1.3 (II) Thinking like a state about economic contradictions: Tinbergen

A draft thesis section. This is a draft of an unfinished document, please don’t quote without getting in touch first. Quoting in blogs is fine.

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Much of the policy theory inspired by Tinbergen’s work took on board only the idea of the formal models. The medium really was the message here, because the lesson of representing the policy system as a system of equations is that if conflicts are to be avoided, there must be one instrument per target, just as a solvable system of equations requires one equation per unknown. The best-known result here, which I discuss in Chapter 3, is the idea pervading 1950s theories of the balance of payments: that the apparent contradiction between external balance and full employment could be resolved with an extra policy instrument, the exchange rate. But Tinbergen’s own views are more subtle, because he is also preoccupied with both the technical and the social limits to the use of policy instruments. The bare system of equations implies that so long as there are equal numbers of instruments and targets, it does not much matter which instrument is assigned to which target. But Tinbergen, a practical policymaker as well as a theorist, recognises the material reality of the instruments: that using a policy instrument is both rarely as simple as choosing a value for a variable, but works within limits, and often has ‘side-effects’ on groups within society which they resist.

Tinbergen thinks of such things in terms of ‘boundary conditions’, which could in principle be imposed as limits to variable values within the system of equations1, but for the practising policymaker are of course much more nebulous and ill-defined. A classic instance of a technical boundary condition in the neoclassical-Keynesian literature is the ‘liquidity trap’ in which expansionary monetary policy fails to influence the interest rate beyond a certain point. In practice policy is continually grappling with many kinds of slippages in the effectiveness of its instruments. For example, investment was long seen in the postwar period to be interest-inelastic, so that interest rate adjustment would affect aggregate demand only at levels which were, in practice, inconceivable. On the fiscal side, there were real practical limits to the rate at which government expenditure could increase or decrease coming from the simple fact that it was not merely a component of ‘aggregate demand’ but also spent on real things – infrastructure, etc. – which could not be turned on and off like a tap.2

Then there are the boundary conditions arising from social groups’ ‘defence lines’. Tinbergen [1966: 26] mentions, for example, limits to taxation beyond which the costs of evasion outweigh the desired effects, and wage reductions provoking worker rebellion. Here class conflict intrudes upon the system of equations, and once it does, there is no guarantee of a ‘solution’, especially when the defence lines of different groups are simply incompatible, or irreconcilable by policy in its current form. Tinbergen gives a telling example from his own experience as a Dutch policymaker:

In the situation of that year [1950] and as far as the model used was a true representation of the Dutch economy, the calculations showed that the target set would require a wage decrease of 5%, a decrease in profit margins of some 13%, an increase in labour productivity of 4% and an increase in indirect taxes equal to 2% of prices. Both the wage decrease and the profit reduction seemed to be beyond the boundary conditions. A long list of alternative targets was then studied. Accepting a boundary condition of no reduction in the nominal wage meant the necessity of still heavier reductions in profit margins and a heavier increase in indirect taxes; accepting a boundary condition of no profit margin reduction implied impossible requirements as to labour: either a reduction in real wages of 13% or a reduction of employment by the same percentage, both accompanied by increases in labour productivity. [Tinbergen, 1966: 60]

Social contradictions are then manifest as policy contradictions, and something has to give: policymakers are driven into ‘qualitative policy’, i.e., attempts to change the structure of the economy, which in such cases must involve an attack on one or more groups’ capacity to maintain their defence lines, and/or moral suasion convincing them to pull back their demands ‘for the sake of the national economy’. To complete the picture, we need to recognise that the state does not have a monopoly on initiative in the changing structure of the economy. Tinbergen [ibid: 149] gestures towards this in his distinction between (policy) ‘induced’ and ‘spontaneous’ changes in organisation, but spontaneous developments – that is, change emerging from the socio-economic system independently of policy – get no further mention. In reality, many ‘policy problems’ emerge not from any deliberate action on the part of authorities, but from the dynamics of the wider system and changes in subjective consciousness and strategy within classes, groups and institutions.

