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The Political Economy of Gunnar Myrdal.

James Angresano

Edward Elgar, 1997, 197 pp.

This work traces some aspects of Gunnar Myrdal's intellectual development with an eye to suggesting a Myrdallian paradigm, offered as an alternative to orthodox economic analysis. While the characteristics of a Myrdallian perspective are clear and some weaknesses of neoclassicism are presented, the lack of critical analysis and explicit comparison of the alternatives weakens the argument. Instead, one is expected to conclude that different must be better. Using the framework to compare economies in transition leads to an unconvincing judgment in favor of the Chinese approach. Not only has China failed to adopt the rational planning and Enlightenment values advocated by Myrdal, but its failure to address noneconomic institutional change leaves its relative success open to question. (JEL O11)

Introduction

In this volume, Angresano attempts two separate though-related tasks. First, the author describes the intellectual development of Nobel Laureate Gunnar Myrdal, focusing on the evolution of his broad-based, institutional approach to economic development in particular and policy analysis in general. This is the focus of chapters 2 through 4. The second task, to evaluate the experiences of transforming economies in the 1980s and 1990s using a Myrdallian perspective, is addressed in chapters 1 and 5. The book also contains two extremely interesting appendices which are based on the author's interviews of Myrdal in 1980 and 1982. The result is a work that is interesting and stimulating but ultimately fails to meet its objectives.

Myrdal's Perspective

Although Angresano never offers a succinct statement of what Myrdal's perspective encompasses, it is possible to infer the content of such a program from Myrdal's intellectual biography as presented in chapters 2 through 4, as well as from the critique of the author's conception of neoclassical economics in chapter 1. From this, a Myrdallian perspective would appear to have four distinguishing features:

1) A focus on a dynamic analysis which describes the behavior of the variables of interest over historic time is central to the approach. This is presented as an alternative to the neoclassical preoccupation with the discovery of equilibrium values. To some extent, the adoption of a dynamic perspective reflects the influence of other Swedish monetary theorists, and perhaps the Austrians as well, but Myrdal carried the point further than his peers by focusing on change over historic time rather than a more abstract type of dynamics. In Myrdal's version, the full set of social, economic, and political institutions, themselves evolving over time, is capable of influencing the course of the economy.

2) In keeping with the previous feature, Myrdal advocated that institutions, especially political institutions, be included explicitly in economic analysis. After all, he had been a policy maker who played an active role in establishing the Swedish welfare state. He was also aware that the "soft states" of the Third World, where economic and political power is self-reinforcing, operate under different institutional constraints. In the latter case, an inefficient economic system and a set of unresponsive political institutions cannot be expected to lead to progressive development.

3) In spite of important theoretical contributions, Myrdal was very much an applied economist, whose best-known works, including Asian Drama [1968] and An American Dilemma [1975], represent efforts to diagnose and prescribe for important socioeconomic problems. One consequence of this focus on application is a belief that the problem, not the discipline, should determine the approach taken. This belief left Myrdal more sympathetic to qualitative analysis than orthodox economics, and it also led him to reject the prevailing intellectual division of labor as overly specialized and unproductively narrow. He advocated a much broader and more demanding range of expertise on the part of individual social scientists than that provided by contemporary graduate schools.

4) Perhaps most important were the values that Myrdal advocated. Not only did he believe that values are unavoidable in the social sciences, but he explicitly preferred the values of the Enlightenment. The principles at work in this worldview are, first, reason should be applied as broadly as possible in human affairs. Second, reason endows all humans with an unalienable value. Third, the growth of reason may be interpreted as equivalent to a fuller attainment of the good. These principles are also understood to provide a basis for preferring more egalitarian outcomes.

This brief statement cannot do full justice either to Myrdal's thought or to Angresano's summary of it. It does establish a context sufficient for the purposes of this review, however. It also makes clear that Myrdal really does represent an alternative to Anglo-American neoclassicism.

