Principles of Institutional-Evolutionary Political Economy-Converging Themes from the Schools of Heterodoxy

O'Hara, Phillip Anthony, Journal of Economic Issues

Over the past forty years there has been a considerable revival of heterodox political economy throughout the world. Heterodoxy has experienced a renewal in the form of several schools of thought. (1) Institutionalists and evolutionary economists have proffered the significance of institutions and technological change. Post Keynesians have re-established the role of aggregate demand in a circular and cumulative framework. Neo-Marxists have sought to bring to the fore the importance of class analysis and economic surplus. Feminists have been active in fostering an integrative analysis of class, gender and ethnicity. Social economists have examined the role of justice, ethics and trust in institutions. Development and international political economists have recreated an interdisciplinary focus on the uneven forces operating in the global economy. In addition, ecological economists have linked the laws of thermodynamics with strong sustainability and the precautionary principle to create a durable edifice on the environment.

Several associations and journals have been established with a view to making heterodox political economy a viable scholarly undertaking. Institutionalists and evolutionary economists organized the Association for Evolutionary Economics in 1965 and began publishing the Journal of Economic Issues two years later. The Association for Institutionalist Thought has been active for twenty-five years now, and the European Association for Evolutionary Political Economy began operating in 1989. Recently the Journal of Institutional Economics commenced publication; while the International Schumpeter Society began their affiliation with the Journal of Evolutionary Economics in the early 1990s. Post Keynesians commenced the publication of the Cambridge Journal of Economics and the Journal of Post Keynesian Economics in the late 1970s. Marxists and radicals formed the Union for Radical Political Economists in 1968, and begun publishing the Review of Radical Political Economics a year later. Several other radical journals emerged, such as Capital and Class, Studies in Political Economy, the Journal of Australian Political Economy, and Rethinking Marxism. The International Association for Feminist Economics was instituted in 1992, three years before their journal, Feminist Economics, was created. Social economists changed the direction of the Review of Social Economy in the early 1970s under the impact of the 1960s reform movements, and established the International Journal of Social Economics in 1972 along with the Journal of Socio-Economics in the mid-1990s. Those with a penchant for the environment created the International Society for Ecological Economics in 1989, along with Ecological Economics; while Capitalism, Nature and Socialism has been published quarterly since 1990. Several other journals also emerged with a political economy agenda, such as the Review of Political Economy, New Political Economy, Economy and Society, plus the Review of International Political Economy, World Development and the Journal of Human Development. (2)

In addition, heterodox political economy has been supported by an array of publishers, conferences and academic institutions. Most academic and University publishing houses have a section in their catalogue on political economy. Some have an explicit mandate or interest in heterodox themes, such as Monthly Review Press, Zed Press, and Pluto Press. Commercial publishers that have been especially supportive include Edward Elgar, M.E. Sharpe, Greenwood, Transaction, Palgrave/Macmillan, Routledge and Cambridge. Conferences have blossomed, the main ones being associated with the Allied Social Science Associations, the Association for Institutional Thought, Post Keynesian Workshops, World Congress of Social Economics, the Association for Heterodox Economics, the summer conference of the Union for Radical Political Economics (URPE), the annual European Association for Evolutionary Economics meetings, and the Triennial International Confederation of Associations for Pluralism in Economics (ICAPE) Conference. Numerous academic institutions have "supported" political economy programs. They are so numerous as to defy simple numeration, but include Cambridge University, Colorado State University--Fort Collins, the New School for Social Research, Santa Fe Institute, Sussex University, Sydney University, University of California--Riverside, University of Leeds, University of Massachusetts--Amherst, University of Missouri-Kansas City, University of Notre Dame, University of Sienna, and the University of Utah. (3)

