The Essential Hirschman

PRINCETON UNIVERSITY PRESS

Contents

CHAPTER 1

POLITICAL ECONOMICSAND POSSIBILISM

The United Nations dubbed the 1960s the "development decade."As those ten years drew to a close, however, there wasmore skepticism, more doubt, and more pessimism aboutthe prospects for social change in the Third World. In thatcontext, Albert O. Hirschman gathered together a collectionof his essays on development and, to defy the tenor of thetimes, called it A Bias for Hope: Essays on Development inLatin America. In fact, the essays were much more than abouteither Latin America or about development. His introductionin particular, "Political Economics and Possibilism," was notjust aimed at doomsayers, but also to those who presumedthat economic and political forces were separable. Instead, hepointed to the importance of the interplay between the two:not just economic theories of politics, nor simply political dimensionsof economic phenomena, but interactions betweentwo fields that opened up spaces for alternatives. He urgedmore flexibility and realism and less reliance on general lawsto explain social phenomena. Freedom and creativity—inshort, "a passion for the possible"—were his watchwords.

—Jeremy Adelman

In reflecting on THE Essays brought together in this volumeI noted two principal common characteristics. In the first place,I frequently encounter and stress the political dimensions of economicphenomena just as I like to think in terms of development sequences inwhich economic and political forces interact. This focus seems to comealmost naturally to me in connection with any problem I happen to beattacking and the first part of this introductory essay is an attempt atidentifying the central concepts that underlie this "decentralized" activityof building bridges between economics and politics.

Another pervasive characteristic of the writings here assembled is a preoccupationwith processes of social change. Understanding social changeis obviously not something that can "come naturally" to anyone; one canonly grope for it. Consequently the second part of this essay inquires intothe nature of my own gropings. It is necessarily more speculative—and,mercifully, much shorter—than the first part.

Economics and Politics

If demand generated its own supply in the social sciences as it is supposedto do in the marketplace, there would exist by now a number of intellectuallysatisfying and empirically tested models of the social system basedon the intimate interactions and interdependence of economic and politicalfactors. In fact, of course, nothing of the sort is anywhere in sight.Economists continue to identify scientific progress with the eliminationof "exogenous" forces from their constructs, while political scientists aresimilarly most at ease when they have explained political events by appealingto purely political categories. Where the linkage between politicaland economic forces is too obvious to be disregarded, both categoriesof scholars have held to the most primitive linkage models in which typicallya phenomenon belonging to the "foreign" discipline is introducedas some sort of prerequisite—and can then promptly be forgotten aspurely "domestic" or endogenous forces take over. Insofar as economistsare concerned, this practice goes back to Adam Smith's dictum that "littleelse is requisite to carry a state to the highest degree of opulence from thelowest barbarism, but peace, easy taxes, and a tolerable administrationof justice." Political scientists, from Montesquieu and Rousseau to Hayekand Holt-Turner, have similarly looked for some unique and permanenteconomic characteristic—a certain level and distribution of welfare, ora certain organization of economic life—which makes the emergence ofsome type of political organization possible, probable, or even inevitable.Once again, no allowance is made in such theories for any continuinginterplay between economic and political factors.

How is it possible to overcome the parochial pride of economists andpolitical scientists in the autonomy of their respective disciplines and togo beyond the primitivism of the briefly noted efforts at linking them?Rather than issue another clarion call for an integrated social science, Ifind it more useful to survey the building blocks that have already beenassembled, however inadequate they may be for the construction of animposing or systematic structure. As just noted, I have frequently turnedup some mini-building-blocks of the sort, and a classification and evaluationof these finds may be helpful in bringing a more systematic searchunderway. The following survey will therefore be largely intro-and retrospective,but I shall make an effort both to note contributions of otherwriters and to introduce some new points.