Values and Myrdal's Critique of Neoclassicism

While values are unavoidable analytic components to Myrdal, he does not treat the selection of values as a matter of personal taste, with one menu selection as valid as any other. Rather, as indicated earlier, Angresano establishes in the appendices that Myrdal's philosophical perspective was that of the Enlightenment. According to Angresano, this perspective is based in the belief that "man is good and has the power of reason...[so that he can] become more rationally related to the existing facts and to his deepest valuations" [p. 93]. Such ideals are in conflict with the neoclassical perspective, which sees people as morally neutral and requires a proper institutional framework (that is, competitive markets) to harmonize individual interests with social welfare. Further, neoclassicism, particularly in its Austrian version, sees reason constrained by lack of knowledge.

The neoclassical position would also limit the role of institutional analysis in economies. In a world where rationality is constrained, institutions reflecting the knowledge of the large numbers who have shaped them may not be meaningfully evaluated or criticized by a single external intelligence. The worldview of the Enlightenment and the neoclassical or liberal overlap, but they are distinct. The former, typified by Rousseau, leads to the institutions produced by the French Revolution. The liberal worldview, true to its Anglo-American roots, is less optimistic and produces a framework more resembling the U.S. Federal period. Although Angresano explains that Myrdal was exposed to (that is, socialized in) Enlightenment values as a gymnasium student, one doubts this was the only influence he was exposed to. Moreover, it seems impossible that someone who thought as deeply as Myrdal would accept and maintain a system of beliefs unthinkingly. The great flaw in the book's treatment of Myrdal's intellectual life is its failure to muster arguments that the value system he adopted is superior to the Anglo-American alternative.

The differences between these two perspectives are many and important. For example, Myrdal's optimism grows out of his confidence in human reason, which allows him to advocate an approach to social problems that is not discipline based, instead requiring the analyst to first define the problem, and then bring to bear the disciplinary content needed to deal with it. The neoclassicist, more impressed with the limits of his own intellect, sees an intellectual division of labor as necessary to permit specialists to acquire effective expertise within a relatively narrow area of inquiry.

Neoclassicists view institutions as lying largely outside their analysis as a consequence of this same intellectual division of labor. Myrdal, in contrast, would have his universal social scientist analyze and evaluate entire institutional systems. This last endeavor is particularly impressive, given the interdependencies, dynamic tendencies, and nonlinearalities which Myrdal sees as the essence of social (and thus, institutional) change.

In short, Myrdal's worldview sees practitioners as being, at least potentially, better informed than a critic would say most appear to be. That perception may have been true in his case, but those less impressed with the power of the typical human mind could counter that the results of unplanned, impersonal systems (that is, competitive markets) may be superior to results achieved by the conscious application of intelligence as advocated by Myrdal.

It should also be noted that the neoclassicist assertion that market outcomes are superior to the results of conscious planning because they respond better to the preferences of the people involved is irrelevant in Myrdal's view. His worldview would be reluctant to accept any set of individual preferences as a legitimate basis for economic goals. Indeed, part of his preference for planning rests in its perceived ability to advance the Enlightenment values of the planners over those held by less-progressive elements in society. In the end, Angresano does a fine job of articulating the values that underlie Myrdal's analysis, but he does not demonstrate that those values are superior to the values implicit in neoclassicism. This is a serious shortcoming in a work that seeks to persuade the reader of the advantages of using a Myrdallian perspective to analyze economics in transition. For that task, demonstrating that Myrdal's value premises differ from those of the orthodox is not the same as establishing their greater usefulness.

