“Re-thinking Economics: The Role of the State”
Áras an Uachtaráin, 12th November 2019
Distinguished delegates, a chairde,
Is údar áthais dom fáilte a chuir roimh go léir ag Áras an Uachtaráin ag seimineár. S’éard í an ceist atá idir láimh againn ná cén cumas atá ag an stáit i nua-shamhail eacnamaíochta pholaitiúil, in eacnamaíocht athchórithe atá oiriúnach agus muid ag dul i ngleic le dúshláin mhóra na linne seo.
[I am delighted to welcome you here today to Áras an Uachtaráin as we host a seminar in which we are being asked to consider the potential role that the state can play in a new model of political economy, a revived economics that is fit for purpose to address the challenges of our times.]
May I, at the outset of my address, welcome our distinguished speakers, Professor Mariana Mazzucato from University College London and Professor Ian Gough from the London School of Economics, and may I also welcome Dr Mary Murphy from the National University of Ireland, Maynooth, who has kindly agreed to chair today’s seminar. You have all made such fine contributions to the literature in this scholarly field, and I am so happy that you were able to find time in your busy schedules to come to Áras an Uachtaráin and speak on this important topic.
We are here today because we believe in a role for the State, a necessary one that has been important historically and one which me must discuss in relation to present and future challenges. We believe in the potentially transformative role that the State can play in the lives of citizens, a transformative role that can achieve cohesion as a matter of urgency and an adequate response it gives nationally and globally.
From a political economy perspective, this acknowledgement of the role of the State has not been a popular position for some time. Government intervention of any kind has, for almost four decades now, been met with a blinkered hostility by the mainstream commentariat, considered ideologically suspect, a waste of resources, inevitably perceived as inefficient, save for those relatively rare instances of market failure in which limited government involvement is deemed acceptable by members of the orthodox economics community.
We have tended to neglect the influence of the right-wing literature which has been much more extensive than that which has been spawned from the Mont Pelerin Society and that includes the new work of authors such as Gilles Saint-Paul who, to his credit, does not disguise his extreme version of individual choice as a defence of what he sees as the creep of paternalism and all its associated “inefficiency” and Pareto sub-optimality:
“The intellectual evolution, if translated into a political doctrine, jeopardises the whole Lockean system of political organisation, because that system rests on the existence and legitimacy of rational individual aspirations, and on the applicability of individual responsibility [...]
Those who advocate government intervention must bear the burden of proof. They must provide an argument as to why the laissez-faire outcome is unsatisfactory.”
What is striking in such an approach is the strength of absolutism with which he and so many others claim a dominance in intellectual thought, teaching, and of sources of policy.
Is it sufficient to make a plaintive plea for heterodoxy in economic thought? Its yield has not been sufficient. We must make a stronger case for the right of our students to be taught a pluralist teaching, of a much wider literacy of the models from which policy lessons are drawn.
The role of the State has been much maligned from a constant and consistent attack from the Right. There has been an undermining of its competence and legitimacy, and a disregard or indeed ignorance of its success in wealth creation, social progress, and improving the broader quality of life of citizens.
The prevailing neoliberal model which features markets without regulation, distorted trade and unrestricted globalisation, the priority of the price mechanism and the practice of commodification, speculative investment, and which results in unbridled consumption, yawning inequality and destructive extraction of natural resources is, of course, unsustainable from economic, environmental and social standpoints. We have moved to a point of crisis – political, social and ecological – that calls for the articulation of new models of co-existence, development and international co-operation.
After almost 40 years of mainstream economic commentary espousing with unfettered abandon the virtues of privatisation, deregulation and a lesser role for the State, we now appear to be on the cusp of a turning point in the political economy discourse thanks to the insightful contributions of scholars like Professors Ian Gough, Mariana Mazzucato and Sylvia Walby.
An effective rebuke of the austerity-fuelled worldview which is manifested in the reactions to its consequences that are now to be seen in the streets of the world. What has been offered in recent literature by authors such as those who are with us today is a scholarly reflection on what is a failed paradigm, with the gender impacts of austerity articulated in a series of contributions, such as those by Dr Mary Murphy whom I’m delighted is with us here today – fáilte romhat. Alternative models have gained credence and recognition amongst much of the commentariat and in several international and mediatory organisations.
