Grigory Yavlinsky

Russian. Economist and politician. Author. Professor Higher School of Economics University, Moscow. Leader of the opposition Liberal political party

Dr. Yavlinsky kindly offered written answers to our eight fundamental questions in economics and capitalism. These follow at the end of the transcript of his interview.

1. Why does economics matter?

The economy is a field of activity: human use of natural resources, household management, production and distribution, meaning human activity to ensure life. Economics is a little bit different from that - maybe not even a little bit - it’s a kind of science. It’s a knowledge about how people can use natural and other resources most effectively.

And secondly, economics (how I understand it) is a science of human behaviour in connection with the provision of their lives. Economics as a science and policy is activity to ensure and improve the well-being of people. That’s what I think. Unlike business, the goal of which is to earn as much money as possible and not to go to jail, that’s all. In principle, that’s all. It’s a joke, but there is a grain of truth in it.

So this is my answer on the question “why does economics matter?” Because it’s the area of human activity which supports life. This is not possible to live without.

2. What are the differences between economic science (academic economics) and economic engineering (policymaking)?

Economics as a science deals with human behavior and the psychology of people about the production and distribution of goods. This is a subject with very many unknowns. We can say that economic science, academic economics is going just now through, maybe you would be surprised, a period of youth and therefore assumes that it can model its subject with the help of mathematics. However, there are too many unknowns in this subject, and therefore any mathematical model in economics is very far from reality.

There is a scientific similarity. As my supervisor said to me 50 years ago, this is done by those who do not know mathematics well enough to be a mathematician and do not understand the real economy enough to be an economist. This is, of course, one more joke, but academic economics is an academic science very far from practice and reality. Therefore, it does not really see and does not understand the prospects. It couldn’t, for example, predict the crisis in 2007-2008, and this readily and easily serves any political mainstream.

Economic policy is different. Ideally, this is making decisions about improving people’s well-being and therefore about the efficiency of the economy as a whole and not just its individual sectors, for example financial or banking. At the same time it should be understood that well-being is, of course, not only income. Of course the income, but not only. It is the environment and free time and education and medicine and culture. Economic science, academic economics sometimes helps, but only if it is as close to practice and reality as possible.

Today I can say that it is a gratifying fact that this year the Noble prize of economics was awarded not for abstract mathematical models, but for example, to David Card from Berkeley for his empirical contribution of labor economics. I was a graduate in 1973 with a degree in labor economics. This is a very interesting and pleasant event for me.

As you know, using natural experiments, David Card has analyzed the labor market effects of minimum wages, immigration and education. His students from the early 90s challenged conventional wisdom, leading to new analysis and additional insights.

I’m not going to repeat the press release, but I want to say that The Economist in a recent day said, in fact, no amount of data can reliably predict the future.

Unfathomably, complex, dynamic economists rely not on Big Brother, but on this - now I want to underline what The Economist said - on the “spontaneous behaviour of millions of independent firms and consumers.”

Economics isn’t about clairvoyance. Instead, it’s a promise to move to more rational decision making. So that’s what I can say answering this question about economic science and economic policy. Economic science is something which can be real if related to the reality, or it can be absolutely unreal if that’s only mathematical models. Economic policy is about the well-being of the people, and it’s a kind of decision. It’s not very often related to the economic models. So that’s what I can say. I’m ready for the third question.

3. What role does economics play in society? Does it serve the common good?

The question is very broad and from my point of view incredibly important. I must say that I discussed this and related topics in detail in my book “Real Economic”, which is related to Realpolitik - Realeconomik. And the name of the book is Realeconomik: The Hidden Cause of the Great Recession", which was published by Yale University Press exactly ten years ago.

So I want to answer your question to explain four main theses.

First, it’s the thesis that morality, not individual morality as personal qualities, but social morality, a set of informal rules, the observance of which is necessary for life’s success is part of economic life.

The second main idea which I want to share with you is that public morality, unlike, by the way, individual morality, is changing and changing its role in society and the economy, largely depending on objective conditions of development. That is, not only the economy depends on the state of public morality, but this morality itself depends on the economy. That is, unlike individual virtues and vices, social morality is not so much from nature or from God as from the conditions in which history, natural conditions, and features of economic life put a particular society.

The third main idea answering this very important question, from my point of view, is that the picture the mainstream sciences, more precisely social sciences, draws for society does not reflect reality - often, in general, does not reflect reality.

The fourth thesis, which is an important part of the whole story, is what can be conditionally designed, designated as transit from post-industrial to postmodern society and economy. It’s a very important issue which will take much more time to debate. So I would try just now to say some important things in these four major theses about your question about what role does economics play in society and does it work?

First, society is not composed of Homo economicus. Ethics are a part of social life as well as culture, intellectual values, family life, personal ambitions and relations, irrational feelings, etc. There are things that are not subject for economic, for market reasoning. The behaviour and ethics are one of them, but there is more to it than that. The economy itself, especially a modern capitalist market economy, is very much dependent on moral constraints and public ethics to function smoothly and effectively.

Essentially, it is a matter of trust, as we know. Everybody knows that. In the final analysis, the adoption of a decision in business simply depends on whether people feel like putting at risk the resources at their disposal. And here, continued trust in the efficiency of rules, economic gain, and in institutions which enforce these rules when necessary is an indispensable condition for the effective functioning of the market system. Even the slightest change in the levels of confidence in existing institutions displayed by economic agents generally has a powerful impact on economic and especially financial indicators. From this perspective, only the ability to support or strengthen public confidence in economic policymakers and state institutions, in a capitalist market economy, will determine the economy’s long-term future.

Confidence or trust, in turn, is linked to the existence of public morality. Morality, rather than the legal or illegal pressure orchestrated by the state, greatly facilitates daily actions and the production of goods, exchanges, savings, investments, and other basic economic actions. It provides the necessary degree of trust to conduct millions of daily economic transactions without thinking each time of the necessity to guard oneself against the possible breach of contract or act of fraud by numerous counterparties.

In the absence of public morality, a very large portion of today’s business activities would be impossible because of prohibitive costs of securing enforcement of contracts. Here is the important note. By the way, ten years ago, when I published this book, it was completely impossible even to discuss these ideas. The word “morality” in connection with the economy, economics, whatever, they said to me in all debates, they were saying to me that this is preaching, but not speaking about the economy. Now it’s a widely spread idea. Everybody is talking about that. So this is interesting how the time has changed.

One important note: morality, ethics, what is meant here is not the issue of individual vices or virtues, but collective attitudes. It’s a public morality. Vices or virtues are eternal and no more prevalent in human beings today than they were in Shakespeare’s era. But public attitudes may change. And they do change.

I want to even stress the challenges for an economy rest not with individual vices or weaknesses, but with the public attitudes and reactions which may channel individual behaviour into various directions.

Government caution to enforce compliance with the principles and rules of market relations is effective only when most economic agents follow these rules by virtue of awareness to principles of public morality, personal moral convictions and sense of responsibility. In such case, when nine economic agents out of ten stick to the rules not because of daily coercion or control on the part of the state but because they consider it fair and rewarding, inevitable violations of these norms are prevented or punished in accordance with the majority sentiment and not against it, with the minimum use of pressure. As a result, general compliance with the rules of the game set by society is achieved at minor expense, or at the very least, an acceptable cost to the economy. I can give a lot of examples of that, but I think it’s more or less clear what I mean with this.

The next point, the second main idea is that public morality, unlike individual morality, is changing and changing its role in society and the economy largely depending on objective conditions of development.

It is important to note that this process of erosion, as I understand it, is not related to any change of human psychology, which always remains roughly the same, but rather to the weakening of the society’s collective will to force its individual members to respect and abide by the patterns of behaviour conforming to public interest and ethical norms. In other words, it is not the matter of people getting spoiled or immoral, but the matter of weakening the disciplining role of public ostracism punishing antisocial behaviour. So it’s a question of the state of society.

