“Political Economics and Possibilism” (pp. 1-34) by Albert Hirschman in A Bias for Hope: Essays on Development in Latin America (1971) Yale University Press.
In the Focus section of The Globe and Mail on Saturday, John Ibbitson invited five leaders outside Parliament to offer the Conservative Government a bold new vision to be included in its throne speech this week. Readers were asked to weigh in as well. John Manley, a former Liberal cabinet minister and now President of the Canadian Council of Chief Executives, suggested raising our vision of population growth from 44 million in 2036 to 50 million by offering citizenship to every foreign student who completes a graduate degree in Canada on the grounds that immigrants create jobs by growing the market for products and goods while at the same time, this proposed youth immigration would do a great deal to re-balance the trend line of an aging population.
David Emerson, a former Liberal and Conservative cabinet minister, senior public servant and business executive, advocated investing in space in the order of $20 billion over the next two decades as the new railway of the twenty-first century arguing that advanced satellite technology would make it easier to identify potential resources, monitor environmental data, enhance the use of the Arctic trade route and the ability of Canadians to communicate with one another as well as deliver health and education resources to remote communities.
Jaycynthe Coté, CEO of Rio Tinto Alcan, echoing John Manley, advocated doubling the annual intake of foreign students from a quarter to a half million and building on our position as a safe, diverse and welcoming country while offering excellent job prospects. Such an initiative would give us both the immediate benefit of the expenditure of foreign student fees in Canada but also the long term benefits of potential educated citizens or good will ambassadors if those students opt to return home.
Pat Carney, a former Conservative cabinet minister and British Columbian senator proposed an enhanced program on ocean protection with an investment of an additional billion dollars in building on our excellence in ocean observatory technology while developing our ability to ship our natural resources abroad. Preston Manning, former head of the Reform Party and head of the Manning Centre for Building Democracy, proposed a charter of consumer obligations to accompany the rumoured forthcoming consumer bill of rights rooted in greater transparency, choice and recourse. Greater transparency would add to the possibility of wiser consumer choices when consumers know the economic costs of what they consume.
All five proposals offered political links between the economy and political decisions that have become central to our political dynamic. Second, all five proposals, though headlined “immodest”, easily fell within the range of the politically possible. In contrast, one of the three “immodest” proposals published from readers’ submissions was by my son, Daniel Adelman (misspelled as “Aderman” in the article), was truly immodest. His proposal fell into the realm of “necessitism” rather than “possibilism”, even though he too echoed the other proposals in linking economics and politics. As an ardent opponent to the Enbridge Northern Gateway pipeline, unlike his co-provincial Pat Carney, Daniel who lives on Vancouver Island, advocated a radical shift in thinking by recognizing natural capital as a public good, putting an economic value on natural systems and the services they provide (now considered as a freebie), and emphasizing and prioritizing public benefits over private profits. This is an example of necessitism rather than possibilism, not simply because it lies so far outside the Conservative Party’s field of vision, but because the implicit argument behind this immodest proposal is that such change is imperative for without such radical changes, the planet and our way of life will not survive.
Albert Hirschman wrote on the link between politics and economics as integral to the process of social change. Like the above so-called immodest proposals, whether by illustrious or modest Canadians, he was not so much interested in the unique and permanent economic characteristic or characteristics that makes political organization possible as in many political theories such as those by John Locke and Adam Smith, but in the continuing interplay between the two realms. Daniel’s immodest proposal differed from the others not only in its necessitism but in insisting on the methodological: application of modes of reasoning and analytical tools originally developed in economics to the political process, but going even further, by re-categorizing that which is considered a public good, applying economic value to the given world and not just the world into which we have invested our labour and converted it into property or possessions, and by inverting our value priorities to place the greater emphasis on public goods over private property.
One result of such a transvaluation of values would be, presumably, a very different allocation of scarce resources among competing ends, radically different algorithms of input-output relationships and a very radical revolution in political decision-making by presuming a doomsday certainty unless these types of radical decisions are undertaken. Instead of being concerned with making decisions under uncertainly, politics would be energized by making decisions in the face of an apocalyptic doomsday certainty that will soon be upon us if action is further delayed.