I believe that the neoliberal austerity mantra – invoked in order to restore growth, in its basic assumptions suggests that what is needed is to reduce deficits by cutting public spending – has been effectively refuted: government investment is accepted, but with reluctance, and always with a nod to the hegemony of fiscal metrics. In areas like education, health, research and technology is a key component of economic growth and should not be cut in times of economic adversity, a point articulated so well in Mariana Mazzucato’s The Entrepreneurial State: Debunking Public-Vs-Private Sector Myths, a book to which I return frequently.
Even institutions such as the International Monetary Fund and the World Bank – organisations not known for being left-wing bastions, indeed with a legacy of appalling, imposed policies in developing economies – have slowly moved in their thinking on austerity as a strategic tool from initial denial to now believing that it can be self-defeating. It is a late awareness, for Keynes argued over 80 years ago that if governments cut spending during a downturn, a short-lived recession can become a fully-fledged depression, precisely what occurred in Ireland when the so-called ‘Great Recession’ of 2008 turned into an economic depression in 2009, a contraction that lasted for almost five years.
This prolongation and intensification of the economic bust resulted in a deepening of the experience of, as well as a widening of the exposure to, a range of attendant social ills – including mass unemployment, particularly among the young – that were a direct result of a protracted period of forced, constrained under-investment by the State, many of which have not yet been resolved.
This has resulted in lost cohesion, for example in the European Union and its manifestation on the European streets, but now extended to every continent, the adjustment of the basic needs of the people, not only the poorest any longer, to the metrics of a global, financialised economy.
It is depressing that, after centuries of economic thought and scholarship, we have become trapped in a political economy model of booms and busts, a model that is so socially damaging and iniquitous, a model with tenuous legitimacy, in terms of accountability, that now is posing a threat to democracy itself.
However late, the fact that the legitimacy of neoliberal market fundamentalism – that is, faith in the efficiency of markets, in the superiority of markets over government intervention, in the ability of markets to self-correct, and in the market’s ability to deliver political freedom – has now been challenged by even those international organisations in whom trust was placed by nations for the achievement of communal welfare. Such organisations are now seeking a new approach. They need help.
The OECD, for instance, recognises a new growth narrative is now required, one that places the wellbeing of people at the centre of its efforts. To this end, it established an advisory group in 2015, ‘Beyond Growth: Towards a New Economic Approach’, to examine the nature of the profound issues policymakers now face, and whether the progress in analysis and policy advice since the onset of the global financial crisis has been sufficient or whether it is still too anchored in the basic historical premises of orthodox economic theory. I am so pleased that one of our speakers today, Mariana Mazzucato, is a member of this OECD advisory group.
The report of the advisory group, published in September, pulls no punches as regards the scale of the challenge that remains to make economics fit for purpose so that it may address our contemporary challenges:
“Though modified and improved, policymakers are still operating within the pre-crisis economic model and its accompanying forms of policy. We believe that more radical re-thinking is required. […] Economics needs properly to understand the sociality of human life.
The report identifies correctly that people are not individual utility maximisers, as the orthodox economic myth would have it; they have multi-dimensional preferences and ethics formed in social and cultural settings:
“Our conception of economic progress needs to extend beyond individual, material prosperity to include indicators of social wellbeing, cohesion and empowerment, and the environmental boundaries of human activity”.
While this report was not a report of the OECD secretariat per se, it is nonetheless encouraging to see it published by the OECD, and one can only hope that it will be given due consideration, and internalised, given that it was commissioned by the OECD Secretary-General in 2018 and that it will be allowed to form an important contribution to the transformation of the OECD’s growth narrative and wider economic policy advice.
I am well aware that it is daunting for economic policymakers to contemplate a fundamental shift in the way they make policy. However, this kind of change has happened twice before in the last century. In the 1940s, in the aftermath of the Wall Street Crash and the Great Depression, the economic orthodoxy of Laissez Faire, which had dominated analysis and policymaking in the preceding period, was replaced with Keynesian economic theory which provided a better way of understanding how economies could be stimulated and revived, and the economic policies of full employment and the welfare state won broad support across the political spectrum.