Now, one can say that there have been serious reasons for public morality to get weakened. Why moral enforcement of fair play rules was losing its strength, I think it’s an interesting idea. First, there is a set of sociological, cultural and political reasons. Social partners change as consumer-society psychology takes root; aggressive advertising, both overt and hidden, imposes consumer society attitudes as the dominating mindset. Traditional hierarchy of different needs is being reconsidered. The system of individual values and goals undergoes deep change. Professional career and reputation, public recognition and respect are losing weight as individual values and inspirations. The society itself undergoes restructuring.

First, swift changes in lifestyle and consumption patterns, society structures being remodelled, social groups and classes redefined. Secondly, traditional norms of behaviour developed by traditional classes lose former power over individuals. A new generation is taking control of society. Higher college education gains prevalence for the growing proportion of the people. Hard toil as a means of survival because of purely abstract notions, work ethics and personal responsibility for securing satisfaction of basic needs are losing its ground. This is first.

Secondly, the new international environment. I’m speaking about the period until recent times. Recent times, just last two or three years, it’s a little bit different story already even from that what I’m going to say. And I’m trying to explain my views on the very general direction. The West have no rivals, substantial rivals. Only just now the West created itself the rival as China - did it absolutely artificially in the last 40 years because they want to have cheap labor. They want to have cheap labor to have very high profits, and they didn’t care about what political system is in China. Now they just came to the idea that this is maybe a problem.

It’s how the selfish ideas when you simply to make money in the economy, international economy bringing you to some kind of crisis. It was made just artificially simply because the labor in China was zero, and China just invited all kinds of businesses. And now everybody has a problem in the West. It’s a very funny story if it will not bring us to big tears.

But I’m speaking about a more general story. The West had at least no rivals since the last period of time in international affairs as communism has been defeated in a cold war, political elites face no powerful outside challenge or real threat, hence there is no external pressure to keep elites alert and vigilant of fraud and waste. No competition, no competition as everywhere.

Also, damage of the two-polar world model gave more freedom for the West to act in international politics. Formal laws and established rules of international behaviour are gradually giving way to political opportunism in international affairs, and that also inevitably affects public morality at home.

Then there is a set of reasons within the economy and economic system itself. First, the economy is growing more sophisticated and more post-industrial. Post-industrial economy, third sector industries, are raising their share in the economy. Owners of intellectual assets and resources account for a progressively larger proportion of calculated costs and direct incomes. Intermediate transactors deriving their share of revenue from the sales of final product grow in numbers and sophistication. Cost calculation is becoming less transparent or even not transparent at all, and more manipulative, which is stimulating intellectual machinations to derive profit from thin air, simply from air profits are sometimes coming, more and more.

Private business becomes infected with bureaucratic practices, such as growth and multiplication through deliberate want and needs formation; shielding itself from outside control; creating an air of mystery to boost importance of its activities.

You can see it almost every day. I’m not going to go into details in disproportional growth of the financial sector, everybody knows about this story, but nothing changes since the crisis of 2007, 2008, 2009. Nothing changes.

The other issue, third one, is the growing role of the brand economy. The brands just making advantages to the economy in such a way that it is not related to the substance. But one of the most interesting things is the appearance of a new economy. We are witnessing rapid growth of a new economy consisting of businesses aimed first at creating new market niches, market innovation, and secondly resorting to non-tangible resources such as knowledge, information, creativity, influence as the means to create new value. This is high-tech. Second, new economy is, as compared to a traditional one, is first less transparent, hard to calculate actual costs and consumer value, production turns into a black box.

And secondly, more virtual - trades, images, emotions, fetishes - and difficult to regulate. All this is very difficult to regulate by setting up standards, norms and restrictions and whatever - sanctions, maybe something else. As a result, it creates immense opportunities for the self-interested machinations, intellectual alchemy, and abuse of trust, unfair or fraudulent business practices.

Ten years ago nobody wanted even to discuss these issues. Now it’s common place, and I’m not going to make the citation from The Economist once again but in the recent articles of The Economist it’s well explained. Then the growing political power of the new business: interest groups connected to different segments of new economy, first and foremost the financial sector, and now I want to add the Internet giants who yesterday changed their names, for example, some of them. I don’t know what is the reason, but they’re even changing their names, showing that this is an endless story. The new symbol is just like that, endless story. Anyhow it’s really interesting.

So the financial sector, Internet sector consolidate their influence and power over mass media, political and academic elites. Agenda and content of public debate is increasingly influenced by groups developing and controlling new opportunities for making big, easy money. Redistribution of financial flows to the benefit of innovative intellectual business is justified as fair and progressive. A change in values is occurring as creativity and innovation. I want to stress it: a change in values is occurring as a creativity and innovation, replacing progress of production capabilities and technical abilities as the highest economic virtue and value.

Now you must see a new international division of labor: the new economy is located in wealthy and prosperous nations, while less lucrative traditional industries are being transferred to countries with the cheaper labor and softer environmental regulation. Now this debate, which countries want just to do something for climate change, in the area of climate change and so on, it’s necessary to recall that business from the West came to these countries especially and exactly because these countries were not making any rules or any limitations exactly in this question of climate. So they were ready to make dirty air in the other countries. Now the question is why you don’t want to take part in that.

It is also affecting mainstream ideology in the West. Goals of equal opportunities and reducing gaps between nations give way to meritocracy, minimization of redistribution and extremely liberal economic attitudes applied to international economy.

Now, the third main idea is that the picture that mainstream science, more precisely social science, draws for society does not reflect reality. I can speculate on that very widely. If you would be interested, I’m ready to speak on that, but I think it is more or less clear. And these new scientists formed a closed community with a distinct hierarchy, awarding themselves prizes and titles, dispatching lucrative positions and grants, undertaking research for private companies for both image building and practical purposes. So this is a reality. This is truth, and that gives absolutely an adequate view in this area.

Only one more remark on that: research community and academia have tried hard to produce an impression that economics as well as sociology and perhaps political studies, too, have transformed themselves from humanities to sciences. A large role in this was played by mathematicians who faced contracting demand from engineering industries and the military. Under these conditions they turned to economics, which made rising demand from the financial sector which looked for instruments to expand, as well as from government agencies which were in need of nice and convenient justification for their policies. And newly bred economists offered a nice variety of lucrative products in the form of beautiful mathematical models individually designed to satisfy every possible whim of those who cared for mathematical dressing for their business policies.

Naturally, they portray themselves as high-minded, disinterested scholars, warriors of truth. But should that be taken at face value? This is a question to all people who are listening to us. They can make a conclusion themselves.

And finally, the fourth thesis to answer the questions which you asked me, which is an important part of the whole thing, is what can be conditionally designated as post-industrialism to postmodernism. Developed economies as a whole are embarking on a new stage associated by some sociologists with the concept of postmodernism. At this stage, the content of economic activity, if understood as satisfaction of reasonable, conscious needs of the consumer and understandable and rational manner, is gradually assuming a lesser role compared to satisfying instilled ones or social ambitions of consumers. As such, new links grew in number and scope, becoming ever more complex and filled with advanced content. Their original rationale came to be increasingly blurred and sometimes totally missing, while the links themselves appeared some independent of their raison d’être.

If we consider that such ideas are correct, then we must admit that no value-based judgment can be applied to the problem of what should be produced and traded. Thus, the only possible criteria for telling good from bad, to say what is good and to say what is bad, efficient from the inefficient and true from false, is the amount of revenue and profits received. Such an approach leaves no place for moral judgment or value-based regulation, becoming a sort of reincarnation of Hegel’s statements that what is actual is rational. If an activity brings revenues and profit, it should be considered both rational and necessary, provided it is waged within the boundaries of legality.

It’s a very big question. I’ll be happy to comment much more on things, but finally, losing a lot, from my point of view, of important things, finally, another main thesis from that over-generalizing nature, which perhaps considers one of the highlights of what we are talking about, is that the life in general and economic life in particular does not obey ideological verified and strictly shaped laws of evolution. It is impossible to say with certainty that society, in particular Western society, has emerged from such a state, has passed through such and such stages, and is now naturally moving in such and such direction - this is also a part of answering the question - and will come to such and such results.

