What is the relationship between economic ideas and the interests of political actors or interest groups?
G003
LectureSlides-6-Ideas.pdf
Outline
¡ Ideas in Comparative Political Economy
¡ A brief history of economic ideas ¡ Classical Liberalism ¡ Keynesian revolution ¡ Neoliberalism ¡ After the financial crisis
¡ Explaining ideas: where do they come from? How do they change? ¡ Ideas and Crises ¡ Ideas and Interests ¡ Ideas and Institutions
Ideas in Comparative Political Economy
¡ Interest-based approaches ¡ Position in the economy determines
what individuals/groups want
¡ Institutional approaches ¡ Institutions shape the incentives of
different individuals/groups and their capacity to shape policies
¡ Ideational approaches ¡ Why individuals/groups perceived their
interests in such a way? ¡ ‘Economic ideas provide agents with
an interpretive framework which describes and accounts for the workings of the economy’ (Blyth 2002)
Economic Policies & Outcomes
Institutions
Interests
Ideas
A brief history of economic ideas
Keynes and the Power of Ideas in Economic Policy
¡ “. . . the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than commonly understood. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. ... I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.”
John Maynard Keynes (1936, p. 383)
XIXthc Classical Liberalism
¡ Diffusion of free-trade across the globe ¡ David Ricardo and ‘Manchester School’
¡ Advocacy of minimal role for the state in the economy
¡ Say’s Law: Free markets has an inherent tendency towards full employment of resources. Government stimulus not required
¡ Central bankers and the Gold Standard ¡ Eichengreen (1995): “scant awareness
that defense of the Gold Standard and reduction of unemployment may be at odd”
¡ Sidney Webb (1931) : “Nobody told us we could do that [abandoning the Gold Standard]”
Great Depression and Keynesian Revolution
¡ Great Depression: ¡ Lack of market-induced recovery undermined
confidence in laissez faire policies
¡ Keynes (1936): “General Theory of Employment, Interest and Money”
¡ Against Say’s Law: markets are not self- equilibrating but could lead to prolonged periods of stagnation.
¡ Countercyclical government intervention required to raise aggregate demand and lift overall levels of growth and employment
¡ Rebuilding the World Economy after WW2 ¡ ‘Embedded liberal compromise’ (Ruggie 1982):
combination of free trade with measures to allow states to pursue Keynesian policies to reduce unemployment (e.g. capital controls)
Rise of Neoliberalism
¡ Origins: Mont Pelerin Society (1947) ¡ Regular meetings of intellectuals, business, and
political figure (e.g. Hayek, Friedman)
¡ 1970s: Perceived failure of neo-Keynesianism to solve the economic crises
¡ Ascendance of monetarist principles ¡ Role of parties of the political right (e.g.
Thatcher in the UK and Reagan in US)
¡ Beyond US/UK: rise of the “Washington Consensus” (Williamson 1989)
¡ Helleiner (1994): influence of a “neoliberal coalition” of MNCs, international organizations such as the World Bank and IMF, and central bankers and finance ministers.
Neo-liberalism
¡ Colin Hay (2011): Key elements ¡ Confidence in the market as efficient mechanism
for the allocation of scarce resources ¡ Belief in desirability of free trade & capital mobility ¡ Belief in the desirability of a limited and non-
interventionist role for the state ¡ Rejection of Keynesian demand-management
techniques in favour of monetarism and supply- side economics.
¡ Commitment to removal of welfare benefits seen to act as disincentives to market participation.
¡ Defence of labour-market flexibility ¡ Confidence in the use of market mechanisms in
the provision of public goods
The Impact of the Financial Crisis
¡ Financial crisis and efficient market hypothesis ¡ “if you ever wanted an empirical
disconfirmation of a social science theory, here it is; and it only cost $4 trillion to run the experiment” (Blyth 2012).
