Review article contributed by Chaitanya Talreja and Ritwika Patgiri, PhD students, Faculty of Economics, South Asian University
All eyes were on the US elections on the 3rd of November, 2020, in a year which has been marked by the Coronavirus pandemic along with an unprecedented rise in the Black Lives Matter movement. The student-led Development Study Group (DSG) of South Asian University invited Professor John Komlos from the University of Munich who has been pivotal in the emergence of anthropometric history as a field of research. The topic of the talk was ‘The Covert Racism in Economics’ – a topic much needed to be discussed. It is hard to deny economics as a subject has paid scant attention to racism. And when race is indeed brought up, it has reflected the biases of the economics profession. For instance, the 1982 Nobel Laureate George Stigler had claimed that Black workers are inferior workers who need to ‘work harder’ (Sigler 1965). Keeping this in the background with the recent widespread protests, it becomes important to address the elephant in the room.
Professor Komlos started his lecture by pointing out that economic theory has a racist consequence to it but warned us against making the presumption that economists are racists. He talked about institutional racism which is structured in a way that disadvantages certain groups. He pointed out that the racial and ethnic minorities in the US are much more likely to be poor as compared to the whites. This according to him is a manifestation of historical exclusion and disadvantages faced by these groups in the economic spaces. Professor Komlos then introduced 14 ways in which disadvantages faced by racial and ethnic minorities are systematically ignored in economic theory by attacking its several foundational assumptions. He paid special emphasis to power and economic theory’s total disregard to it. He then questioned the assumption of free information and rationality. The disregard of economic theory towards society was also questioned. Economics as a discipline has always focussed on utility-driven individuals but this is far from the truth. The disregard of the discipline to morals is also questioned which is fixated with efficient free markets and economic growth. The belief that exploitation does not exist does not help either. He called them the “Alice in Wonderland” assumptions and implied that mainstream economics feeds into structural racism.
Prof. Komlos categorically pointed out the manner in which the mainstream tradition analyzes discrimination within the ambit of its individualistic approach as opposed to a systematic or structural issue. His talk motivated us to seek reasons for such systematic ignorance of the issue of discrimination in the economics discipline and profession. We briefly discuss why this possibly has been the case in this blog post.
Methodology of mainstream economic theory and practice
Prof. Komlos in his talk gave a lucid account of how the mainstream economics fails to address crucial aspects of social reality as a social science discipline, implicating systematic exclusion of historically disadvantaged sections of our society. The important question that arises is why has economics failed to address the perpetuation of systematic social inequalities both in terms of its theoretical framework and practice and has continued with a visibly degenerative methodological approach?
To answer this question, we first need to understand the immanent characteristics that dominate the discipline of economics. The methodological approach that dominates the epistemic validity of economics comes from what is commonly understood as mainstream economics. Dani Rodrik pins down these defining methodological characteristics as methodological individualism, market fundamentalism and mathematical formalism. It is these methodological characteristics that dominate the theoretical approach of economists in defining and understanding problems. Methodological individualism leads to defining economic problems in terms of homo economicus or individuals/entities. These economic agents adhere to apriori behavioural principles and interact in the economic system separating them from the cultural, social or institutional reality they belong to. Market fundamentalism pertains to the excessive use of markets as the fundamental space of defining economic problems and also searching the solutions of problems defined in this manner in the space of markets. Mathematical formalism displays the fettish to use mathematical and statistical techniques to establish and explain economic phenomena as opposed to their instrumental role in advancing or simplifying an inquiry. It is the bedrock of the combination of these methodological approaches that form the building blocks of a plethora of economic theories that come from mainstream economics which has been dominating the economics profession since the middle of the twentieth century. This approach has had a profound influence on how economists have studied discrimination.