Everything is quite flexible. And this applies to the economy, politics, and society as a phenomenon. First, because if you look closely at the process that are described or that are otherwise addressed, it becomes apparent that although they embrace some seeds, of course, still 30 or 40 years ago, no one, absolutely no one, could clearly predict and describe what would result in three or four decades. And secondly, and this is perhaps the most important thing: the last half a century has shown that not only an individual but society as a whole, are amenable to purposeful suggestion. The whole new economy, in essence, is built on the fact that the needs of the consumer, his preferences are not a given.

They can be influenced and even shaped for themselve. There are, of course, certain limitations, and human consciousness is not a “white sheet” - something can be written on it, and something is difficult, something will not work at all, but in general, the formation of collective needs and preferences, even ideas, is possible. Accordingly, business does not have to adapt to society - it is possible to a large extent, on the contrary, to adapt it to itself. So it’s an endless topic and endless story, which from my point of view is very interesting, and I’m a little bit limiting myself because I want to answer other questions and not just to make you sleep. So I’m ready for the fourth question.

I’m sorry, I’m really reading the paper which I prepared for our debate, because I want to give the real message, not just to blah blah blah, like with a cup of coffee, but to send you a message. Of course, you maybe expect that I’m going to speak about Russia, but Russia is a very special story. It’s not related to your questions at all. It’s completely different, maybe tragic or a very painful story, but it’s a very separate thing.

So I’m speaking about the world economy and the new economy in the world. That’s what I want to share with you, the keywords which maybe later would be put altogether, and that will be a vision. So I want to give you an impression of the vision. That’s what I want to do.

4. Economics provides answers to problems related to markets, efficiency, profits, consumption and economic growth. Does economics do a good job in addressing the other issues people care about: climate change and the wider environment, the role of technology in society, issues of race and class, pandemics, etc.?

Firstly, all these problems have an economic aspect inside, so you can’t do without the economy, simply nothing. And by the way, this economic aspect already has a direct impact on the situation with solving problems. On the eve of the meeting on climate, it became known that the governments of some countries - Russia, China, Australia and even Japan, United Arab Emirates - tried to influence experts to mitigate the hazard of assessments of those emissions, the reduction of which will negatively affect the economy of these countries. It’s related to what I said to you just before. It’s a very clear example. The meeting on climate must start tomorrow or whatever, and some of the leaders are even not coming there. For example, Xi Jingping is not coming, Putin is not coming just exactly because of that problem.

Secondly, there is a feedback. Unresolved and growing global problems are becoming an increasingly serious factor affecting the economy. Thirdly, in general, it is very difficult to imagine how problems and issues related to the economy can be isolated from the global agenda. The world is changing, moving, and economics, like other sciences, are means of cognition, understanding, awareness of the changes taking place on the eve of global related events. As a result of the pandemic and the understanding begin to come - yes, very slowly - but the threat of a new economic crisis is not so much in the stock market.

It jumps, as in the deepening political crisis in the core countries of the world economy. That’s what we see. Look at what’s going in whatever country, there are signs of political crisis or political crisis itself. It is very simple to see, very clear. However, with a growing understanding of the need to act, there are more and more unanswered questions. I want to suggest to you a pyramid, which I prepared for you, of interrelated problems in this area. The crisis of the capacity of political institutions and trust in them on a global scale; the crisis of the capacity of political institution and trust in them on the global scheme, from the United States and Great Britain to India and Israel - you know how elections were just there.

The threat of authoritarian approaches, the growth of right-wing radical and even neo-Nazi movements on a global scale, the normalization of hate speech in mass media and politics, the narrowing of the space of civil society, the weakening and marginalization of leading human rights and other public organizations in Western countries - you know all those things very well, much better than I. Growing atomization and the emergency of an asocial society; the extreme strengthening and consolidation of income and opportunity inequality within and between the countries; the prospect of the disappearance of professions displaced by artificial intelligence, with a sharp decline in demand and global economic growth; climate change, increased frequency of natural disaster, the risk of flooding of major megacities and total pollution, mass extinctions of biological species.

So I can continue all that. It’s a little bit of a dark story. The problem of keeping artificial intelligence and genetic engineering under the state and public control; the threat of genetic manipulation leading to extreme forms of social inequality; protection of elements of private life under the domination of total surveillance technologies. So the problems which I described have no answers until today, and they have no common policy on that. This is the problem, that mankind is coming to a new, let’s say, fourth industrial revolution and the major point of this fourth industrial revolution is that the developments in new technologies are coming much faster than the people are able to operate with them and to understand them. This is the point of crisis, and there is no answer to that.

And if you have a closed, untransparent government, like in Russia for example, which is a kind of corporate group, if that kind of government has in its hands these new technologies, it’s a big problem for the people. A big problem for the humanity in this country, for all the people, because the repressions and the control is on the unbelievable level. In China it’s a state policy, and in Russia it’s even just more special. They’re simply using all these technologies. If they can use it against the elections in the United States, then you can imagine how they can use it inside its own country.

So these are some points answering your question, economics has a wider environment. So of course economics is a part of everything, but there is no solution in economics itself. Wider environment goes to the questions of governments and societies, and there are no answers on very important issues. That’s what I want to say. It’s an endless story to speak on that.

5. As we live in an age of economics and economists – in which economic developments feature prominently in our lives and economists have major influence over a wide range of policy and people – should economists be held accountable for their advice?

So, no question. Actually, in that kind of question itself, there is also some kind of medieval attitude to the economist as a predictor who does something chemical, guesses from insights and books and then gives advice. If the advice is wrong, his head is cut off. It’s a very special attitude to whoever and to the economists themselves.

Maybe some economists want to present themselves that they are just gurus which can look forward, but don’t take it too seriously. In fact, responsibility from my point of view is a completely different thing. This is not a punishment for the mistake of any particular person. Responsibility for a politician and an economist is the ability to have a broad global vision to understand the interconnection of everything happening in the world as well as to understand how recommended and accepted decisions participate in these global connections.

Responsibility is also closely linked to values and goal setting. And as for the punishment, the point is not whether a particular person will suffer it or not, but that everyone suffers from the absence of appropriate decisions. As the Russian historian Vasily Klyuchevsky said: “History is not a teacher, but a supervisor of Magistra Vitae (mentor of life): she does not teach anything, but only punishes for not knowing the lessons.” I think this expression is the right answer to that question because it’s our fault that we are listening to the wrong recipes. Why are we listening to the wrong recipes? Because we don’t want to listen to history and we don’t want to understand time. What does it mean to be a politician? It means to listen to the steps of the God, not to think that you can change life. It is necessary to understand the substance of time and substance of history for that moment. Then it works. If you don’t understand that and move in different directions, if you have a slogan, “let’s make America great again”, so not to look forward but to look back. Or if you are saying that you want to make Great Britain great again and so on, it means that you have a conflict with time, you have a conflict with history. This is clear. So you are going to find this other man and to say that this is your fault?

No, it doesn’t work this way. So it is the responsibility of the society not to go to the great America back again, not to try to bring a British Empire back again. It’ll be big trouble and it’s clear. That’s what I want to say. And it is not the economists that are guilty when the Prime Minister thinks that he could make a new deal with China which is more effective than what Europe can do with China. And then the Hong Kong story happened, so no deal because you are supporting Hong Kong and the Chinese don’t want to deal. You want to have a deal with the Americans, and the President of the United States is an Irish man and he has a problem with what’s going on in Ireland - you have no borders, you don’t know how to regulate them. So one after another, you have problems simply because you don’t want to listen to time and history. So that is what I want to say.