With all this activity, one would expect several clear statements of the main concerns of political economy to have emerged over the past couple of decades. One would also expect the emergence of a fairly clear set of theoretical propositions, culminating in the evolution of certain principles, to provide a setting for empirical analysis and future development. Indeed, the individual schools of thought have produced something approaching this; and several scholars have sought to provide some unifying threads for an overall political economy perspective to emerge, such as Marc Lavoie (1992), Jason Potts (2000), Charles Clark (2001), and Phillip O'Hara (2001). (4) No one to date, however, has produced or come close to producing the magnum opus--equivalent to Veblen's Theory of the Leisure Class ([1899] 1965), Keynes's The General Theory of Employment, Interest and Money (1936), Marx's Capital ([1867] 1976; [1885] 1978; [1894] 1981), or Schumpeter's Theory of Economic Development ([1911] 1938)--to impact the profession as a whole and set a standard for teaching, research and policy-making.

Some may maintain no such magnum opus is feasible in a decentered, postmodern world; while others may posit that the great masters of political economy (Veblen, Keynes, Marx, Schumpeter) have already produced them. Some skeptics suggest that major advances have already been incorporated into a healthier, non-Walrasian, non-neoclassical economics (see Bowles 2004); while other skeptics may suggest that there is little uniting these disparate schools of heterodox thought except perhaps a disdain for (especially Walrasian) orthodoxy, and perhaps that even the individual schools of heterodoxy have trouble promoting conceptual clarity. (5) The argument of this paper is what may be called a "minimalist argument" for convergence, namely, that many sub-schools of institutional-evolutionary political economy, but not all, have been converging in the institutional-evolutionary direction, and that there is much to indicate the evolution of a relatively coherent set of institutional-evolutionary principles in motion to help comprehend modern society and governance. The objective of this paper is to present a set of such principles, which are becoming coherent and evolving over time.

There is a clear thread of institutional-evolutionary conceptualization running through many writers and sub-schools within institutional evolutionary political economy (IEPE). The history of the linkages between these sub-schools goes back to the classical economists, especially Adam Smith, Thomas Malthus, and Karl Marx; and the work of the historical school and institutionalists such as Thorstein Veblen, Gardiner Means, Wesley Mitchell, Gunnar Myrdal and Karl Polanyi. It also encompasses the Cambridge and latterly post Keynesian work of Nicholas Kaldor, Michael Kalecki, Joseph Steindl, and J.K. Galbraith; and the institutional trend in neo-Marxian economics that weaved a threat from Rudolf Hilferding through to Paul Sweezy and Samir Amin. Further linkages include the radical-Schumpeterian trend that enriched the study of long waves, institutions-technology interface and industrial metamorphosis; successive waves of feminist thought that impinged on social and economic thought; and the revival of political economy since the 1960s. This revival, of special relevance to this paper, saw the emergence of a degree of convergence that emphasized realism, holism, circular and/or cumulative causation, institutions, and the role of values and social factors in economic life. Institutional-evolutionary themes thus provided a critical basis for this recent convergence.

Figure 1, provides a summary of the main authors and concepts discussed in this paper, showing there to be seven (interacting) sub-schools of IEPE that have relatively close network densities vis-a-vis convergence. (6) Through these seven subschools, institutional-evolutionary political economy led the trend away from mere formal theory to a realistic analysis of the institutional evolution of capitalism through historical time. The first is the sub-group of "Major Heterodox Convergers" who have persistently written about the theme of linkage and convergence around institutional-evolutionary concepts. They include, among others, Charles Clark, Marc Lavoie, Tony Lawson, Phil O'Hara, Jason Potts, and Bill Waller, and provide the main arguments for a high degree of convergence. The second are the "Radical Institutionalists" within original institutionalism, including John Elliott, Daniel Fusfeld, Ron Stanfield, Bill Dugger, Rick Tilman, and their followers. The radicals have been especially notable in promoting linkages between certain heterodox schools, including instrumentalists such as Marc Tool and Dale Bush and many of the other six sub-groups.