The economics of discrimination
One of the central issues that attracted economists to study discrimination has been in the realm labour market. Economists have attempted to explain the observed wage differentials between the whites and the non-whites using their market-based frameworks. Gary Becker the 1992 Nobel laureate in economics laid the foundations for economists foray into the field of discrimination. This approach boils down to show that the competition in the market of rationally profit maximising economic agents/employers will tend to drive out the discriminatory employers. This is because it would be irrational for an employer to employ an equally qualified white worker at a higher wage than a non-white worker. The competitive forces would drive out discrimination. Another 1972 influential Nobel laureate Kenneth Arrow’s work has similarly approached the issue using a market based framework. The discrimination faced by the non-whites in the economic spaces in this line of work relies on defining “taste-based discrimination” and “statistical discrimination”. Taste-based discrimination reflects the dislike for members of certain race or certain ethnic community in economic spaces like labour, housing or credit markets. In the market framework such a taste-based discrimination is unviable due to competitive forces at work. Statistical discrimination on the other hand emanates not from a dislike for a particular community. It depicts the perception of the employers to use race, gender or ethnicity as surrogates for unobserved characteristics like productivity of an individual. This concept places emphasis on the rational behaviour of utility or profit maximizing economic agents while facing such choices, thus, justifying such observed discrimination in the economic spaces. Economic spaces thus, are viewed to exist in a discriminatory world which is given, and such tools of analysis depict its manifestation in the market as a constraint against which individuals optimize. The discriminatory outcome in the market is considered to be due to lack of “information” and not the stereotypical mindset of economic agents. If provided with more information on “productivity”, economic agents would not discriminate because to them only performance matters. Historically disadvantaged communities as noted by Prof. Komlos are more likely to be poor and less likely to have access and opportunities to educate and skill themselves to participate and compete in the markets. This reinforces beliefs held by the privileged sections about the performance of the disadvantaged sections of a society in the markets. Therefore, the market based approach is instrumental insofar it captures the manifestations of such beliefs in the markets but fails to address the larger issue by keeping its focus on the margins. It puts the onus of better signaling the performance related “unobservable” characteristics by the disadvantaged communities in the markets or on devising mechanisms to improve flow of such information. An ideal approach is to address the issue holistically by including the historical and structural disadvantages in their frameworks to capture and remedy such systematic disadvantages.
It is not just the methodological approach that has fallen short of adequately addressing the issue of structural disadvantages. There is evidence to show that the profession is disproportionately under-representated by the historically disadvantaged sections of the society.
Racism in economics profession: What does the empirical evidence say?
A recent calculation by Cihak, Mlachila, and Sahay shows that only a meager 0.2% of the top 7000 articles published in the top 10 economics journals in the last 10 years talk about race, racial inequality, or racism. Although, gender does slightly better here, but only meagrely at just under 1 percentage . In the year 2014, out of 500 doctorate degrees awarded in Economics to US citizens, only a minuscule 42 were non-whites (Bayer and Rouse, 2016). Again, the number of women who were awarded a Ph.D. in Economics that year was 157. It is noteworthy that Black representation in Economics is lower than in other disciplines like science, maths, engineering, and technology. The numbers from the Ivy League colleges are even more dismal. In addition, Black economists are less likely to get published in the top journals of economics (Mason, Myers, Darity, 2005). These numbers are alarming but represent the structural under-representation of certain groups of people within the discipline of Economics. This intrigues us to question whether there is a bias within the discipline that effectively makes a certain group of people ‘invisible’? Isn’t increasing diversity within the Economics profession a part of the solution to racial inequality?
Professor Komlos in his book Foundations of Real-World Economics notes mainstream textbooks fail to mention Nobel laureates like Herbert Simon, Daniel Kahneman, Oliver Williamson, and Robert Schiller among others who have challenged the mainstream orthodoxy through their works. This is an indication of how the discipline misleads students into thinking of a perfect world sans racial inequality and all the other problems of the world. There is evidence of diversity leading to changing dynamics and decision making in policies or that ethnically diverse research teams receiving more citations and higher-quality research (Freeman and Huang, 2015). It is indeed time that the discipline transitions to the ‘right side of history’ as IMF policymakers Cihak, Mlachila, and Sahay have pointed out after the Black Lives Matter Movement broke out. The onus, thus, naturally falls on what we call the ‘mainstream economics’. But the question still remains: why has the economics profession been holding on to such methodological and professional biases? The answer possibly lies in the political economy of the economics profession.