Myrdal's Brand of Institutionalism

If Angresano's treatment of the values aspect of Myrdal's critique of neoclassicism is incomplete, his critique of orthodox economics' treatment of institutions is sound. He correctly notes that some Western economists implicitly assume that appropriate institutions, for example, those necessary to support their policies, will spring into place if they do not already exist. This patently false belief is sometimes taken by the orthodox to be an implication of the rationality assumption. For example, $20 bills are not regularly found on sidewalks, hence, any mutually beneficial exchange and every profit opportunity in the present state of the world has already been seized. As Angresano puts it, Myrdal would reject the belief that "Schumpeterian-type entrepreneurs will emerge to provide the supply side creation of new processes to stimulate economic recovery [p.128]. Institutional inertia, at times the result of socially accepted value judgments, is an important obstacle to progressive change in Myrdal's view.

To gain greater insight into a set of important and interrelated issues connected to institutions and social change, one would do well to remember that the term "institutionalism" has taken on several meanings in economics. As a result, the discipline holds distinct and, at times, contradictory views of institutional economics. Malcolm Rutherford [1994], for example, makes an interesting contrast between what he terms the "old" institutionalism and the "new." The former, associated with Veblin and Gailbrath, analyzes institutions to uncover their dysfunctional aspects, which arise out of inertia and vested interests. The new institutionalists, in contrast, exemplified by Posner and DeAllessi, emphasize the evolution of institutions as efficient responses to guide the pursuit of self-interest.

Myrdal's critique of the orthodox analysis of transition includes a rejection of extreme versions of the new institutionalism. Advocates of shock therapy, for example, not only seem to believe that efficient institutions develop automatically, but that they do so quickly and that their presence may be assumed. Myrdal is most assuredly an institutionalist, but an institutionalist of a particular sort. The book would be strengthened by a more careful discussion of Myrdal's institutionalism, placing it in context and clarifying its distinguishing features.

Myrdal has not been alone in recognizing the error in adopting a too-sanguine view of institutional development. Nobel Laureate Douglass North [1990], a scholar whose ideology differs sharply from Myrdal's, also recognized the possibility of inefficient institutions. He writes: "Rulers devised property rights in their own interests and transaction costs resulted in typically inefficient property rights prevailing." At the same time, North is not an old institutionalist. Thus, he asks, "Wouldn't competitive pressures lead to their elimination? Wouldn't political entrepreneurs in stagnant economies quickly emulate the policies of more successful ones?" North offers a useful addition to Myrdal's perspective: he retains models based on rational choice without having to pretend that institutions are optimal. This combination of realism (that is, empirically informed institutional assumptions) and competitive pressures offers an important insight into institutional evolution. The ability of North to use a neoclass ical analysis to address nontraditional issues suggests that neoclassicism in its many variants--Marshallian, Austrian, and Walrasian--is more flexible than Angresano (and perhaps Myrdal) believes.

Another, older debate on the nature of institutions reveals a further perspective on the Myrdallian approach. This concerns the extent to which institutions may be analyzed and evaluated. Veblin certainly believed that they could, and Myrdal followed that tradition. The view here is that even if institutions are not consciously designed, existing structures can be understood in terms of their functions and whose interests they promote. Following a tradition that can be traced to Comte, Myrdal's philosophical positivism led him to believe that desirable institutional change is the result of conscious design and that such planned development is essential if anachronistic institutions are not to constrain the potential for progress made possible by science.

A very different view of institutions is revealed by Menger's notion of "spontaneous order." These institutions are not the result of conscious design, but the outcome of impersonal evolution. Spontaneous orders such as language arise because everyone in the community is better off for their existence and so accepts them. To Menger, institutions of this sort may not be adequately comprehended by rational analysis. Shaped by the knowledge available to many, a single human mind may lack the capacity to fully comprehend these structures, which are likely to appear as simple rules embedded in the social fabric. While such institutions may appear irrational to the observer, the framework they provide enhances the ability of rational agents to pursue their ends. If spontaneous orders represent important aspects of real world institutional frameworks, Myrdal's case for planning, which includes changing incentives through conscious institutional innovation, is weakened. One may well have the power to change institut ions, but if his understanding of existing institutional structures is weak, his ability to improve them will also be limited.

