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sanity,
humanity and science
post-autistic economics
review
Issue no. 18; February 5, 2003
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In this issue:
-
Esther-Mirjam
Sent
Pleas for Pluralism
- Ana Maria Bianchi
Policy-Relevance in the Latin American
School of Economics
-
Steve Cohn
Common Ground Critiques of Neoclassical
Principles Texts
- Jamie Morgan
How Reality Ate Itself: Orthodoxy, Economy &
Trust
- Peter Wynarczyk
Austrian Economics and the Post-Autistic Economics
Challenge
- Comment:
Wolff replies to
Perino on the Absurdity of “Efficiency”
- PAE economists in the news: Joseph
Stiglitz, Michael Bernstein,
Steve Keen, Neva Goodwin, Deirdre
McCloskey, Stephen Ziliak, Bruce Caldwell,
Vernon Smith, Daniel Kahneman
Pleas for Pluralism
Esther-Mirjam Sent (University of Notre Dame, US, and Netherlands Institute for Advanced
Study in the Humanities
and Social Sciences (NIAS))
Pleas
The
first stage of the movement that led to the establishment the Post-Autistic
Economics Network involved a group of economics
students in France publishing a petition in June 2000 under the banner
“autisme-économie.”1 Their plea was supported by an appeal
from some economics teachers in France. The second stage was launched in
September 2000 by the appearance of the first issue of the email newsletter
you find in your inbox. By its second issue, the Post-Autistic Economics
Newsletter had subscribers from 36 countries, and it currently has over 5000
subscribers from over 100 countries. In November of 2000 http://www.paecon.net went in the air,
ushering in further international interest. In 2001, 27 economics Ph.D.
students at Cambridge University in England who have come to be known as the
“Cambridge 27” issued a petition entitled “Opening Up Economics.” The third
stage is where we are now and at which this contribution carefully considers
pleas for pluralism that have featured prominently during the previous two
stages, as well as before the establishment of the Post-Autistic Economics
Network. As Wade Hands (1997b, 194) observes: “The plea for pluralism in
economics has been a frequent refrain throughout the history of modern
economic thought. This refrain has usually been voiced by those who were
outside, or critical of, the mainstream in modern economics.”
Eight
years before the first stage mentioned in the previous paragraph, in 1992, a
group of economists issued a “Plea for a Pluralistic and Rigorous Economics”
in an advertisement in the American
Economic Review, calling for “a new spirit of pluralism in economics,
involving critical conversation and tolerant communication between different
approaches. Such pluralism should not undermine the standards of rigor; an
economics that requires itself to face all the arguments will be a more, not
a less, rigorous science.”2 The announcement had been organized by
Geoffrey Hodgson, Uskali Mäki, and D. McCloskey, and signed by forty-four
illustrious names amongst which were Nobel laureates Franco Modigliani, Paul
Samuelson, Herbert Simon, and Jan Tinbergen.
In
1993, the International Confederation of Associations for Pluralism in
Economics (ICAPE) was founded as a “consortium of over 30 groups in
economics” that “seeks to foster intellectual pluralism and a sense of
collective purpose and strength.”3 Its 1997 resource list
contained 30 professional associations, 32 academic and policy journals, 11
publishers, 16 departments, 16 centers, and 9 special projects, not all of
which were formally affiliated with ICAPE. The consortium’s statement of
purpose suggests: “There is a need for greater diversity in theory and method
in economic science. A new spirit of pluralism will foster a more critical
and constructive conversation among practitioners of different approaches.
Such pluralism will strengthen standards of scientific inquiry in the
crucible of competitive exchange.” ICAPE’s first conference on “The Future of
Heterodox Economics” will be held during the Summer of 2003.
The “autisme-économie” petition mentioned before, published in 2000, favored
a pluralism of approaches in economics.4 The French students
wrote: “We want a pluralism of approaches, adapted to the complexity of the
objects and to the uncertainty surrounding most of the big questions in
economics….” The petition of the economics teachers in France also stressed
the need for pluralism, focusing mostly on theories.5 They
concluded: “Pluralism must be part of the basic culture of the economist.
People in their research should be free to develop the type and direction of
thinking to which their convictions and field of interest lead them. In a
rapidly evolving and evermore complex world, it is impossible to avoid and
dangerous to discourage alternative representations.”
The proposal for reforming economics entitled “Opening Up Economics” issued
by the “Cambridge 27” in 2001, ends as follows: “We are not arguing against
mainstream methods, but believe in a pluralism of methods and approaches
justified by debate. Pluralism as a default implies that alternative economic
work is not simply tolerated, but that the material and social conditions for
its flourishing are met, to the same extent as is currently the case for
mainstream economics. That is what we mean when we refer to an ‘opening up’
of economics.”6
Implicit in all these appeals is the observation that economics lacks
pluralism. The pleas are defended by means of an assortment of arguments,
such as discussions of the complexity of the economy, evaluations of the
restrictions inherent in modeling, and assessments of the cognitive
limitations on the part of economists. The advertisement in the American Economic Review also employs
a reflexive strategy: “Economists today enforce a monopoly of method or core
assumptions, often defended on no better ground than it constitutes the
‘mainstream’. Economists will advocate free competition, but will not
practice it in the marketplace of ideas.”7 The remainder of this
contribution highlights some problems with the pleas for pluralism, in an
effort to open up ways for strengthening them further.
Pluralism?
Since
pluralism itself is a reflexive doctrine — there can be more than one kind of
pluralism — problems occur in using pluralism as an organizing principle.
First, the nature of pluralism in the various pleas differs. A distinction
needs to be made among theories, methods, methodologies, approaches,
perspectives, models, explanations, and so on (see, e.g., Salanti and
Screpanti 1997). Whereas the French students stress approaches, their
teachers focus more on theories, and the British students emphasize methods
and approaches. Somewhat troublingly, ICAPE’s statement of purpose appears to
confuse methods and methodologies, for instance when it notes: “One
conspicuous consequence of the homogenization of economics has been a loss of
methodological pluralism.” Now, pluralism about methodologies involves
adopting a pluralistic position towards one’s own understanding of the
multifaceted enterprise of economics, borrowing from a wide variety of
“shelves,” including history, literary criticism, philosophy, and sociology
(see, e.g., Hands 2001). This is not what ICAPE’s reference to methodological
pluralism intends to address. Instead, it is concerned with pluralism about
methods, which involves types of models, reasoning, and so on upon which
economics relies (see, e.g., Dow 1997, 2002).
