Is economics still a useful science?

A few years ago, following the financial crisis in Wall Street, Her Majesty the Queen Elizabeth II asked a crowded hall at the London School of Economics, “If the crisis was so bad, why didn’t the economists see it coming?”

A few years ago, a survey was done of the most popular subject for students in Nigerian universities. The prize went to economics. That was a bit of a surprise, but it shouldn’t have been.  If the survey had been done in the 1970s, medicine and engineering would have been neck-and-neck. By the eighties and nineties, when Nigeria went into steep economic decline, the middle class disappeared. The worst hit were professionals such as engineers, architects and doctors. For many, the option was to flee abroad.

During this time, the bankers and money-changers became the most affluent and prestigious professionals. Economics was therefore seen as a means to hitting it big time. I was told of the son of a professor who decided to withdraw from his third year in the faculty of medicine to start all over as an economics major. He told his father that he realised that what he would make in a year as a doctor would be the salary of a banking manager in one month. He figured out that he was brighter than many bank managers and did not see why he should condemn himself to a life of penury.

My own background is in what in Oxford is called PPE (Politics, Philosophy and Economics). Oxford University, unlike Cambridge and the LSE, does not offer an undergraduate degree in economics. What they offer is a combined honours in the three subjects of Politics, Philosophy and Economics. They believe that a thorough grounding in philosophy and politics is central to understanding economics. Some of Britain’s brightest economists, political leaders and bankers have a PPE background.

When economics as a modern discipline emerged in the eighteenth century the radical conservative political philosopher Edmund Burke lamented: “But the age of chivalry is gone. That of sophisters, economists, and calculators has succeeded; and the glory of Europe is extinguished forever”.

Then as now, economics deals with the fundamental questions regarding the wealth and poverty of nations: Why are some nations such supernal success while others are abysmal failures? Why are some rich while the vast majority wallow in poverty that is closer to the Middle Ages?

There is a whole library of theories that seek to explain the roots of economic success and backwardness across countries. When some of us were starry-eyed undergraduates the standard explanations ranged from the so-called ‘modernisation theories’ associated with economists such as Walt Rostow who believed that overcoming backwardness required steering societies rapidly through the ‘stages’ of economic growth. What was needed was a change of attitudes and mind-sets from agraria and tradition to modernity and civilisation.

The structuralist development economists such as Paul Rosenstein-Rodan, William Arthur Lewis and Gunnar Myrdal advocated a ‘big push’ in terms of capital, resources and technology in order to bring about economic development and growth in the poorest countries. A more radical wing, associated with such Latin American economists such as Raul Prebisch, Osvaldo Sunkel, and Celso Furtado developed the dependency paradigm that famously advocated for temporary ‘delinking’ from the global capitalist system, given the unequal and exploitative relationships that exist between the rich North and the poor South. Walter Rodney’s How Europe Underdeveloped Africa, was the Bible and Qur’an of most of us undergraduates at Ahmadu Bello University. We all believed our continent is poor because of the long history of slavery, colonialism and neo-colonialism perpetrated by the West against Africa.

In the 1980s, during the heydays of an ‘Afro-pessimism’ heightened by Africa’s massive economic decline, some scholars underlined the ‘prebendal’ character of the African state and its neopatrimonial political economy as the key determinants of Africa’s economic stagnation.  The World Bank and the IMF took the doctrinal view that Africa’s long-term hope lies in adopting ‘market solutions’ within the framework of their much-touted structural adjustment programmes.  Neoliberal reforms were implemented, with disastrous consequences. Africa’s industrialisation was rolled back by more than a generation. Robbed of their own self-governing capacity, Africans lost confidence in themselves and their future.

After the year 2000, with the gradual cessation of wars and conflicts and a return to self-sustaining growth, a new confidence began to emerge. Kofi Annan as UN Secretary-General initiated the Millennium Declaration on Africa, with a focus on responsible leadership, democracy and good governance as the key to prosperity. The New Partnership for Africa’s Development (NEPAD), a development programme that was crafted by my colleagues and myself at the African Development Bank Group, advocated good governance, democracy, accountability, foreign direct investment, mutually shared obligations on aid and official development assistance (ODA), the rule of law and regulated markets as the key to our continent’s long-term prosperity.