We can continue that Mr. Putin, for example, is doing that every day. He’s saying that Russia must be a special civilization. We would pay for that a big, big price because it’s counterproductive, it’s contradiction with time and history. You can’t take the whole country back. And this is the issue which is very important: the world society lost the vision of future. It’s a general problem. It’s not only problem of Putin, it’s also problem of Trump. It’s also a problem in Europe. Look at the Polish. Look at all the stories. This is because of political entropy. We are living in times of political entropy.

That means the dissolving of the politics because politics is still organized like the 19th century and life is changing all that. And there is no answer to how political parties could work, how elections must work. How will that be organized in the current time? Not just as it was 100 years, 50 years ago, but just now. And nobody is even trying to answer that question - I mean, on the highest political levels.

I can speculate on that more and more because it’s very important. The political entropy is destroying political institution. Time is destroying political institution. The progress of current technologies, data technologies are just destroying political institutions, seriously destroying them.

And populism is coming on the top of this. Look at France, look at candidates for presidency in France. Le Pen has this new person, which are almost far, far right people, they together have more than Macron. They have 32% - 15% and 17% - and Macron have 24% or something like that. That means that the big part of society is moving to that direction. Which direction? Backwards, simply backwards. They don’t see the future. They don’t understand what is the future. And the economy is a part of that. They don’t understand their role. So we can go to the sixth question.

6. Does economics explain Capitalism? How would you define Capitalism?

I will try to speak as a professor of economics just to answer this question. I would say capitalism is a system based on private ownership of the means of production, and they are used for profit. At the same time, private property is the basis. And that’s what I want to say, from my point of view, is very important. And I understood that from the Russian experience after the end of the Soviet Union. Here I want to stress what I’m going to say: private property, in fact, is the basis of self expression and the basis of freedom. And it’s very important to have self-respect and to have a life without fear. For all these things; for life without fear, for self respect, for freedom, the institution of private property is extremely important.

That’s what I think. For example, Russia didn’t realize this principle already 30 years after the Soviet Union. Oligarchy and the connection between property and state authority, the connection between business and authority and state and power didn’t allow us to solve this very important problem.

I think that business is an organic element of human life. I mean entrepreneurship, the natural feeling of man to realize his self through business. Not every person, of course, not everyone, but a big part of the people. For them it’s absolutely crucial. So if that is true, if that is really an organic element of human life, then the future lies in what will be the relationship between the participants, the relationship between the owners, employees, society and the state. Answering the question whether the state is a participant or the providing system of the whole economic thing, why is this so important?

As I told you before, and now I want to give here just a citation from the Financial Times which came yesterday: “artificial intelligence gives unscrupulous governments new capabilities to snoop on, control and potentially coerce their citizens.” So what it’s saying is the changes in capitalism would be dramatic, but they would be within the idea of private property and entrepreneurship. That’s what I believe. I can’t imagine how in another way the people are going to realize themselves.

I was born in a society where there was no private property at all, at all, zero. And I understand how the people feel themselves and how many people, even with the danger to be in prison for 25 years or even to be killed, were trying to make their own business underground. Because that is the part of the human being. This is like art, like music, like poetry. For some people music, art and poetry is being able to make business. They like it. It’s not only for profit, it’s for life.

So I think that the future and how I’m going to define capitalism, if the basis of capitalism is private property, then it’s a part of life, with the consequences of that kind of definition. Maybe the word capitalism is not very good, as you know, I told you before, even the word Facebook appears not to be very good at the moment, and they changed the name. Maybe they will change the name of capitalism, but the substance would stay. It’s a possibility for the people to act and to realize themselves. That’s what I want to say. That’s what I think. So it depends what kind of relations there will be. The 7th question is coming just directly from the answer for that question.

7. No human system to date has so far been able to endure indefinitely - not ancient Egypt or Rome, not Feudal China or Europe, not the USSR. What about global Capitalism: can it survive in its current form?

My first part of the answer is that I don’t know. You’re asking me the question that I simply don’t know. I simply don’t know. I would try to give the answer, but the beginning of that kind of answer I don’t know. If capitalism is a relationship between private property, labor and profit, then these relations will always be, as far as I understand. The other thing is maybe artificial intelligence would do something, but that will not be capital. It will be something completely different.

The question is, what? Can capitalism survive in its current form? It will change and modernize all the time. It’s changing every day. We were speaking about that. What direction? It’s another question, but it would be changing all the time. And the most important thing is that we already feel that it is changing to the direction which needs correction. Nobody knows how to do this correction but a lot of people, not only me, see some problems with this. For us, it’s very important to read Adam Smith as often as possible in order to understand what means market economy what means capitalism, and just to try to bring it there because it’s a very important point. It’s going to change and modernize. The pandemic has already shown that there will be changes.

In general this is a question of name. Today capitalism is an important part of a person’s self-realization. And in that sense it’s the same, which is economy. So what happened in the Soviet Union? We were trying to implement socialism and planned economy. In fact, it doesn’t work. It didn’t work. We see it. Now, China is trying to do something with capitalism. We’ll see what happens. It will be very soon. Xi Jingping is trying now, after he got everything from the Western world, now he’s trying just to jump away. We’ll see to what extent real capitalism can be matched, put in together with that kind of leadership, with that kind of state, with that kind of semi-totalitarian rule. We’ll see what would happen. I think it wouldn’t work. I don’t know in what way it wouldn’t work, but I think it wouldn’t work. But I don’t know. We’ll see.

So the answer is that it would change. It would change. It’s not going away. And by the way, you said the USSR didn’t survive. Yes, but Russia is still there. You said feudal China didn’t survive. Yes, but China is here. You said that Europe collapsed. Okay, but Europe is also just on our eyes. The same would happen with capitalism. Maybe it will be a little bit different name and maybe not. It would be different. But nothing disappears. Even the Roman Empire just now has its representative in nowadays. It’s Italy. So the Soviet Union has its representatives. It’s Russia. And the conflict with Ukraine, like always in Russian history. So what can I say more? It would be changing. That’s what I want to say.

8. Is Capitalism, or whatever we should call the current system, the best one to serve the needs of humanity, or can we imagine another one?

Can there be another system for a person’s self realization?

The social system and social conversion didn’t take place. Now China is what I was already said: it is making something special out of capitalism. And it will soon become clear what will become off it. In fact, we must already realize that the multidimensional global crisis is developing. There is a lot of talk that something needs to be done, but there is no case and the situation is only getting worse. Sometimes there is no answer. Remember after the crisis how many slogans and how many appeals were made by state leaders that something needs to be done. And, what happens? Nothing.

And we have all the problems which brought us to that crisis still in place. And everybody knows that. Everybody knows that the situation is getting only worse. Everybody is saying that something needs to be done. The answer is in a field of values. I think I’m just now trying to tell you what I think in a positive way. I think that because of the technical progress and this fourth industrial revolution and very specific developments in computer science in Internet everywhere, I think that answer is in the field of institutionalization of values. It’s a very special issue.

I’m ready to speak to you sometime. It’s a very big issue.

The answer is to think strategically, counting not for today and not for the near future, but for decades. This approach is by far the most practical today. With such a high speed of development of societies in the world, it is necessary to think and to make decisions looking on decades forward in front of you. Not back. Not make America great again, but Great America. Let it be Great America in the future and this is two different stories. This is two different games and great for whomever in the future: Great Russia, Great Europe, or a great Asian economic area for the future.

I think because of modern society, postmodern society and political entropy, the future must be based on values which must be institutionalized. Partly it was done in Europe after the second long war. That’s why the European Union was so successful for so many years.It will be successful after the troubles and difficulties. But it is not enough, but it’s a very serious example.

I’ll give very short explanation. If you would have a look what happens with Americans, with the US in Afghanistan, then this idea will come again to your mind because they have a lot of money. There a lot of power, military power, but because they have nothing in common with the values of the people who are living there, the whole story (project) failed.

So it’s a long story.

This approach, I want to repeat, is the most practical and attempts to limit humanity’s excessive focus on short-term thinking and short-term prospects, which leads to huge loss of time.