The political economy of economics profession: Restructuring the economics edifice
The methodological devices economics profession uses to approach issues in society seems to be interrelated with the way economics trains, hires, grants tenures and sets parameters for “good” professional economists. Expert historical accounts like Blaug (1976), Hausman (2008) and Caldwell (2013) on the history of methodological approach in economics note that the 1953 essay by the 1976 Nobel Milton Friedman “The methodology of positive economics” has had a deep influence on the methodological frameworks used by economists. Blaug (1976) and Hausman (2008) note that in essence the essay propagates an instrumentalist view of economics as a science-economic theories should be appraised by their ability to predict/anticipate outcomes without much concern about the realism of assumptions as opposed to a realist view of science which seeks to find the truth or the real mechanisms of how the reality works. Another related development has been the influence of the so called neoliberal ideology on economics, genesis of which again is credited to Milton Friedman and the 1974 Nobel Laureate Friedrich Von Hayek. Their contribution was not limited to their influential works but in founding the ideological institution, Mont Pèlerin Society (MPS) in 1947. The MPS is speculated to be the melting pot for intellectuals supporting the neoliberal thought collective (Mirowski, 2014; Naidu et.al, 2020).
According to Dani Rodrik, although it is a tricky task to circumscribe the neolibreral ideology in a well defined frame, it is responsible for heavily influencing mainstream economics theory and policy towards market fundamentalism and its individualistic focus. Naidu et.al. (2020) assert that the neoliberal ideology has been instrumental in shaping the economic policy landscape since 1980s with its excessive emphasis on instituting market institutions, financialization, retreat of the public sector and hyperglobalization of the world economy as panacea for all economic problems disregarding the local contexts and institutions.
These methodological and ideological influences also impact how the economics profession rewards professional economists and academicians. This has been elucidated by the 2001 Nobel Laureate in economics George Akerlof through his 2020 study “Sins of Omission and the Practice of Economics”. According to this study there is a “hardness” bias in the economics discipline. Economists perceive economics at the top of the pecking order in social sciences with better analytical tools as compared to disciplines like sociology, anthropology etc. and more “scientific” in its approach. This is related to its use of mathematics and quantitative techniques as a reflection of its superiority. Generally, good economic practice involves training in mathematical modelling and statistics as opposed to understanding ways how an economy functions. This bias influences not just the training but also publications, jobs and reward mechanisms. This process has further strengthened already formed belief on what good economics practice is and keeps perpetuating by favouring this hardness bias and circumscribing it against “softer” modes of inquiry which involve qualitative methods like ethnography or case studies. This way the profession ends up omitting various important questions and issues which generally are difficult to address through its established frameworks and techniques.
There are strong tendencies within the economics profession of protecting and preserving approaches perceived as intellectually virtuous and elegant but are potentially degenerative to understanding reality. This is being recognised and pointed out from all corners within the profession both from eminent mainstream economists and non-mainstream economists as discussed in this blog. We think these calls are an important indication of regeneration of economics towards progress in “economic sciences”. But these voices of change are still peripheral in nature as compared to the continuing dominance of mainstream economics. It is time for a radical restructuring of teaching methods, practice and epistemic approach to create progressively inclusive institutional architecture of the economics profession (See Bayer and Rouse (2016); pp. 233-237). This will help to not only tackle lack of diversity within the profession but also preserve its importance as a part of the solution against systematic discrimination and support human progress.
“It would be wrong to assume that one must stay with a research programme until it has exhausted all its heuristic power, that one must not introduce a rival programme before everybody agrees that the point of degeneration has probably been reached.”