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Marrying economics with politics

/ 04:06 AM October 20, 2020

Economists are prone to blaming politics for getting in the way when outcomes predicted by their narrow theories don’t come about. Others argue that economists must precisely understand how prevailing political forces must shape their policy prescriptions. I once had a mild philosophical debate with a colleague on the question of appropriate policy. I maintained that the “right policy” is where good economics would lead us after considering prevailing political circumstances. On the other hand, she insisted that “right policy” is what good economics would prescribe, period—what we economists call the “first-best” solution—but we must work to eliminate the political hurdles to getting there.

Our perspectives differed in how we treat the political environment within which economic policy decision-making takes place. While I choose to treat it as a given, my colleague saw the political constraints as unnecessary obstacles that should and could be surmounted, whether or not this is realistic. But there is a separate discipline called political science that studies how those political forces come about and often perpetuate themselves. My approach tries to be more respectful of our allied discipline in the social sciences—and is more realistic. I often point out that we economists must have the humility to accept that we only have one-sixth of the answers to the world’s problems, recognizing at least five other dimensions to human welfare other than economic: social, cultural, political, ecological, and spiritual. The other disciplines using those other lenses to examine problems have as much to offer by way of solutions to the problems we face.

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Dr. Elinor Ostrom, a political economist who won the Nobel Prize in Economic Sciences in 2009, exemplifies the marriage of the two erstwhile distinct disciplines of economics and political science. She debunked the long-accepted notion known as “the tragedy of the commons,” referring to how a commonly held resource will be depleted because it will tend to be overexploited by everyone with access to the resource. For example, if all village members are free to fish in the same waters, each person acting in his own personal interest will overfish to the point of eventually depleting fish stocks.

Ostrom, in the words of the Nobel Prize committee, “challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized.” The latter prescribes moving away from common ownership to private ownership, or some semblance thereof. In the Philippines, experience has demonstrated that upland dweller communities that are awarded stewardship rights to the land they occupy tend to manage those uplands responsibly and sustainably. Pope Francis, in his latest encyclical “Fratelli Tutti,” asserts: “The principle of the common use of created goods is the first principle of the whole ethical and social order; it is a natural and inherent right that takes priority over others.” It may be an exaggeration, but I’ve even seen it argued that conflict in the world began when the concept of private ownership of land first came about.

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Through many years of her work on user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom noted how informal social institutions can arise spontaneously to successfully maintain commonly-held resources over time. She found that communities of resource users often develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest. In short, good politics can emerge out of small communities.

Humans act selfishly when acting as individuals, and yet act altruistically and for the common good when acting as communities, and this underlies the observations analyzed and documented by Nobel laureate Ostrom. At this time when climate change and loss of biodiversity have become prominent in the global and national agenda, we are reminded that economics is not everything, and that communities are key. We need a new economics that sees communities as the units of analysis and intervention as we address the problems of humankind.

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TAGS: Cielito H. Habito, economic policies, land ownership, No Free Lunch, political policies
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