The close linkage between politics and economics is the central motif of politics these days whether in the budget crisis and the refusal to raise the debt ceiling in Washington or in the proposal for a consumer bill of rights promising more competition (past promises) or more and better consumer options (presumably the forthcoming throne speech) clearly intended as an effort to lure voters to the Conservative banner. Such initiatives are now undertaken in the standard assumption that just as entrepreneurs are profit maximizers, politicians are voter maximizers.
There are other, more reliable truisms than these misleading analogies. Wealth translates into political influence as indicated in the eulogies of Paul Desmarais of Power Corporation, not in the mundane sense of trying to use positions of wealth to sway a politician, but in earning the respect of politicians who invite the input of a wealthy entrepreneur. Similarly with voters! Increased unemployment, high rates of inflation and other economic phenomena all erode faith in the party in power. These influences are vast but trivial as an observation and need no economics training to grasp. Hirschman stands out by reversing the interplay between the disciplines as he showed that a comparison could be made between those who flee a country when they give up faith in the governing power and when consumers give up on a product like a Blackberry and abandon it for another product.
The effort to import economic ideas into politics that primarily concerned Hirschman, and for which he made his name, took place at what he called “the finer features of the economic landscape”. In the international sphere when economic indifference and transformation curves are applied to international relations in documenting the relationship of trade between small and large countries, Hirschman documented the effect of trade on influence and power relations between large and small trading partners. The resultant trade and transformation curve, dependent on whether there is an import or an export bias by either country, politically implies a level of political dependence.
Whether the import of economic ideas into the political sphere is useful on the domestic or the international level to any degree, it appears to break down in the arena of public goods on which Daniel focuses. Economists concerned with public goods concern themselves with the free rider problem, that is, individuals or corporations that benefit from resources, goods or services without paying anything or with only paying a fraction of their real value. When the concept of a free rider was applied to the political protests of the sixties, as Hirschman pointed out, the analogy did not work because political participation was not a cost but considered a right in the political sphere. Turning a right into a cost in analyzing politics distorted the basic meaning of a democracy.
One of these observations applied to Canada when Prime Minister Mulroney initiated a free trade regime between Canada and the United States in the late eighties. Hirschman had written that “the political chances of the formation of a (economic) union are the exact obverse of its economic effects; the larger the trade-creating effects, that is, the greater the need to reallocate resources in the wake of tariff abolition, the greater will be the resistance to the union among the producer interests of the potential participating countries.” (p. 8) Seemingly in the face of such a principle, Brian Mulroney in the 1988 election campaign put forth a free trade platform promising to eliminate tariffs between the two countries by 1998. He won, but his support was reduced to only 43% of the popular vote and his majority was reduced; the Liberals and NDP both opposed the free trade agreement and between them won 56% of the vote. Had the Liberals been better prepared to counteract the counterattack of the Tories forged by Alan Gregg in the election, most pundits predicted that the Liberals would have swept back into power. Instead, Brian Mulroney became the first Tory to win two back-to-back elections in the twentieth century, seemingly confounding Hirschman’s observation.
However, many components influence election results and Hirschman’s observation proved true when a great deal of the Canadian recession, its largest and longest since the Great Depression, lasting technically from 1989 to 1992, but in most Canadian experiences to 1994, and other factors led to the subsequent decimation of the Conservatives. In 1993, Jean Chretien and his Liberals swept into power and the Tories were reduced to just two seats. The highly unpopular Goods and Services Tax (GST) to replace the manufacturer’s sales tax to enable Canadian manufacturers to compete on a more level playing field in a free trade environment, the fact that the GST was introduced by Mulroney threatening to pack the Senate using Section 26 of the Canadian Constitution (the Deadlock Clause), the successive embarrassing failures of Meech Lake and the Charlottetown Accord (perhaps because of the unpopularity of the GST), all contributed to that rout. I believe that the misguided effort to maintain a zero inflation target in the face of a severe recession that resulted in sky-high interest rates, massive bankruptcies in the Canadian building development industry and annual budget deficits that soared towards equalling the Canadian GDP, were also key features in the destruction of the grand Tory coalition and the ignominious defeat. The irony, of course, was that free trade proved in the long run to be a success even though the political repercussions, according to Hirschman’s observations that theoretical economic concepts such as gain from trade had hidden negative political implications, proved to be valid to a degree in the short run.
