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Morality and Power: On Ethics, Economics and Public Policy

by Mike Berry on September 29, 2017
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I wrote Morality and Power: On Ethics, Economics and Public Policy out of a growing frustration caused by the constricted universe of discourse around what passed for public policy debate in countries described as pursuing a neoliberal path. A particular passage in a 2009 book by James Galbraith struck a chord. In The Predator State, Galbraith noted that the great achievement of mainstream economics is that its practitioners have managed to make its acceptance the price of entry into policy debate. To ignore or attempt to supplant orthodoxy with alternative frameworks of understanding disqualified one from being taken seriously. Elsewhere in the book Galbraith noted that economists formed a politburo that has placed the discipline on the wrong side of every major policy challenge in recent times, including of course, the inability to foresee the global financial crisis that had broken out a year earlier but been building for many years before, let alone resolve its lingering impact.

Galbraith went on to argue that conservatives – we could also add the peculiar brand of American libertarians like the Koch brothers – had long ago abandoned ‘free markets’ in favour of politically controlling how markets and property rights are defined, monitored and enforced. The supposed opposition of efficient markets and inefficient government was an artful construction created to hide the reality that dominant interests were ‘fixing’ the rules to ensure that economic outcomes favoured their position of privilege and entrenched their power. Economics as normally practiced, claiming a unique status as a disinterested science, was a useful ideological cover for what was going on. Subsequent critical accounts further developed similar arguments. Thus, for example, Damien Cahill in The End of Laissez Faire? On the Durability of Neoliberalism provides a detailed and grounded analysis of how the capitalist state has been central to the success of neoliberalism. Robert Reith in Saving Capitalism: For the Many Not the Few identifies a number of features of global capitalism that have together solidified the institutional basis of the current oligarchy. Nancy Maclean in Capitalism in Chains brings a historian’s lens to bear and traces the genesis of current situation to the emergence and subsequent development of public choice theory in the 1950s onwards. The latter pseudo-scientific body of thought came to legitimize a libertarian attack on the legitimacy of government, opening up the scope for the capture of government by the primary rent-seekers – namely large corporations and wealthy families with their legions of lawyers and lobbyists – committed to bend taxation, subsidy, regulations and even the American Constitution to appropriate ever greater wealth and consolidate their power.

The other source for my book was the work of the economist and philosopher Amartya Sen, who has long argued for an economics that includes an explicit ethical dimension. He claims that orthodox economics has been intellectually impoverished – many would say rendered irrelevant – by the false dichotomy between positive and normative economics. Ethics, in this view, intrudes at two levels. First, human beings as actors are influenced in all their activities – including those normally described as ‘economic’ – by the values and beliefs that they have developed in the societies that they form part of. These data are not exogenous (givens) but integral to how economies work in real time and space. Second, human beings have differing views about how their societies should be organized and typically seek to influence the cultural temper of their world through political and other means. Public policy is affected by how people – including politicians and other actors of the state actually act and what values they are able to impose on the mechanisms of collective action – that is, how they influence or not the actions and inactions of government.  At a meta-level citizens in a democracy should ask and seek answers to basic ethical questions – hence, morality and power.

The first part of the book focuses selectively, on the historical foundations of how orthodox economics lost its way. Beginning with David Hume and Adam Smith I look at the naturalistic focus of eighteenth century political economy on the dualistic conception of human nature, before the passions and the interests were collapsed into a narrow notion of self-interest emanating from a one-sided reading of classical utilitarianism. This first part ends with an account of how the neoclassical rupture in political economy in the last decades of the nineteenth century further confined attention to the maximizing behaviour of humans-as-robots and introduces the key analytical tool of rational choice, modern utility theory, that came to dominate the discipline over the next century and to the present day.

Part II interrogates the emergence of the notion of economic welfare that resulted in the uneasy bifurcation of positive and normative economics. This begins with an examination of the concept of economic welfare, stressing the very limited way in which notions of rational choice and preference satisfaction fail to capture the essence of what it is that might characterize a ‘life worth living’. I then briefly outline the development of the ‘old’ welfare economics of Arthur Pigou and the ‘new’ welfare economics of Vilfredo Pareto. Politicians and their advisers never read these giants of the discipline today. Yet their shadows continue to obfuscate the reality of what is going down on their watch. I demonstrate that the Pareto improvement principle undergirding the orthodox concept of ‘economic efficiency’ renders this concept normatively laden, undermining the claim of economists to be presenting a value-free, neutral menu of advise to policy makers. Moreover, the economists’ policy tool of choice – social cost benefit analysis – implicitly enshrines the discredited ‘compensation principle’ that unintentionally leads back to a reliance on the equally discredited notion of cardinal utility supposedly disposed of by Pareto. Having placed their faith in Pareto, economics has reverted to Pigou and the Marshallian reliance on ‘the measuring rod of money’.

The remainder of Part II focuses on the problematic of democracy: what is it; is it possible; is it desirable? I discuss but go beyond the normal treatment of social choice theory to look at the contributions of contemporary political philosophers and their focus on the conditions and requirements of social justice. Prominent in these chapters are the contributions of Sen, Ronald Dworkin, John Rawls and Michael Sandel. The section closes with an attempt to sketch a framework for an ‘extended consequentialist’ framework for assessing the social good of public policies. This framework is applied to a number of current policy arenas in the final Part III through a review of: the increasingly sharp juxtaposition of ‘private affluence and public squalor’ (i.e. privatization); increasing economic and social inequality; the increase in macroeconomic insecurity associated with the ‘financialization’ of capitalism; the growing concerns around population growth and forced mobility and the micro and macro threats to the environment. The final chapter in this section focuses on the multiple threats to democracy resulting from the outcomes identified.

The Epilogue provides a final summary of the key arguments of the book and the implications of a renewed ethical and political commitment to a sustainable social democracy.

Mike Berry
Professor Michael Berry is a leading scholar of urban studies and public policy with RMIT's Centre for Urban Research.

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