The almost universal acceptance of neoclassical economic theory, at least in Britain and the United States, has resulted in much destruction of professional management practice. The so simplistic dogma leads to a set of mindless clichés which have not only severely damaged enterprise management practice, but, also the wider management of the real economy, as has been seen over the past two years.
Simon Caulkin, late business editor of The Observer, refers to the seemingly growing consensus against the still current orthodoxy (See ‘New economics, new management’ on http://www.simoncaulkin.com). He lists five Nobel laureates among those declaring that market fundamentalism is dead, and quotes Ha-Joon Chang, John Quiggin and Dan Ariely who have all produced serious, populist critiques of the current orthodoxy.
Thirty five years ago, academic Guy Routh wrote ‘Economics … ignores facts as irrelevant, bases its constructs on axioms arrived at a priori, or ‘plucked from the air’, from which deductions are made and an imaginary edifice created … verification is both impossible and regarded as unnecessary. In effect, then, orthodox economics becomes a matter of faith and, ipso facto, immune to criticism’. He quoted more than a score of the leading economists of all time who supported his broad contention.
The orthodox wisdom may be dead as a credible body of theory, but still politicians show little sign of understanding how it is so utterly discredited. The British coalition’s blind commitment to investment cuts, rather than economic stimulation, is one example, based on the cliché that big government and the public sector are bad, low taxes and private sector good. Similarly, the avoidance of challenging News Corporation’s takeover of BskyB is based simply on the cliché that regulation is bad, freedom good. The fact that the government minister concerned took advice in making his decision is beside the point, since the orthodoxy dominates his advisors as much as the minister himself. As Keynes put it, the madmen in authority are still distilling their frenzy from the academic scribble of the past.
But a head of steam is building up. Today’s announcement of Bob Diamond’s £6.5m bonus for work which the Chairman of the Financial Services Authority described as “socially useless”, will help to motivate change. Alternative ways forward are being discussed and developed. The errors, omissions, distortions and falsehoods of economic theory will surely be buried some day, for the benefit of almost everyone.
It is the aim of this blog to make some contribution, however small, to achieving that change.