However, the ‘post-war consensus’ itself broke down amid the economic crises of the 1970s, and it, too, was replaced. The free market model, developed by economists such as Milton Friedman and Friedrich von Hayek, appeared to offer a way forward to many, a lean and dynamic policy prescription. Adopted originally (and most comprehensively) by the US and UK, this market-oriented model in various forms came to be applied widely across the OECD, as we know, in the subsequent decades. I believe this model is not for purpose, indeed has never been fit for purpose unless ‘purpose’ is narrowly defined in terms of a wealth creation that benefits the few, creates widening inequality, ecological catastrophe, and is disastrous for social cohesion.
More than a decade after the financial crash, with the global economy and many individual OECD countries facing multiple crises, I believe that time is ripe for, indeed that circumstances demand, another such paradigm shift. The OECD’s New Growth Narrative report, Beyond Growth: Towards a New Economic Approach, backs this suggestion as to the need for a paradigm shift, stating:
“The frameworks and prescriptions which have dominated policymaking in recent decades are no longer able to generate the solutions to the problems and challenges we face today. We need a less incremental, more profound change”.
This will not be easy. I believe that just as literacy was an initial tool in achieving the franchise for many, a diffused, accessible economic and fiscal literacy is essential to save democracy and pluralism; but where will this be taught, and how is it to come to be?
No single prescription will fit all countries. However, it is so heartening to see the youth of today spearheading a new movement, one rooted in a paradigm shift to an ecological-social model, such as that advocated by Professors Ian Gough, Mariana Mazzucato and others, the widespread adoption of which is not only an important contribution towards intergenerational solidarity, it is our only realistic hope to create a more equal, cohesive and sustainable society and economy.
That new paradigm is one based on a steady-state model, rather than the flawed concept of exponential growth, and is both ecologically and economically sustainable thanks to the positive role that technology and resource decoupling can contribute towards improving the productivity of our capital stock, our natural endowments.
A steady-state eco-social paradigm is established as the result of deliberate political action, recognising the inherent flaws of our current model of growth ad infinitum, a model that inevitably results in harmful booms and busts that have disastrous social consequences, such as those we witnessed recently in Europe resulting from the so-called ‘Great Recession’ in which we witnessed the haemorrhaging of solidarity, empathy and cohesion. If we are to achieve a paradigm shift, it will be necessary to combine the radicalism that is in the consciousness of climate activism, with the consciousness of egalitarianism and the programmes of inclusion activists and feminists.
As we live through this period in which we seek an exit from extreme individualism – during which the concept of society itself has been questioned and redefined narrowly and pejoratively, when public spaces, the State’s assets, in so many countries, have been commodified – we must come together, merging consciousness of what being human means for ecology, human need, dignity, respect for sources of truth and consolation, reasoned and revealed. We must combine and co-operate for the recovery of the public world.
Of course, the context in which we are attempting to create the conditions for a paradigm shift are highly challenging. We now, most regrettably, live in a world that has in recent years moved away sharply from notions of solidarity and empathy and towards extreme individualism, divisiveness and now hate-filled rancour. A vision of society is emerging from certain parts of the world that is disturbingly reminiscent of that which laid the seeds for the rise of Fascism in the 1930s. This context presents enormous challenges for those of us who believe in – and that to which many here have given their lives – the transformative powers of collectivity, solidarity, equality, social justice and human decency.
How much better it would be if the necessary elements of what constituted social cohesion formed the basis of the discourse that prevailed on the streets of the world, rather than the excluded being left abandoned to become the prey of xenophobes, homophobes and racists.
In an attempt to offer a positive contribution, I suggest that all of the prevailing ruling concepts in our present economic discourse – flexibility, globalisation, productivity, innovation, social protection, decent work, indeed economic growth itself – are capable of being re-defined within an active state context, given a shared moral resonance, made useful within the context of the new ecological-social paradigm.
This suggests a new, recovered political economy, and I have called for some years now on third-level institutions, both in Ireland and abroad, to allow it to be taught and thus for it to be available to inform policy. Consideration of a new ecological-social paradigm, based on economic heterodoxy, recognises the limits of the world’s natural resources, as well as the role that unrestrained greed has played in creating the climate crisis.