Second, the source of pluralism varies. It could be ontological,
epistemological, pragmatic, historical, sociological, heuristical, political,
and so on (see, e.g., Salanti and Screpanti 1997). Whereas the French
students focus on complexity and uncertainty, their teachers emphasize a wide
range of contextual matters, and the British students are not explicit about
the source of pluralism. Let us take a closer look at the mechanisms outlined
by the teachers: “Pluralism is not just a matter of ideology, that is of
different prejudices or visions to which one is committed to expressing.
Instead the existence of different theories is also explained by the nature
of the assumed hypotheses, by the questions asked, by the choice of a
temporal spectrum, by the boundaries of problems studied, and, not least, by
the institutional and historical context.” The argument that theories vary
across different scientific contexts (domains, times, interests, et cetera)
raises the question whether for every phenomenon, question, and so on there
would be a single, best account. If so, then this view seems to reduce to
monism, which foreshadows the arguments of the subsequent sections. Before
moving there, we will make one more observation concerning pluralism.
Third, not much thought seems to have been given as to the classification of
pluralism. The various objects of pluralism could be translatable or not and
might be compatible or not. Reflexivity concerns should keep one from casting
the classification in terms of complements and substitutes (see, e.g., Mäki
1999). The French students, their teachers, and the British students all seem
to view heterodox and neoclassical economics as neither translatable nor
compatible. This, again, introduces the possibility of a reduction to monism,
as elaborated in the following sections.
Monism!
Most
importantly, despite these apparent appeals to pluralism, upon closer
scrutiny, the pleas seem to be inspired my monism about theories. This
motivation is evidenced, for example by the observation that the first
conference of the International Confederation of Associations for Pluralism
in Economics (ICAPE) is on the future of heterodox economics, while orthodox
economics is considered to be “vapid, exclusionist, and detached from its
social and political milieu.” The French students write about neoclassical
economics: “We no longer want to have this autistic science imposed on us.”
And their teachers concur: “Neoclassicalism’s fiction of a ‘rational’
representative agent, its reliance on the notion of equilibrium, and its
insistence that prices constitute the main (if not unique) determinant of market
behavior are at odds with our own beliefs.”
Using a label introduced by Ronald Giere (forthcoming), the appeals to
pluralism on the part of heterodox economics may be seen as an instance of strategic
pluralism. Though advocacy of pluralism by the French students, their
teachers, and the British students may be couched in metaphysical or
epistemological terms, could be primarily inspired by efforts to achieve
professional power and dominance. John Davis (1997, 209; original emphasis),
therefore, concludes that the motivation of heterodox economists “is not that
their own theoretical approaches are also
correct — a theoretical pluralist view — but rather than neoclassical
economics is mistaken and misguided in its most basic assumptions, and that
their own approaches remedy the deficiencies of neoclassicism — a theoretical
monist view.”
Also against the spirit of pluralism, heterodox economists appear to be
offering a rather monist reading of the mainstream. The French students
“oppose the uncontrolled use of mathematics,” their teachers “denounce the
naïve and abusive conflation that is often made between scientificity and the
use of mathematics,” and the British students dispute the “commitment to
formal modes of reasoning that must be employed for research to be considered
valid.” Which mathematical formalism do they oppose (see, e.g., Hands and
Mirowski 1998; Mirowski and Hands 1998)? Is it that of the University of
Chicago Economics Department (in particular Milton Friedman and George
Stigler), of the Cowles Commission at the University of Chicago (especially
Kenneth Arrow and Gerard Debreu), or of the Massachusetts Institute of
Technology (most notably Paul Samuelson)? Or is it the mathematical formalism
of the game theoretic approach of John von Neumann and Oskar Morgenstern, or
of John Nash? And how about efforts to incorporate bounded rationality
approaches, behavioral insights, chaos theory, complexity approaches, and
experimental methods? As Sheila Dow (2002, 7) suggests: “[M]ainstream
economics gives the appearance of a moderate form of pluralism.” By
monistically equating orthodox economics with mathematical formalism,
therefore, heterodox economists ignore the fragmentation of the mainstream
and manoeuvre themselves in a vulnerable position.
Concluding
Comments
If
heterodox economists are serious about their advocacy of pluralism, as we
hope they are, they need to carefully consider the nature, source, and
classification of pluralism.8 And they need to confront the charge
that pluralism inevitably leads to an “anything goes” view. They also need to
beware of sliding into monism. For instance, an ontological perspective that
stresses the patchiness of the world runs the risk of being reduced to monism
because it might be consistent with the idea that for every phenomenon there
is a single, best account. An epistemological view that involves the hedging
of bets may reduce to monism if the long-term goal is a single comprehensive
account. An epistemological view that relies on the cognitive limitations of
economists may reduce to monism if the limitations are merely delaying the
development of a single, complete, and correct theory. If heterodox
economists desire pluralism, they need to honor its spirit when offering
interpretations of the mainstream. If heterodox economists employ appeals to
pluralism strategically in an effort to achieve monism, they leave themselves
vulnerable to criticism. Finally, they need to ensure, as stressed by the British
students, that the material and social conditions for the flourishing of
pluralism are met.
Notes
1. A brief history of the
Post-Autistic Economics Network is available at http://www.paecon.net/.
2. The advertisement appeared in American
Economic Review 82 (2): xxv.
3. Information on ICAPE can be found at http://www.econ.tcu.edu/econ/icare/main.html.
4. The text of the French students’ petition is available at http://www.btinternet.com/~pae_news/texts/a-e-petition.htm.
5. The text of the professors’ petition circulated in France can be found at
http://www.btinternet.com/~pae_news/texts/Fr-t-petition.htm.
6. The open letter of the 27 Ph.D. students at Cambridge University may be
accessed at http://www.btinternet.com/~pae_news/Camproposal.htm.
7. One of the organizers of the plea, Uskali Mäki (1999), clarifies that some
economists who are supporters of free market (object-)economics refused to
sign, whereas some economists who are less enthusiastic about free market
(object-)economics did sign. He conjectures that “when economists talk about
the ‘free market’ of ideas, they do not use the expression in the sense in
which it appears in their theories of the goods market” (504). This enables
consistency, but eliminates full self-referentiality.
8. Some of these observations draw on a very insightful list of questions
about scientific pluralism that was drawn up by Stephen Kellert, Helen
Longino, and Kenneth Waters in preparation for a workshop on scientific
pluralism. The list is available at http://www.mcps.umn.edu/pluralism/outstanding_questions.html.
References
Davis, John B. (1997),
“Comment”, in Salanti and Screpanti 1997, 207-11.