[FIGURE 1 OMITTED]

The third group is the "Institutional Marxists," or radical political economists, who have persistently argued for an institutional-evolutionary trend in political economy. They include scholars such as Howard Sherman, David Gordon, Michel Aglietta, Robert Boyer and their followers. Howard Sherman and David Gordon have especially linked their trend to other schools of heterodoxy, and the radical institutionalists have been singing the praises of this group for decades. The fourth group, with a strong institutional-evolutionary perspective, is the "Post Keynesian Institutionalists," including such writers as Hyman Minsky, Nicholas Kaldor, Philip Arestis, Malcolm Sawyer, Fred Lee, and their followers. Minsky, Kaldor and Arestis consider(ed) themselves both institutionalists and post Keynesians--as do many other scholars such as John Harvey, Michael Radzicki, and Randall Wray-while Sawyer, in addition, sees himself as having additional links with Kaleckians and Marxists. The fifth group is the "Institutional-Radical Feminists," a combination of institutional feminists such as Ann Jennings, Janice Peterson and Deb Figart, plus a number who came out of the feminist-Marxist movement of the 1960s and 1970s. These scholars have consistently argued for an institutional-evolutionary framework of analysis.

The sixth grouping is the "Socioeconomic Institutionalists," such as Gunnar Myrdal, John Davis, Wolfram Eisner, Charles Wilber and their supporters, who promote institutional and evolutionary themes associated with structure-agency, a holistic methodology, trust-networks, circular and cumulative causation (CCC), and coordination problems. Davis, Eisner and Wilber came out of the broad heterodox movement of the 1960s and 1970s with a strong commitment to convergence with some other heterodox scholars and organizations. Lastly, there are the "EAEPE Schumpeterian" institutional-evolutionary scholars, such as Angelo Reati, Francisco Louca, Jan Reijnders and Andrew Tylecote, who have consistently examined the relationship between technology and institutions through long waves and evolutionary processes. All four have strong links with the European Association for Evolutionary Political Economy (EAEPE), and are quite close to the radical and progressive institutionalists, institutional Marxists and post Keynesian institutionalists in their theoretical and policy perspectives. In this, they are more heterodox than standard Schumpeterians.

We thus delimit the focus to the emerging convergence theme associated with the above seven sub-groups linked to specific principles of institutional-evolutionary inquiry. Special reference is given to what we call "substantive principles" associated with the historically specific workings and evolution of institutions. This is contrasted with "methodological principles" and the history of such principles, which has already been discussed in some detail elsewhere (O'Hara 1993; 2000); although this paper does touch on them to show linkages between methodology and "substantive" institutional-evolutionary questions. Such delimited inquiry is necessary for the contents of a relatively short journal article.

General Principles of Institutional-Evolutionary Political Economy

It is necessary to start with a general view of institutional-evolutionary political economy (IEPE) vis-a-vis our seven sub-schools, including a working definition to start the analysis. We could say that IEPE is "what these seven sub-groups of political economists do." I prefer to be more specific. Hence, to start the story let us define it thus:

   Institutional-evolutionary political economy is a realistic,
   interdisciplinary study of the dynamic structure, evolution and
   transformation of human action within socioeconomic systems,
   paying particular attention to the reproduction, functions,
   contradictions, and unstable dynamics of the institutions of
   production, distribution, and exchange of material and immaterial
   resources set within a social and ecological environment through
   historical time.

Central to this view of IEPE is a study that is realistic, interdisciplinary, human-centered, and systems-oriented; as well as one that links human action with structure, reproduction with contradiction, material with immaterial, and social with political in addition to ecological. IEPE seeks to develop an analysis that is realistic in the sense of "keeping close to the ground," being concerned with the institutions of the system, and incorporating a bounded form of rationality that recognizes the limits of the human mind and the asymmetric distribution of knowledge as well as economic agents' relative ignorance of the future.

Realism and Complexity

The vast majority of IEPEs argue that the study seeks to be "realistic," in the sense of trying to comprehend or understand the underlying processes at work in the spheres of production, distribution, exchange and socioeconomic reproduction (Lawson 1994). It seeks to eschew abstractions from the economic system to develop a pragmatic framework for analyzing these processes through real time. The system includes real human agents and undergoes phases of evolution. Critical to this realistic framework is an analysis that seeks to endogenize the critical factors at work, in particular to endogenize preferences, technology, knowledge and institutions. Indeed, rather than starting with ceteris paribus assumptions where medium and long-term processes are not affecting the system, IEPE is primarily concerned with the formation and change of these preferences, knowledge, technologies and institutions through historical time.

