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.

Previous section / Next section

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

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.

Advertisement