Dow, Sheila C. (1997), “Methodological Pluralism and Pluralism of Method”, in
Salanti and Screpanti 1997, 89-99.
———. (2002), “Pluralism in Economics”, Paper presented at the Annual
Conference of the Association of
Institutional and Political Economics, 29 November 2002.
Giere, Ronald N. (forthcoming), “Perspectival Pluralism”, in Stephen Kellert,
Helen Longino, and C.
Kenneth Waters (eds.), Scientific
Pluralism, Minnesota Studies in the Philosophy of Science.
Hands, D. Wade (1997), “Frank Knight’s Pluralism”, in Salanti and Screpanti
1997, 194-206.
——— (2001), Reflection Without Rules:
Economic Methodology and Contemporary Science Theory.
Cambridge: Cambridge University Press.
Hands, D. Wade and Philip Mirowski (1998), “Harold
Hotelling and the Neoclassical Dream” in Roger
Backhouse, Daniel Hausman, Uskali Mäki, and Andrea Salanti
(eds.), Economics and Methodology:
Crossing Boundaries. London: Macmillan, 322-97
Mäki, Uskali (1999), “Science as a Free Market: A Reflexivity Test in
an Economics of Economics”,
Perspectives
on Science 7 (4): 486-509.
Mirowski, Philip and D. Wade Hands (1998), “A Paradox of Budgets: The Postwar
Stabilization of American
Neoclassical Demand Theory”, in Morgan and Rutherford
1998, 260-92.
Morgan, Mary S. and Malcolm Rutherford (eds.) (1998), From Interwar Pluralism to Postwar Neoclassicism,
Annual Supplement to Volume 30, History of Political
Economy. Durham: Duke University Press.
Salanti, Andrea, and Ernesto Screpanti (eds.) (1997), Pluralism in Economics: New Perspectives in
History and Methodology. Cheltenham, UK: Edward Elgar.
______________________________
Esther-Mirjam
Sent is the author of The Evolving
Rationality of Rational Expectations (Cambridge: Cambridge University
Press, 1998) and the editor (with Philip Mirowski) of Science Bought and
Sold (Chicago: University of Chicago Press, 2002). She may be contacted at sent.2@nd.edu.
______________________________
SUGGESTED CITATION:
Esther-Mirjam Sent, “Pleas for Pluralism”, post-autistic economics
review, issue no. 18, February 4, 2003, article 1. http://www.btinternet.com/~pae_news/review/issue18.htm
Concern with Policy-Relevance in the
Latin American School of
Economics
Ana Maria Bianchi (Universidade de Sao Paulo, Brazil)
As I understand it, one of the main goals of the post-autistic movement is to
stimulate the economics profession to transcend autism and communicate with
the rest of the world, non-economists included. One of the ways of attaining
this goal is to look back at the history of economic ideas, which is full of
interesting episodes that can help us to understand what happened in the past
and what is going on today. Historical reconstruction may attract our
attention to some currents of thoughts which developed outside the mainstream
of the profession and were never made part of the academic textbooks,
although they brought up significant new perspectives on the functioning of
the economic systems.
In this connection, it is worth recalling the episode that concerns the
building of the Latin American School of Economics in midst 20th
century. This school of thought originated in the United Nations Economic
Commission for Latin America and Caribe (ECLAC), founded in 1948. Its best
known leader is the Argentinean economist Raul Prebisch. After holding
important executive positions in the Central Bank of his country, Prebisch
taught economics at the University of Buenos Aires and soon after joined the
ECLAC staff, where he stayed for 15 years. His conception of the growth
processes in Latin America was developed in several essays published by the
ECLAC1 and became the basis of what is now known as the Latin American school. Under
the leadership of Prebisch, the institution became a think tank for a whole
generation of heterodox economists and social scientists in general, the
so-called cepalinos, whose ideas provided theoretical justification
for the economic development of Latin America countries during the second
half of the twentieth century.
The main thesis advocated by the Latin American School was that the
“peripheral” countries, which specialized in exporting raw materials and
primary products in general to the “central” industrialized countries,
suffered from a long-term decline in their terms of trade. The benefits of
external trade were unequally shared by these two groups of countries, the
producers of manufactures, on the one hand, and the producers of raw materials
and primary goods, on the other. Due to this asymmetrical relationship in
their foreign trade peripheral countries faced a vicious circle of low
productivity and low rate of savings. Regarding the central countries, market
imperfections such as rigidity of wages and monopolistic conditions were such
that the gains in productivity derived from technological improvements did
not result in decreasing prices for industrial goods exported to Latin
America and peripheral countries in general. The balance of payments deficits
were detrimental to Latin American´s economic growth, as receipts deriving
from exportations did not create the import capacity needed to provide the
region with the capital goods that it required to develop its industrial
sector.
In order to overcome this situation, Latin American countries should protect
their foreign trade and concentrate on the production of an array of formerly
imported manufactured goods. Import substitution was a necessary condition
for peripheral growth, in association with structural reforms in the economy.
The focus should be placed on the strengthening of the domestic market, which
was seen as the crucial element of an inward-looking model of development.
Exportations were still necessary because they would guarantee the foreign
exchange needed for importing capital goods, but the hallmark of the cepalinos´s
conception was the focus on the domestic market. Within Latin America,
economic integration between countries would allow them to take advantage of
economies of scale, in the sense of providing larger markets and favouring
the dissemination of modern technologies.
These were, in a nutshell, the main theses defended by the cepalinos,
who worked hard to gather statistical data about Latin America
countries and their patterns of foreign trade. It its important to notice that this was not a widespread
procedure in the 1940s and 1950s. On the contrary, in many economic texts,
mostly those meant for a lay audience, there was no systematic concern with
the role of statistical evidence in economic analysis. The cepalinos
prompted a break from the prevalent discursive style. Concern with the
empirical support of economic theses was present in the very spirit that
presided over the conception of the ECLAC. The entity´s staff was put in
charge of assembling statistical data about Latin America, in order to
compensate for the chronic deficiency, and they did the best they could do in
this area.
Another important point about the cepalinos is the fact that they were
severe critics of the conventional theory of international trade, both in its
Ricardian and neoclassical versions. In a late interview, Prebisch
(1987) stated that, although he was raised in the neoclassical tradition, the
Great Depression forced him to review his ideas. Already in his writings as a
member of the ECLAC staff, he argued that the main mistake of neoclassical
economics was to attribute a general character to something that was
geographically circumscribed. From the viewpoint of the periphery, conventional
economics suffered from a “false sense of universality”, as its general laws
did not apply to the world economy as a whole. The international division of
labor which this theory pictured as a “natural” outcome of the world system
of trade was of much greater benefit to central than to peripheral countries.
