My former boss at the World Bank, Joseph Stiglitz, has just completed a stint as the head of Sarkozy’s Commission on the Measurement of Economic Performance and Social Progress. The report and the whole exercise behind it says a lot about the economics profession. After modeling individual actions as maximizing some function, in this case an individual’s “utility function,” the economics profession (with a few exceptions) seems hell bent on applying the same model to the “decisions” and “actions” of a whole society—as if there was some “group mind” making the decision and then some composite Leviathan taking the action. In the case of a society, the quantity to be maximized is variously thought of as “social welfare,” “social well-being,” “social wealth,” gross national product (GNP), net national product, or a host of other composite indices (see one of the Commission’s working papers for a survey).
The Commission delved into the shortcomings of the various indices to give a proper weight to this or that concern. The resulting recommended “index” was such a hodge-podge of factors that one would think they might have second thoughts about the whole exercise to reduce social decision-making to the maximization of some index. Within the economics profession, there are individuals who dissent from the social-index-maximization model, but the only school of economics to do so with some consistency is the Austrian School—which, however, was not in evidence in the Commission.
The unexamined premise in this sort of exercise is the model of social decision-making of technical experts using some index of social welfare or well-being to provide guidance to government decision-makers. This is an essentially apolitical model of political decision-making. The political process is only thought of as an exceedingly crude method to find the technically correct actions that will maximize social welfare. But if technocrats (the social engineers are almost always economists) can “scientifically” discern the correct actions directly, then the political process becomes a type of kabuki theater or bread-and-circuses diversion to entertain the population and to secure their applause at the next election.
The alternative to this sort of social engineering perspective is what would be broadly called pragmatism and is best represented philosophically by John Dewey (1859-1952). Robert Westbrook’s 1991 book, John Dewey and American Democracy, is in my opinion the best treatment of Dewey’s social thought.
Pragmatism views the social world as being actively constructed by people so, at each point in time, it is radically incomplete and in a state of becoming. People’s values and opinions, their preferences and beliefs, are always incomplete and in a state of changing in a process of probing values and testing beliefs. Hence the notion of there being some predefined “One Best Way” that could be scientifically discovered by social engineers does not occur, and the notion of a “solution” to a social problem without the active involvement of the parties seems out of place. As people find out more about the possible means to their ends in a social learning process, their conception of the ends may change as well. Hence Pragmatism sees a unity of knowing and doing giving a two-way interaction between means and ends in contrast to the engineering vision of finding the optimal means to reach the ends given by some social welfare index. One of the best recent statements of this perspective is Charles Lindblom’s 1990 book, Inquiry and Change.
When Stiglitz was Chief Economist of the World Bank, his speeches reflected a pragmatic approach to the issues of development in the Third World and the issues of transition in the post-socialist world. One of his more controversial papers, Whither Reform?, contained the following Dueling Metaphors table.
| Social Engineering | Pragmatism | |
| Continuity vs. Break | Discontinuous break or shock—razing the old social structure in order to build the new. | Continuous change—trying to preserve social capital that cannot be easily reconstructed. |
| Role of Initial Conditions | The first-best socially engineered solution that is not “distorted” by the initial conditions. | Piecemeal changes (continuous improvements) taking into account initial conditions. |
| Role of Knowledge | Emphasizes explicit or technical knowledge of end-state blueprint of the One Best Way. | Emphasizes local practical knowledge that only yields local predictability and does not apply to large or global changes. |
| Attitude towards variety | Why not do everything in the One Best Way? | “Three cheers for the dogged persistence and mysterious vitality of diversity.” [Jane Jacobs] |
| Knowledge Attitude | Knowing what you are doing. | Knowing that you don’t know what you are doing. |
| Chasm Metaphor | Jump across the chasm in one leap. | Build a bridge across the chasm. |
| Repairing the Ship Metaphor | Rebuilding the ship in dry dock. The dry dock provides the Archimedean point outside the water so the ship can be engineered to blueprint without being disturbed by the conditions at sea. | Repairing the ship at sea. There is no “dry dock” or Archimedean fulcrum for changing social institutions from outside of society. Change always starts with the given historical institutions. |
| Transplanting the Tree Metaphor | All at once transplantation in a decisive manner to seize the benefits and get over the shock as quickly as possible. Almost like moving fence posts. | Preparing and wrapping the major roots one at a time (nemawashi) to prevent shock to the whole system and improve chances of successful transplantation. |
The point of this Part I commentary on the Sarkozy-Stiglitz Commission is to juxtapose the social engineering perspective implied in the whole exercise of trying to find a better index of “economic performance and social progress” to a more pragmatic perspective.
But there is a second dimension to the exercise that warrants comment. The whole discussion in the Commission and its reports had a distinctly academic ring since there is only one dominant social engineering index that is actually used in practice. In fact, it is used rather widely by governments. That index is variously called “social wealth,” “social net income,” net present value, or the like, and the practice of applying that index is cost-benefit analysis. Yet the Commission barely mentioned cost-benefit analysis or the Kaldor-Hicks Principle behind it, and then it was only mentioned to be dismissed. Yet all the plethora of current topics that were mentioned—environmental externalities, sustainability, global warming, quality of life, and so forth—all could in theory be “costed out” and thus subsumed under a cost-benefit framework. All the other esoteric indices discussed may generate more journal articles for academic economists, but as the late Paul Samuelson once said: “The cash value of a doctrine is its vulgarization.” And the vulgarization of the social engineering doctrine is the cash value of the monetized gains minus the monetized losses as considered in cost-benefit analysis. That is the topic of Part II of this commentary.
This analysis of social engineering (particularly when empowered by the “Science of Economics”) versus pragmatism is greatly expanded in a paper, “Pragmatism versus Economics Ideology in the Post-Socialist Transition: China versus Russia,” forthcoming in the Internet journal, Real-World Economics Review. A preprint can be downloaded from my website here.