Greed is something that we need to understand better in terms of its causes and consequences, and we must constrain it insofar as is possible given its destructive implications on human welfare. To quote Gandhi:
“The movement against war is sound. I pray for its success. But I cannot help the gnawing fear that the movement will fail if it does not touch the root of all evil – human greed”.
In his book, Heat, Greed and Human Need, a superb contribution that I wish would be required reading across the social sciences, Ian Gough outlines how the alternative paradigm is rooted in the concept of human need over greed, moving away from insatiable consumption and accumulation.
It advocates gender equality, redistribution, and a reconfigured social consumption and investment strategy that transfers resources and technology from rich countries to developing countries as the key means to achieve this eco-social welfare state.
The eco-social policies that underpin such an economic paradigm must simultaneously pursue both equity/social justice and sustainability/sufficiency goals within an activist innovation state, with substantial public investment and greater regulation and planning.
Furthermore, it is recognised that socio-economic measures are also required to offset any adverse or regressive impacts of the ecological transition for lower income groups (such as, for example, unemployment resulting from the closure of legacy industries) and to reverse growing levels of inequality.
Such a model implies the end of a capitalism without responsibility that is either uncaring or blind as to consequences as we have come to know it. Moving beyond traditional notions of economic growth to a steady-state, sustainable economy is urgent. This begs the question as to whether the transition route to sustainable wellbeing is achievable at all. Everything depends, as scholars such as Gough, Klien and others have identified, on the nature, variability, flexibility and reformability of capitalism.
If I may quote from Professor Gough:
“The rich world bears a double obligation: it has been responsible for the majority of accumulated greenhouse gases to date; and because of its greater wealth, it has far greater capacity to lead the world in fast decarbonisation. We must also recognise that the countries of the rich are themselves riven by inequalities in wealth, income and political power. […] Provision according to need has always been in tension with capitalist values and private sector interests, and has to be constantly fought for and renewed: an evolving war of attrition heightened by the financial crisis of 2008 and its aftermath”.
If I could be so bold as to assert what I believe to be the genius of Mariana Mazzucato’s contribution to this new, heterodox economics, it is in her seeking to uncover where wealth actually emanates, and in her provision of a fundamental re-appraisal of what constitutes real value in the economy. By offering an approach that explains how we can recreate a dynamic public-private interaction, she unlocks a key conundrum: how economic forces can serve the public interest once more in order to recover a discourse that is broken.
Kate Raworth’s Doughnut Economics also captures the essence of this new paradigm:
“a social foundation of wellbeing that no one should fall below, and an ecological ceiling of planetary pressure that we should not go beyond. Between the two lies a safe and just space for all”.
Raworth’s reformed definition of economic prosperity is, thus, when all (twelve) of her social foundations are met without the overshooting of any of the (nine) ecological ceilings.
As to the distribution of consequences, Sylvia Walby has argued in her book, Crisis, that the economic and fiscal crises in which we have lived through over the past decade, and the resulting recession (experienced severely in Ireland) has cascaded through society, and the ensuing fiscal crisis over government budget deficits and austerity has led to a political crisis which, in turn, now threatens to become a democratic crisis. The streets of Beirut and Santiago are surely proof of this.
Borne unevenly, the effects of the crisis are also exacerbating existing class and gender inequalities:
“There is considerable under-utilised capacity in the economy as a consequence of the failure to encourage the completion of the transition in the gender regime from a domestic to a public form. This incomplete transition is, at least in part, because of the priority accorded to developing a neoliberal rather than social-democratic form”.
Walby argues that the future consequences of the crisis depend upon whether there is a deepening of democracy, and of democratic institutions, including within the EU. Within such considerations must be the issue of the relation of the economy to social policy and the role of the economy as an instrument or determinant of public good.
How are we to be in the world? How should we seek to be in the world? Professor Hartmut Rosa, in his recently translated book, Resonance, builds on the concept, arguing for the need for a society that is “consumed with consumption” to move away from “consuming the world” to experiencing it and resonating with it. For quality of life cannot be measured simply in terms of resources, opinions, and moments of happiness; instead, we must consider our relationship to, or resonance with, the world, or as Hartmut Rosa puts it,
“from the act of breathing to the adoption of culturally distinct worldviews. All the great crises of modern society – ecological, democratic, psychological – can be understood and analysed in terms of resonance and our broken relationship to the world around us”.