A new investigative effort was thus necessary for a correct interpretation of
Latin American problems, one that would bear in mind the need to tailor the
neoclassical theory to the specific conditions of peripheral economies. This
did not mean, however, that the new generations of Latin American economists
had to start all over again, building a completely different economic theory.
On the contrary, they had to learn neoclassical economics before being able
to make the necessary adaptations2
Prebisch and the cepalinos were influenced by the German Historical
School, especially its forerunner Friedrich List, from whom they borrowed the
“infant industry” argument. According to this argument, a potential manufacturer
in a developing country, faced with an initial period of high costs, should
be put under State protection. Temporary intervention would make entry into
the new industry profitable provided that, on the longer term, its production
costs would decline below the imported cost. This argument was combined with
an appeal for import-substitution industrialization as the only way out of
poverty and underdevelopment. Although not an end in itself,
industrialization was the principal mechanism at the disposal of peripheral
countries to obtain a share of the productivity gains achieved through
technological progress. In this scenario a major role was attributed to the
state, which should provide protection for the newborn domestic industries.
The cepalinos also placed great emphasis on economic programming and
planning techniques. The development process should follow an orderly
strategy, and it could not be conceived as the spontaneous process which
characterized it during the nineteenth century.
On the empirical counterpart of this ideological and institutional movement,
the cepalinos succeeded in mobilizing the energies necessary to give a
new impulse to the state-led industrialization process. Industrialization
through import substitution had begun earlier in countries such as Brazil,
Argentina and Chile, but it gained a new momentum with the diffusion of
structuralist ideas and policies. Burger (1999) claims that with the ECLAC
industrial policies came to represent a logical continuation of this early
process, systematized into a more coherent body of ideas.
All in all, this industrialization model worked in Latin America, if by
“working” we mean driving the per capita output for a quite extensive period
of time. During the three decades that followed World War II, Latin America
saw a continuous growth of its industrial product, its gross domestic
product, and its per capita income.
Between 1950 and 1978, Latin America´s gross domestic product grew at
an annual rate of 5,5%, a rhythm that far exceeded the world average. The
Latin American industrial product was multiplied by six in the same time
period, growing at rates far superior to the population growth, which grew
2,8% a year. The continent as a
whole exhibited a persistent growth of its GNP per capita of about 2,6% a
year.
Yet the
import-substitution industrialization model had shortcomings and the cepalinos
quickly came to acknowledge this fact. In a book published in 1971, called Change
and Development, Prebisch pointed out to the limitations of this model as
it had actually evolved. Latin American economies, he claimed, could no
longer continue to rely on import substitution alone. Rather than
concentrating on the production of basic goods for general consumption, the
newly created industries had tended to concentrate on the production of
consumption goods that benefited a small portion of the urban consumers. The
industrialization model adopted by the Latin America countries produced
growth but failed to produce equity, as it was unable to absorb the excess
labor force, marginalizing large masses of people from its benefits.
In this
sense, the import-substitution model adopted by Latin America after World War
II was inefficient in achieving a significant reduction of poverty and income
concentration in the continent. Latin America became less poor in the second
half of the 20th century, and this is something to be praised, but
its indices of inequality, which were already comparatively high in 1950,
remained so throughout the 1950-1980 period. The costs of this process included high inflation levels –
a further object of concern of Prebisch and the cepalinos -, which
accelerated at an unprecedented rate near the end of the century. These costs also included a growing
foreign debt and a bloated, inefficient, and corrupt public sector. The integration of the continent
itself, a dream nurtured by ECLAC from its very beginnings, moved at the
speed of a turtle.
From the academic point of view, the
Latin American School of Economics did not acquire many followers
outside the continent. There are very few mentions of it in the international
literature of the history of economic thought, macroeconomics and growth
economics. One exception is found in Thirlwall and McCombie (1994, pp.256-7),
who refer to the importance of Prebisch in the construction of
center-periphery models of growth and development. (The authors build an
equation which would be later adopted in post-Keynesian growth models.)
Be that as it may, the most
important feature of the Latin American School is the fact that its authors
were thoroughly concerned with the practical relevance of their writings.
This is not a prerogative of this school, as we learn from Milberg (1996),
who claims that in the field of international economics researchers have been
persistently concerned about policy-relevance. Nevertheless, this is
something to be praised, in times when ultra-formalism tends to dominate a
significant part of the academic scene. Influenced as they were by the German
Historical School, the cepalinos fully recognized the prescriptive
nature of economics. Their writings show an explicit commitment to values
such as economic development, social welfare and equity. The cepalinos
wanted to learn the relevant theory and to assemble the relevant statistics,
but they also wanted to tell something important and true about their Latin
American world. In this sense, they mobilized some broad-based economic
expertise in order to propose economic and social changes, thus bridging the
gap between what they learned in the textbooks and the world out-there.
Notes
1. Among these writings two were specially path-breaking: the essay called
“The economic development of Latin America and its principal problems”,
presented for the first time in June 1949, during the ECLAC general assembly
held in Havana, Cuba; and the introductory part of the Economic Survey of Latin America 1949, presented during the ECLAC general assembly held in
Montevideo, Uruguay, in May 1950.
2. This is what Hodgson (2001) would call the neglected problem of historical
specificity, which he considers to be a problem of vital significance for the
social sciences, fully recognized by all the leading members of the German
Historical School. It addresses the limits of explanatory unification in the
social sciences, in the sense that they must build theories that are
sensitive to historical and geographical variations. In the author´s own
words:
“... differences between different
systems could be so important that the theories and concepts used to analyse
them must also be substantially different, even if they share some common
precepts. A fundamentally different reality may require a different theory.
This, in rough outline, is the problem of historical specificity.” (Hodgson
2001, p. xiii)
References
Burger, Hillary. 1999. An Intellectual History of the ECLA
Culture, 1948 to 1964. Boston, MA: Harvard
University Press.
Hodgson, Geoffrey, 2001. How Economics Forgot History. London and New
York: Routledge.
Milberg, William, 1996. “The Rhetoric of Policy Relevance in International
Economics”, Journal of
Economic Methodology 4 (2): 199-200.
Prebisch, Raúl, 1971. Change and Development: Latin America´s Great Task.
New York: Praeger.