As long as we remember that Tinbergen’s instruments, parameters and targets are social relations, and ‘boundary conditions’ often tied up with the expectations and consciousness of classes and class fractions, the framework is helpful in specifying the Jessop-Poulantzas concept of ‘strategic selectivity’ for the particular realm of economic policy. It is not a deterministic approach because it acknowledges the creative agency of policymakers and other actor-groups. The projects of the latter of course impinge upon economic policy from outside policymaking in two ways: (1) through directly political attempts to influence or capture legislative and executive capacities of the state; and (2) through power bases within the economic sphere, such as those occupied by capital by virtue of their control of investment, or labour through industrial organisation. Nevertheless, the approach recognises that a serious limit is placed on economic policy by the imperative that it all hang together – that the capitalist economic system is not one which can be bent into any shape, and in fact in many ways is not very flexible at all. This imperative exerts a strategic selectivity on political projects, and even motivates policy attempts to reshape aspects of the economic system to shift the power bases of actor-groups within it, or ideological attempts to manage expectations, in order to work out contradictions.

This leads to a different analysis of the relationship between class and politics than one which seeks to explain political ebbs and flows as a consequence of the ‘balance of class forces’. Rather, the ‘balance’ can be seen as – at least in part – a result of the selective pressure of this need for the socio-economic system to function, which requires that the state do particular things and not others. Causation runs both ways. Functional failures do not force political adaptation. But when they manifest as crises, they change the political dynamic so that political actors are expected to resolve them one way or another, even though their ability to do so may be uncertain. Policy action which fails to end a crisis is likely to be ‘deselected’, along with its ideological champions in the political sphere.3

Bob Jessop

Bob Jessop

For the state involves a paradox. On the one hand, it is just one institutional ensemble among others within a social formation; on the other, it is peculiarly charged with overall responsibility for maintaining the cohesion of the social formation of which it is merely a part. Its paradoxical position as both part and whole of society means that it is continually called upon by diverse social forces to resolve society’s problems and is equally continually doomed to generate ‘state failure’ since so many of society’s problems lie well beyond its control and may even be aggravated by attempted intervention. [Jessop, 2007: 7]

Thus my thesis attempts to explain the shifts in the policy importance of inflation in my period – which, I will argue, goes some way towards explaining much wider policy shifts – in terms of its ‘strategic selection’ by the responsibility of economic policy to maintain cohesion of the socio-economic system as a whole. This is in contrast to explanations centred around ideological ‘paradigm shifts’ or those which take ‘the balance of class forces’ to be entirely causally prior to political-economic change.

1“With sufficiently complicated non-linear equations all phenomena of saturation, bottlenecks, etc., will be accounted for and no boundary conditions will have to be added. Boundary conditions are needed only as corrections on too simple linear equations.” [Tinbergen, 1966: 54]

2“This may be so for physical reasons: if government building activity were an instrument, this activity cannot surpass the production capacity present in the relevant industry.” [Tinbergen, 1966: 59]

3Radical political projects aiming to fundamentally alter the economic system face an extremely formidable challenge on this front, in that any single reform incompatible with overall cohesion is likely to be ‘rejected’ by the system as a whole; everything needs to change before anything in particular can.

References

Bob Jessop [2008]: State Power: a strategic-relational approach, Polity, Cambridge.

Jan Tinbergen [1966]: Economic Policy: principles and design, North-Holland, Amsterdam.

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  1. […] section / Next section Jan Tinbergen: "Get me the technocracy! Class conflict has […]

  2. hi Mike,

    Interesting stuff. I’m commenting on both parts of 1.3 here, since I read them in rapid sequence. Minor suggestion – I’d suggest using conditional language in your opening paragraph of the first part of 1.3: demands made on the state often or can pull in different directions, contradictions often or can reappear in the political realm – that way no one can disagree with you. Then your case is an example of the conditional actually obtaining – multiple objectives including full employment co-existed at a given time period.

    Question for you – why are these goals in tension? I don’t mean this to sound hostile, but as I was reading I was really struck that the quote from the Commeitte of Economic Enquiery (in the first part of 1.3) seems to agree very closely with your point in your opening paragraph about multiple contradictory goals. Again, not trying to sound hostile, but the congruence between that committee and you as a marxist is a startling and I think bears comment (by you I mean).

    Your quote from Tinbergen (in the second half of 1.3) about class struggle and so on as a limiting factor, that’s powerful evidence of, as you put it, social contradictions manifesting as policy contradictions. I quite like this as well, “the state does not have a monopoly on initiative in the changing structure of the economy.”