Ten years have passed since the crisis of 2008 and the world in 2020 is confronted with a new crisis. Also, in this area as well in the global economy, the institutionalization of values should be expressed in setting goals such as overcoming overproductions in advanced countries, institutional support for equality of opportunity, and gradual economic alignment of the poor and the poorest countries and continents. This is the fundamental expansion of the world markets. The institution of global competition is essentially the main recipe for overcoming the constant threat of the next financial and economic crisis on a global scale.

In business, it should be first of all about the movement towards the institution of business integrity. At the same time, the source of trust should be, first of all, the personality of the interpreter and not group, corporate, racial or national affiliation.

To make a long story short, I would say it like this: if can you imagine to say it in English, the institutionalization of equality of opportunity, as opposed to equality.

I’m a leader of Liberal party. So, for us, for me, for my political colleagues, equality of opportunity, equality of opportunities is extremely important;, not just like a declaration, but namely, institutional support. How to create that kind of society in the world so that everybody has the same opportunity.

Is the state responsible for the institution of equality in general? All the recommendations of theoretical economics are concerned about growth in equality. But in the reality it is very far from that. However, it should be noted that in the modern world, both anti-monopoly policy and ensuring conditions for competition, which is extremely important, become a problem. What to do? The multi-monopoly of transitional digital platforms is completely unclear. That’s another big question.

I understand that maybe it is not matching too well on your question, but I’m trying just to explain the network of issues around this issue.

WRITTEN ANSWERS BY GRIGORY YAVLINSKY

1. Fundamental Economics

Why does economics matter?

Economy as a field of activity. Human use of natural resources. Household management Production and distribution. i.e. human activity to ensure life.

Economics - (1) science, knowledge about how people can use natural and other resources most effectively. (2) the science of human behavior in connection with the provision of their lives.

Economics as a science and policy - activity to ensure and improve the well-being of people. Unlike business, the goal of which is to earn as much money as possible and not to go to jail. A joke, but there is a grain of truth in it.

2 . Economic Science & Engineering

What are the differences between economic science (academic economics) and economic engineering (policymaking)?

Economics as a science deals with human behavior and the psychology of people about the production and distribution of goods. This is a subject with very many unknowns. We can say that economic science (academic economics) is going through a period of youth and therefore assumes that it can model its subject with the help of mathematics.

However, there are too many unknowns in the subject and therefore any mathematical model in economics is very far from reality. There is a scientific similarity. As my supervisor said 50 years ago, this is done by those who do not know mathematics well and do not understand the real economy. This is, of course, a joke again, but academic economics as an academic science is very far from practice and reality.

Therefore, it does not really see and does not understand the prospects (it could not, for example, predict the crisis of 2007-2008) and is ready and easily serves any political mainstream.

Economic policy is different. Ideally, this is making decisions about improving people’s well-being, and therefore about the efficiency of the economy as a whole, and not just its individual sectors (for example, financial or banking). At the same time, it should be understood that well-being is, of course, income, but not only: it is the environment, and free time, and education, medicine, culture …

Economic science (academic economics) sometimes helps, but only if it is as close to practice and reality as possible. It is a gratifying fact that this year the Nobel Prize in Economics was awarded not for abstract mathematical models, but to David Card from Berkeley “for his empirical contributions to labor economics". As a 1973 graduate with a degree in Labour Economics, I’m pleased by this event.

Using natural experiments, David Card has analysed the labour market effects of minimum wages, immigration and education. His studies from the early 1990s challenged conventional wisdom, leading to new analyses and additional insights.

«In fact no amount of data can reliably predict the future. Unfathomably complex, dynamic economies rely not on Big Brother but on the spontaneous behaviour of millions of independent firms and consumers. Instant economics isn’t about clairvoyance or omniscience. Instead its promise is prosaic but transformative: better, timelier and more rational decision-making.» “The Economist” October, 23, 2021

3. Society & Economics

What role does economics play in society?

Does it serve the common good?

This question is very broad and incredibly important.

I must say that I discussed these and related topics in detail in my book “REALECONOMIK. The hidden Cause of the Great Recession" published by YALE University Press ten years ago, in 2011

Four main theses:

I. The thesis that morality (not individual morality as personal qualities, but social morality = a set of informal rules, the observance of which is necessary for life success) is a part of economic life.

II. The second main idea is that public morality (unlike, by the way, individual morality) is changing and changing its role in society and the economy largely depending on objective conditions of development. That is, not only the economy depends on the state of public morality, but this morality itself depends on the economy. That is (sic!) unlike individual virtues and vices, social morality emerges not so much from nature (or God) as from the conditions in which history, natural conditions and features of economic life put a particular society.

III. The third main idea is that the picture that mainstream science (more precisely, social sciences) draws for society does not reflect reality.

IV. The fourth thesis, which is an important part of whole story, is what can be conditionally designated as transit “from post-industrial to postmodern”.

First point - social morality is a part of economic life.

Society is not composed of homo economicus. Ethics are a part of social life, as well as culture, intellectual values, family life, personal ambitions and relations, irrational feelings etc. There are things that are not subject to economic (market) reasoning and behaviour, and ethics are one of them.

But there is more to it than that. Economy itself, esp. modern capitalist market economy is very much dependent on moral constraints and public ethics to function smoothly and efficiently.

Essentially, it is a matter of trust. In the final analysis, the adoption of a decision in business simply depends on whether people feel like putting at risk the resources at their disposal. And here, continued trust in the efficacy of rules of economic game, and in institutions which enforce these rules when necessary, is an indispensable condition for the effective functioning of the market system.

Even the slightest change in the levels of confidence in existing institutions displayed by economic agents generally has a powerful impact on economic and especially financial indicators.

From this perspective, only the ability to support or strengthen public confidence in economic policymakers and administrative institutions in a capitalist market economy will determine the economy’s long-term future.

Confidence or trust, in turn, is linked to the existence of public morality. Morality (rather than the legal or illegal pressure orchestrated by the state) greatly facilitates daily actions aimed at the production of goods, exchanges, savings, investments and other basic economic actions. It provides the necessary degree of trust to conduct millions of daily economic transactions without thinking each time of the necessity to guard oneself against possible breach of contract or act of fraud by numerous counterparties. In the absence of public morality, a very large portion of today’s business activities would be impossible because of prohibitive costs of securing enforcement of contracts.

Important note:

Morality, ethics – what is meant here is not the issue of individual vices or virtues, but collective attitudes =public morality. (Vices or virtues are eternal and no more prevalent in human beings today than they were in Shakespeare’s era, but public attitudes may change, and they do change)

To stress: the challenges for an economy rest not with individual vices or weakness, but with public attitudes and reactions which may channel individual behavior into various directions.

Government coercion to enforce compliance with the principles and rules of market relations is effective only when most economic agents follow these rules by virtue of adherence to principles of public morality, personal moral convictions and sense of responsibility. In such case (i.e., when nine economic agents out of ten stick to the rules not because of daily overt coercion on the part of the state but because they consider it fair and rewarding) inevitable violations of these norms are prevented or punished in accordance with majority sentiment and not against it, with a minimum use of coercion. As a result general compliance with the rules of the game set by society is achieved at minor expense or at the very least acceptable cost for the economy.

For example, laws against theft, fraud or bribery work best in the situation when society at large considers them not just illegal, but also immoral and unworthy of a respected person. If people known to be swindlers or bribe-takers are met with public ostracism and boycott, enforcement of laws against theft, fraud etc. is both effective and cost-efficient.

However, if a majority of players in an economy are not ready or are not inclined to comply with rules out of conviction or internal inclination to moral behaviour, the costs of rule enforcement reach prohibitive levels and norms are simply disregarded.

Public morality and efficacy of rules are interdependent: strong moral guidance helps to enforce rules, and if they work effectively that keeps people from breaching moral principles. And vice versa: weakening moral constraints make rules less effective, and that corrodes business ethics further.