Prebisch, Raúl, 1987. “Cinco Etapas de mi Pensamiento sobre el
Desarrollo”. Comércio Exterior 37 (5).
Prebisch, Raúl. 1948. “Desarollo Económico de América Latina y sus
Principales Problemas”. Santiago:
CEPAL, E/CN.12/0089, 87 pp. (published
in English as “The Economic Development of Latin America
and its Principal Problems.” UN E CN. 12/89 Rev.1.
Thirlwall, A. P. and McCombie,
J.S.L., 1994. Economic Growth and the Balance of Payments Constraint.
St. Martin´s Press.
United Nations, Economic Commission for Latin America, 1951. Economic Survey of Latin America 1949.
Santiago: UN.
______________________________
SUGGESTED CITATION:
Ana Maria Bianchi, “Concern with Policy-Relevance in the Latin American
School of Economics”, post-autistic economics review, issue no.
18, February 4, 2003, article 2. http://www.btinternet.com/~pae_news/review/issue18.htm
Common Ground Critiques of Neoclassical Principle Texts
Steve Cohn (Knox College, USA)
Like many heterodox economists I am pleased and excited by the growth of the
PAE network. I'd like to share
some thoughts about a project I
have been working on that overlaps many initiatives and ideas that
have been discussed in the PAE Review.
The “critical commentary” project is
based on four major assumptions.
Assumption 1: Need for Critique
In the mid 1990s
about 1.4 million students took principles classes in the United States. All 20 best selling introductory
macroeconomics textbooks in the U.S. are basically neoclassical texts.1
It is unlikely that even 1% of the students use a non-neoclassical principles text.
To make matters worse, for several decades the neoclassicists have been increasing
their control over economic education at the pre-college level. There has been a major effort to
craft and then impose on high school (and even pre-high school) economics
courses "voluntary content standards" that reflect neoclassical
ideas. This has been accompanied
by the creation of review mechanisms, such as the Test of Economic Literacy
(TEL), that assess economic knowledge in terms of students' acceptance of
neoclassical theory.
When economists objected to the
narrowness of the "voluntary" content standards, two important
members of the drafting committee were quite explicit about their attempt to
censor other viewpoints. They
indicated,
"The final
standards reflect the view of a large majority of economists today in favor
of a 'neoclassical model' of economic behavior….The task was to produce a
single coherent set of standards to guide the teaching of economics in
America's schools. Including
strongly held minority views of economic processes risks undermining the
entire venture."2
Assumption 2: Generic Target
There is a template, a standard neoclassical treatment of most topics covered
in principles courses, which can serve as the target for a heterodox or
pluralist commentary. Space
limitations preclude defending this claim here, but it is hardly
controversial. Colander's
observation that principles texts can not diverge more than 15% from standard
fare characterizes the market's homogenization fairly well.
Assumption 3: Common Ground Critique
While the
neoclassicists have been very good at homogenizing instruction within their
ranks so as to speak with one voice when it counts, those of us with
non-neoclassical positions have been less inclined to follow this
strategy. And for good
reason. Part of our success is
based on the hard won development of specialized languages (such as Marxist
theory) that are able to resist being co-opted by neoclassical
discourse. I think many advances
for heterodox theory will come by preserving these separate languages and
integrating their insights.
Nevertheless, while I think it is important for the individual
paradigms to continue to flourish as separate schools of thought, I am
convinced it is possible to find broad common ground across a wide range of
critiques of neoclassical principles texts, including work by many Marxist,
radical, institutionalist, feminist, Post Keynesian, socio-economic,
humanistic, and ecological economists.
To use a biological metaphor, the issue is whether heterodox paradigms
can be thought of as members of one species or separate species. I believe there are enough shared
ideas among paradigms to inter-breed and support shared assaults on
neoclassical texts.
Assumption 4: Appropriate Pedagogy
An effective
critique of standard texts requires a sustained voice. One of the rhetorical
strengths of principles books is the repetition of the same kind of analysis
across many different topics.
Our critiques must offer a competing "habit of mind." Besides challenging the formal
arguments of neoclassical economics,
heterodox critiques must also challenge the "stories"
in neoclassical principles texts and offer alternative stories, metaphors,
and patterns of analogies to convey heterodox ideas.3
The Significance of Common Ground
Since establishing
our common ground may be key to expanding the influence of pluralist
economics, I will concentrate on elaborating Assumption 3 in this article. Besides offering opportunities
for intellectual cross pollination, securing common ground might increase the
clout of pluralism within the economics profession. Why not, for example,
band together to demand that the College Board's Advanced Placement exam
include at least one question that requires some knowledge of alternative
economic paradigms? The growth
of ICAPE4 and recent efforts to create umbrella projects, such as
the recent and/or upcoming conferences on the history and future of heterodox
economics in the U.S. are promising steps in this direction.
A key challenge for "heterodoxy" is to define itself in ways that
move beyond the rubric of "non-neoclassical" economics. In defining a common ground in the
"critical commentary" I have tried to do three things: (1) identify
shared ideas that generate a pattern of heterodox critique across
topics and chapters of introductory macro texts; (2) give special attention
to ideas that link methodological differences to policy differences; and (3)
characterize the common ground in ways that permit distinct paradigms to
develop common differences with textbook economics in different
ways.
Let me offer two examples of the latter point. I think holist alternatives to
methodological individualism are one of the most fundamental differences
between heterodox and neoclassical economics.5 Holist alternatives are expressed differently,
however, in different heterodox paradigms. For example, Marxist holism finds expression in
"dialectics;" institutionalist holism highlights patterns of
institutional reproduction; holism in radical economics often illuminates
social structures of accumulation;
feminist holism can involve systems of patriarchy; Post Keynesian
holism highlights socially constructed conventions for responding to
uncertainty; and so on. While
the approaches are very different they all assert that there is a "coherence"
to economic life that reproduces itself over time at a higher level of
integration than the individual.
A second example involves epistemological issues. In contrast to neoclassical theory's assertion of a
positivist-modernist epistemology, heterodoxy acknowledges the paradigmatic
and multi-dimensional nature of knowledge. While different economists have taken this challenge in
different directions (including the adoption of pluralist or Babylonian methodologies,
the rejection of micro foundation requirements, the acceptance of empathy and
aggregate analysis as viable research techniques, the adoption of critical
realism, etc.), there is a common ground that expands economics
discourse from the narrow terrain of textbook methodology.