Hartmut Rosa’s work is, I believe, a valuable contribution to the inter-disciplinary task of understanding the complex sources of, as I would put it ‘belonging in the world’.
This “catastrophe of resonance”, to borrow Rosa’s terminology, which we have experienced in modern times, it is clear to me, is related to a growing narcissism, aggressive individualism and fuelled by an emphasis on insatiable consumption and wealth accumulation, a far cry from the social justice, solidarity and fairness principles that, for example, underpin the framework for the Sustainable Development Goals, perhaps our greatest achievement in recent times as a moment of hope, of global solidarity and empathy.
When it comes to responding to climate change – the greatest crisis of all given its existential nature – the State has a role to play in ensuring it has a strategy for a ‘just transition’ for workers and communities to ensure that we are all part of a sustainable, low-carbon economy and benefit from decent and green jobs.
In Ireland this will mean that those impacted by the closure of unsustainable, carbon-intensive electricity production, for example, must be offered re-skilling opportunities to enable them to find suitable jobs in other areas, such as the green economy, or upskilling opportunities that can achieve sustainable incomes in other parts of society.
The State is surely, too, an indispensable partner in the debate on the way in which work is to be defined, intrinsically and as a source of income. We must acknowledge the critical role of the State in shaping the work agenda, especially as regards employment law.
We are now witnessing increases in precarious employment, contract working, and an ongoing casualisation of labour, as has been well documented by Guy Standing, Noam Chomsky and other notable writers on the subject. The new emerging trends in work practices – so-called ‘innovations’ – are only to my mind innovations in a particular sense, insofar as they maximise profits for employers and reduce employees’ hard-won labour rights. I see this trend as part of an inexorable ‘race to the bottom’, and I believe that further regulation, together with enforcement, is urgently required in order to protect those most vulnerable in society from being exploited as a result of the most adverse effects of these new forms, falsely described as work, but often forms a dependency relationship without rights.
When one considers how an abuse of the trend towards digitalisation is drawn on to assist in this regard, we see how online workers often are not covered by employment law or collective agreements. Moreover, such workers seldom have access to social security, paid leave or paid training owing to the fact that the platforms require workers to register as self-employed. A European figure for how many of the self-employed employ other than the self is 23%. Such unethical practises, we know, are also in place in other sectors, including the aviation industry.
These recent developments in the world of work are nothing less than a recrudescence of some of the worst employer practices of the 19th century. One of the great victories of the labour movement in the past was the regulation of piecework; these old practices must not be allowed re-emerge under the cloak of supposed innovation. It must remain an important objective of the State to reverse the systematic neglect and devaluation of workers’ rights. A state that adopts the political economy paradigm shift that I have advocated surely has a role to play in ensuring that such practises are consigned to the past.
Globalisation is a topic to which I have found it necessary, on basic moral and ethical grounds, to return frequently in my speeches as President. For a key conundrum that has not been solved by most governments globally relates to how globalisation can be made to work for citizens, when both its form and presentation to date lack legitimacy among much of the citizenry. This begs the question: is an ethical, sustainable form of globalisation possible?
Left unimpeded, the form of globalisation that we have borne to date will continue to lead to a widening gap between rich and poor, with the poor getting poorer. Globalisation, furthermore, is now testing rights that have often been hard-won in a multilateral context. To achieve an acceptance across borders as minimally ethical, globalisation needs to somehow be managed by accountable multilateral institutions so that it supports fundamental human rights, labour rights, and leads to long-lasting development and prosperity for citizens in general, particularly the poorest.
The State, in how it acts at home and presents itself abroad, surely has a crucial role in all of this, ensuring that workers are not made the casualties of globalisation, but rather that globalisation is made to work for the world’s workers, and all of our global citizens. It is surely a time to close the gap between the IMF, the World Bank and the ILO who have a common heritage in the United Nations, but who, in their spinning towards the market without regulation, contradict the very principles on which they were founded.
