A Teacher Writes to Students Series (50): Listen to Kolodko-3
Annavajhula J C Bose, PhD
Department of Economics (Retd.), SRCC, DU
I am choosing and reproducing six pragmatic discussions from the experiential perceptions of the great Polish economics Professor Grzegorz W. Kolodko for your perusal and consideration. He had his own political-economic practice as a four-time deputy prime minister and a minister of finance. Undergrad econ students are better off, in gaining good grounded knowledge, reading him than mainstream textbooks, journal articles and newspapers. What follows is, as if Prof. Kolodko is talking to you.
The theme of the third one in this posting is:
What is the purpose of economic process and our knowledge about it, that is, economic theory—economics and political economy? What is the purpose of economic activity of individuals and of society?
“Views diverge on that matter; and they always have, even if not from time immemorial, then at least since the time when man asked himself that question for the first time several thousand years ago. And he easily found a satisfactory answer: the purpose of economic activity is to satisfy needs. Such a common sense approach can be found thousands of miles away from the intellectual centres and whole eras away from the developed economy, when posing the same question to an illiterate peasant cultivating a plot of land on the Andean plateau or to one grazing his goats on the sands of Sahel. He knows why he toils and makes something for himself or to trade with others for something he needs. Well, but the present-day advanced and complex economy compares to the simplest one like a supercomputer compares to a hoe, because with the incessantly growing needs, also the needless ones, new ways to satisfy them are invented. Needless needs? Exactly, because what people desire depends on what they understand.
Necessity is the mother of invention, we say. But this also works the other way round, as inventions shape needs, sometimes ones that are illusory or even harmful when we try to satisfy them uncritically. In market terms, needs, as long as they’re backed with real purchasing power, create demand. Therefore, the creation of new needs while stimulating demand, not only with current income but also, to a growing extent, with loans and debts, is perceived as the driving force behind the expansion of the economy. The problem is that it could turn into a destructive force. With no control over the evolution of needs, we will enjoy no economic calm and no political peace in the future. In this area, the scale of complexity may get even greater, although it doesn’t have to, which is important to note.
So where is the problem? Well, the problem is that quite quickly, almost immediately after some understood why they need to allocate resources, others emerged, a minority, who realized that you can allocate resources in a particular way, namely by exploiting others. So it was, so it is and so it will be, regardless of the prevalent social and economic system, if we leave utopias out of our considerations. However, we could strive to create a system with as little as possible abuse of some by others.
Economy is like nature. A layman often cannot distinguish between a symbiotic from a parasitic relationship, a creative coexistence and cooperation from one living creature preying on another’s health. This will be even less the case if these are complicated relationships, on the borderline of both of these phenomena.
From the above comments, two conclusions with intellectual, economic, social and political consequences should be drawn.
Firstly, economics as a science of efficient allocation of scarce resources may not overlook the purposes of economic activity. It is the purposes that are at the heart of the matter, not beside it. Therefore, before answering any question regarding the area relevant to us, especially what is and what is not economically viable or whether a given activity is or is not efficient, we need to bear in mind what and who is meant to benefit from a given undertaking. If, let’s say, the system of corporate income taxation is meant to help businesses get rich, then the rates, thresholds, deductions and other regulations are set accordingly. On the other hand, if taxes paid by firms are supposed to co-finance the public facilities necessary for the proper functioning of the economy and of the society as a whole, without doing harm to capital formation through an adequate level of savings and investments, the tax system will be structured differently.
Briefly: there is no economy without values. Values are human ideals, desires and ambitions, both individual ones and those shared within a family, group, society, nation and civilization, which affect the decisions we take based on a motivational system. There is no economic activity without purposes. There are no purposes without value judgments. There are no decisions without judgments. There are no decisions without economic consequences. Meanwhile, these interrelations are not one-way cause-and-effect relationships but rather a whole network of complicated feedbacks.
Economics is a social science, always and everywhere enmeshed in values, in a whole system of values. However, values change over time and space. Sometimes they can change fundamentally in one generation. This is a truly changing world. And the changes have colossal implications for the future. The more we comprehend the interdependence of things, the greater the chance that we will commit fewer errors in the process of socio-economic development. The better we understand the essence of phenomena and processes that are currently taking place around us, the better it will work out for us in the future. That is why there is such a great need for honest progress-oriented economics. That is why it’s good to know. And it’s good that people want to know. We can’t hold it against anybody that in a way everybody is an economist. It’s kind of natural.
Secondly, in its deliberations economics must not overlook the conflicts of interests continually emerging in economic processes. And they are, in all cross-sections: from individuals to socio-professional and regional groups to mankind as a whole. If there were no conflicts of economic interests, there would be no need for economists, as there would be no problems of economic choice. And there are plenty of them.
Should we spend any extra money we earn on increasing our consumption now or should we save it for later? Should aid funds offered by rich Europe to poor Africa be earmarked mostly for road construction or perhaps to develop the education system, as both of these causes satisfy insatiable needs and also foster development? Should the global economy slow down the rate at which the output is growing, curb the exploitation of natural resources and natural environment devastation, or take no notice of that and, instead, maximize the material production that’s never enough to satisfy the needs of so many? The list of controversies is almost endless. How do we solve them? That is the purpose of economics. Still, the present questions, which stem from these and thousands, if not millions, of challenges of a different calibre, are not easy to answer.”
Reference
Grzegorz W. Kolodko. 2014. Whither the World: The Political Economy of the Future. Palgrave Macmillan.
