The crisis of modern economic theory, which manifested most vividly in the late 20th — early 21st century, was the subject of discussion among a large number of prominent economists. One of the consequences of the process of rethinking of economic theory was the development of a new paradigm of economic science which complemented the traditional neoclassical, institutional and evolutionary paradigms — the systemic paradigm. Today, the need for an accelerated development of economic theory on an updated platform has become something of an imperative.
Georgy Borisovich Kleiner
Deputy Director of CEMI RAS,
Head of Department of Systems Analysis in Economics Financial University under the Government of the Russian Federation, Head of Department of Institutional Economics
State University of Management,
Member of the Presidium of the Free economic society of Russia, Corresponding Member of the Russian Academy of Sciences.
The article was first published in Volume 206 of the Proceedings of the Free Economic Society of Russia.
LEADING ECONOMIC THEORY OUT OF CRISIS
The unsatisfactory state of real economy in most countries of the world and, above all, the huge decline in production in Russia over the past two decades is usually explained by miscalculations in the tactics of economic reforms. In our opinion, this explanation is incomplete in principle. Economy is a unique social complex that combines economic reality, economic theory, economic policy and economic management. These components can be considered as the subsystems that make up the entire complex of economy. The most significant interaction between these subsystems takes place along the “economic theory — economic policy — economy management — real practice — economic theory” contour. This means that the unsatisfactory state of any of the four components is bound to be reflected in the unsatisfactory state of the adjacent subsystems. Thus, the crisis of economic theory of the late 20th — early 21st century was a harbinger of the global economic crisis of 2008-2010. Hence, in order to set the world economy on a path out of crisis and, consequently, to mitigate any subsequent crises, it is first of all necessary to lead economic theory out of crisis.
At present, the corpus of economic science is permeated with deep schisms, crevices and cracks. One of the most significant manifestations of this is the vertical stratification of economic science.
IN THE CORPUS OF SCIENCE, DEPENDING ON THE DEGREE OF ABSTRACTION OF RESEARCH, THE FOLLOWING LAYERS CAN BE DISTINGUISHED:
What is to be observed in economy?
Conceptual layer that determines the economic worldview of researchers, i.e. components of economy and relationships among them.
How an observation is to be perceived?
Methodological layer that reflects approaches and conventions existing in this field.
What is to be learned about economy?
Fundamental layer that contains information about the main regularities and trends in the functioning of economy.
How a task is to be performed?
Applicative layer, focused on solving specific problems or classes of problems arising in economic theory or practice.
Hungarian economist. Born in 1928 in Budapest. Lives in Boston, USA.
Professor of the Central European University, President of the European Association for Comparative Economic Studies Laszlo Csaba wrote about him in The Questions of Economics, “Janos Kornai played an important role in the revival of political economy as a science. This is not about political justification of certain ideological postulates, but about the research paradigm associated with studying the institutional and political prerequisites for implementing more abstract provisions. Simply put, economics seems to have turned again to the consideration of the possibilities for the practical implementation of certain theoretical ideas. “
Ideally, all these components of economic science should be closely related to each other and should, in aggregate, represent a complete system. At present, these layers of economic science are divided: methodology is not based on clear conceptual statements (paradigms); fundamental knowledge is not based on methodological studies; applicative results do not follow from fundamental premises and therefore look like a mosaic, do not contribute to the consolidation of the national economy’s separate subdivisions. As a result, the proportions between these divisions of economic science are distorted: most of the papers (especially those written in regional scientific and educational centers) are focused on regional agenda and pertain to the applied stratum, while papers of conceptual or methodological character, judging by the number of applications submitted to the Russian Fundamental Research Foundation, are relatively few. In order to overcome the existing stratification, it is necessary, in our opinion, for the scientific community to adopt certain conventions regarding the attribution and identification of scientific publications in the field of economics.
It is desirable to create a new classification of sections and directions in economic science in the near future, a kind of coordinate system that allows each study to be assigned to a particular group of concepts, paradigms, and currents. It is unlikely that such a task can be undertaken by one person, but university departments and other science teams could cope with it. And if we imagine that such a classification could be connected with the typology of the objects of research, reflecting the scale and level of the system under study (mega-, macro-, meso-, micro-, or nanoeconomic level), its sectoral and regional affiliation, etc., the researcher would be provided with an instrument similar to Mendeleev’s Periodic Table.