Angresano's Analysis of Transition Economics

The treatment of institutions is, in some sense, a methodological issue, but it is also germane to the book's second theme: a critical analysis of the economies in transition. Angresano's coverage of central and eastern Europe is excellent. The performance of selected economies such as Hungary and Poland is concise, full of useful information, and organized, making comparisons and the emergence of themes quite clear. This area has occupied much of Angresano's professional attention over the past decade, and his expertise is obvious. However, he has devoted less attention to Asian economies in transition, which leaves his discussion of the relative performance of Asia and Europe unpersuasive.

It is clear that Myrdal recognized that institutions are not simply the product of rule making. The importance he attached to (state) education makes clear that he recognized the importance of shared attitudes and values as social lubricants, but the dynamic approach and institutional emphasis are never tied together by Angresano to provide a convincing presentation of the Myrdallian paradigm.

Beyond the incomplete treatment of institutional change and transition, Angresano's discussion is flawed by some fundamental misunderstandings of the Chinese experience in transition. In general, Angresano argues that from a Myrdallian perspective, the Chinese transition has been more successful than the European, in large part because planners there rejected neoclassical orthodoxy in favor of a more pragmatic approach, including goals in addition to allocative efficiency. Without denying China's accomplishments since 1978, the ultimate success of the Chinese approach has yet to be established. Neither is it clear that China's apparent success is rooted in an approach that Myrdal would have favored.

Considering the second point, Chinese reform has not been the result of the rational planning advocated by Myrdal. For example, the household responsibility system, which instituted the first wave of agricultural reforms, began as a local experiment during the confusion which followed Mao's death and the end of the Cultural Revolution. The central government, concerned about the program's apparent success and rapid spread, tried to restrict the new institutional arrangement in 1979, only to back down in the face of widespread pressure from rural areas. This reform was less a part of a conscious, rational vision than something forced from below, as individuals and groups sought to better adapt to their local environment [Fewsmith, 1994; Chen, 1995].

Industrial development also proceeded in a fashion at odds with planners' intentions. A case in point are the township village enterprises (TVEs), in some sense, descendants of the enterprises which sought to make the old communes self-sufficient. The growth of rural markets created opportunities for these enterprises to compete with state-owned enterprises. Indeed, the high prices that planners established for the latter's products made entry into these markets profitable, encouraging the growth of TVEs. Meanwhile, local governments developed a stake in the success of these firms when fiscal reforms made them dependent on locally raised revenues, including the profits of TVEs [Chen, 1995]. Although the planners played a permissive role, the success of this sector seems to owe more to the law of unintended consequences than to a rationally derived plan [Chen, 1995].

Conscious planning occupied an important place in Myrdal' s approach to development, though he did not advocate comprehensive plans of the Stalinist type. He also recognized that the social and political environment influences which approach planning are feasible. Thus, in Asian Drama, he attached great importance to indirect planning, based on macro policy and a trade policy broadly supportive of planning, an approach toward which China was moving prior to its joining the World Trade Organization. Nevertheless, it remains true that much of China's success to date was the result of micro strategies adopted to avoid the guidance of the plan. As such, China is not an example of the success of Myrdal's perspective.

This comparison between the Russian and Chinese transition is meant to demonstrate the superiority of Myrdal's idea, but it overlooks the political and social context of these nations, thus ignoring one of the distinctive features of Myrdal's approach. Recognizing that transition is a dynamic process, such changes, just as human lives, cannot really be evaluated until they are finished. Some of China's perceived success to date is the result of postponing some of the issues that Russia has already confronted.

Institutionally, Russia has been committed to a political transformation which China continues to resist. Neither country bears much resemblance to a Western democracy (which may not be a prerequisite to development in any case). However, a hegemonic party, with a priority for maintaining itself as the principal social and political actor, constrains policy options, including those related to income distribution, in ways that may preclude a successful transition. Such a party has not existed in Russia since 1991, but the Communist party remains entrenched in China. While some authors see hints of a civil society emerging in China, they also acknowledge that the present political system is inconsistent with a market economy [White, 1993; Schell, 1994]. Russia's chaos to date may reflect the impact of political changes which have been costly but may yet provide a range of more desirable long-run options.