    I’m not sure I understand this paragraph, here’s most of it: “a different analysis of the relationship between class and politics than one which seeks to explain political ebbs and flows as a consequence of the ‘balance of class forces’. Rather, the ‘balance’ can be seen as – at least in part – a result of the selective pressure of this need for the socio-economic system to function, which requires that the state do particular things and not others. Causation runs both ways.”

    Are you saying “the state is not simply determined by the balance of power between classes but is itself an actor, although one with a constrained set of options”? Or do I misunderstand?

    take care,
    Nate

    • Hey Nate,

      I’m not really surprised that policymakers become conscious of contradictions, even if they don’t call them that… they’re really there, I don’t think they’re constructed by a marxian worldview, and good technocrats are smart people. It’s interesting though that the Committee did end up getting pegged (absurdly) as socialistic, and its report was attacked by the government that commissioned it and the Treasury.

      I’m interested to know what jars with you here – don’t worry about sounding hostile, I have a thick skin for internet debate!

      I can see that that later paragraph is unclear, I’ve rewritten it a few times, once just before posting. The point I’m trying to make is that the ‘balance of class forces’ isn’t independent of the state, and certainly doesn’t exist prior to state action – the whole field of conflict is structured by the state (more as a structure itself than an actor here) as well as the economy, (state and economy being only relatively autonomous, interdependent structures). More specifically here, I’m trying to make the point that because economic policy is tasked with making ‘the whole thing hang together’, it attempts to reshape the field of struggle so that capitalism ‘works’, and that this has consequences for the ‘balance of class forces’ since the state will try to weaken class power that threatens the system as a whole.

  3. hi Mike,
    Thanks for clarifying, all of that makes sense. Your point about how policymakers notice this stuff and so on, the explanation you offer here really makes sense. I suppose it depends on your audience, but it seems to me that it’s worth you pointing out that this is a case of policymakers knowing some of the same sorts of things that critics (marxists and others) point out, that to some extent knowledge of these problems is necessary for people in the state to do their jobs. I think that has ramifications aside from understanding the state as well – it suggests that knowledge generated by marxists isn’t radical per se, because of its content, but if it’s radical in a practical it’s because of context – in other contexts this sort of knowledge can actually be helpful for state and capital.
    take care,
    Nate

  4. Hey Nate,

    You’re right that it is all about audience (besides the thesis markers!), and what use is made of knowledge rather than the knowledge itself, and in fact I was going to bring that up in the last comment but then decided to wait and see what you had in mind!

    I see the political message in all of this (the thesis as a whole and this chapter in particular) as being on the one hand an argument against a kind of naive social democracy, which is really prevalent today, but at the same time an appeal to the kinds of people who are drawn to that road. The naive part of this brand of social democracy is the idea that policymakers had more-or-less the right idea in the ‘Keynesian’ period (though they might be aware of a number of problems) but were seduced by a nasty and/or stupid idea, ‘neoliberalism’. The political solution need not be nostalgiac in the sense of wanting to recreate the postwar regime, but in any case it basically involves coming up with the right policies, convincing a political party to adopt them, spreading the word so that people vote for that party, etc. In reality this leads to a continual cycle of disillusionment: why do these parties keep abandoning good, sensible policies?

    I’m trying to explain why, and it’s not a moral critique of ‘betrayal of principles’, power corrupting, etc. I’m arguing that the system itself cannot handle a stable social democracy with full employment, that accommodating politics, politicians and worldviews will tend to be selected. But at the same time, it’s not a deterministic argument, because other strategies are possible – it’s just that we have to recognise that full employment social democracy is highly likely to be systemically unstable. It’s like the argument Leo Panitch makes, in ‘Working Class Politics in Crisis’ for example, that the postwar experience demonstrates that ‘reform’ is actually not more realistic than ‘revolution’.