Today, we have come full circle. Blaming foreigners for historic injustices sounds increasingly hollow. Singapore, Korea, China, Malaysia, Indonesia and Thailand were also once colonies heavily under foreign tutelage.  But today they are forward-looking prosperous nations.

Today, we live in a non-ideological world. Those countries that stick to archaic, discredited ideologies, will have no place in the emerging global economy. Economic science itself has boxed itself into a corner. As one commentator puts it, “The prevailing ideology of the modern west – which is political economy – is in the doghouse. Having failed to notice atmospheric pollution, the economists then frightened themselves with the sort of financial crisis they said they had abolished”.

Some of the most brilliant minds have covered up their lack of creativity under the camouflage of elegant algebraic equations. Some of the econometric research has tended to produce results that are, at best, trivial; and at worst, downright dangerous. Paul Collier once did a brilliant paper proving that foreign wars are good for growth while civil wars are bad for welfare. Are we to draw the inference from this analysis that foreign wars are to be encouraged? The paradigmatic crisis that modern economics faces today derives from the fact that it has lost its soul as a moral science. In treating society and the economic system in purely the same manner as physicists treat matter and the universe, economic science is suffering from a profound intellectual derailment. The Great Recession that started in Wall Street in the summer of 2008 arising out of the sub-prime crisis, owes as much to the greed of bankers as it does to the stupidity of central bank regulators and staggering cognitive folly of the economists.

In the 1960s, John Kenneth Galbraith, the great American economist, cynically observed that “Economics is extremely useful as a form of employment for economists”. The pessimism mainstream economics has continued to grow in recent years. The brilliant American essayist, statistician and currency trader Nassim Nicholas Taleb, cryptically noted that “Years ago, I noticed one thing about economics, and that is that economists didn’t get anything right”. And more recently, the brilliant young economist, Thomas Piketty, famous author of the much celebrated book, set out an orbiter against the dismal science: “Economists tend to think they are much, much smarter than historians, than everybody. And this is a bit too much because at the end of the day, we don’t know very much in economics”.

A new intellectual movement has emerged, aiming to reclaim the lost ground for economics as a science. I am a member of the World Economics Association, a new grouping of economists that aims to restore economic science to its foundations as a moral science; as a system of thought that is anchored on promoting human welfare and the Good Life as understood since the days of Adam Smith. We believe that mathematical theory and econometric applications will continue to be important; but they cannot be applied in a mindless way that leads to intellectual blindness and failure to grasp the obvious as far as policy choice is concerned.

Launched in 2011, the WEA has a membership of 13,500.Its founding members comprise some of the brightest members of the economics profession:Edward Fullbrook, Peter Radford, Norbert Häring, Grazia Ietto Gillies, Vicki HarrisValerie Radford, Dean Baker, Ha-Joon Chang, Herman E. Daly, Erik Reinert, Irene van Staveren, Robert Wade, Fantu Cheru, Ping Chen, Xiaoqin Ding, Jayati Ghosh, Prabhat Patnaik, Wolfgang Drechsler, Vladimir Avtonomov, James Galbraith, Paul Davidson, Lance Taylor and Charles K. Wilber.

At the heart of its pedagogy is the commitment to repositioning the economics profession to encourage plurality in the free exploration of economic reality from all perspectives while promoting competence in critical thought, development of new ideas and “empirically based rigor and higher standards of scholarship”. In doing the new economics, the aim would be keep tap of reality as much as possible while remaining relevant to the great questions of state, economy and society.

We in Nigeria and Africa need to plunge into the new intellectual arena, revisiting the foundations of economics as a discipline, revisiting the pedagogy taught our students and the methodologies informing policy prescriptions. We do not need an “African Economics” but a science of economics that is relevant to the needs of our continent in terms of its ability to bring accelerated growth, transformation and collective welfare.

Obadia Mailafia