One may fear that the economic pain Russia has suffered will shortly appear in China. The structure of China's capital stock, reflecting planners' past preferences, is irrational in terms of market efficiency. Additionally, large state-owned enterprises must be eliminated to complete the shift to a market economy, and no experimentation with micro incentives can save them. To date, these firms have been kept alive by loans from the state bank. As a result, China's banking system is sick, with assets of dubious quality and a lack of managerial processes to efficiently allocate new savings. The experience of other Asian economies since 1997 is a powerful reminder of the costs of allowing such banking problems to grow. This is not to say that Russia got it right (privatization there was botched and its financial system remains dysfunctional), but it is risky, and perhaps foolish, to evaluate transition policies while change is still underway. China may avoid some of Russia's mistakes but difficult days lie ahea d, and it remains to be seen whether or not the political system can manage them.

Conclusion

In making the case that Myrdal offers an alternative framework to neoclassicism for analyzing social change, Angresano has succeeded. That Myrdal's approach is better is less obvious. The argument that values need to be explicitly included in the analysis seems correct, if only because it is obviously silly to assume given preferences and values in a society undergoing fundamental change. That the Enlightenment values of Myrdal offer advantages over the values of neoclassicism is simply asserted. It is disappointing that a work which wants values to be a conscious part of intellectual inquiry makes no attempt to discuss, much less establish, its own value premises. Similarly, Angresano demonstrates that the bounds of inquiry need to be broadened to include institutions and institutional change, but why this requires redefining the role of the economist rather than establishing multidisciplinary teams is puzzling.

In establishing the superiority of Myrdal's s approach in studying economics in transition, the success of the text is similarly qualified. The narrowness of the neoclassical approach may very well account for some of the negative effects of the policies adopted in eastern Europe, but the case for the Myrdallian approach would be more persuasive if Angresano had gone beyond criticism to suggest concrete policies based on Myrdallian insights. Asserting that China has been relatively successful in its transition because its approach has been more in the spirit of Myrdal seems incorrect. Not only is it too early to make definitive statements about Chinese accomplishments, but important parts of that country's progress have not been the result of the conscious application of intelligence to manage change as advocated by Myrdal.

For those interested in the economics of transition, the book is valuable for the questions it raises and for its criticism of the application of neoclassical policies in all institutional settings. In terms of describing a clearly superior analytical approach, the book is less successful. Whether this is the result of trying to cover too much a subject in such a slim volume or whether it represents weaknesses inherent in Myrdal's own approach remains unclear.

References

Chen, Kong. The Chinese Economy in Transition, Singapore: Singapore University Press, 1995, pp. 24-8, 83.

Fewsmith, Joseph. Dilemmas of Reform in China, Armork, NY: M. B. Shope, 1994, pp. 19-23.

Myrdal, Gunnar. Asian Drama: An Inquiry into the Poverty of Nations, New York, NY: Pantheon, 1968.

_____. An American Dilemma: The Negro Problem and Modern Democracy, New York, NY: Pantheon, 1975.

North, Douglass C. Institutions, Institutional Change, and Economic Performance, New York, NY: Cambridge University Press, 1990.

Rutherford, Malcolm. Institutions in Economics: The Old and the New Institutionalism, New York, NY: Cambridge University Press, 1994, pp. 1-3, 129-69.

Schell, Orville. Mandate of Heaven, New York, NY: Simon and Schuster, 1994, pp. 413-27.

White, Gordon. Riding the Tiger, Stanford, CA: Standford University Press, 1993, pp. 143-69.
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Author:LEY, ROBERT D.
Publication:Atlantic Economic Journal
Geographic Code:1USA
Date:Jun 1, 2001
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