Any attempt to create a common ground is inevitably going to exclude some
"terra firma" for many perspectives. The commonalities and rubrics I have chosen work well
along many dimensions, but not so well along others. With these qualifiers in mind, I
offer the concepts below as a heuristic for promoting discussion of common
ground in heterodox critiques of textbook economics. Because of space
limitations I have simply listed and not discussed most of the
categories. I will offer a few
comments on the two asterisked categories whose
meaning may not be self-evident from their title.
Heterodox paradigms share a common rejection of the following aspects of
textbook economics:
- its positivist-modernist epistemology
*- its subtexts
*- its treatment of issues of
well-being
- its inappropriate use of abstraction
- its universalization of homo economicus
-its allegiance to methodological individualism
In areas of particular relevance to macro theory, heterodoxy also
rejects:
- its assumption of perfect
information
- its assumption of perfect
competition
- its use of comparative static
rather than dynamic models
-
its appeal to partial equilibrium intuitions to explore system-wide issues
of macro coordination
- its abstraction from the monetary
character of the economy
- its abstraction from the labor
market's "subjective" dimension and the
institutionally
contingent determination of wage/profit shares
Heterodox critiques of neoclassical economics (at least the way I am using
the term heterodox) involve two different kinds of inter-connected
objections. Within neoclassical
economics, the first might be seen as "normative" and the second as
"positive" objections.
One of the claims of heterodoxy, however, is that the sharp
distinction between positive and normative statements claimed by neoclassical
economics oversimplifies the complex relationship between the two. Thus I will call the two objections
textual and subtextual. To some
extent, the first deals with the techniques of analysis and the second with
the goals of analysis (although the goals obviously influence and infuse the
choice of techniques).
Many heterodox economists feel that neoclassical economics often acts as an
apology for capitalism and laissez-faire oriented policy regimes. The
neoclassicists ridicule the claim, analogizing it to finding ideology in
geometry. I have found the
concept of subtexts very helpful in explaining heterodox thinking.
By subtexts, I mean (1) the tacit and unprovable assumptions about the nature of society and
the (2) normative ideas about the goals of economic knowledge that underlie
all economic paradigms.
Most intellectual work is motivated by a belief that the ideas pursued
are worth knowing. Subtexts
provide the context for knowing, i.e., they provide a backdrop that situates
the knowledge in relationship to the projects it is intended to facilitate
(i.e., it shows how the knowledge might be used).
Neoclassical and heterodox economics
tend to have very different subtexts and, partially as a result of this, tend
to offer radically different contexts for thinking about economics and public
policy.
Illustrative of a larger list of textbook subtexts are the implicit
assertions that:
1.
Neoclassical economics is a scientific theory and as such
demands belief in ways similar to modern physics.
2.
Market outcomes reflect free choice.
3.
People are naturally greedy, with insatiable consumer
appetites. Capitalism is
successful, in part, because it offers an incentive system that builds on
this “human nature.”
4. The
major purpose of economic theory is to promote economic efficiency and
economic growth, as both provide a basis for human happiness.
5. There
is no alternative to capitalism.
The failure of the former Soviet Union proves that socialism can’t
work. The message of the 20th
century is "let (capitalist) markets work." The onus is on the government to
justify "intervention" in the market.
In
contrast, among the key subtexts in heterodox economic writings are claims
that:
I think that issues of
well-being, implicit in many heterodox paradigms, like Marxist and Post
Keynesian economics, need to be made more explicit, as in socio-economics, ecological
economics, and feminist economics. Most neoclassical textbooks devote little
attention to analyzing the nature and causes of human well-being. They strongly imply, however, that
there is a close positive correlation between national output and national
well-being. While most
texts briefly acknowledge that several factors might complicate the link
between output and well-being, they generally ignore these complexities and
imply that this is quite appropriate.
Heterodox economics (implicitly or explicitly) challenges the relatively
mindless correlation between economic growth and human well-being animating
neoclassical textbooks.
Heterodox economists tend to give greater attention to empirical findings
about well-being (like those of Richard Easterlin) and theoretical concepts
that explore well-being, such as ideas about positional competition and
"meta-externalities" (the effect of economic outcomes on
non-economic societal variables like the viability of democracy). As a result heterodox analyses
challenge the mantra of "let the market work" that echoes in
principles texts
Contrasting Metaphors
I'd like to conclude with an abbreviated list of contrasting images that
respond to Assumption 4's recommendation that heterodox critiques challenge
the metaphors as well as the formal analytics of textbook economics.
Neoclassical Texts Heterodox
Alternatives
Economist as Scientist/engineer Economist
as Social Theorist
Key complementary disciplines: Key
complementary disciplines:
mathematics & computer science anthropology
and sociology
Homo Economicus Homo-Sociales
(Rational Isolated Economic Man) (Human
Beings in Social Contexts)
the Invisible Hand the
Prisoner's Dilemma
the Auctioneer the
Casino
Perfect competition Strategic
Competition
and Passive Firms and
Active Firms
Crafting a common ground for heterodox critiques of textbook economics is
inherently a collective project.
I have had enormous help from many people who cannot be acknowledged
here. I would welcome more
feedback, as so too would the editor of this journal.
Notes
1. One can debate the status of Colander's thoughtful, but by his own
admission, compromised text and hope that future editions of Stiglitz's book
will move further in a heterodox direction. Despite their contributions to a more thoughtful
economics, I find both books clearly on the neoclassical side of the ledger.
2. John J. Siegfried, (Secretary-Treasurer of the American Economics
Association) and Bonnie T. Meszaros of the Center for Economics Education and
Entrepreneurship: "What
Should High-School Graduates Know in Economics? National Voluntary Content Standards for Pre-College Economics
Education." American Economic Review 87(2) May 1997, p. 249.
3. While I am not sure that deployment of active learning teaching techniques
inherently favors heterodox economics, many feminist economists and PAE
contributors, such as Peter Dorman and Susan Feiner, have made interesting
arguments that they do.
4. ICAPE = The International Confederation of Associations for Pluralism in
Economics
5. Admittedly there are well known methodologically individualistic Marxists,
though the concept seems an oxymoron to me. Nevertheless I think this perspective should be included
in heterodox economics because of the broad overlap with heterodoxy in other
areas.
______________________________
Please e-mail (scohn@knox.edu) if you have any suggestions
for the commentary or wish to see sample chapters.
______________________________
SUGGESTED CITATION:
Steve Cohn, “Common Ground Critiques of Neoclassical Principles Texts”, post-autistic
economics review, issue no. 18, February 4, 2003, article 3. http://www.btinternet.com/~pae_news/review/issue18.htm
How Reality Ate Itself: Orthodoxy, Economy
& Trust
Jamie Morgan (The Open University, UK)
Quis custodiet ipsos custodies?
