There’s a lot of exciting work right now in political economy at the intersection of academic scholarship and application to public policy, ranging from law to public finance to regulation to development and beyond. Mark Pennington’s Robust Political Economy is one of the most exciting, thoughtful, and valuable of the recent work in political economy (it’s been out of stock in the US, but now it’s back and you can get yourself a copy!). Whether you are a scholar working in this area, a policymaker interested in thinking more deeply about what you do, or someone who works in an area where you engage with public policy, you will find lots if ideas here worth considering, presented in a clear, scholarly narrative.
He begins by drawing some stylized categories of ideas that will provide the context for his analysis, and the main contrast he draws is between classical liberalism and ideas critiquing classical liberalism from several directions, such as communitarianism, egalitarianism and, even, neoclassical economics. A lot of political economy analysis takes place in the realm of these theoretical archetypes — people formulate their positions in opposition to these theoretical archetypes, and often simplify or mischaracterize them. One of the intellectual, analytical, and rhetorical strengths of Mark’s work is that he really fleshes out those archetypes so they are not simplistic straw men. I think he reads the various critiques of classical liberalism fairly and in an open-minded manner, and describes their analyses and positions in ways that I find quite reasonable (I say that, though, acknowledging my confirmation bias and my agreement with and sympathy with his own argument).
Mark’s emphasis is on creating an analytical classical liberal framework for examining and understanding issues in public policy. To do so he tackles several tasks in this work: he lays out his conception of classical liberalism, he uses that conception to contrast with a range of ideas critiquing classical liberalism, and he then applies that framework to analyze some selected public policy issues. His contextual lens is primarily British and European, so for readers in other areas some of the specifics of the intellectual debates may be unfamiliar, but the general ideas and principles still translate clearly.
I find the most valuable contribution of Mark’s work to be the conceptual framework for classical liberalism as “robust political economy” that he provides in Chapter 1, and then elaborates on in contrast to other sets of ideas in the ensuing 4 chapters. Why is this idea of robust political economy so important? Robustness is like resilience; it’s a performance criterion by which we can evaluate a set of institutions to see how well they perform in real-world situations across time and space. Robust social institutions take into account the cognitive, psychological, and strategic realities of being human and trying to live together in civil society, rather than being based on some mythical, hypothetical individuals who are either entirely Cartesian-rational, entirely Hobbesian-rapacious, or possessing full foresight. Mark takes on all of these traits of real humans, and a lot of his argument is grounded in the reality of the knowledge problem (a topic near and dear to my heart and brain).
Human beings are limited in their cognitive capacities and as a consequence even the most intelligent and far-sighted people are relatively ignorant of the society in which they are situated (Hayek, 1948a; Simon, 1957). Given the imperfections of human knowledge, the consequences of any particular action, either for the actors concerned or for the wider society, will at any given time remain uncertain. Robust institutions should therefore allow people to adapt to circumstances and conditions of which they are not directly aware, and under conditions of ‘bounded rationality’ must enable them to learn from mistakes and to improve the quality of their decisions over time. (pp. 2-3)
Taking into account the knowledge problem, what are institutional traits that enable heterogeneous self-interested individuals, for whom self-interest usually takes many different forms, to live together and hopefully to thrive in civil society? Mark’s primary argument throughout the work is institutions reflecting classical liberal ideas and principles are best situated to do so. He synthesizes Scottish Enlightenment political economy, Austrian economics, pubic choice economics, and new institutional economics into a classical liberal framework that qualifies as robust political economy. These institutions focus on “private or severally owned property, a market economy, and a limited government confined to the resolution of disputes between private parties” (p. 3). The synthesis across these areas is a substantial original contribution of this work, because he provides the clearest articulation I’ve seen thus far of how the ideas arising from these various strands of thought complement and reinforce each other. Mark melds the complexity and emergent order approaches of the Scottish Enlightenment and of the knowledge-problem-focused Austrian economics with the ideas of adaptation and evolution in those traditions as well as in new institutional economics. He blends the polycentric and locally-driven approach to institutional design from NIE with the “model men as if they are knaves” to constrain selfish minorities that we see in David Hume, James Madison, and modern public choice economics. He further combines all of the above with the idea that processes that enable emergent, decentralized, polycentric institutions will do a better job of enabling people to thrive in civil society (i.e., be robust) precisely because they allow for trial and error, for experimental evolution, and that the combination of community processes of consent with real options for both voice and exit are a crucial component of creating this robustness. I have never read a more compelling or uplifting account of this argument, which regular KP readers will recognize as resonating strongly with the approach to regulatory policy that I have advocated here and in my own book in 2008.
Taking this framework, Mark then confronts the challenges to classical liberalism that neoclassical economics (focusing on “market failure”), communitarianism, and egalitarianism provide. He also argues that none of these three sets of ideas qualify as foundations for robust political economy. His analysis of neoclassical economics includes a strong critique of the theoretical emphasis on equilibrium outcomes and the existence of equilibria, and his discussion of how such arguments misunderstand the nature of competition do a good job of making that Hayekian point more clear and relevant to modern policy debates. I recommend this chapter in particular to all graduate students in economics, as a spur to think more deeply and critically about our models and how we use them. I am less familiar with the communitarian and egalitarian literatures in political science and philosophy with which Mark then engages, but what I found most interesting in those chapters was how he showed that classical liberal ideas and institutions do address many of the issues and concerns of those scholars, contrary to their beliefs.
In the final section of the book Mark applies classical liberalism as robust political economy to three policy areas: poverty relief and public services, international development, and environmental protection. In each chapter he provides an in-depth discussion of the policy implications of the four main sets of ideas (classical liberalism, neoclassical economics, communitarianism, and egalitarianism), again consistently anchored in the complexity and knowledge problem traits of reality, which lead him to conclude that institutions grounded in classical liberal principles are the most likely to qualify as “robust” and to thus be the most likely to enable people to thrive in civil society in each of the three areas.
An enthusiastic must-read, from which I learned a lot and which has changed and refined my thinking about some of my own work.
Earlier this year Mark did a book event at Cato, complete with a companion podcast and a video of the event:
He also occasionally blogs at Pileus, always informatively and eloquently.