Direct link is that business practices in the financial sector which were obviously harmful, endangering national interest and public morality, met neither public condemnation nor counteraction by authorities. Indirect link could be found in the fact that the very notion of public interest came to be treated so lightly and vaguely (advertising absolute freedom of consumer choice) that it became totally ineffective as an instrument for regulation.

This is all the more true for the financial sector, where high risks are presupposed, thus blurring the line between justified sharing of risks by financial institutions and their clients on the one hand, and conscious deceit or misuse of information on the other.

Many people have to bear their share of responsibility.

• Top managers of major financial institutions in their pursuit of still higher profit had been consciously accumulating doubtful assets while keeping their owners , stockholders and clients unaware of the associated risks;
• Rating agencies and other institutions, which were designed to keep down risks in the financial sector through gathering and disseminating reliable information, had been consciously underestimating risks in the system, failing to draw their clients’ attention to important but disturbing pieces of information;
• Regulators could and should have put an end to a dangerous accumulation of risks in the financial sector, using legal possibilities available to them under current regulatory system, but chose not to do so;
• Most institutions engaged in research and analysis had been presenting a wrong picture of the situation in the financial sector by understating risks and diverting the focus of attention away from alarming trends and facts;
• Consciously or not, politicians and public opinion leaders allowed interest groups connected to the booming financial sector to manipulate their actions to the detriment of national economic priorities and public interest.

Thus I argue that it was a very wide circle of people who by means of intended or unintended actions (or lack of action) provoked the crisis and made it possible. Consequently, now that the guilt has been placed on a few CEOs, and punishing them (in some form) has come to be viewed as closing the issue, there is absolutely no reason to believe that the wider circle of those responsible for keeping the financial house in order will act differently, if only because the overwhelming part of them didn’t lose much in the crisis but profited very much (some of them enormously!) from the processes which preceded it.

Next point is that the general trend of a regression in ethical constraints in business activities and their regulation that characterized the past few decades

The second main idea is that public morality (unlike, by the way, individual morality) is changing and changing its role in society and the economy largely depends on objective conditions of development. That is, not only the economy depends on the state of public morality, but this morality itself depends on the economy. That is (sic!) unlike individual virtues and vices, social morality emerges not so much from nature (or God) as from the conditions in which history, natural conditions and features of economic life put a particular society.

It is important to note that this process of erosion, as I understand it , is not related to any change in human psychology (which always remains roughly the same), but rather to the weakening of the society’s collective will to force its individual members to respect and abide by the patterns of behaviour conforming to public interest and ethical norms. In other words, it is not the matter of people getting “spoiled” or immoral, but the matter of weakening disciplining role of public ostracism punishing anti-social behaviour.

Now, one can say that there had been serious reasons for public morality to get weakened:

Why moral enforcement of “fair play” rules was losing its strength?

First, there is a set of sociological (cultural) and political reasons.

Social patterns change as “consumer society” psychology takes root.

• Aggressive advertising, both overt and hidden, imposes “consumer society” attitudes as the dominating mindset –Traditional hierarchy of different needs is being reconsidered –The system of individual values and goals undergoes deep change. Professional career and reputation, public recognition and respect are losing weight as individual values and aspirations.

The society itself undergoes restructuring

• Swift changes in lifestyles and consumption patterns – society structure is being remodelled, social groups and classes redefined
• Traditional norms of behaviour developed by traditional classes lose former power over individuals
• New generation is taking control of society, higher (college) education gains prevalence. For the growing proportion of people hard toil as a means of survival becomes a purely abstract notion — Work ethics and personal responsibility for securing satisfaction of basic needs are losing ground

New international environment

• The West had no rivals in international affairs as USSR had been defeated in cold war – Political elites faced no powerful outside challenge or acute threat. Hence until the very recent time there hasn’t been any external pressure to keep elites alert and vigilant of fraud and waste.
• Also, demise of the two-polar world model gave more freedom for the West to act in international politics – formal laws and established rules of international behaviour are gradually giving way to political opportunism in international affairs, and that also inevitably affects public morality at home.

Then, there is a set of reasons within economy and economic system itself:

1. Economy is growing more sophisticated and “post-industrial”
   1. Post-industrial economy»: tertiary ( third sector) industries are raising their share in the economy. Owners of intellectual assets and resources account for a progressively larger proportion of calculated costs and derived incomes. Intermediate transactors deriving their share of revenue from the sales of final product grow in number and sophistication. Cost calculation is becoming less transparent and more manipulative, which is stimulating intellectual machinations to derive profit “from thin air”.
   2. Private business becomes infected with bureaucratic practices, such as growth and multiplication through deliberate want and needs formation; shielding itself from outside control; creating an air of mystery to boost importance of its activities.

2. Disproportional growth of the financial sector

3. The growing role of “brand economy”

4. “New economy”

1. We are witnessing rapid growth of “new economy”, consisting of businesses aimed at 1) creating new market “niches” (“market innovation”) and 2) resorting to non-tangible resources, such as knowledge, information, creativity, influence as the means to create new value (“hi-tech”)..
2. **«**New economy», as compared to traditional one: is 1) less transparent (hard to calculate actual costs and/or consumer value, production turns into a ‘black box’), 2) more virtual (trades images, emotions, fetishes etc. ) and 3) difficult to regulate (by setting up standards, norms and restrictions , administering sanctions etc.)
3. As a result it creates immense opportunities for self-interested machinations (“intellectual alchemy”) and abuse of trust (unfair or fraudulent business practices)

“The age of bewilderment is starting to give way to greater enlightenment. The world is on the brink of a real-time revolution in economics, as the quality and timeliness of information are transformed.

The real-time revolution promises to make economic decisions more accurate, transparent and rules-based. But it also brings dangers.” “The Economist” October, 23, 2021

5. Growing political power of the “new ” business

- Interest groups connected to different segments of “new economy”, first and foremost the financial sector, consolidate their influence and power over mass media, political and academic elites.

1. Agenda and content of public debate is increasingly influenced by groups developing and controlling new opportunities for making big easy money.

• Redistribution of financial flows to the benefit of “innovative” intellectual business is justified as fair and progressive.

3. – A change in values is occurring: “creativity” and “innovation” replace progress of production capabilities and technical abilities as the highest economic virtue and value.

6. New international division of labour

1. “New economy” is located in wealthy and prosperous nations, while less lucrative traditional industries are being transferred to countries with cheaper labour and softer environmental regulation.
2. - Intellectual property (trademarks, patents, exclusive rights to provide a number of services) increasingly become important for the well-being of wealthier nations.
3. It is also affecting mainstream ideology in the West: goals of equal opportunities and reducing gaps between nations give way to meritocracy, minimisation of redistribution and extremely liberal economic attitudes applied to international economy

III. The third main idea is that the picture that mainstream science (more precisely, social sciences) draws for society does not reflect reality.

The mainstream academic vision of social and economic realities could not be regarded as impartial, correct and to the point. Very far from that.

Research community and academia have tried hard to produce an impression that economics (as well as sociology and perhaps political studies too) have transformed (elevated?) themselves from humanities to sciences. A large role in this was played by mathematicians who faced contracting demand from engineering industries and the military. Under conditions they turned to economics which met rising demand from the financial sector, which looked for instruments to expand, as well as from government agencies which were in need of a nice and convenient justification for their policies. And newly bred economists offered a nice variety of lucrative products in the form of beautiful mathematical models individually designed to satisfy every possible whim of those who cared for mathematical dressing for their business or policies.

Naturally they portray themselves as high-minded disinterested scholars, Warriors of Truth, but should that be taken at face value?

Certainly they are part of the established system, part of the establishment, and as such they are no less interested, biased and prone to use people’s ignorance or delusions to their own private benefit than bureaucracy or private business.

For decades they have been fooling general public and even some politicians with an illusion that economic research could give them a reliable instrument to make economic activities safe from crises and failures, to manage successfully national economies and private financial businesses.

But all those “powerful instruments” prove convenient only to explain policy failures, not to prevent one. In spite of thousands and thousands of pieces of sophisticated research, “markets remain essentially unstable” (Soros).