One of Hirschman’s most significant insights into these hidden negative political effects emerged in his study of the coffee trade. Because of the nature of the coffee business in which the lag between high prices and the ability to respond with higher production requires five years to plant trees and bring them to maturity, this results in coffee growers forming a powerful political interest group to ensure that prices do not fall when either bumper crops result or when the trees reach maturity and the international market experiences a surplus of coffee beans. Not only does low price elasticity in the short run of coffee bean supplies have this indirect public policy result in the push by the coffee growing cartel to form, it has the even more important push on the state to assume responsibilities and interfere in market forces. Market doctrinaires might be critical of such a result, but one of the indirect effects is that the government powerful role in the economy allows the government to shift resources from the coffee sector, when its development is mature and that sector is producing high profits, to new emerging sectors in significant contrast to the efforts of countries such as Argentina under Juan Peron to shift support from wheat and cattle – two short-cycle agricultural endeavours – to other sectors.
The effects of economics on politics also flow the other way. Hirschman observed that countries with very diverse ethnic groups have a much smaller tolerance for economic disparities than countries with more uniform ethnic constituencies. Without arguing for the merger of the two disciplines in the older model of departments of political economy, Hirschman nevertheless challenged the dominant prevailing model of regarding both realms as endogenous zones in which the primary effects in each sector could be examined as internally produced as in the model of a self-regulating economic market place or self-regulating equilibrium growth models in economic development theory that treat any political interferences as distortions of economic forces. Realms that allow political considerations to intervene simply make pacts with the devil.
This brings me back to my son Daniel and his arguments from necessitism. These are moral superego trips. However valid the argument may be, the imperative is not to wave the moral flag of the coming apocalypse and propose alternative grand economic gestures, but to work out the detailed mutual economic and political repercussions of such changes so that the effects of raising costs by pricing natural resources at higher values have on economic competition and employment, and how they may be counteracted, have to be worked out. Daniel argues that economic forces as presently practiced are destroying our ecological equilibrium. However, it is not sufficient to demand replacing an economic spoiler doctrine with an alternative political spoiler doctrine for the economic backlash will doom such a proposal to utopian thinking, Rather, the detailed work of the interaction of the two realms have to be worked out to develop a strategy and a system of tactics to handle such changes. The historical process of change must be projected by a realistic assessment of both economic and political factors and their interaction that cannot be encompassed in the hundred words of sloganeering that The Globe and Mail invited the utopian public to introduce and propose for a political platform. I applaud Daniel’s passion for his cause and devotion literally to cleaning up environmental messes on the ground, but his political proposals require detailed research on politics and economics as well as the environment. .
Hirschman’s lessons are not only applicable to the larger spheres of the economy and politics but to the intricacies of family life and the relations of a father to a very much loved son and the problem of how to get a lesson across without undermining his son’s passion and zest for a just cause. Necessitism may be correct as an abstraction. Possibilism, however, is the real moral imperative. And I am not just speaking of politics as the art of the possible, but the need to rest the possible not only on environmental science but on both the sciences of politics and economics and their mutual interaction. Recall that the same man who took $225,000 or $300,000 in cash from the German arms trader, Karlheinz Schreiber, in the so-called Airbus affair, was the same politician, Brian Mulroney who negotiated the very successful acid rain treaty with President Ronald Reagan. The lesson is not only that the “devil is in the details” but that even the devil can contribute to the good if we undertake not only environmental science but understand the sciences of economics and politics and their interaction at an even deeper level.