Thoughts on the Economy

Austrian economist Joseph Schumpeter once coined the concept of ‘creative destruction’ to describe moments of radical transition within Western economies, when intensifying technological developments outpaced, and therefore rendered obsolete, previous modes of economic organization. Accused by some for focusing too heavily on the role of innovation in taking stock of historical change, Schumpeter has been accused of economic determinism, ignoring the role played by social and political actors in contributing to the emergence of new realities. Irrespective of what one makes of his argument, Schumpeter was on to something when he suggested that seeing off a particular era presented unique opportunities for some agents keen on capturing a new style towards re-crafting an entire economy.

Considering the often-repeated phrase of ‘these tough economic times’ (which is regularly used by all three parties at Queen’s Park), there is clear consensus that staggering present-day job losses, plant closures and the like, are challenging this ‘heartland’ province to the point of saying we’ve never had it worse since the Great Depression. Understandably, during Question Period, the existing government is bearing the brunt of criticisms from the two opposition parties, as would have been the case with any government during a global recession.

However, similar to what Schumpeter suggested decades ago, I believe that this global recession is so systemic and cyclical in its origins and nature, that assigning total liability to one jurisdiction (i.e. the Ontario government) really misses the point.  

Short of getting into competing economic theories, I would point out that in essence, we live in a private enterprise system in which the options at the disposal of governments are dependent on the success or failure of businesses large and small, which are entrenched in the real economy. Under the rules of the game, governments depend on the private sector for their revenues, and thus have a stake in a successful, growth-oriented economy all-around. Yes, the public sector constitutes a huge part of that economy, but the goods and services offered by it serve a fundamentally different purpose; namely, to provide substantive public goods, administer justice, oversee social harmony, and regulate illicit markets – when compared to the private sector. The economy of choice (or the private economy – whichever you prefer) however, delineates no such mandates, so that actors are free to produce and consume based on their abilities, resources and individual motives. Governments therefore play virtually no role in governing, let alone determining, the behaviour of the vast majority of people’s economic engagements – they merely adjust certain incentives and routinize themselves into a comfortable pattern of what Charles Lindblom dubbed “the politics of muddling through.”

For better or for worse, we must recognize that the complex interaction of vast economic decisions that occur in the realm of private business, which give rise to any given boom or bust, are seldom ‘touched’ by government. They are microeconomic decisions which operate on the basis of a broad architecture which may trace its origins in legislation and bureaucratic practices, but the totality of transactions in our market-based system are driven by self-interested behaviour which is at the heart of things like productivity, bubbles, and recessions. So, what are the options for governments? Tinkering? Yes. Reframing some incentives through budgetary tax cuts here and there? Certainly. Sweeping efforts to take full charge of the economy through massive nationalizations, especially in vital sectors? Not likely, in my view. I think that in the end we will see a patchwork of public-private endeavours to prevent the economic collapse of companies and sectors that are the lifeblood of people and communities throughout the province, for the sake of meeting one goal of government: to provide ontological security to its citizens, but I could easily be wrong.

I am therefore very interested to see how Economic Development Minister Michael Bryant’s plan for rebounding Ontario’s economy on the basis of “Reverse Reaganism” will pan out. In a recent speech to the Canadian Club, Mr. Bryant suggested that the government will play an instrumental role in the economy by “picking winners and losers,” unlike the hands-off approach of neoliberalism which dominated fiscal thinking in many OECD jurisdictions during the 1980s and 90s. The minister also seeks to adopt a “ruthless pragmatism” in making strategic demand-side investments to stimulate economic activity and see this province through the crisis.

He also recognized the need to compete for investments, which makes this proposition all the more difficult to achieve. My reading of the approach is Keynesian economics writ-large, which itself is not very novel or profound, but perhaps the coming of a new wave of ‘creative destruction’ is drawing nigh, and may come as an unintended consequence until someone figures out how to gain from it and perhaps create more jobs before the government has to.

Igor

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