Who guards the
guards?
An economic theory that cannot sustain its own possibility is a poor
one but can also be a powerful one. A market economy may valorise the
symbolism of the invisible hand but it is as equally beholden to the
symbolism of the tacit handshake. The handshake is a metonym for a relation
and a market economy is a set of relations inscribed in rules, tacit or
otherwise. First amongst equals are trust and the means by which trust is
enacted and maintained. Without trust nothing else functions and social
reality would be impossible. The philosopher J. L. Austin was one of the
first to recognise the importance of this.1 There are at least two
dynamics to talking about social reality. First, description where we
designate things true or false by reference to them as objects or past events
- the hat is black, yesterday was Wednesday and we had lunch. Second,
performance, where current conduct and dialogue constitute a new conceptual
element to social reality with material repercussions for future relations –
the meeting of hands and it’s a deal, or the negotiation and witnessed
signing of a contract. In the immediate sense, performance is neither
strictly true nor false since it is not initially a description, but a doing
or making. The doing is in this first instance appropriate or inappropriate,
sincere or insincere, successful or a failure. That it is done is in the
second instance true or false – the contract as negotiated by two parties
with the legal authority to engage in those negotiations was signed by each
and entered into in good faith. The glue in this transition is the trust that
binds the particular rules of appropriate interaction. The interaction may
fail for a variety of reasons that cause immediate problems – an earthquake
may prevent the delivery of a consignment required for a just in time
production process. But these reasons are not devastating to the social
institution in which they occur – the sustainability of business agreements
perpetuating economic activity. However, when practices are designed to
confound basic principles of transparent dealing, when rules are insincerely
held, when a promise ceases to be something you intend to keep, trust
dissolves and markets cease to look quite so ‘spontaneously’ vibrant.
The orthodox Cheshire cat
As has often been argued, the timeless, ahistorical, institution-free
fundamentals of orthodox method cannot be easily reconciled to problems of
markets as rule systems.
But what does it mean that trust and the rules that constitute market
systems are not a central problem for orthodox economics? Orthodoxy is about
the spontaneous optimality that emerges from the removal of impediments.
Since the very idea of rules tends to be conflated with regulation there’s
nowhere left to hang the structuring of markets. This of course forgets that
deregulation is itself a (demonstrably inefficient) form of regulating rule.
Its inefficiency and its contradiction is that this form of regulation tends
to create the conditions for abuse that undermine the trust on which the free
economic activity of markets is based. The radical individualism inscribed in
it provides for the belief that freedom to massively predominates over
freedom from. Freedom from, our collective protection from the
abuses that undermine the very possibility of individual action, is pushed
aside. This deep ideological commitment can be heard in the words of Milton
Friedman:
What’s
interfering with the recovery is all this fuss about corporate governance,
which, in my opinion, is being carried too far. In all these cases – Enron.
Global Crossing, WorldCom – it was the collapse in the market that brought
attention to them. What’s happening now is that the hullabaloo, which in
effect is saying that to be a CEO is to be a member of a criminal class, is
very adverse for enterprise and risk.2
But the collapse of the market is not some natural event, it is the
dynamic consequence of complex interactions, many of them unanticipated or
unintended. One aspect of that is how the practices that constitute markets
can undermine the trust that markets require to function. Criminalizing CEOs is
adverse for enterprise and risk but would not be occurring if their practices
did not contribute to crises where they can no longer be disguised or
ignored. Economists tend to forget about power, but all human systems have
power asymmetries. For the powerful to be held to account indicates deep
concerns. That orthodoxy cannot recognise this, still less contribute to its
analysis in terms of its own theoretical tenets, indicates that it has little
that is constructive to say concerning the analysis of an important cause of
economic crisis.
In any case, one rarely sees
far when the view is from the top, however clear the view may potentially be.
In a recent speech Federal Reserve Chairman Alan Greenspan argued that both
the $8 trillion dollar loss of share vale on the DOW at the start of the new
century and the problems incurred as a result of Enron etc. indicated the
general health of the financial system.3 The basis of his
argument was that technology had produced new opportunities for financial
‘risk dispersion’ and that ‘a more flexible world economy’ was spreading
costs and absorbing shocks more readily. The proof? ‘No major US financial
institution was driven to default.’ In adopting this position, Greenspan
reveals himself as something of a stoic - whatever doesn’t kill us makes
us stronger. Still, the US financial institutions are scarcely the whole
body of economy. Default has quite a different meaning for those impoverished
by collapsing share values and ‘financial irregularities’. Risk dispersion is
a rather hollow term for those unable to pay their mortgages or with no jobs
to go to (US unemployment is 6% and rising). If we call the financial head
healthy we must still ask ourselves how it is treating its economic body – as
a temple or a trashcan? And need we call it healthy? 2001 was a record
breaking year for fraud class actions (488) in the US against firms.4
The majority by state pension funds and union pension schemes. Around 8 to
10,000 individual cases are being filed a year at the National Association of
Securities Dealers (NASD). And all of this despite a change in the law to
make it more difficult to sue firms for compensation for irregularity
- the 1995 Private Securities Litigation Act means that ‘aiders and abetters’
of wrongdoing in a fraud case cannot be held liable.
Practices that undermine trust
The context of the problem of trust is a finance system keyed to the
unrelenting pursuit of the next profitable firm and the next growth sector.
Consistent growth provides the basis of a profitable firm and a profitable
bull market for the financial industry.
When a firm meets its revenue forecasts it can mean a large increase
in its share valuation. Analysts categorise firms as ‘Market Out-performers’
(MOs), ‘Market Performers’ (MPs) and ‘Market Under-performers’ (MUs). Whether
a stock is rated as a ‘buy’ a ‘neutral’ or a ‘sell’ is, in principle, related
to which direction it is tending to in terms of these categories. Conventionally, our perception of
shares is based on their price-earnings ratio or P/E.5 The lower
the ratio the greater the earnings of the stock as a proportion of its price
and thus the faster one recoups the initial investment. P/E therefore provides
a measure of the attractiveness of stock as equity. But how reliable are the
price of the share and the earnings of the firms as indicators of the
decision to invest? What lurks beneath the numbers? Here, knowledge is
power:
·
The power to construct the firm’s reported revenue stream occurs
within strong pressures to place it in its best possible light. In terms of
trust, one confronts the question of how far the relationship between the
accountants and the firm can stretch. When does creative accounting become
aggressive accounting that in turn becomes collusion in fraud?
