Friday, June 16, 2006

Aaronomics

Reading Dave's Indian posts one after another (links to come shortly; Aaroblog is currently not only not working but crashing Internet Explorer for me for some reason), there is a strong feeling of an absence of "there" there. Dave goes here, he goes there, he tries to get all excited about the dawn of neoliberalism in India, but somehow things don't rise to meet expectations and he is left saying to the Times readership "sorry, this has never happened to me before, maybe we can try again in a few minutes".

The trouble is that doing the Thomas Friedman bit is harder than it looks for a journalist with even a little bit of ethical standards. The Airmiles thesis is to blow in, interview a couple of CEOs, explain in short words and mixed metaphors what demigods they are, and assert that this, not the tired old leftyism of the past, is going to uplift the rural poor and turn India into the nice bit of San Jose, all before you can say sag paneer. In order to do this, though, you have to be very careful to ignore what the guys you're talking to are actually saying, because what they're usually actually saying is that the rural poor can fuck off. The neoliberal theory of development that Aaro was presumably sent out there to find evidence for is ably summed up in James Tobin's poem:

The poor complain
They always do
But that's just idle chatter
Our system brings rewards to all
(at least, to all who matter)


And well, Aaro doesn't quite yet have the slickness that lets him skate over it all at high speed, nor does he have the instinctive belief of an American journalist that simply by being from a capitalist country gives you a genetic understanding of how to do economics, like black people have rhythm. Add to that a likely small dose of "India Shock" (which is like Stendhal Syndrome except with squalor and shit instead of High Renaissance architecture), and he is left trying to take in the unique strangeness of Indian political and economic life, in a week. I think it's because of this that the three Aaro/India pieces don't really work; there are a couple of good bits of writing in them, but overall they just read like "he said this, she said that, will this do". There is no conclusion and they badly lack any sort of narrative arc. At the heart of this is the fact that Dave really can't do economics (I reiterate that the LSE does a good summer school on this Dave if you're reading, it is interesting and the Times ought to pay up for it). But it is interesting (Aaro is always interesting) to look at the economics in the piece for precisely this reason; I suspect that through the filter of Aaro, we are hearing the authentic voice of the Indian entrepreneur class.

On the face of it, it sounds like garden-variety airport lounge neoliberalism, the sort that you can order by the yard from the Economist Intelligence Unit or any of a zillion consultancies. But actually, if you look at it hard and remember that it is not really coming from the same place, you can see that in the version of Globollocks that Aaro is bringing home from India (to where I believe it was initially exported by Will Hutton; this is my pet theory that the roots of a lot of Decentism can be found in the 1990s Observer), there is a very central role for "investment" which does not really fit into the model.

Recall that "investment" in the neoliberal lexicon basically means buying shares. For a supply side economist, there is no need for a theory of investment because they work on a version of Say's Law; supply creates its own demand, so the investment rate is just the profit rate minus the consumption of the entrepreneur. The only interesting thing about investment for a thoroughgoing free markets type is that the rate of capital taxation will determine the entrepreneur's incentive to reinvest rather than consume from profits, and this is basically all there is to supply-side capital theory.

On the other hand, in the Keynesian tradition, investment demand is the engine of the whole theory, and the determinants of investment demand are very complicated and unclear because they relate to the opportunity cost of liquidity, the state of technology, the profit rate and, of course, long term expectations aka "animal spirits".

So, for someone coming from a broadly Left tradition who has been through all the debates about "underinvestment" in the 1970s, who has read "The Economist" magazine for a while but who doesn't have much formal economics education, it's easy to get into a state of some confusion. This is the state of someone who knows that "investment" is a jolly important thing, and, that (per the neoliberal literature) it is carried out by mysterious people called "investors" of whom we know little except that they read the Wall Street Journal and have very right wing politics, but not much more.

This is not dissimilar to the state of a South Sea Islander who knows that metal fishing hooks and tinned food are called "cargo", that cargo arrives on aeroplanes and that aeroplanes don't land unless they can see landing lights and a flight controller. Cargo Cult Keynesianism is the official economic philosophy of a lot of neoliberals who don't buy the whole supply side bill of goods, but who nevertheless want to feel like they're on the right side of history when it comes to "globalisation" and "free markets".

I call it Cargo Cult Keynesianism, because the usual policy approach of this kind of commentator is that they suggest all manner of deregulations, privatisations, liberalisations, dismantling of trade unions, etc etc ad nauseam. They do this not because of any real belief that these laissez-faire policies are sensible things to do, or in the third world context, whether they respect a sensible sequencing strategy, but because doing neo-liberal looking things will "attract investors". So you have to raise interest rates in a recession to "attract investors". There is no pressing fiscal or efficiency argument for privatising a water utility, but privatising it will send the right message to "investors". Cutting government spending is necessary because it is the sort of thing investors want to see.

Italy had a real case of CCK in the early Berlusconi years, when the politicians vied with one another to see who could display the most anglosassonismo. Peru had a particularly bad case of it, electing Fujimori largely on the basis that his surname would attract Japanese investors. It seems that India's got it now; Aaro's only real argument for further massive neoliberal reform is that to slow the pace of change would risk scaring the "investors" (he also repeats the hoary old fallacy that the Indian growth boom started in 1991 with a big neoliberal package; it didn't, it started in the 1980s under the old system).

