Reforming Economic Theory

Corporatism, Free Markets, Public Investments…Is it time to rethink the whole subject of economic theory?

The story of Britain’s economic liberalisation was based on the assumption that a stronger role for the state is economically inadequate. This is based on the belief that the state is too inefficient, slow, and smothers innovation. Advocates of this position argue that these issues can be rectified by the free market, whilst opponents say the state is the only body capable of ensuring equality of outcome. This has been how economic debates have been framed by political elites over recent decades. As a result, such debates have become increasingly polarised into extremes of these positions. With the emergence of such extremes, reasoned debate is nowhere to be seen.

For example, strong advocates of state action point out that the free market always puts profit first, then image, and ultimately causing huge levels of social injustice. Inversely, advocates of the free market argue the state is oppressive and controlling with an overbearing tendency towards micromanagement. Also both blame each other for causing economic disruptions over the last 40 years. The Right blames the state for the decline in the 1970s, whilst the Left blames the market for the crash in 2008. As such, both appear to claim to have the solution to the problems caused by the other, even though both have a track record of failure.

This is partly also compounded because politicians frame economic debates between these two positions. Superficially, the Conservatives argue for the market against the state, whilst Labour argue for the state against the market. This leaves the electorate with a simple but very limited choice to make between types of economic system. The irony of this situation is both argue they have the answer to human prosperity and freedom. Freedom to innovate, freedom for prosperity. Yet, surely by restraining the debate in this way we are preventing truly innovate ideas from emerging? By constraining the debate between Left and Right, what about the possibility neither have the answer for todays economy and that new ideas are needed. True, the Third Way was an attempt to provide an alternative, yet is was very much a bridge between the two old understandings of economic theory. It was not a whole new idea of economic management, which is increasingly looking like a necessity the more austerity continues to fail.

The state vs market debate, therefore must require some new ideas. Since 2008, free market theory has failed to provide the return to prosperity promised by the theory of capitalism and with state-led economics also seemingly unworkable, neither hold the key to
future economic growth. There is, however, some hope. Researchers into the composition of the current and future political economy are currently hard at work through such groups as the Sheffield Political Economy Research Institute (SPERI). Such groups aim to present alternative economic theories which could, at best, remedy the issues presented by the
collapse in 2008, and maybe even re-conceptualise economics entirely.

However, the big issue comes about how to make any new economic theories function. Even if a political scientist is able to present entirely new economic models, ensuring these are taken seriously will be a significant hurdle to overcome. Socialism had the Labour
Movement, liberalism had the Conservative Party. Any new theories may have to convince both of its validity, given the rise of a new political movement to advance an economic theory is unlikely to work in contemporary western democracies. Thus, what is to be done?

Both the Labour Party and the Conservative Party need to be genuinely open to new ideas. The unquestioning Conservative assumption that free market economics will hold the answers is no longer adequate. Equally, the Labour Party cannot ideologically hold onto its belief that the state will always produce prosperity. Both will have to be open to the possibility of an entirely new economic strategy which may involve using or accepting mechanisms they are currently ideologically opposed to. In such a system, this may require the Tories to get used to the idea of nationalised institutions, or for Labour to be comfortable with the markets. Either way, new ideas will probably challenge long standing comfort zones of the political elite.

To conclude, there is an argument that both the Left and Right’s ideas of economic management have failed. Given this, a new economic model is likely to be needed to return the west to prosperity. When such emerges, our political leaders must be receptive to new ideas. Simply burying their heads in the sand of economic liberalism/statism isn’t going to return the west to prosperity. Succinctly, they need to listen more to SPERI and other expert groups.

Dr Andrew Scott Crines lectures at the University of Hudderfield, and tweets at @AndrewCrines. The article’s co-author is Dr Bryan McIntosh, who lectures at the University of Richmond, London


  1. You’re talking about economic policy, not economic theory.

    “To conclude, there is an argument that both the Left and Right’s ideas of economic management have failed.”

    I agree, but this statement underlines the fact that the Right is not following the principles of free market economics any more than the Left, notwithstanding any rhetoric the politicians come out with. Economic management is by definition at best state interventionism and at worse socialism. No government embraces free market economics because it would mean getting out of the way and doing little or nothing, which no politician can bear to do. This has been the case for a century.

    Economic theory needs one reform above all else, and that is the expurgation of all traces of the Keynesian heresy.


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