·
The power to manipulate stock prices through complex financial
arrangements on the basis of information that others do not have. Here, the
problem of trust comes up against the question of at what point expertise
becomes self-interest to the detriment of the system from which it feeds?
This is not just an issue of legality since trust is more than a
question of ‘were any laws broken?’ Part of the constitution of trust are the
ethics that inform how law is made and how it is adhered to – in its spirit
or in its letter? The grounds of trust are extremely difficult to define, but
easily lost. Losing sight of the importance of trust is the downfall of the
system. Its dysfunction becomes ravenous and reality begins to eats itself.
Its clearest expression is a debilitating scepticism. Its immediate, though
by no means final, consequence is a downward spiral of corporate
valuation.
Cannibalising reality?
The past five or six years have seen
numerous financial scandals. Since economy is an open system one tends to
find a complex interaction of some or all of the above practices within those
scandals. The dot.com bubble provided a great deal of scope for spinning (the
preferential allocation of stock to favoured clients) and laddering (having
investors promise to buy more stock at progressively higher prices once
trading begins). Though cases of spinning are alleged on the London markets,
New York has been the focus of investigation.6 New York
Attorney-general Eliot Spitzer has been engaged in protracted investigation
of 12 of the major financial institutions for forms of spinning. Most of the
evidence is based on private e-mails and documents that contradict the public
statements of investment analysts. Henry Blodget, a Merrill Lynch analyst,
for example, publicly rated Infospace stock as a buy whilst privately noting,
‘This stock is a powder keg… given the bad smell comments that so many
institutions are bringing up.’7 Breach of Chinese walls is also
alleged against Citigroup’s investment banking arm Salomon Smith Barney,
which consistently rated Qwest Communications as a ‘buy’ up to the point of
its price collapse. At the same time, Philip Anschutz, Qwest’s founder, was
selling Qwest shares amassing a $1.45 billion profit. Anschutz also received
57 allocations for various share issues at a personal profit of around $5
million from Salomon whilst Qwest had generated $37 million in revenue for
Salomon from its transactions.8 Fines imposed by the Securities
and Exchange Commission (SEC) on the banks currently stands at $1.4 billion.
$900 million of which constitutes compensation for investors, $450 million to
fund independent research (to maintain Chinese walls) and $85 million for
‘investor education’.9 $400 million of the total will come from
Citigroup (who have also set aside $1.5 billion to meet the costs of
compensation for further investor litigation).10
The dot.com firms themselves and also the new telecoms were highly
prone to creative accounting based on capacity swaps and barter in order to
massage their revenue figures during the early phase of set-up. This and talk
of new business models making money in completely new ways with extremely low
long-run fixed costs sucked in masses of venture capital (over $40 billion of
which is now lost).11 At the same time, as a high growth sector,
dot.coms provided (along with various high growth sectors of overseas
markets) one of the initial areas of high-risk that proved extremely
attractive to split capital trust (SCT) managers. The fact that some of these
issues were spun, of course, meant that the estimation of risk by those
managers was baseless and their vulnerability far greater than even they
could imagine. Any other shock to the system, such as 9/11, could only
exacerbate their vulnerability. The collapse of Aberdeen Asset Management’s
SCTs, contributed to the £10 billion lost by more than 50,000 private
investors in this sector.12
The possibility that even apparently low risk
investments are not what they seem also emerged. The misuse of “special
purpose vehicles” and “off-balance sheet obligations” (OSOs) prevents
investors relying on firm’s accounts with any degree of confidence. WorldCom
used OSO’s to keep $4 billion off balance. In 2000 Enron was 7th
in the Fortune top 500 with reported revenue in excess of $100 billion
(a 150% increase on the previous year).13 Its shares traded at
over $60. Its chief financial officer, Andrew Fastow orchestrated several SPVs
set up in the name of his children and his wife, from which he allegedly
earned $30 million in fees and siphoned assets. The decline of the DOW over
the turn of the millennium made the use of Enron stock to finance continued
debt restructuring more difficult and on October 16th 2001 Enron
posted a bombshell $1.01 billion loss. The vulnerability inherent in its
revenue enhancements then kicked in in earnest. On the 17th the Wall
Street Journal publicised Fastow’s SPV connections. On the 29th
Moody’s Investor Service, down-rated Enron’s credit rating increasing the
servicing costs of its newly revealed debt. By December 2001 the firm had
filed for bankruptcy and it was all over. Its share price had collapsed to
less than a cent. Numerous small investors who had relied on its stock for
their pensions and large pension funds themselves were hit hard. State
pension funds in New York, Georgia and Ohio lost over $350 million. By
February 2002 the Bank of America had $231m in Enron related losses. One
hundred Merrill Lynch executives lost $16 million of their own money invested
in an Enron partnership.14 Ordinary Enron employees received no
severance pay. In November, however, senior staff had awarded themselves $55
million in ‘retention bonuses’ from the dregs of its coffers. Just prior to
the October 16th loss statement 29 senior executives sold stock,
over a dozen reaping in excess of $10 million. A class action suit has now
been brought against them for insider trading whilst Fastow, and a number of
collaborating London bankers, have been indicted for fraud.15
Meanwhile, Enron’s accountant, Arthur Andersen was indicted for obstruction
of justice. Its other clients bailed out to the remaining Big Four
accountancy firms and Arthur Andersen, previously the fifth largest
professional services firm in the world was liquidated. The nature of
Andersen’s relation to Enron is suggested by the following statement from an
anonymous former executive of the firm:
Everyone makes the
mistake of thinking Andersen and Enron are separate companies. There are
hundreds of ex-Andersen people inside Enron, a bunch of young kids just out
of college. Give those new Andersen kids a downtown loft, a new Lexus and
show each one the golden path to becoming a partner. Hey learn to do things
the Enron way.16
The initial fallout from Enron was the re-auditing
of accounts previously held by Andersen. Deloitte & Touche, for example,
took over the audit of MyTravel from Arthur Andersen, its re-audit took £15m
off the profitability of the firm. Share prices subsequently fell by 36%.17
With revelations concerning SPVs major news, corporations moved quickly to
distance themselves from any hint of scandal. Blue-chip firms, such as Xerox,
have been publicly realigning their former accounts and future forecasts. But
according to the IMF, ‘questions regarding the quality of reported corporate
profits in the aftermath of Enron’s failure continue to have an adverse
impact on international and corporate bond markets.’ As Mathew Wickens of ABN
Amro says, part of the problem are the figures firms are posting because ‘we
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