History Matters Hedlund, Stefan
Invisible Hands, Russian Experience, and Social Science,
06/2011
Book Chapter
To state that history matters is at once trivial and highly challenging. It is trivial in the sense that neither humans nor indeed organizations, or even states, can ever be assumed to live entirely ...in the present, and it is challenging in that it confronts us with a need to show causality. For it to be credible, an argument that history influences current affairs must entail more than simply mapping out striking historical parallels. The true challenge here lies in identifying processes whereby decisions taken in the past, even in the distant past, continue to exert non-trivial influence over decisions that are taken in the present.In the following, we shall attempt to meet this challenge, and we shall do so by scrutinizing a set of very different approaches to establishing linkage between past and present. Given our overriding focus on the role of economics, it is only logical that economic approaches will be placed on center stage. We shall, however, also look at similar ambitions from scholars in sociology and in political science, all in line with our endeavor to outline how the role of history may be usefully incorporated into social science analysis more broadly.Given the magnitude of this undertaking, the envisioned outline can be no more than tentative. Yet simply asking the right questions may take us a fair bit of the way toward resolving the multiplicity of problems that have been brought up in previous chapters.
Since time immemorial, discovery and exploration have formed integral parts of human existence. On a mundane level, humans have strived tirelessly to improve their lot by coming up with better ...practices and by searching for better places to make their living. The outcome has been a steady process of low-tech innovation and of a gradual colonization of new lands. On a more spectacular level, such endeavors have been associated with great names, with individual explorers and inventors whose contributions live on in the history books.The history of science and exploration most certainly is a fascinating one. At the superficial level it is quite simply a good story. It is hard indeed not to be captured by the adventures of the great explorers, who set out to discover India and China, who delved deep into the heart of Africa, and who raced to be the first to reach the North and the South Poles. Similarly, it is hard not to be captured by the lives and works of the great scientists, who gave us breakthrough knowledge in fields like mathematics, astronomy, physics, and medicine, to mention but a few. Along both of these tracks it is quite clear that humans have been possessed, across cultures, by a drive to discover and to improve.
Opportunity and Self-Interest Hedlund, Stefan
Invisible Hands, Russian Experience, and Social Science,
06/2011
Book Chapter
Ever since Adam Smith presented the world with his immortal classic The Wealth of Nations, liberal market economy has been based on the centrality of opportunity. If only markets can be sufficiently ...deregulated, and the state can be kept at bay, good things will follow. Entrepreneurs and consumers will seek out and act on their best available opportunities for profit and utility maximization, competition will make sure that all resources are allocated to their best uses, and welfare will be maximized.Based on such premises, it is not surprising that over time economics has developed into a science that is fundamentally geared toward an optimistic view of market forces driven by the pursuit of self-interest. This stands in some considerable and interesting contrast to the epithet of a “dismal science” that was once ascribed to political economy by the Victorian writer Thomas Carlyle. The reason then was the dire predictions of pending population checks and food shortages that were issued by Thomas Malthus and David Ricardo. That, however, was soon to change.Under the combined influence of rapid technological development and the neoclassical revolution in economics, a firm belief began to emerge that economic growth would quite simply take care of itself. The previous “dismal” views that had emphasized natural constraints on the market forces could thus be forgotten, and the role of liberal government could be reduced to keeping out of the way.
Markets Everywhere Hedlund, Stefan
Invisible Hands, Russian Experience, and Social Science,
06/2011
Book Chapter
Thus far we have argued that markets may be found everywhere, even under the most repressive forms of command economy. We have suggested that the implied dichotomy between plan and market, which made ...up the core of theories on alternative economic systems, was partly misleading, and we have indicated a need to provide nuance by focusing more closely on the informal institutional context of transactions. The subsequent two chapters will be devoted to a combined investigation first of how informal norms may impede ambitions to promote a high-performance economy, and then of how such norms may be reproduced over centuries, even when the effects are seriously detrimental to economic efficiency.In this chapter we shall set the stage for that investigation, by taking a closer look at the second part of the juxtaposition of plan versus market. To the previous argument on misunderstandings of what central economic planning was really about we shall add a number of qualifications regarding the textbook ideal of an instrumentally rational forward-looking market economy that is free of historical and cultural context.Ever since the days of Adam Smith, the liberal economic tradition has rested on his portrayal of a natural “propensity to truck, barter and exchange one thing for another.” The presence of a strong urge to trade with others has been taken as evidence that individuals are always on the prowl for ways to improve their situation, and proponents of free trade have remained convinced that the associated expansion of markets will secure efficiency and economies of scale, thus making everybody better off.