Furthermore, the pretence of being “science” starts corroding other social sciences, like sociology and political studies. They increasingly resort to econometric tools under the pretext that they could give exact answers as to how certain actions could influence complex social reality. Instead they treat political life extremely simplistically, as the war between progressive (democratic, liberal) and retrograde (totalitarian, dictatorial, oppressive, anti-liberal etc.) forces, between ultimate Good of this world (us, progressively minded mainstream) and earthly Evil (them, our opponents )

These new “scientists” formed a closed community with distinct hierarchy awarding themselves with prizes and titles, dispatching lucrative positions and grants, undertaking research for private companies for both image-building and practical purposes.

IV. The fourth thesis, which is an important part of the whole thing is what can be conditionally designated as “from post-industrialism to postmodernism”.

Developed economies as a whole are embarking on a new stage associated by some sociologists (Jean Baudrillard, to give one example) with the concept of post-modernism. At this stage, the content of economic activity, if understood as satisfaction of reasonable and conscious needs of the consumer in an understandable and rational manner, is gradually assuming a lesser role as compared to satisfying instilled wants or social ambitions of consumers .

It has clearly exceeded the boundaries of the sector’s original mission of optimizing the allocation of economic resources and has been transformed into a completely independent business segment, capable of generating need and demand, and to meet this demand by producing financial products able to simultaneously generate new demand and new products. The chains of derivatives have been continuously extended, thereby creating colossal pyramids of diverse financial products, increasing the flow of money that is related in some way to this sector, and simultaneously expanding the range of intellectuals tied to this segment by material and career interests. The boundaries on the possible reallocation of the domestic product to the benefit of this sector have been stretched even further, giving birth to what is commonly defined as “financial capitalism.”

This process has not limited itself to the financial sector only. …Numerous extra links in the chain between producer and suppliers of basic economic resources (labor, capital, technologies), as well as between producer and consumer, have come to the fore, links that were originally used to help producers meet the needs of consumer in the most rational and cost effective manner. Logistics, accounting, design, advertising, marketing, public relations etc, have developed into separate industries, recruiting customers from established businesses. At the same these new industries along with their clients serve as customers for suppliers of other business services, such as research and consulting firms, legal offices and the like.

As such new links grew in number and scope, becoming ever more complex and filled with advanced content, their original rationale came to be increasingly blurred and sometimes totally missing, while the links themselves acquired some independent raison d’être.

They were an extremely convenient and far more effective way of making money (in terms of the cost/benefit ratio) than the facilities originally determined for user requirements from which these links originally sprang. So instead of optimizing total costs they rather turned into a powerful tool for redistributing total income of the society in favor of certain groups and individuals.

The economic liberalism of the 1980s-1990s derived from a different notion: any activity generating revenue is real economic activity, a legal component of domestic product. Taken to a logical extreme, this means that any revenue received by economic agents implies that they (or property that belonged to them, including intellectual property) had provided services, the value of which is determined exclusively by the size of the revenue it generated, and is totally unrelated to its content.

If we consider it correct, then we must admit that no value-based judgment can be applied to the problem of what should be produced and traded. Thus the only possible criterion for telling good from bad, efficient from inefficient, and true from false is the amount of revenue and profit received. Such an approach–call it Realeconomik if you will–leaves no place for moral judgment or value-based regulation, becoming a sort of reincarnation of Hegel’s statement that “what is actual is rational.” If an activity brings in revenues and profit, it should be considered both rational and necessary, provided it is waged within the boundaries of legality.

Moreover, there is an underlying temptation here to consider anything that generates significant profits to be effective, efficient and accordingly moral as well. Under this logic, businesses that employ deceptive tactics to mislead consumers and exploit their incompetence or psychological weaknesses should not be admonished. They are simply replacing the principle of “every good or service rendered should be adequately compensated” with: “everything that is paid for is a good, and its value is determined solely by the size of the payment.”

To take the argument still further, if we regard that the most effective modus operandi as the generation of maximum revenues at minimum cost, the ideal business activity is to generate revenues from “intellectual property” (brand names and techniques for tapping consumer awareness and artificially indoctrinating demand and standards for consumers. In these cases the costs of the “producer” of such products can be close to zero, while revenues may be infinite, and accordingly effectiveness, understood as the cost/benefit ratio, can attain fantastic proportions.

The fact is, however, that this line of thinking provokes sharp negative reaction from most people, except for those who make their living that way. A good example of it is recent upsurge in public indignation over the astronomical salaries and bonuses of investment bankers, investment fund managers, auditors, rating agency analysts, appropriate markets, in short, all the heroes of “financial capitalism” who are blamed today for the Great Recession. In terms of the logic of the “new economy” and its notion of efficiency, these people are rather the role models for achieving the greatest cost effectiveness, capable of generating colossal revenues, if not out of thin air, then out of a substance close to that.

Evidently from the viewpoint of purely economic (or rather business) thinking there is not a single consideration that could justify such negative public reaction on the rising proportions of the “new economy” or on large and extra-large incomes of those employed in it. The only satisfactory explanation I can imagine for myself is the moral feeling of the public. Whatever economic theory may have to say on the subject, most people instinctively believe that there is a difference between people’s real wants, which are self-evident and could be reasonably explained, and false wants imposed on them by aggressive advertising and slick persuasion.

This inversion of logic is of fundamental importance and not at all an abstract matter. We fundamentally reject all contributions of morality to economic relations when we believe that any money-making methods, from the manufacture of foodstuffs to the supply of services, such as those of a stock market analyst or developer of a new brand of handkerchiefs, are equally valuable for the prosperity and development of society and the economy. To be more precise, we abandon the connection between morality and economic relations when the value of a product is determined exclusively by the money that its producers can extract from the economic agents around them.

If we object to such an approach, we do it mostly on moral ground – it is absurd to treat dubious kinds of economic activities on an equal footing with those satisfying vital needs of the society, or developing intellectual and spiritual capabilities of its members. But these objections seem to bear direct relation to economic efficiency if seen in a longer perspective. Morality, one might say, is a long-term version of pragmatic approach, and thus could well be a factor of economic productivity and efficiency, helping to select and support the kinds of economic activities that will inevitably make the economy as a whole better suited to the needs of society and hence more productive and efficient.

Over the past two or three decades however the aggressive advance of the opposite mindset, the Realeconomik approach, has been more visible, and that, in my opinion, has to a great extent led to many negative consequences for the sustainability of national economies, their ability to withhold all manner of shocks and their overall efficiency.

Finally, another main thesis of a generalizing nature, which perhaps constitutes one of the “highlights” of the book– is that life in general, and economic life in particular, does not obey ideologically verified and strictly shaped laws of evolution. It is impossible to say with certainty that society (in particular, Western society) has emerged from such a state, has passed through such and such stages and is now naturally moving in such and such a direction and will come to such and such. Everything is quite flexible and devoid of predestination, and this applies to the economy, politics, and society as a phenomenon.

First, because if you look closely at the processes that are described or that are otherwise addressed in the book, it becomes apparent that although their embryos, some seeds, of course, was still thirty or forty years ago, no one (absolutely no one!) I could not clearly predict and describe what it would result in in three or four decades.

And secondly, and this is perhaps the most important thing, the last half century has shown that not only an individual, but society as a whole, are amenable to purposeful suggestion. The whole “new economy”, in essence, is built on the fact that the needs of the consumer, his preferences are not a given, they can be influenced and even shaped “for themselves”. There are, of course, certain limitations, and human consciousness is not a “white sheet” - something can be written on it, and something is difficult, something will not work at all, but in general, the formation of collective needs and preferences, even ideas, is possible. Accordingly, business does not have to adapt to society - it is possible to a large extent, on the contrary, to adapt it to itself.

4. Economics and the wider environment

Economics provides answers to problems related to markets, efficiency, profits, consumption and economic growth. Does economics do a good job in addressing the other issues people care about: climate change and the wider environment, the role of technology in society, issues of race and class, pandemics, etc.?