    But this also has a message for the kind of radicalism that is now pretty popular which is ‘against’ the state or sees effective politics as happening at a distance from the state. By my Poulantzian definition of the state, as present everywhere (as law if nothing else), this is not going to work either, and seems to me like a symptom of weakness rather than a real strategy. I would like to revive the British New Left project of the 1960s, represented by people like E. P. Thompson, Ralph Miliband, and (later) Panitch himself as a way forward. It’s well represented in Thompson’s 1960 essay in New Left Review, ‘Revolution’, as a pushing forward not only through workplace militancy, but also through the welfare state, public education, healthcare, etc.

    This is a little incoherent and goes well beyond what the thesis itself says, but anyway…

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  6. Good afternoon!

    I stumbled across your website (I am trying to remember how — it was a link from another website); and your work very informative! I am a civil servant working for the government of Saskatchewan (a province in western Canada); and I am completing my masters degree in economics. I would consider myself a left-leaning post-Keynesian. I have a question: what led you to put the focus that you did on Tinbergen? Am I correct in assuming that both Tinbergen and Tjalling Koopmans (another Dutch economist) were sympathetic to social democratic ideas? I would appreciate it if you could provide sources if possible — I would like to do more reading on these economists. Thanks!

    Chris Pepin
    Regina, SK
    Canada

    Chris Pepin

  7. Hi Chris,

    I came to Tinbergen because he was referenced a lot in papers and books written about monetary policy in the post-war period. I’m interested in him because he expresses so well the view from the economic policy bureaucracy of the socio-economic system, at least as it was in the postwar period, but I think still today. I’m fascinated by how social contradictions appear in his formal models. So I’m not reading him here as someone with great ideas to put into practice, but someone whose theory captures something, which is missed in a lot of models which are kind of unconscious of the place of or limits on the state in the economy. But it’s not my own perspective.

    He’s so interesting for other reasons as well – he was an early econometrician, and the one Keynes debated about the use of statistics in economics – the debate is wonderful. And he is interesting from a social democrat’s perspective as well, though to be honest I don’t know too much about this side of him.

  8. Hi,
    On Tinbergen’s political side, you’ll find something below that may be of interest to you.
    Could you kindly send me something on Jessop-Poulantzas (Nikos?) “strategic selectivity” concept?
    Thanks and regards,
    Osvaldo

    Tinbergen had political interests associated with his left wing views. At university he founded a club for social democratic students and also founded a student newspaper. In fact some of Tinbergen’s first publications were articles he wrote for the socialist newspaper Het Volk in which he examined the effects of the economic depression of 1920-22 on unemployment and how the lives of the poor had been affected.
    After completing his undergraduate degree at Leiden, Tinbergen continued to study at Leiden for his doctorate under Ehrenfest’s supervision. His thesis combined mathematics, physics and economics. In the introduction Tinbergen thanks Ehrenfest for pointing out to him a topic which could allow him to combine mathematical theories with his political interests. The main part of the thesis is mathematical, studying minimisation problems. Then he gives two appendices, one describing applications of the mathematics to physics, the second appendix giving applications to economics. Tinbergen submitted his dissertation in 1929.
    Tinbergen’s political views meant that he was unwilling to do military service. He was fortunate in that, only a few years earlier in 1923, legislation had been passed in the Netherlands allowing conscientious objectors to avoid military service. The legislation required that a conscientious objector do government service so Tinbergen joined the Dutch government’s Central Bureau of Statistics.
    From 1929 to 1945 he worked as a statistician with the Bureau of Statistics. His work on economics in his doctorate had been entirely theoretical, but now he had access to large amounts of data on which to test and develop theories.
    From 1933 to 1973 he was professor of economics at The Netherlands School of Economics, Rotterdam. He was appointed to the board of the scientific bureaux of the Dutch Labour Party and he co-authored the Labour Plan in 1935. This plan was based on Tinbergen’s mathematically based principles of economics.
    In the late 1930s Tinbergen worked as a scientific advisor for the League of Nations. Then, in 1945, he was appointed as director of the Dutch Central Planning Bureau.

  9. Thanks Osvaldo, that’s really interesting.

    You can get a bunch of Jessop’s papers online here:

    http://www.lancs.ac.uk/fass/sociology/research/resalph.htm#ik

    He introduces ‘strategic selectivity’ in his 1990 book State Theory: Putting capitalist states in their place. You can get a basic overview in this paper:

    http://www.lancs.ac.uk/fass/sociology/papers/jessop-institutional-(re)turns.pdf


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