Implications for Social Science Hedlund, Stefan
Invisible Hands, Russian Experience, and Social Science,
06/2011
Book Chapter
In our introductory chapter, we cited Douglass North's apprehension over the growing trend of divergence within the family of social sciences. Noting that the “human environment is a human construct ...of rules, norms, conventions, and ways of doing things that define the framework of human interaction,” he deplored the division by social scientists of this environment into discrete disciplines. The problem was that the latter “artificial categories” do not coincide with the constructions that the human mind produces to make sense out of the human environment.The reason this problem is so relevant to the present purpose is that many of the pressing problems of our time are located in an area where economics, sociology, and political science meet, and where at a now distant time in history they did have a common approach. Using a parallel from astronomy, one might even speak here of an expanding scholarly universe where over time a proliferating number of subdisciplines within the family of social science have increased their respective distances to neighboring disciplines, leaving behind in the middle an analytical no man's land. Whether this barren space really can be filled, or even bridged, by approaches from within new institutionalism still remains to be seen.The following concluding account is divided into four sections. The first sums up and reflects on our understanding of financial crises, viewed as short-term systemic failures. The second digests what has been said about the causes and implications of path dependence, representing long-term systemic failures.
Concluding Discussion Hedlund, Stefan
Invisible Hands, Russian Experience, and Social Science,
06/2011
Book Chapter
We began the present journey in the world of financial markets, detailing how the sudden onset of the global financial crisis raised the specter of a return to the Great Depression of the 1930s. ...Deeply shaken by the collapse of the venerable investment bank Lehman Brothers, markets were gripped by fear that rapidly spilled over into the public and political spheres. As investors stampeded for the door, seeking to sell whatever could be sold, and as bankers refused to lend, the real side of the economy went into tailspin and outraged members of the general public began fielding accusations of inveterate corporate greed.Caught in the midst of the turmoil, governments faced a dual challenge. On the one hand, it was viewed as clearly necessary to take swift action to stem a rising tide of panic that just might have caused a global depression. On the other, it was viewed as equally necessary to show political resolve in curbing the various manifestations of greed that were held by so many to constitute the main cause of the crisis. While it was easy enough to be caught by the high drama of the ensuing events, it is important to remember that they form only part of an overall and far more complex picture.
Institutional Choice Hedlund, Stefan
Invisible Hands, Russian Experience, and Social Science,
06/2011
Book Chapter
In his main presentation of institutional theory, Douglass North writes, “Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human ...interaction.” There is obvious truth in this. Since time immemorial, humans have strived to regulate their relations to other humans by making rules. Beginning as unwritten codes, conventions, and norms, handed down by tradition, over time this rule making has become increasingly formalized and increasingly complex.In a modern society, making and enforcing rules and regulations generates substantial employment, often at high incomes, in multiple professions across both the private and the public sectors. This said, one should not be lured into taking the continued reliance of many traditional societies on unwritten rules as a sign of lacking sophistication. As many anthropological studies have shown, the systems of informal norms that mark what is sometimes known as “primitive societies” can be highly sophisticated.As we have argued, however, from a narrow perspective of economic efficiency there is clear empirical evidence that systems of formal rules, backed by credible and impartial third party enforcement, generate better economic performance than informal systems backed by social censure and sanctions. The contrast between north and south in Italy brings this point home, as does the broader contrast between Russia and the West.
