Originally the word "radical" meant relentlessly seeking the root of a problem and not shrinking from the action that follows as a logical consequence of its findings. More popularly, it denotes a sharp departure from conventional, orthodox interpretations of reality. The term "radical economics" is used to label the work and ideas of those people (usually political economists) who take a so-called left-wing perspective on the discipline of ECONOMICS.
There are orthodox and radical streams of economic thought. The specific contents of orthodoxy and radicalism shift from one generation to another as new problems arise in the economy. There are also variants of orthodoxy and of radicalism. The presence of so many contending schools of thought produces a persistent tension within economics that mirrors, within the sphere of ideas, persistent conflicts between economic classes and groups in the real world.
Orthodox economics holds that the substance, manner and distribution of production are determined by individual preferences, technology and personal endowments, ie, consumers determine what is produced, technology prescribes how goods are made, transported and exchanged, and endowments of talent, skills and material wealth determine to whom goods are distributed. The economy cannot be changed unless these foundations are changed, but none of these foundations can be changed without violating what orthodox economists regard as "human nature" and "natural liberty."
Because orthodox economists argue that disturbing INCOME DISTRIBUTION would destroy incentives (based on the assumption that all human effort is closely related to material reward), that technology is irremediably determined by science or history, and that ignoring consumer preferences violates freedom, they reject any role for the STATE that disturbs this "natural" economic order. Beginning with Adam Smith through David Ricardo, Robert Malthus and in contemporary times to Milton Friedman, Gary Becker and Robert Lucas, orthodox economists have devoted much effort to show how well the economy would work if left alone, undisturbed by attempts of the state to regulate it.
Radical economics, to the contrary, believes that left to itself, the market economy and the competitive order would destroy the environment; wear out and eventually cast aside human labour once it was no longer sufficiently productive; break down periodically and produce mass UNEMPLOYMENT; and create a highly polarized society in terms of incomes and life chances. Radical economists have always shadowed ruling orthodox opinion, although some of their ideas have been absorbed into orthodox economics and adopted by governments.
There are various currents of thought within radical economics. One current, MARXISM, takes a holistic approach, arguing that the basic premise of economic orthodoxy, its view of human nature, is flawed; that it is subject to recurrent economic breakdowns and produces increasing degrees of inequality and that these are inherent in the way the economy is organized; that workers are alienated from the products which they create, but also from the process of production, which they do not control; and finally that consumers are subject to continuous manipulation by sellers who are themselves caught in a process of unceasing competition.
According to the Marxist current within radical economics, these tendencies can at best only be moderated, not reversed, by reforms in the institutions of the capitalist economy. Marxism advocates a communistic organization of the economy where class formations based on private ownership of industry are eliminated, where there is economy-wide planning, and where production for need rather than profit is the operating principle. However, the lessons of Soviet-style communism have convinced most radicals that changing the economic system cannot simply mean nationalizing industry and imposing centralized planning. It must involve worker control at the point of production and community control over investment decisions such as which goods and services are produced, in what amounts and in what locations.
The ultimate difference between the Marxist and the orthodox vision of good society stems from their divergent views of human nature. The rock upon which most orthodox thinking rests is that human beings are "naturally" acquisitive and are motivated primarily by self-gain. Marxist radicals insist that human values and behaviour are socially determined and that survival and sustenance in capitalist societies require that people heed their own self-interest. Implicit in this vision is the belief that with a democratic and egalitarian social structure devoid of class denomination, human values and human behaviour can evolve towards a greater social consciousness and communal identity.
Other currents within radical economics focus on particular aspects of the capitalist economy while leaving the rest largely intact. Thus in 1848 John Stuart Mill, an orthodox but liberal and reform-minded critic, wrote in Principles of Political Economy that, while "laws of production" were "natural" and universal, those of distribution were "partly of human institution" and could be subject to alteration by legislation. Income redistribution via TAXATION was not perceived as a violation of any natural law, and a progressive tax structure was gradually accepted by economic orthodoxy.
In the wake of the Great Depression, John Maynard Keynes, in his General Theory of Employment, Interest and Money (1936), demonstrated that left to itself the mature capitalist economy tends to break down and stagnate, a process that was not, contrary to orthodox thought, self-correcting. Keynes advocated state regulation of the overall level of economic activity by means of what he called "socialization of investment," but he was satisfied to leave the composition of that output to the free market.
By the end of WWII a modified version of his thought was being adopted and many governments accepted responsibility for maintaining high levels of output and employment. In Canada KEYNESIAN ECONOMICS was accepted in the highest levels of the civil service, and in the 1945 White Paper on EMPLOYMENT AND INCOME, the federal government pledged to maintain economic stability. In practice, this involved varying the money supply and the size of government deficits and surpluses to moderate the business cycle, as well as introducing unemployment insurance (see EMPLOYMENT INSURANCE) and WELFARE STATE measures to stabilize incomes.
