How "pure" can economics be?

Bert hamminga How "pure" can economics be? version date 991203
Different Capitalist Cultures Cultural diversity table Questions

The main issue that Hampden Turner and Trompenaars (HTT) address in dealing with the German culture of capitalism is "meso-economics".
Micro-economics is the study of individual markets for one product or product group. Macro-economics concerns the study of the aggregate flows of products, services, labour, capital and money in a country. Institutions studying macro- and micro- economics, and management teams, advisory boards and preparing and doing the associated decision making are common in many types of economic cultures. Germany provides relatively most employment in the study, advice and decision making on the "meso-" level of the economy. This middle ground is where you study how different branches of industry (could) work together for their mutual benefit and hence could fortify the economy as a whole.

In the traditional liberal thinking as it prevails in Anglo-Saxon countries, such considerations of inter industry co-operation should be left to the "market forces": capable captains of industry should be able to detect the possibilities for financial gain by inter industry co-operation. If they don't, it will be in the interest of their shareholders to replace them. If shareholders refrain from that, smarter firms will take the opportunity and make the corresponding profit. Such is the traditional liberal ideology of market forces.

In Germany the government actively stimulates the coming together of industry leaders in advisory committees on subjects of possible joint government-industry co-operation projects. The interesting thing is that the issues dealt with at the meso-level are not even a subject in the Anglo-Saxon liberal theories of macro- and micro-economics: these theories are therefore called "general", "abstract" or "pure". They typically deal with concepts like "inflation", "employment", "prices", "quantities". Meso-economics defined in industry level, is technical: it deals with "electronics", "insurance", "aviation and space", concepts that in teaching of abstract economics are at best told to be the things you could substitute for the "X", "Y", "p_x" etc. occurring in the equations of the abstract pure models.

This culture difference is appears in the way businessmen look at themselves. A speaking contrast is the UK versus the German businessman: the UK businessman is characteristically depicted as follows:

Clean shaven, handsome, hastily walking with shining black shoes in a dark suit. In his left hand he carries a dark metal business case displaying his initials in black engraving on a silver colour metal background. In his right hand he has a mobile phone through which he is constantly speaking.

Not so in Germany: if you ask the manager of a big German commercial bakery what is his job, he will not say "I am a manager". Even though he certainly spends most of his time behind tables with staff talks, paper work and phone calls, he will say: "I am a baker". Leaders of German companies primarily identify with what the company is producing. Leaders of UK companies primarily identify with their class: they are "white collar personnel", a kind of human being distinctively different from "blue collar personnel": white collar personal deals with the data, the communication, with finance. Not very long ago, even bars would be split in two different rooms, a bar with Formica tables and a lounge bar (cloth and wood), with different prices for the drinks. The UK business leader looks at him/herself as someone with clean hands, white collar, and a notebook with a hell of a lot lot of numbers. To the typical German leader, finance, though of paramount importance, is not the real thing he or she is doing. The real thing, in Germany, is the physical production. Dirty hands are a virtue and a source of pride in Germany. And so is dealing with meso-economics, industrial politics in the context of national (Bund) and country (L�nder) government, both for civil servants and captains of industry.

This explains the difference in education for business in Germany and the UK: in the UK you study economics, econometrics or business at a University or business school. You swallow a lot of general, abstract, pure economic and management theories with variables like "X", "Y", "p_x" etc. Later, once you are hired by a company, you are supposed to go to the "number department" at your first working day, do some downloads of "X", "Y" and "p_x" series, and you start to work! Sometimes it seems you do not even need to know what things the company actually produces. In Germany, knowing business is thought to be knowing what the business is producing and how it produces. Technical schools and Universities are more important suppliers of staff there. Of course, there are a lot of general planning and accounting techniques that receive attention in the education, but pure economic theory, macro-economics and micro-economics is decisively less dominant in education preparing for business. This is not to say that there is no interest in economic theory in Germany. There is! But the stress is more on macro-economics, and within macro-economics more on practical issues than the issues dealt with in Anglo-Saxon academic journals of pure theory.

In Japan, the situation is similar to the German situation: neither in education and research, nor in business, there is as much attention for pure macro- and micro-economics as in Anglo-Saxon countries. Meso-economic deliberation and co-operation is done in groups, called keiretsu's, of producers sharing capital by lending and borrowing from the same bank or trade company.

The Swedish esteem of technique as the core of what it takes to be a successful business man or woman is close to the German. HTT report 48% of high school pupils choose for science or technique, 21% business and economics, and only 15% art and social science. Neither in Sweden not in Germany you have the English type of white collar class with a "classical" education (HTT 303).

The English attitude to "finance" is treated by HTT as the most specific aspect of UK business culture. They quote Alistair Mant's saying that money is the purified version of commercial activity... Smoke, factory garbage, dirty hands, noisy machines are translated in neat tables on a computer screen, or perfectly white paper, with intelligent gentlemen with clean white cuffs are allowed to move over their shiny desks (HTT 360). Pure number-economics, like Keynesianism and Monetarism appeals to them. In the English tradition of economic theory, business entrepreneurs are described by economists such as Adam Smith (end of 18th century) and John Maynard Keynes (in the 1930's) as people not like "us", a bit ordinary, selfish, greedy, not the type you would like your daughter to marry to, but if properly monitored useful as the creators of wealth and economic growth. The English theoretical economist is a gentleman-observer of the ordinary process of human greed and production in which they feel happy not to have to participate themselves. Frenchman Henri Taine: "Deep in their hearts the English think, or tend to think, that a manufacturer, merchant of earner of big money, in short, someone dealing with money all day...cannot be a gentleman" (Taine, Henri quoted in Camplin Jamie, The Rise of the Plutocrats, London: Constable, 1978, p.46 <HTT 349).