Economic Theories of Politics

A first distinction that is not always clearly made is that between economictheories of politics and theories of political economics (or, betterperhaps, theories of economics-cum-politics). The former term hascome into use to designate the increasingly numerous and importantcontributions to political science that have been made, mostly by economists,through the application to political phenomena of modes of reasoningand analytical tools originally developed within economics. Thelogic of allocation of scarce resources among competing ends, of input-outputrelationships, and of decision making under uncertainty, to namejust a few, should obviously be able to elucidate a great many areas ofsocial and political life other than the strictly economic ones for whichthat logic was originally devised. Some of the better known efforts of thiskind are the Economic Theory of Democracy by Anthony Downs and TheLogic of Collective Action by Mancur Olson. An example in the presentbook is the note on the "stability of neutralism" (chap. 9) where I usethe apparatus in indifference and transformation curves to explain thebehavior of an underdeveloped country that can choose between two aidgivers and wishes both to receive aid and to maintain its independence.

Two general points can be made about these writings. First, while theymay throw much new light on politics, they do not normally deal, nor dothey set out to deal, with the interaction between politics and economics.Secondly, there are serious pitfalls in any transfer of analytical toolsand modes of reasoning developed within one discipline to another. Asthe economist, swollen with pride over the comparative rigor of his discipline,sets out to bring the light to his heathen colleagues in the othersocial sciences, he is likely to overlook some crucial distinguishing featureof the newly invaded terrain which makes his concepts and apparatusrather less applicable and illuminating than he is wont to think. As Iargue for imported ideologies, the distance between reality and intellectualschema is here likely to be both wider and more difficult to detectthan was the case as long as the scheme stayed "at home."

For example, Downs's assumption that parties are uniquely motivatedto maximize votes is several notches more unrealistic than the one thatentrepreneurs are profit maximizers; the resulting theory is thereforelikely to be contradicted by the facts with special vehemence, as I haverecently shown.

In the case of my own study on neutralism, I became aware that theease with which the apparatus of indifference and transformation curvescould be transferred from the realm of economics to those of internationalrelations and aid giving was deceptive: in the process, the independenceof the indifference map from the production-possibility schedule,so important for the determinateness and normative significance of equilibrium,was largely lost.

The theory of public goods supplies a third example of the care thatmust be taken when economic concepts are transferred to the realm ofpolitics. It is particularly striking and instructive, and I shall deal withit at somewhat greater length. One of the principal points made by thetheory is that the true demand for public goods cannot be ascertained inthe market or even by survey methods: since the availability of publicgoods to an individual consumer is by definition not depleted throughconsumption on the part of others, each consumer is likely to understatehis true preference for the public good as he hopes that others will bewilling to pay for all of the supply he wishes to secure; in this manner hewould get a "free ride." The free rider problem has thus become a principalfocus of the theory and its existence provides the basic justificationfor the provision of public goods by the government (and for financingthrough taxes).

This is all very acute and pertinent with respect to the supply of a widevariety of public services under modern conditions. Yet, if taken in thewidest possible context, public goods include not only police protection,parks, and similar amenities, but public policies that are felt as right andperhaps even gratifying by large groups of citizens. Such policies couldeven be considered as specially pure public goods since they can be enjoyedby all citizens at the same time, whereas the capacity of parks, policeprotection, and the like is necessarily limited so that at some point ofmass use, their consumption becomes "rival," as is always the case for privategoods. Now the "production" of these public policies often requiresan effort of advocacy, lobbying, and agitation on the part of the citizens,and here the free rider problem raises its head again: in normal times,with many other needs and interests claiming his time and energy, theaverage citizen will tend to "let George do it" even though he may bemildly or even strongly interested in the outcome. But the times, like theweather, are seldom wholly normal; on quite a few occasions, lately, theyhave been abnormal and "a-changin'," and astoundingly large numbersof citizens, far from attempting to get a free ride, have been taking to thestreets, to the nation's capital, or to other places where they expect to exertsome influence for change. In this connection, it is interesting to notethat while economists keep on worrying about the free rider problem,political scientists have become increasingly concerned about the "participationexplosion." The latter phenomenon is clearly the obverse of theformer: in many cases the individual citizen will insist on being present ina march or demonstration, on participating in a letter-writing campaign,and perhaps even on contributing to an election campaign, although hismarginal contribution to the "production" of the public policy he desiresto bring about may be close to zero (if not negative at times). To justify hisparticipation in this case, he will perhaps exaggerate to himself the likelyimportance of his contribution; vis-à-vis others, he may well overstate his"true" preference for the public good in question and will certainly notunderstate it as he is supposed to according to the theory.