¡ Change and continuity after the crisis ¡ Shift in the regulation of financial markets: from
self-regulation towards more hands-on role for the state
¡ Macroeconomic policies: from Keynesian stimulus (2008-09) to return of austerity (“growth-friendly fiscal consolidation”)
¡ Thatcher and Schmidt (2015): “neo-liberal ideas have proven to be remarkably resilient. They have continued and, indeed, flourished”
Explaining the Role of Ideas
Type of Ideas
¡ Paradigms ¡ Overarching goals that guide economic policy. ¡ Hall (1993): between 1979 and 1989 under Thatcher “there
was a radical shift in the hierarchy of goals guiding policy”
¡ Programmatic Ideas ¡ E.g. models positing causal relationships between the goals
to be achieved and the instruments to be employed ¡ E.g. Keynesian ideas about demand-side policies in
boosting long-term economic
¡ Specific Policy Ideas ¡ Highly specific and limited, concerning the settings of
individual policy instruments. ¡ E.g. 2% inflation as the target for monetary policy
Role of Economic Crises
¡ Crises and Ideas ¡ Economic crises demonstrate failure of past
policies, leading to a search for new ideas ¡ Ideas become particularly important under
conditions of uncertainty
¡ Examples ¡ Great Depression of 1930s & Keynesian revolution ¡ Stagflation in the 1970s and crisis of Keynesianism
¡ Limitations of the argument ¡ Crises may explain why old ideas lose influence,
but not what models are adopted. ¡ Blyth (2002): deflation in the 1920s produced
Japanese imperialism, Italian fascism, & Swedish social democracy.
Interests and Ideas
¡ Interest-based explanations ¡ Focus on the resources, strategies, and
coalitions of actors in developing and promoting certain ideas.
¡ Explaining ideational change after a crisis ¡ Hall (1993): dominant Keynesian paradigm
in the 1970s criticized by British & American think tanks, the British Conservative party, the financial press, the City of London
¡ Blyth (2012): after 2008 crisis major economic authorities (OECD, ECB, BIS, Fed, IMF) remained invested in “paradigm maintenance”, preached that markets were rational
Ideational Entrepreneurs
¡ Economic ideas as “weapons” ¡ Strategic use of ideas by actors as legitimating
devices for their goals (e.g. funding think tanks that develop and disseminate neo-liberal ideas).
¡ Ideas used strategically to create and broaden coalitions in support of objectives (Jabko 2006) .
¡ Type of Ideational Entrepreneurs (Thatcher & Schmidt 2015)
¡ Ideological entrepreneurs ¡ Pragmatic ideational entrepreneurs cobbling
ideas together without a doctrinaire commitment ¡ Opportunistic ideational entrepreneur using of
economic ideas (often temporarily) with little commitment but solely to gain political power.
Interest Groups and Ideas
¡ Interest groups lobby over economic policies by engaging in “discursive contests over the frames of policies” (Fuchs 2005)
¡ E.g. Sell & Prakash (2004): framing of pharmaceutical patents as "property rights" and of violations as “piracy”
¡ Sources and limits of discursive power ¡ Links with dominant economic ideas (e.g.
efficiency, competitiveness & growth) ¡ Financial resources: ability to buy media
space and to sponsor research ¡ Contestation by other groups and
emergence of countervailing “frames”
The Role of Economists
¡ Economists at the forefront of the generation & promulgation of ideas regarding how the economy works
¡ Fourcade (2009): institutionalization of the economics profession ¡ Universalization of economic
knowledge based on mathematical models applied to different countries
¡ Existence of transnational linkages, or networks, centered in the US
The Role of Economists
¡ Influence of economic knowledge in shaping culture of institutions
¡ National institutions (e.g. central banks & finance ministries) and supranational ones (e.g., the ECB, the EU Commission, IMF) hire primarily economists
¡ Foreign economists trained in US universities often become economic policy leaders in their own countries (Babb 2001, Chwieroth 2010).
¡ Performative role of economic theory ¡ Financial ideas do not merely describe
the world; they can act as “self-fulfilling prophecy” (Mackenzie 2006)
Other Sources of Economic Ideas
¡ Types of non-profit research organizations ¡ Academic research organizations ¡ Advocacy research organizations ¡ Research organizations linked to parties ¡ Research organizations directly affiliated with
specific government ministries
¡ Campbell & Pedersen (2014): National Variations in Production of Ideas
¡ US: Pluralist competition with multiple private and public policy research organizations
¡ France: centralized state apparatus funding state research organizations,
¡ Germany: corporatist regime where state rely on semi-public scholarly research institutes
Institutions and Ideas
¡ Institutions support certain ideas while hindering alternatives
¡ Adoption of economic ideas depends on whether they are ‘congruent’ with existing institutions and prior experience with related policies (Hall 1993).
¡ E.g. Keynesian policies adopted in the 1930s in Sweden (prior experience with public works) but not in Britain (prior experience with unemployment insurance) (Weir & Skocpol 1985)
¡ Ideas as Cognitive Locks ¡ Once ideas become institutionally embedded,
they have an impact even when no one genuinely believes in them
¡ E.g. Stability and Growth Pact and the Maastricht criteria
Conclusion: why ideas matter?