I insert down here a highly instructive piece of text from HTT on this subject matter. It starts quoting John Maynard Keynes on industry and manufacturing and ends quoting David Marquand on the pure theory of free competition:

"Economic development arise out of pure greed...usury and calculation. These are no high standing human qualities... Yet they are our hope, because only with the help of these qualities we will some time leave the tunnel of economic coercion....For the time being we shall have to say to ourselves and others that what is just, is dirty, and what is dirty, is just. Because what is dirty is useful, and what is just isn't" (Keynes, J.M., "The Economic Possibilities for our Grandchildren" Essays in Persuasion, Cambridge University Press 1930 <HTT`373 p. ###)

With such a position taken by the most prominent of English economists it can hardly be a surprise that all attempts in the course of the years to influence the economy from the side of demand or supply have failed. One should not count on the co-operation of someone you look down to.
Therefore there is no reason, let alone a tradition of government, labour unions and employers to restrain their rights on order to develop a common policy for the economy as a whole. They might as well subdue to the sovereignty of a united Europe.
Contacts between government and and private sector are data oriented and legalistic. Civil servants have no pretension to be more than in instrument of their minister. His will is the law and he does not accept any interference. They are literary servants without flexibility or independent authority. In comic TV series like Yes, minister, this hierarchy is mocked. Sir Humprey is winding affairs in such a way that his minister, to Humphrey's satisfaction, gets out of focus completely. But that is what constitutes the joke. Of course, in this kind of culture a framework of co-operation between government, industry, labour unions and education institutions, bringing about forceful economic growth by deliberately tackling problems with the necessary authority. As a consequence, one likes to use the market as the remote control of society. David Marquand formulated this pregnantly:

"The foundation of the system of free market is the reductionist thought that trade is regulated by choices of separate, independent individuals that purely pursue their own interest. If this thought is correct, the system works by itself. ....Suppose this thought is wrong....may be in reality choices are made for other reasons. People strive for power and status and do not want to be manipulated. Friends, colleagues, advertisements might play a role, ...moral principles... old habits. In short, if not only individual but also social motives play a role, the diagnosis might have no value, and neither the cure. the whole idea of economic laws independent of place and time, applicable always and everywhere, appears untenable in the end. The same holds for the thought that a policy maker merely needs to make sure the laws are practised" (Marquand, David, The Unprincipled Society; New Demands, Old Politics, London: Fontana 1986, p.225-6)

(Hampden Turner, Charles and Fons Trompenaars (HTT) Seven Faces of Capitalism, New York: Doubleday, 1993), p.373-4 )

Language and Abstraction

A lot of English and foreign authors have dealt with the central role in English culture of theory, abstraction and debate. The idea to shape academic intellectualism by a sportsmanlike "scoring" competition is decisively English. The obvious problem is that unlike in sports, intellectuals (in other civilised cultures) are supposed to be self critical, that is open to be possibly convinced by an opponent that the opponents target really is the desirable one to hit, and not one's own. Such a thing is unlikely to happen once academic intellectualism is defined as sportive competition. In sports, scoring in your own goal is means a loss by definition.
Second, in a debate, facts are boring. Arguments are the kinds of things with which you can corner your opponent. So the stress is on the logic of things not their actual appearance in reality. That is neatly illustrated by the different types of pure, theoretical economics that you have: macro-economic theories like Keynesian theory and monetarism, and the standard micro-economic theory (utility maximisation, profit maximisation, general equilibrium etc.). These intellectual products are predominantly produced in the realm of English culture, by arguments, not observations. They contain highly abstract concepts like utility, "commodity", "price", "consumption", "investment", introduces as mathematical variables by abstract considerations and it is not unusual for economics students to leave university without knowing how to actually measure values for these concepts in real economies.
The next thing they do is to introduce a rival abstract theory and then have a debate along the lines depicted above, with the predictable indecisive end.
Meanwhile others run the economy.

Arguments have such an interest in English culture that a large part of its philosophical tradition deals with language and argument. The central place of debates in English social intercourse seem to have convinced English philosophers that it is the argument that counts in life and hence that language and arguments are the most relevant objects of philosophical analysis. Analytical philosophy, founded by Russell, Whitehead, Wittgenstein and Ayer attempts to solve problems of what can be meaningfully said about what by analysing how language is used. This results in an endless parade of things you can meaningfully say: "the cat is in the kitchen" and less fortunate sentences. Anglo-Saxon philosophy of science concentrates on the proper form of scientific theories and behaviour proper for the acquisition of scientific knowledge. Anglo-Saxon analytic philosophers and philosophers of science keep "clean hands" in the same tradition as their economists do: they argue starting from appeals to evident principles, principles of common speech, or, in case of the philosophy of science, common intuitions on the nature of knowledge. Results of empirical language and science research, though not only done outside the Anglo-Saxon culture, did not have a crucial role, and got such a role only sometimes, after outsiders discovered how far English philosophy had drifted from the knowledge of the actual practise of language and science by real people.

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