Why would he act in so strange a way? Because he senses his participationnot as a cost, but as a benefit, because participation in a movementto bring about a desirable public policy is (and, unfortunately,may be for a long time) the next best thing to actually having that policy.The sudden, historically so decisive outbursts of popular energies mustbe explained by precisely this change in sign, by the turning of what isnormally sensed as a cost that is to be shirked into a benefit, a rewardingexperience, and a "happiness of pursuit" in which one simply mustshare. The possibility of this mutation is fundamental for the understandingof political change and leadership; for achieving change oftenrequires such a mutation and a leader is he who knows how to effectit. Yet the concept of costs turning into benefits is difficult to grasp forthe economist trying to reason about "the logic of collective action" byapplying tools essentially grounded in the analysis of the market economy.To find someone who knew all about these matters one must goback to Rousseau, who wrote, in The Social Contract (bk. 3, chap. 15):"In a truly free country, the citizens ... far from paying to be exemptedfrom their duties, would pay for the privilege of being allowed to fulfillthese duties themselves."

One might suggest, then, that economists setting out to elucidate politicalproblems by wielding nothing but their own tools are likely tostumble. Fortunately, their very stumbles can turn out to be illuminating.

Political Dimensions of Economic Phenomena

In proceeding now from economic theories of politics to political economy(or political economics, or politics-cum-economics) proper, I shallstay away, for the time being, from any semblance of a general theory;rather I shall bring together numerous partial observations with the intentof learning something about the nature and structure of the interrelationshipbetween economics and politics.

The observations I wish to relate here can be characterized as politicaldimensions (or side effects) of economic phenomena. That such dimensionsand side effects exist is of course no great discovery. The trouble isthat the search for them has been undertaken primarily by sociologistsor political scientists who have naturally focused on the most obvious,large-scale features of the economic landscape, such as economic wealth,growth, industrialization, inflation, mass unemployment, and so on. Theeffects of such economic macrofeatures or -events on politics are eitherevident and hence uninteresting, or are so complex and depend on somany other variables as to be unpredictable and inconclusive. It is forexample not a very fascinating discovery that private wealth can oftenbe translated into political power and vice versa; or that a government'spublic support will ordinarily be eroded by accelerated inflation or massunemployment. On the other hand, the effect of economic growth andindustrialization on, say, political stability in an underdeveloped countryis quite unfathomable in the absence of detailed information about economic,social, and political conditions.

Speculation about connections between economics and politics becomesmuch more profitable when one focuses not on the roughest outline,but on the finer features of the economic landscape. This can ofcourse best be done by the economist who knows about them; the troubleis that his professional interests do not ordinarily lie in this direction.At the same time, the political scientist who has the motivation to lookfor such connections lacks the familiarity with economic concepts andrelationships that is required. Hence the field is happily left to a few maverickslike myself.

My first discovery of the "finer" kind I am talking about was made almostthirty years ago when I was examining the ways in which a countrycan acquire political influence through its foreign trade. It occurred tome that there is a straightforward connection between the old establishedeconomic concept of the gain from trade which country B achieves bytrading with A and the influence which A can exert in B as long as thetrade is foreign and is therefore subject to interruption or terminationat A's will. The entire theory of the gain from trade and of its distributionbecame therefore relevant for an understanding of the influence andpower relationships that arise out of trade.

A very similar exploration of the political implications of an old establishedeconomic concept is undertaken in my most recent book. Thereit is shown that the famous "consumer surplus" measures not only theconsumer's gain from being able to buy a product at competitive marketprices, rather than at prices set by a discriminating monopolist, butalso the consumer's readiness to react strongly through either "exit" or"voice" should the quality of the product deteriorate. To the extent thatvoice is chosen, the size of the consumer surplus can be directly relatedto political action which consumers are liable to engage in to resist andfight deterioration.
(Continues...)Excerpted from The Essential Hirschman by Albert O. Hirschman, Jeremy Adelman. Copyright © 2013 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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