The task at hand – to create a sustainable society that is more equal, one in which all work is valued and all jobs are decent and fulfilling, where, as Amartya Sen put it, participation by all citizens without shame is possible, one in which the State plays a key role in improving the quality of life if its citizens – this is not an easy agenda given the current geo-political milieu and Western fixation with neoliberalism. However, work continues, but we must widen our audiences, and the political-economic concept of deliberative democracy provides us with a means with which we may engage and promote such a vision across the citizenries of Europe.
Jürgen Habermas has written convincingly on this topic, asserting that political decisions should be the product of fair and reasonable discussion and debate among citizens. A corollary is that we, as citizens, must become more aware of the often obscured or consciously hidden ideological assumptions that lie behind policy choices.
This means that we need to, I suggest, somehow engender improved, indeed universal, political-economic literacy to deal with new and existing challenges, and to develop a better understanding of the nature of value and what really constitutes happiness.
We must, therefore, foster a deepening of democracy. Dr Ian Hughes of University College Cork has argued (in a book entitled Disordered Minds) that a strengthening of democracy, and the values that underpin it, is the most effective action we can take to further reduce the influence of leaders that advocate a political economy founded on inequality and accumulation.
Poverty and inequality have fuelled and empowered the democratic crisis in which we find ourselves. Therefore, a paradigm shift that reduces these social ills will also contribute to the restoration of democracy.
We must rekindle, embed and enhance Glaucon’s social contract between the citizen and the State, something which has been heavily eroded in much of Europe following decades of attack from a prevailing neoliberal orthodoxy, eroding labour rights through laissez faire policy and an almost fetishised embrace of unfettered globalisation. One way to re-establish the social contract would be for the State to emphasise in its policies a rights-based approach – for example to quality work, to environmental protection – and for the State to engage in the deliberative democratic process.
What are the lessons that we have taken from the economic crisis and the ‘self-regulating market’? I believe there are many – in politics, policymaking, academia, the commentariat, citizens at large – who have turned a corner, having re-assessed what may have been their often strongly held beliefs, have now conceded, developed an appreciation that the State has an important role, that good regulation does matter, be it in the financial, construction, or healthcare sectors – all sectors in which we in Ireland and elsewhere have seen the catastrophic and sometimes tragic effects of under-regulation and/or lack of enforcement.
We live in a time in which the realm of the State has not only been cut back, but fragmented, with public services being outsourced and state budgets being lacerated – all in the name of delivering increased competition, efficiency and market dynamism. We must now re-build the State to demonstrate what it is capable of achieving, ensuring that the tools of the State – institutions and agencies of Government – are resourced sufficiently so they are able, with a discourse that is citizen-inviting, to deliver the inclusive and sustainable outcomes we desire.
My vision is of a Europe in which the innovative state provides excellent public services, services that are not viewed as a cost to society, but an investment in our communities. This message must be taken to the heart of Europe, to the European street.
The centrality of individualism as a source of values with its emphasis on individual consumption, individual acquisitiveness, insatiable wealth accumulation and an ill-informed hostility to the State, its institutions, and also those who work in them, has had a profoundly corrosive effect. The challenge we have is, therefore, significant.
However, I hope, and I believe, that there are positive signs, that we are on a pathway of learning as peoples across Europe, that we must avoid the excessive materialism that was apparent, for example, in this country during the so-called Celtic Tiger, and that we move away from narcissistic individualism and towards collective solidarity.
A deeper and more widespread understanding of the conditions that can give rise to, and what constitutes, fulfilment is now needed, and again the State has a role to play here.
Several global studies, such as the World Happiness Report, as well as qualitative research, such as that by Esping Andersren, clearly demonstrate that those countries that manage to foster this collective solidarity, that abide by the principal of a strong social contract, that believe in the benign and even transformative possibilities of the State and its institutions, that provide universal social protection, all report the highest quality of life and life satisfaction and health using both objective and subjective measurements.
We are some way from achieving our utopia, but we must dare to dream it, and continue to play our part as advocates for a paradigm shift, such as that to which I have spoken in my address, a paradigm that places an entrepreneurial state at the centre of social and economic objectives, a paradigm that has the capacity to gain mainstream acceptance, including on the basis of peer-reviewed empirical scholarship, and is not only an important gesture towards intergenerational solidarity, it is our only hope as a global people of avoiding ecological and social catastrophe.
Go raibh míle maith agaibh go léir.