In 1958 traditional theories were further challenged in The Affluent Society by John Kenneth GALBRAITH, who wrote that consumer tastes are shaped by advertising, packaging and frequent style changes, and that the corporate sector rather than the sovereign consumer is to be held responsible for production priorities, including frivolous, wasteful and ecologically unsound consumption patterns. In particular, the massive effort devoted to advertising inevitably produces a bias in favour of private consumption as opposed to collective, community services. The result is private affluence on the one hand and public squalor on the other; as a corrective, Galbraith advocated greater state expenditures on social services and public infrastructures.
Generally, liberal critics of traditional economics have demonstrated that the free-market system can only function ideally if unrealistic circumstances exist, ie, perfect competition between large numbers of powerless buyers and sellers in the market for goods and services and for labour and capital; perfect mobility of human and physical resources; and perfect information on all alternatives available to buyers and sellers. The violation of even one condition may distort the system and justify extensive state intervention, including regulation and subsidization. These critiques have formed the basis for modified versions of traditional economics which in turn have provided the theoretical basis for the mixed ECONOMY.
From 1945 to 1970 a broad consensus developed among economists around this "neo-classical" synthesis, which in Canada was founded materially on the export of resources to the US. Resource extraction was largely financed by US-based MULTINATIONAL CORPORATIONS and a network of branch-plant manufacturing assembly plants based on the importation of US technology and machinery. The resulting economic structure in manufacturing and resource extraction produced economic growth large enough to generate high profits and rising wages and to finance the welfare state and other state expenditures.
The consensus (1945-70) over the economy was shared by the major political parties and by labour and capital. The New Democratic Party and the affiliated trade-union movement accepted the basic economic institutions of the capitalist economy and the profit system, while emphasizing the need to pursue full-employment policies, regulate giant corporations more stringently and expand the welfare state. Their demands have embodied in policy form what may be considered the "left wing" of the consensus (see SOCIAL DEMOCRACY). The Liberal Party, responsible for introducing modified versions of many of the social-democratic reforms demanded by the labour movement and popularized by the NDP, has tended to occupy the centre of the spectrum.
A dissenting current began to surface in the 1960s, led by economists and politicians who became concerned with the degree of foreign ownership and control of the Canadian economy and its increasing integration with the US economy. Liberal economic nationalism was first promoted by Water GORDON, under whose influence federal government inquiries into foreign ownership were undertaken - resulting in the Watkins Report in the late 1960s (see FOREIGN OWNERSHIP AND THE STRUCTURE OF CANADIAN INVESTMENT, TASK FORCE ON) and the Gray Report in the early 1970s (see FOREIGN OWNERSHIP, TASK FORCE ON). A more radical version of ECONOMIC NATIONALISM surfaced about the same time, advocating PUBLIC OWNERSHIP and economic planning as a means of overcoming Canada's increasing control by and dependence on the US. This current of economic nationalism was very much influenced by the war in Vietnam. It developed a political expression inside the NDP known as the WAFFLE Movement. Subsequently, a variety of themes within Canadian radical economics formed the subject matter of an academic journal, Studies in Political Economy.
World-wide consensus among supporters of the neo-classical synthesis and its variations broke down in the 1980s and 1990s. Traditional orthodoxy was resurrected and refined under the name of monetarism and was adapted by virtually all governments around the world including Canada (see MONETARY POLICY). In consequence there has been a powerful tendency to eliminate or dilute many of the instruments the state had adopted to influence the outcome of the market economy. This tendency includes deregulation, privatization, FREE TRADE, cutbacks of social expenditures and a strong emphasis on balanced budgets.
These notions, which had been thoroughly discredited in the heyday of KEYNESIAN ECONOMICS, have now become the dominant paradigm in economic thought. This paradigm is challenged by various currents within radical economics including institutional and "post-Keynesian" economics and the Union of Radical Political Economy. Each has its own journals and INTERNET discussion groups. Post-Keynesians, for example, advocate state guidance of private investment and an active training and labour adjustment policy to achieve full employment; managed trade; a tax on all foreign financial transactions (Tobin tax) to cut down international speculation; and state control of wages and other forms of income to regulate price INFLATION.
In Canada, the signing of the Canada-US Free Trade Agreement (FTA) and subsequently of NAFTA precluded many aspects of state intervention, for example, abolishing the right of governments to pursue an industrial strategy based on the development of domestic firms. Since the signing of the FTA and NAFTA, radical economics in Canada - mainly in the form of the Alternative Federal Budget produced by the Canadian Centre of Policy Alternatives and Choices, a social-justice coalition - has devoted itself to demonstrating that there is an alternative to the neo-conservative orthodoxy. The left-wing within radical economics, while further developing its critique of competition and globalization, has not so far formulated a fully developed strategic alternative.
The radical system of analysis has made important inroads into various academic disciplines, including sociology, economics, political science, history and anthropology. In Canada radical political economists include, among many others, Greg Albo, Pat and Hugh Armstrong, Isabella Bakker, Fred Bienfeld, Errol Black, Wallace Clement, Marjorie Cohen, Patricia Connelly, Robert Chernomas, Daniel Drache, Sam Gindin, Gord Laxer, Michael Lebowitz, Greg Kealey, John Loxley, Rianne Mahon, Martha Macdonald, Leo Panitch, Paul Phillips, Jim Sanford, Mel Watkins, David Wolfe and Glen Williams.