Editorial: A renaissance in political economy
In the editorial for edition 21.1 of Juncture, we examine the political economy of our advanced economies, in light of rising concerns over inequality, financialisation, capital ownership and political disengagement.
Amid all the debate provoked by Thomas Piketty and his chart-topping work, arguably one of its most important legacies will be his reassertion of the political economy tradition. Recognising this flush of inspiration and interest, we have focused this edition of Juncture on the big questions of political economy for the centre-left, in Britain and internationally.
The term 'political economy' was widely used in the 18th and 19th centuries to describe the study of how economic systems were politically organised and structured in different jurisdictions. It went out of fashion in the 20th century but has experienced a revival in recent decades as academics have sought to understand the different trajectories taken by liberal and coordinated market economies within the western world, as well as those of Asia and Latin America, in the post-Keynesian era. It is not a unified academic discipline, but is understood broadly as the study of how political institutions and actors influence and structure the economy, and vice versa. It is particularly pertinent to traversing the post-crash landscape of the US and European economies where – despite the depth of the financial crisis, the sluggish pace of the recovery, the overhang of debt, lower living standards and distributional disputes – the grip of orthodox market economics on policymakers appears as firm as ever.
As Eric Beinhocker and Nick Hanauer explain, 'traditional economic orthodoxy assumes that markets are efficient, people are rational, and economies naturally move to an optimal state. But we now understand that markets can be far from efficient, people are not always rational, and the economy is a complex, dynamic, evolutionary problem-solving system – more like an interdependent ecosystem than an efficient machine " This 21st-century way to understand economics allows us to understand capitalism as an evolutionary problem-solving system. It allows us to see that the solutions capitalism produces are what create real prosperity in people's lives, and the rate at which we create solutions is true economic growth. This perspective also allows us to see that good moral choices will be the ones that create true prosperity.'
The runaway success of Piketty's book, Capital in the Twenty-First Century, attests to a public appetite for understanding these 'good moral choices' and the causes and consequences of the rise in inequality that has taken place since the late 1970s in Europe and the US, with such destabilising and disfiguring effects. Piketty describes his work as one of political economy (albeit with a particularly French inflection) and in the interview with him in this edition, we probe some of the challenges that have been laid at his door, particularly from the left. The interview was conducted before the publication of the Financial Times' now infamous critique of his work, to which he has given a full and detailed reply elsewhere. But it explores some important questions which were not aired in that debate, such as whether we live in an era of 'secular stagnation', as Larry Summers has termed it, and if so what that means for the returns to capital and wealth inequality.
Importantly, our interview also touches on the question of the 'predistribution' of capital. One critical response to Piketty's proposed programme of wealth taxation might be that it leaves untouched the ownership of capital and the extent to which wealth assets could more widely spread, dispersed or democratised. Contributors to this edition, including Gerry Holtham and Joe Guinan, explore what such an agenda might look like, relating these issues to the wider problems thrown up by the so-called 'financialisation' of the economy and the challenge of funding the welfare state and public services in advanced economies.
If political economy is the study of how politics and economics interact, what are the chances of substantive change, driven by political actors? Cathie Jo Martin examines how the solidaristic Nordic economies have adapted their political-economic institutions to preserve the essential features of their social democratic settlements in conditions of openness to global economic forces. She demonstrates how coordination and cooperation can facilitate, not hinder, creative economic innovation and adaptation. In his piece, Andrew Gamble sets out why the neoliberal order created out of the 1970s crisis of postwar Keynesianism has shown great resilience in the face of the financial crisis, but why it in turn has become an 'amalgam of unstable forces', creating both the opportunity and need for deep economic reform. He identifies key elements of what this might entail: predistributive market interventions, company reform, and the delineation of spheres in which market rules are constrained or do not apply. Although he acknowledges the feebleness of the political forces pressing for change, he ends on an optimistic note: 'politics constantly evolves and the fixed and seemingly immutable positions in one era are quickly overturned in the next.'
The recent surge in populist forces in Europe – driven by economic as well as cultural anxieties – gives urgency to the task of constructing political coalitions for economic reform. These can no longer rest on an organised working class, as they did in the postwar era, but will need to be assembled from a range of sources, such as the progressive business community, green movements, social campaigns for better wages and working conditions, and citizens mobilised outside of political parties as well as within them. Whether such political coalitions can be assembled is a key challenge of our times.