The field of political economy has always sought to analyse and understand the dynamics of the economy – largely, the capitalist economy; its laws of motion, what drives development, and what determines the division of the spoils. Originally, with Adam Smith’s Wealth of Nations (1776), David Ricardo’s On the Principles of Political Economy (1817) and Karl Marx’s Capital: Critique of Political Economy (1867), the division of the spoils was seen in class terms, of how the surplus in society was divided between the old feudal class and the rising capitalist and working classes; and this was linked to economic development through the need to mobilise resources for investment, and to seek to increase the extent of the market which enabled a greater division of labour and hence productivity. This ‘class’ analysis was replaced with the neoclassical focus on the individual, utility maximisation and marginalism – with decisions seen as being taken ‘at the margin’, rather than on the far broader scale on which these developments occur in reality. The papers in this issue are all focused in various ways on these related issues, of how entrepreneurship and investment drive growth, what the relation of this is to the division of rewards (income and wealth) and what role government can play to promote both economic development and the welfare of citizens, which after all should be the purpose of such development.
Hanen Ragoubi and Sana El Harbi, ‘Entrepreneurship and income inequality: a spatial panel data analysis’, point out that in public discourse ‘entrepreneurship’ is often assumed to have positive connotations, with inequality having negative connotations, and they ask whether this is consistent, given that entrepreneurship might induce inequality? Their detailed statistical analysis suggestions that the picture is, as is usually the case, far more complex than that. The relation between entrepreneurship and inequality, and indeed the relationship between each of these and a variety of other factors – such as a country’s degree of economic development, per capita income, research and development, globalisation – are mixed, and contingent on each other and other factors. For example, whilst inequality implies that the wealthy will have resources that may be invested entrepreneurially, unequal possession of resources can hamper the ability of other groups to engage in entrepreneurial activity. Fundamentally, though they conclude that public policy can and does have important effects on all the above factors, so the key is that such policies that are aimed at promoting entrepreneurship, and those that are aimed at tackling excessive inequality, need to take proper account of the variety of possible intended and unintended consequences, so that both sets of policies can deliver successfully their outcomes, of fostering an entrepreneurship that does not require or create inequality.
Ragoubi and El Harbi also find that the spatial aspects of economic activity, within and between countries, are important, and this is likewise found by Valeria Gattai and Goirgia Sali, ‘FDI direction, FDI margin, and heterogeneous firms: evidence from the EU’, who analyse foreign direct investment (FDI) in Europe, and argue that the positive effect that such investment has is not so much through increasing the number of firms, but in enhancing the performance of existing firms. Touitou Mohammed, ‘Simulation of the impact of economic policies on poverty and inequality: GEM in micro-simulation for the Algerian economy’, likewise finds that increased investment can boost economic growth, but whether that promotes upward social mobility or not would depend on other factors, most fundamentally whether there is a policy agenda to strengthen productive capacity, and the national productive system more generally. C. Saratchand, ‘A preliminary theoretical examination of the targeted public distribution system in India’, sets out the principles involved in government policy designed to tackle poverty. Finally, Georgios Georgiou, ‘The innovative bureaucrat: evidence from the correctional authorities in Washington State’, analyses public policy in a rather different setting, namely the workings of the correctional authorities in the state of Washington, and finds that in contrast to the assumption that is sometimes made that public bureaucracies tend to be inefficient, in this case the behaviour of the public authorities was found to be remarkably creative and effective.
So, the founding questions of political economy remain open ones, of how government can best promote economic and social welfare. These papers illustrate in various ways that rather than ‘leave things to the free market’, governments can and do play important roles in the economy, as well as in society – just as Adam Smith in the Wealth of Nations said they could and should (despite what others may say in his name). Such public policies may be crafted and implemented well, or poorly. One conclusion from these papers is that to do a good job at crafting and implementing public policy requires an understanding of the complexity of the relations between any one economic and social factor, and all others. Neoclassical economics tends to deal with this problem by abstracting from much of the complexity in order to focus on the key drivers, and make the issues tractable, which is fine provided policy conclusions are not drawn without first reintroducing reality. It is this last step which mainstream economics tends to miss. It is also why a renewed economics needs to draw upon complexity theory, as well as institutional and evolutionary economics, if we are to really do the new thinking, in response to the 2007–2008 global financial crisis and resulting world slump in 2009, that is required, as Keynes did in similar circumstances when he wrote that the purpose of his 1936 General Theory of Employment, Interest and Money was to change the way that people thought about economics. He succeeded, and did his best at Bretton Woods to ensure new thinking in policy terms, albeit his ideas being defeated by the economic self-interest of the U.S. negotiators. We need today a similar rethinking of economics, towards the creations of a global ‘Green New Deal’ to enable sustainable growth and enhanced human welfare over the coming decades.