Firstly, all these problems have an economic aspect of revenge, so you can’t do without the economy, and, by the way, this economic aspect already has a direct impact on the situation with solving problems - on the eve of the UN Climate Change Conference of the Parties (COP26), it became known that the governments of countries such as the UAE, Australia and Japan tried to influence experts to mitigate the hazard assessments of those emissions, the reduction of which will negatively affect the economy of these countries.

Secondly, there is a feedback - unresolved and growing global problems are becoming an increasingly serious factor affecting the economy.

Thirdly, in general, it is very difficult to imagine how problems and issues related to the economy can be isolated from the global agenda - the world is changing, moving, and economics, like other sciences, are means of cognition, understanding, awareness of the changes taking place.

On the eve of global related events. As a result of the pandemic, the understanding began to come (albeit very slowly) that the threat of a new economic crisis is not so much in the stock market jumps as in the deepening political crisis in the core countries of the world economy. However, with a growing understanding of the need to act, there are more and more unanswered questions.

Pyramid of the interrelated problems:

The crisis of the capacity of political institutions and trust in them on a global scale - from the United States and Great Britain to India and Israel.

The threat of authoritarianism, the growth of right-wing radical and neo-Nazi movements on a global scale; the normalization of hate speech in mass media and politics; the narrowing of the space of civil society, the weakening and marginalization of leading human rights and other public organizations in Western countries.

Growing atomization, the emergence of an “asocial society”,

The extreme strengthening and consolidation of income and opportunity inequality (within and between countries); the prospect of the disappearance of professions displaced by artificial intelligence, with a sharp decline in demand and global economic growth.

Climate change, increased frequency of natural disasters, the risk of flooding of major megacities, total pollution, mass extinction of biological species.

The problem of keeping artificial intelligence and genetic engineering under state and public control; the threat of genetic manipulation leading to extreme forms of social inequality; protection of elements of private life under the domination of total surveillance technologies.

5. The Age of Economists

As we live in an age of economics and economists – in which economic developments feature prominently in our lives and economists have major influence over a wide range of policy and people – should economists be held accountable for their advice?

Actually, in the question itself, there is also some kind of medieval attitude to the economist as a predictor who does something chemical, guesses from the insides and books, and then gives advice. If the advice is wrong, his head is cut off.

In fact, responsibility is a completely different thing. This is not a punishment for the mistake of any particular person. Responsibility for a politician and an economist is the ability to have a broad, global vision, to understand the interconnection of everything happening in the world, as well as to understand how recommended and accepted decisions participate in these global connections. Responsibility is also closely linked to values and goal-setting.

And as for the punishment, the point is not whether a particular person will suffer it or not, but that everyone suffers from the absence of appropriate decisions.

As the Russian historian Vasily Osipovich Klyuchevsky said: “History is not a teacher, but a supervisor of magistra vitae (mentor of life): she does not teach anything, but only punishes for not knowing the lessons.”

6. Economics & Capitalism

Does economics explain Capitalism? How would you define Capitalism?

Capitalism is a system based on private ownership of the means of production and their use for profit.

At the same time, private property is the basis of self-expression and the basis of freedom and, very importantly, self-respect and life without fear.

Important: entrepreneurship is an organic element of human life.

The future lies in what will be the relationship between the participants :

the owners

Employees

Society

By the State : the participant or the providing system.

Artificial intelligence gives unscrupulous governments new capabilities to snoop on, control and potentially coerce their citizens. “Financial Times” , October, 2021

7. Surviving Capitalism

No human system to date has so far been able to endure indefinitely - not ancient Egypt or Rome, not Feudal China or Europe, not the USSR. What about global Capitalism: can it survive in its current form?

If capitalism is a relationship between private property, labor and profit, then these relations will always be. The question is what? Can capitalism survive in its current form ? And why? It will change and modernize. The pandemic has already shown that there will be changes. In general, this is a question of names. Today’s capitalism is an important part of a person’s self-realization.

8. Capitalism and humanity

Is Capitalism, or whatever we should call the current system, the best one to serve the needs of humanity, or can we imagine another one?

Can there be another system for a person’s self-realization? The socialist system in the Soviet version did not take place. Now China is trying to make something so special out of capitalism. It will soon become clear what will come of it.

In fact, we must already realize that a multidimensional, voluminous global crisis is developing. There is a lot of talk that “something needs to be done”, but there is no proper action, and the situation is only getting worse.

The answer is in the field of values, the institutionalization of values, the answer is to think strategically, counting not for today and not for the near future, for decades.

This approach is by far the most practical.

And attempts to limit humanity’s thinking to short- and medium-term prospects lead to a huge loss of time. So 10 years have passed since the crisis of 2008-2009, and the world in 2020 has plunged into a new crisis.

———————

A few words about “what to do”

Institutionalization of values and economics.

In the global economy, the institutionalization of values should be expressed in setting goals such as overcoming the choking overproduction in the countries of the golden billion, real institutional support and gradual economic alignment of the poor and the poorest countries and continents. This, the fundamental expansion of world markets, the institutionalization of global competition, is essentially the main recipe for overcoming the constant threat of the next financial and economic crises on a global scale.

In business, it should be, first of all, about the movement towards the institutionalization of business integrity. At the same time, the source of trust should be, first of all, the personality of the entrepreneur, and not group, corporate, racial or national affiliation.

Assistance to the weak and laggards in today’s situation should be considered not as a merciful handout to the poor from the master’s table, but as a central element of the organization of the international community. A very important and relevant component is assistance in accessing the coronavirus vaccine. But on this front, the opposite is happening: there is a request, but there is no response.

Institutionalization of equality. Apparently, the vector to be followed should be equality of opportunity, but not just its declaration, namely institutional support.

The pursuit of social equalization must somehow become part of the institution of ownership.

From the Christian point of view and from the point of view of morality, everything is clear here - this is the responsibility of the rich to society, to the “world”, the condemnation of someone who “gets rich not for the God’s sake”…

But after all, we should have a qualitative transition, and not just a return back to morality in business.

Or is the State responsible for the institutionalization of equality? In general, all the recommendations of economists concerned about the growth of inequality (Friedland, Milanovich, Collier) are in this line.

But in this way the idea of equality does not become part of the institution of property. This is an external alignment. This is the ground for new disputes about the effectiveness of economic policy, the role of the state, and freedom of entrepreneurship.

So something must be happening with the very understanding of the “sacred right of private property”. Indeed, for example, antimonopoly policy and antimonopoly legislation have long been confidently perceived not just as one of the possible directions of the state’s efforts, but as a necessary part of the capitalist economy that ensures competition. And the right of owners to collusion is not perceived as part of the sacred right of private property.

That is, there must be a worldview revolution - not just condemnation, but an understanding that plutocracy undermines the foundations of the capitalist economy.

Here, however, it should be noted that in the modern world, both antimonopoly policy and ensuring conditions for competition have become a problem. What to do with the multimonopoly of transnational digital “platforms” is completely unclear.

But that’s another big question.

October 29, 2021

See also

October 09, 2021

Barry C. Lynn

American. Executive Director of the Open Markets Institute in Washington, author

January 17, 2021

Carolina Cristina Alves

Brazilian. Economist, Joan Robinson Research Fellow in Heterodox Economics at the University of Cambridge, Girton College

April 18, 2021

Rym Ayadi

Tunisian. Economist, international Expert on Inclusive and Sustainable Socio-economic Models, Financial Architecture and Stability and Sustainable Finance

November 08, 2020

Rana Foroohar

American. Business columnist, associate editor at the Financial Times, and also CNN’s global economic analyst

March 07, 2021

Richard Bookstaber

American. Economist, author, noted expert in financial risk management

May 02, 2021

Fred Olayele

Nigerian-Canadian. Economist, scholar, public policy expert. Chief Economist at NYCEDC, New York. Focused on trade policy, innovation, FDI, urban policy, and inclusive development