At times of crisis, even the International Monetary Fund resorts to CCK, (Paul Krugman noticed this as early as 1998). But it's a bad theory of economics; there is really very little evidence that the animal spirits of investors are materially stimulated by enacting the rituals of an "investor-friendly" government, or that foreign capital is a prerequisite for development, or that the benefits of this investment are so great as to outweigh the often very large short-term costs. It is, on the other hand, not difficult to see why it appeals to Aaro. We've noted so very many times in the past that Dave is in thrall to a fundamentally aesthetic politics which he calls "liberal optimism" and we make unkind remarks about being rooted in the Pritikin Institute. The whole tenor of modern Aaronovism is the belief that "dynamism" (I have commented in the past that "dynamic" is a word that people use in economic contexts to mean "good" when they don't know what they're talking about) and change for change's sake are the requirements of the modern world, and Cargo Cult Keynesianism provides him with an economic policy to match his political philosophy. Even better, it has come to him out of the mouths of rich people in poor countries.

13 Comments:

Anonymous redpesto said...

"Cargo Cult Keynesianism" - when you used that to explain the whole ideology of 'attracting investors', a little light went on which told me 'That's it!'. As Pope (or was it Dryden?) wrote, wit is 'what oft was thought but ne'er so well expressed'. (Cf also this article by the Guardian's Larry Elliott, which namechecks Bobbit's idea of the 'market state'?)

6/16/2006 09:27:00 AM  
Blogger Benjamin said...

Excellent post, thoughtful and insightful.

6/16/2006 10:19:00 AM  
Anonymous Cian said...

Superb post. You should work it up for a larger audience.

6/16/2006 10:52:00 AM  
Anonymous Backword Dave said...

True wit is nature to advantage dress'd:
What oft was thought, but ne'er so well express'd.

Pope, Essay on Criticism, IIRC.

6/16/2006 11:00:00 AM  
Anonymous redpesto said...

Off topic, but if you replace Mleanie Phillips' name with Nick Cohen's in this interview with Jackie Ashley, I suspect you'd get a surprising fit - espeically this bit:

So where does it come from, this thrilling anger, this medieval self-righteousness of tone? In part, it comes from the intellectual journey she has taken, from being a woman of the left to becoming a cultural conservative. She dates this to 1987 when, as a Guardian columnist with two young children, she could not find a decent school and wrote about the failures of education, "and the world literally fell on me overnight ... my colleagues and readers said, 'You've gone mad'". Then she started to write about the breakdown of the family and "that's when the real damage was done, that was it, because people literally started attacking me at parties, purple in the face, waving their Guardians, saying, 'You personally have accused me of doing terrible things to my children' ..." Reacting to such anger must harden you, and she says it took a long time "to put this together in some coherent world view".

Education, rows at parties...sound familiar?

6/16/2006 11:39:00 AM  
Anonymous Backword Dave said...

It's funny, isn't it, that both MM (Mad Mel) and NC seem to think that a conservative is a liberal who tried to sent his sprogs to a North London comp. Did Aaro go private? His brood seem to have survived OK.

6/16/2006 02:05:00 PM  
Anonymous Anonymous said...

This was very interesting and persuasive. But I know nothing about economics, so you'd better not be bullshitting me.

How much does that LSE summer school cost?

6/16/2006 02:10:00 PM  
Blogger Marc Mulholland said...

Thgis is a very fine article.

"there is really very little evidence that the animal spirits of investors are materially stimulated by enacting the rituals of an "investor-friendly" government"

I'm not quite sure of the gravamen of material stimulation of the spirit here. The problem reminds me of Michael Kalecki's famous positing of a capitalist 'class interest':

"‘[D]iscipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system."

6/16/2006 02:17:00 PM  
Anonymous bruschettaboy said...

£2,300 for the full deal; it is not cheap so it is best to get your employer to pay. I can testify that it is very good though; a couple of acquaintances have been through it.

http://www.lse.ac.uk/collections/summerSchool/brochure/Default.htm

I think it might be too late for this year but I am not sure.

6/16/2006 02:58:00 PM  
Blogger Terence said...

Good post.

FWIW I've heard that poem attributed to Gerald Helleiner (as opposed to Tobin). I'm not sure who acutally said it but it does seem rather too anti-establishment to be coming from Tobin...

6/17/2006 12:29:00 AM  
Anonymous Anonymous said...

Always good to read Aaronovitch/Cohen Watch - intelligent and entertaining for all the right reasons.

(Whereas Nick and Dave are often entertaining for all the wrong reasons).

6/17/2006 04:19:00 PM  
Anonymous Anonymous said...

the growth in the 1980s in india, if i remember correctly came from some amount of trade reform but mainly through a hefty dose of public investment (in agriculture). Public investment sharply fell in the 90s because of the need to reduce government deficits. this ended up screwing agriculture. and given that around 55 percent of the population still depends on the farm for a living...
data out recently shows that poverty actually fell at a much slower pace in the 90s than in the 80s.

6/18/2006 02:03:00 AM  
Blogger Chris Williams said...

Steve Bell essentially reprised the Cargo Cult Keynsianism concept in an early issue of _Maggie's Farm_ from c. 1980.

6/19/2006 06:56:00 PM  

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