Such a table would contribute to summing up the current results of economic science, revealing unanswered questions, whether relating to concepts and methodology, fundamental theory or practical application. Modern economic science is “mired in details.” In response to the criticism of R. Lucas, T. Lawson and other researchers who criticized economics for the inadequate use of real-world data, economics has recently become a testing ground for the application of econometric methods. This led to the localization of agenda and the refusal to develop large-scale all-encompassing economic themes related to the conceptual and methodological branches of economic science. The fundamental branch has mainly become the focus of abstract mathematical models, which are doubtless interesting to study but not necessarily adequate.
Meanwhile, it is precisely in the conceptual and methodological strata of economic science that serious progress is now needed. The neoclassical, institutional and evolutionary paradigms — the three pillars of modern economic theory — have in fact entered the mainstream of economic science. To overcome the crisis of economic theory and the corresponding unsatisfactory state of the world’s economic practice will only be possible on the basis of a new paradigmatic platform of economic theory and practice.
As such a platform, we are proposing systemic economy — a concept that further develops the systemic paradigm of Janos Kornai.
SYSTEMIC ECONOMY AS A SOLUTION
The peculiarity of the systemic economic theory is that its principles allow us to consider from a unified standpoint the functioning of such systems so different in scale, purpose and features as the enterprise, the region, the national economy, the country’s institutional system, the national innovation system, investment projects, transport infrastructure, the Internet etc. Thus, the systemic paradigm of economic theory has a unified approach to the study of factors and results of the functioning of economic entities, projects, processes and environments. This, in turn, allows us to shape a systemic economic policy that ensures both coordinated functioning and independent development of all subsystems of the economy across space and time. Systemic economy is probably not the only candidate for replacing the old economic paradigm, but its versatile nature gives us hope that it will help us minimize the gap (separation) between the conceptual, methodological, fundamental and applicative branches of science.
Ideally, the systemic economic theory should become the basis of a systemic economic policy, and that, in turn, through system management, should be translated into systemic economic practice. The reliance on systemic economy as a basis for socio- economic analysis and synthesis makes it possible to answer the question of which macro-level subsystems the economy interacts with as a subsystem of society. Each real system is a tetrad uniting all of its object, project, process, and environmental subsystems. As applied to a society (country), this means that economy as a societal process interacts with the population as a societal environment, business as a societal project, and the state as a societal object.
Hence, the functioning of society should be viewed as the interaction of not three subsystems — the state, the economy and the population, but four.
4 subsystems of society
State — political organization that determines the institutional structure of the country.
Socium — the country’s population.
Economy — the sphere of implementation of production, consumption, distribution and exchange processes.
Business — the sphere of initiation and promotion of investment projects.
This allows us to take a fresh look at the causes of the unsatisfactory state of the economy, singling out not only the “failures of the state” or “market failures”, but also the “failures of the society” and “economic failures”. As a result, it becomes clear that the unsatisfactory state of the economy is caused not so much by the “failures of the state/market” as by the failure of interaction among all the sides of the configuration — state, socium, economy and business. Thus, the responsibility for the present situation should be divided among these sides.
The state occupies a special position in this configuration, since it establishes the constitutive norms, which leads to a conflict of interests of the state as a player and as an arbiter in this situation. The task of researchers in this context is to invent systemic mechanisms of interaction between the sides of the configuration, capable of withstanding the pressure of players and erosion over time.
One of the elements of the mechanism of interaction between economic science and practice is law-making. In fact, every federal law can be regarded as a channel of communication between socio-economic theory and organizational practice. Therefore, in our opinion, a section entitled “Scientific Substantiation of the Bill” should be included in the mandatory chapters of the explanatory note to every federal bill. In particular, such documents as the Development Strategy of Russia should receive scientific attribution. At present, the scientific principles on which the strategy is based have not been formulated either in the documents prepared by the Center for Strategic Research or in the Stolypin Club strategy.
Interaction and mutual influence between economic theory (as presented in publications, discussions and worldviews of those participating in economic activity) and economic reality (as perceived through the personal experience of individuals engaged in economic activity) are very complex and could not be analyzed even by such giants of economic science as J. M. Keynes: Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist”. This is due primarily to the fact that they transcend not only any specific discipline, but also the entire sphere of social and humanitarian knowledge and are fundamentally interdisciplinary in character, affecting both ontological and epistemological, ideological and praxeological spheres.
Nevertheless, research in this area needs to be intensified, systematized and disseminated, since it is at this point that fundamental solutions of pressing economic problems are currently concentrated.