in the social sciences – can only look for correlation, randomised controlled trials (RCTs) can go deeper, further, and can identify causative factors. In other words, we can target specific factors and identify why things happen. This is important because it means we can be more scientific about what works, how it works, and why. And this means we can begin to base policy on evidence rather than theory. RCTs also offer a way of measuring the extent of policy impacts. By having a test group and a control group, we can gauge the extent to which a policy really makes a difference. And that means we can evaluate whether a policy is financially and economically viable. So, RCTs offer a way of seeing not only what works, but how much.

Why is this news? Similar to other recent posts on here, there is increasing discussion of economics and how the discipline can be improved in the mainstream media. Aldrick’s argument is that economics – both the research and the formulation of policy – can and should be more scientific in its approach. And to this end he calls for more RCTs and longer term studies testing causation before policy is enacted. The government has launched the Business Basics Fund with Nesta to carry out trials investigating, among other things, productivity. UK productivity lags behind that of other countries, attributed generally to poor management practices. But how can management practices be altered to improve productivity?

Questions like this lend themselves readily to RCTs where different techniques can be trialled in comparison with a control group. Nevertheless, there are questions of macroeconomics that are not suitable for trials. We cannot test interest rates or tariffs, for example, against control groups. And this remains a problem for the larger questions tackled in macroeconomics, where theory remains a significant influencer of policy.

Calls for greater use of careful empirical data in shaping economic, legal and social science policy is not new though. Economic sociology, economic sociology of law, and sociolegal approaches have long stressed the need for analysis and understanding to be based firmly in the real world, on real data, and about real people. Increasing access to big data and AI could enhance this. As Aldrick states, “Economics is a social science. Why not make it more scientific?”

Group think, and the state of sociology

Five eminent sociologists recently reviewed the state of sociology for the Times Higher Ed. You can (and should) read the post here. It makes for interesting, if slightly depressing, reading. For those fond of the tl;dr approach, each of the five sociologists review their experiences of sociology teaching and research today, and recount the somewhat inferior position to which sociology has been resigned within the social sciences. This is for a variety of factors, but I want to dwell on two in this post; the diversity (or fragmentation) of the subject, and the unavoidable political accusations that are inevitably hurled at it (just see the comments on THE).

Fragmented sociology

Much in the same way as the social sciences have fragmented, drifted apart and become silos of endeavour over the past century, sociology has more recently succumbed to a similar fate. We have a sociology of sport, a sociology of arts and music, a sociology of x, y, and z that talk at, rather than to, each other. At the same time, we have economic sociology, legal sociology (or as it tends to be referred to in the UK, sociolegal studies), and then the discipline struggles to distance itself from anthropology and offer something different (apart from research into the present day and the present society).

But what does it really do? Why do we need it? And why is it fair to level the same accusations at sociology as we would at, say, a badly conducted physics experiment?

The political connection

There is always a political connection – politics is about social rules and beliefs, and sociology is about understanding these. They are two sides of the same coin. Look at the impact of Anthony Giddens’ “third way” in forging New Labour’s direction in the years after Blair’s election to power.

And this tends to be one of the main accusations thrown at sociology for why it should not be publicly funded in the same way that STEM subjects are – that we would be funding “socialists”, “Marxists”, and look where that experiment ended… (I paraphrase here). The comments in response to articles banging the drum for public funding of the social sciences generally have at least one reference to socialism.

But wasn’t the notion of the free market also derived from the social sciences (economics)? Hayek and Polanyi published in the same year (1944) but Hayek’s Road to Serfdom received much greater acclaim at the time than Polanyi’s The Great Transformation. Arguably, 99% of us are the poorer for this, and still feeling the impact of this twist of fate. But the politically motivated accusations against public funding of the social sciences recur consistently, and in a way that does not seem to apply to capitalism, neoliberalism or the rise and rise of neoclassical economics. These seem to be treated as the natural order of things these days, backed up by the received wisdom of neoclassical economics and the laws of social interaction it has “discovered”. Any investigation into performativity will tell you differently.

Can we study societies? No? Then why bother?

What is the point then? The point is that we need to shout louder about what sociology – and the social sciences more broadly – can do for society. About what it already has done. And about what we stand to lose without publicly funded research into the social sciences, both to understand society and to shape the type of society that we (collectively) aspire to. Do we value the rule of law? Do we value independence of the judiciary? Parliamentary supremacy? The free market? Labour regulation? Because these all started out as “good ideas” that someone had. You may not agree with all of these, but if we had never had “the social sciences”, chances are we would not even have “the State” now. We would still be living in a Hobbesian state of nature.

The response to this is that we have all these “good ideas” and solid institutions that we value now, so why continue funding investigations into how society works? This is a little like Francis Fukuyama’s end of history argument, that has been roundly debunked, notably by John Gray’s argument that history is cyclical. The things that we value need to be protected, otherwise they begin to disappear. And that means shouting loudly about what they have done for us, especially in the face of nationalistic, populist sentiment. Politics in the United States has shown that, and the neoliberal drive to set markets free and dial back the state in the UK has seen inequality rise and the safety net of the welfare state feel less secure than ever.

Why publicly funded?

Michael Burawoy’s chapter about the future of the university as a centre of knowledge production in an age of marketization and regulation makes some interesting points about the funding of research. Marc Spooner has also written an interesting post on the drive to publish and the perverse incentives now in place in higher education and research. Taken together, these posts provide an overview of the direction the sector is moving in, and the question that we keep coming back to is “for whom”? Who is paying for the research? Who is paying for the publications? And does this matter?