This critical form of realism is based on holism, causal processes, and retroduction In being holistic, it utilizes an open-systems methodology, pattern models and participatory observation (Gruchy [1947] 1967; Kapp 1968; Wilber and Harrison 1978). Open systems recognize the need to endogenize as many variables as possible, where the sub-systems are linked together, and multi-causal processes are at work. Pattern models center on the relationships impinging on the system through interdependencies and reciprocal exchanges, including mental models developed by agents to make sense of their world. Participatory observation can enhance the degree of realism by the investigator operating within the institutions under investigation. In doing so they can understand, for instance, how corporations price commodities; how capital-labor relations evolve through time; how communities interact and communicate; how consumers create models of how to choose commodities and products; and how successful states might be in providing public goods.

In trying to comprehend the deeper layers of social reality, case studies, fieldwork, interviews, newspapers, theoretical sampling, and seeking diverse sources of data can enhance understanding. Grounded theory has been demonstrated to help in comprehending the causal processes involved (Finch 2002; Lee 2002a). Going beyond specific cases is possible through comparative analysis, the iterative process, and recognizing the complexity of the interactions and evolution. Retroduction grounds the inquiry to promote generality through the movement from observation to structural causes. Hence, realism seeks to go beyond (or explain) mere surface phenomena through an analysis of tendencies, complexities and alternative dynamics of the institutional fabric (Downward, Finch, and Ramsay 2002).

Every age has its own theoretical systems or paradigms with which to embed their principal ideas. In previous times, it was Newtonian comparative statics, or Darwinian evolution, dialectics, or historical determinism, depending on the theorist. In the current epoch, much is being written about dialectics, and historical and evolutionary analysis as viable frameworks. However, a more contemporary framework may enable the best of dialectics, history, and evolution to be embedded in the analysis. Complexity theory is seen by many as a potentially viable general theory with which to link the dominant aspects of the analysis in discourse. Indeed, it seems to be the case that complexity may be a general framework within which most IEPE perspectives can be embedded.

Complexity theory fuses some critical elements, such as evolutionary propositions, endogenous processes, self-reproduction, emergent properties and holistic relationships. This is ideally suited to political economy since it posits no general equilibrium, a constant flux of variables interacting through historical time, and a transformational reality of change and uncertainty. Of particular interest is the tendency for positive feedback changes in values to have a significant and non-linear impact on the system as a whole, which brings to mind the circular and cumulative causation analyses of Gunnar Myrdal and Nicholas Kaldor. Because it is a holistic study, it is likely that contradictions and paradoxes emerge in the organization of institutions and technologies. The system endogenously evolves due to the inherent life of the complex processes involved in real world dynamics. Irreversibility is patterned into the dynamics because the process of change impacts institutions and technologies that are subject to path dependence and metamorphosis. This is ideally suited to an analysis of capitalism that is imbued with uncertainty, due to investment being dependent on future expectations upon which knowledge is small or nonexistent (see Colander 2000; Potts 2000; Ofori-Dankwa and Julian 2001; Barnes, Gartland, and Stack 2004). (7)

Agency and Structure

IEPE has been resolving an old and complex problem that has proved to be a thorny issue throughout its history. This is the problem of individuals and structures. Traditionally, political economists have ignored individuals in favor of structures such as economic systems, institutions, cultures, ideologies, classes, gender, race, and so forth. It …

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Publication information: Article title: Principles of Institutional-Evolutionary Political Economy-Converging Themes from the Schools of Heterodoxy. Contributors: O'Hara, Phillip Anthony - Author. Journal title: Journal of Economic Issues. Volume: 41. Issue: 1 Publication date: March 2007. Page number: 1+. © 1999 Association for Evolutionary Economics. COPYRIGHT 2007 Gale Group.

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