¡ Ideas as Blueprints ¡ Why agents perceived their interests in such a way? ¡ Ideas define how the economy operates, the identify
and preferences of actors
¡ Economic Ideas as Weapons ¡ Ideas used strategically by politicians or interest
groups in pursuit of their goals ¡ Ideas used strategically to create and broaden
coalitions in support of certain policy objectives
¡ Ideas as Cognitive Locks ¡ Once successfully institutionalized, they continue to
affect policy outcomes.
References
¡ Babb, Sarah (2001). Managing Mexico: Economists from Nationalism to Neoliberalism. Princeton University Press. ¡ Blyth, Mark (2002), Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century,
Cambridge University Press ¡ Blyth, Mark (2012), "Paradigms and Paradox: The Politics of Economic Ideas in Two Moments of Crisis”,
Governance ¡ Campbell, John and Ove Pedersen (2014), The National Origins of Policy Ideas: Knowledge Regimes in the United
States, France, Germany, and Denmark, Princeton University Press ¡ Chwieroth, Jeffrey (2010) Capital Ideas: the IMF and the rise of financial liberalization, Princeton University Press ¡ Crouch, Colin (2011), The Strange Non-Death of Neoliberalism, Polity ¡ Eichengreen, Barry (1995), Golden Fetters. The Gold Standard and the Great Depression, 1919-1939, Oxford
University Press. ¡ Fourcade, Marion (2009), Economists and Societies: Discipline and Profession in the United States, Britain, and
France, 1890 to 1990s, Princeton University Press ¡ Fuchs, Doris A. (2005), "Commanding Heights? The Strength and Fragility of Business Power in Global
Politics”, Millennium ¡ Hall, Peter (1993), “Policy Paradigms, Social Learning, and the State: The Case of Economic Policymaking in
Britain” ¡ Jabko, Nicolas (2006), Playing the Market: A Political Strategy for Uniting Europe, 1985–2005, Cornell University
Press ¡ Mackenzie, Donald (2006), An Engine, Not a Camera: How Financial Models Shape Markets MIT Press ¡ Sell Susan andAseem Prakash (2004), “Using Ideas Strategically: The Contest Between Business and NGO
Networks in Intellectual Property Rights”, International Studies Quarterly ¡ Thatcher, Mark and Vivien Schmidt (2015), “Theorizing ideational continuity: the resilience of neo-liberal ideas in
Europe” ¡ Weir, Magareth and Theda Skocpol (1985), “State Structures and the Possibilities for “Keynesian” Responses to the
Great Depression in Sweden, Britain and the United States”, in Bringing the State Back In, Cambridge University Press
Readings
¡ Peter Hall (1993), “Policy Paradigms, Social Learning, and the State: The Case of Economic Policymaking in Britain”
¡ Mark Thatcher and Vivien Schmidt (2015), “Theorizing ideational continuity: the resiliance of neo-liberal ideas in Europe”
¡ Any question?
Activity: Ideas and Economic Policies Today
¡ Q1: Which ideas are influential in shaping economic policies today?
¡ Provide at least 2 examples
¡ Q2: What type of ideas are they? ¡ Paradigms: Overarching goals that guide economic
policy. ¡ Programmatic Ideas: models positing causal
relationships between the goals to be achieved and the instruments to be employed
¡ Specific Policy Ideas: Highly specific and limited, concerning the settings of individual policy instruments.
¡ Q3: What explains the success of these ideas? ¡ Which actors have promoted these ideas? ¡ Which institutions have promoted these ideas?
Ideology or Economic Interest?
¡ Q1: Are the following economic policies better explained by ideas or material interests?
¡ Q2: Follow-up questions ¡ Which ideas? ¡ Whose interests?
¡ Policies 1. Austerity policies in the UK 2. Brexit vote 3. Regulation of financial markets after the crisis 4. Donald Trump’s trade policy
Next Week: the CPE of Fiscal Policy and Redistribution
¡ Questions ¡ Why do some countries redistribute more than others? ¡ How has the size of governments and the level of
spending directed toward social welfare provision evolved in the XXth and XXIst century? What explains this trend?
¡ Does economic globalization grow or shrink the welfare state? What explains this impact?
¡ Required Readings ¡ Nolan McCarty and Jonas Pontusson, “The Political
Economy of Inequality and Redistribution” ¡ Matthew Carnes and Isabela Mares, “The Welfare
State in Global Perspective”