The Coburn Amendment in the US has seen a scaling back of public funding for social research into anything that does not directly apply to the national economy or the national defense. In Australia, the “national interest” test has prompted fears that curiosity-driven research will be pushed out altogether. In both Australia and the UK, there are ever higher demands for researchers to demonstrate the impact of their work and its benefit to society. The (somewhat flawed) riposte that is habitually trotted out here is Newton’s discovery of gravity; what is the impact of this? How does it benefit society? Newton would have failed under the current research excellence framework, and would probably not have convinced a funding body – let alone a Research Council – to pay him to study this.

The marketization and commercialization of the entire HE sector raises a number of questions that should probably be saved for another post. The point is that the application of the free market to the production of knowledge about society and for the good of society will produce skewed results. Yes, industry can and does fund social research – into how to market products and services more effectively, how to sell more, and how to understand consumer behaviour. Industry is unlikely to be interested in funding research into the big issues mentioned above – the big issues central to society. Why would they? These are things that we are mostly unaware of but impacted by every day. These institutions, beliefs and policies shape our interactions, our ambitions, and the options available to us in almost every aspect of our lives. The welfare state actively funds the companies to pay lower wages and remove labour rights through the very provision of the welfare state. The production of social knowledge is therefore, I suggest, a public good that should be publicly funded.

World Development Reports (and another blog post)

(Originally posted 5th October 2016 on my previous site):

These are annual Reports published by the World Bank into development triumphs and lessons. Each World Development Report (WDR) usually has a focus, and the 2017 WDR’s title is “Law and Governance”. Being just a little excited about this, I wrote a blog post that was published on the SLSA website, exploring the extent to which the World Bank was likely to open itself up to different approaches. You can read it here.

Overall, I’m not holding my breath for a radical realignment of World Bank policy, and even though the rewards could be immeasurable, I’m certainly not holding out for Economic Sociology of Law-based approaches to feature. But even just considering the role of law and governance in enabling (or hindering) development is a step forward. The World Bank is beginning to recognize that there is more to life than just economic equations.

There has also been a move towards experimentalism in development, which builds on behavioural economics and other slight expansions in policy over the past few years. While this is to be welcomed, there is a long way to go.

My original research plan (oh, how things have changed)!

I’m in the process of moving everything over from my old site to this shiny new one, and wanted to bring some of the content with me. This (included below in this post) is one of the original pages I wrote for the old site, back in 2012 or so, when I was just starting out with the PhD. Reading back on it now is a little bit like looking back over a long journey and realizing just how far you’ve come. The final draft that I’m about to submit is so different to what I originally wrote!

Of course, this is all completely normal and just part of the process of doing a PhD. But there are a couple of other things that have leaped out at me too, rereading over the abstract. There’s so much “jargon”! There are entire sentences below that make me wince. It’s not that I don’t understand the terms – I’m completely comfortable relating to and with the ideas. But really, my supervisor and I are the only two people in the building who understand what I’m talking about, then what is the point?

This has become quite a significant part of the drafting process as time has gone on, and I have another blog post lined up about this. But in the meantime, the only way research is going to have impact in the real world is if people in the real world can understand what you’re saying. And for this to happen, the research has to be accessible and in plain English (as well as interesting, engaging, and relevant, of course).

In the meantime, here is what I was embarking on some seven years ago…


Recent World Bank policy documents are notable for hinting at a retreat from doctrinaire reliance on “investment climate” discourse frameworks. Although the concept of an “ideal paradigm” still informs much of the World Bank’s lending and consulting praxis, there has been a reappraisal of the empirical certainties underlying many assumptions. While a quantitative, leximetric approach to law and governance continues to define World Bank ideology, assertions of causation between these and economic development are increasingly being questioned.

By taking a socio-legal approach to an investigation of the interaction between law and the economy, this research offers a new approach. Taking law as a socially constructed phenomenon existing as perceived by the actors in their interactions both with each other (economically-oriented actions and interactions) (see the work of Roger Cotterrell) and with the local laws (operating on a range of scales from the micro, macro, meta and meso levels (see the work of Sabine Frerichs and Amanda Perry-Kessaris), this approach questions both current terminology as being overly laced with economic theory, and the frameworks that deny the normative bias of much of the current discourse. The research responds to calls for careful empirical socio-legal studies by Cotterrell and Swedberg, amongst others, by conducting grounded-theory informed ethnography in Sri Lanka, interviewing foreign investors about their interactions with the legal system prior to, and during the investment process. The framing of law in a socio-legal paradigm thus facilitates the use of the results not only to engage with questions of correlation between the legal environment in Sri Lanka and the actions of foreign investors, but also with causation; understanding clearly the motivations and perceptions of the investors themselves.

The results will enable clarification of the interaction between law and the economy in Sri Lanka, as well as the use, abuse and avoidance characteristic of the interaction between foreign investors and local laws. It is then possible to ask whether legal and governmental reform lending conditionalities recommended by the World Bank and other International Financial Organizations (IFOs) were a factor in the attraction of foreign investment to the country, and to what extent this might have been the case. The results will allow for an appraisal of current IFO policies, as well as the extent to which Sri Lanka should tailor its legal system to the requirements of foreign investors, potentially at the expense of other actors in the domestic legal and economic systems. Moreover, a careful selection of interviewees should allow a comparison between attitudes and approaches towards the importance of formal law and legal systems in an investment situation, both along nationality and institutional sectoral axes. This should thereby facilitate closer appraisal of the legal reform process with respect to more accurate tailoring of the reforms depending on the desired outcome. This should also work to minimise unintended, and undesirable, side effects of reforms on local businesses and entrepreneurs, while facilitating investment according to policy objectives.