International Economics and the Growing Dominance of Multinational Corporations: Explaining the Disconnect and Finding a New Approach for International Economics

IV. A Better Approach: Marx’s Materialist Dialectic

The international economy that international economics strives to describe, analyze, and explain is inherently a dynamic phenomenon, governed by persistent relationships within and across the economic, social, political, and natural spheres of human existence. This calls not for the traditional narrow static equilibrium analysis that currently dominates mainstream economics, and especially international economics, but rather for a holistic approach. Gaining an understanding of our complex human existence is a difficult task. To be successful, one must recognize, formally and informally, the interdependence of economic, social, and natural phenomena. One needs to adopt an intellectual methodology for increasing our knowledge about this complex reality. Such an epistemological approach has been referred to as holism.

The term holism is derived from the Greek word holos, meaning entire, total, whole. The term was initially used in the early twentieth century to describe new dynamic theories in the physical sciences, such as Charles Darwin’s theory of evolution, Henri Becquerel’s theory of radioactivity, and Albert Einstein’s theory of relativity. These new theories described the world as evolving dynamic systems, in which the parts are related to all other parts in complex ways that effectively condition how each observed part actually functions. Holism is the explicit recognition that the component parts cannot be understood in isolation and their functions cannot be predicted without knowing the whole environment in which they exist. Overall, the outcomes of the whole system are a function of both its parts and the systemic interactions among those parts. Holism explicitly rejects the mainstream economics idea that the whole is the simple sum of its parts.

In looking for such a holistic epistemology for international economics, this paper makes a case for Marx’s materialist dialectic. Many economists who have managed to free themselves from the shackles of the mainstream economics culture opt to ignore Marx’s methodology; perhaps, they feel they can be holistic without being accused of being a Marxist. However, this paper will argue that confronting the established culture and institutions of mainstream social science and international economics is difficult. Marx’s materialist dialectic protects the objective heterodox economist from the mainstream culture by expressly providing a political economy perspective on the dynamic movement of the economy, society, and nature.

In the words of Lenin (1915), “dialectics is the theory of knowledge of Marxism.” Marx is associated with a materialist dialectic, not Hegel’s idealist dialectic.⁶ Hegel argued that dialectics is the self-development of a concept; that is, he saw all real things as the result of human consciousness, as concepts of human thinking and interpretation, which evolved over time as a dialectic process. Even though he was strongly influenced by Hegel, Marx was also influenced by Feuerbach’s rejection of Hegel’s idealistic dialectic in favor of a materialist perspective, accepting human thoughts as reflecting real things instead of images of this or that stage of the absolute concept. According to Engels, Marx came to see the dialectic of concepts as “merely the conscious reflex of the dialectical motion of the real world….thus the dialectic of Hegel was turned over; or rather, turned off its head, in which it was standing, and placed upon its feet [reality].”⁷

Engels describes the materialist dialectic as reflecting:

…that the world is not to be comprehended as a complex of readymade things, but as a complex of processes, in which the things apparently stable no less than their mind images in our heads, the concepts, go through an uninterrupted change of coming into being and passing away, in which, in spite of all seeming accidentally and of all temporary retrogression, a progressive development asserts itself in the end….
This description of the accumulation of knowledge is not the same as the (also materialistic) scientific method, in which new truths are continually revealed and falsehoods abandoned so that knowledge necessarily improves over time. The materialist dialectic means that the investigator remains conscious of the limitation of all acquired knowledge, of the fact that knowledge is conditioned by the circumstances in which it was acquired. Engels goes on to say:
On the other hand, one no longer permits oneself to be imposed upon by the antithesis…between true and false, good and bad, identical and different, necessary and accidental. One knows that these antitheses have only a relative validity; that that which is recognized now as true has also its latent false side which will later manifest itself, just as that which is now regarded as false has also its true side by virtue of which it could previously be regarded as true. One knows that what is maintained to be necessary is composed of sheer accidents and that the so-called accidental is the form behind which necessity hides itself—and so on.
Engels then goes on to argue that not only is nature a historical process of development, so is “the history of human society in all its branches and of the totality of all sciences which occupy themselves with things human (and divine). Here, too, the philosophy of history, of right, of religion, etc., has consisted of the substitution of an interconnection fabricated in the mind of the philosopher for the real interconnection to be demonstrated in the events.” People are endowed with consciousness, they act with deliberation or passion, they work towards some set of goals. However, in spite of the consciously desired aims of all individuals, accident seems to reign on the surface. “That which is willed happens but rarely.” To understand and predict outcomes, we need to consider what all of these individuals really want and decide. Engels anticipates behavioral economics when he writes:
The will is determined by passion or deliberation. But the levers which immediately determine passion or deliberation are of very different kinds. Partly they may be external objects, partly ideal motives, ambition, ‘enthusiasm for truth and justice”, personal hatred, or even personal whims of all kinds….the further question arises: What driving forces in turn stand behind these motives? What are the historical forces which transform themselves into these motives in the brains of actors?
Hegel’s dynamic systemic dialectic could not answer these questions, because he projected philosophical ideology into history, rather than looking at history itself for the answers.
The dialectic and political economy

In Capital, Marx describes how the bourgeoisie and proletariat both arose out of the changing modes of production and production technologies. This necessarily requires dealing with the class conflicts within contemporary political orders, social circumstances, and changing economic conditions. Again according to Engels (1886):

…all class struggles for emancipation, despite their necessarily political form—for every class struggle is a political struggle—turn ultimately on the question of economic emancipation. Therefore…the state—the political order—is the subordination, and civil society—the realm of economic relations—the decisive element.” It is true that all the needs of civil society—no matter which class happens to be the ruling one—must pass through the will of the state in order to secure general validity in the form of laws. But what determines these wills of people and states? If we enquire into this, we discover that in modern history the will of the state is, on the whole, determined by the changing needs of civil society, but the supremacy of this or that class, in the last resort, by the development of the productive forces and relations of exchange.
Here we arrive at Marx’s circuit of capital. The specific form of the circuit of capital influences the state, which tends to become a reflection of the economic needs of the class that controls production. Libertarian economists from the time of Marx were correct describing the state as having politically-determined power over individuals, and that this human institution will inevitably seek some degree of independence from society that it will use for the benefit of specific interest groups or those individuals who exercise control over government. But Marx does not, as Bastiat and other contemporaries do, conclude that government must be severely restricted to a few simple collective tasks. Instead, he uses the materialist dialectic to explain how, under capitalism, government ends up doing the bidding of the dominant class, often with enhanced power as the ruling class needs the power of government to legalize, protect, and justify their wealth. Hence, he concludes: “The fight of the oppressed class against the ruling class becomes necessarily a political fight, a fight first of all against the political dominance of this class.”

Unfortunately, the interconnection between this political struggle and its economic basis has been completely ignored in mainstream international economics, as in other branches of our economics. Even worse, professional economists play an active role in eliminating inconsistencies between the juristic mechanisms that keep the state acting on behalf of the ruling class and the actual economic facts. Culture, or what Engels and Marx called “private law”, also reflect the organization of production in society. This leads to the separation of religious and philosophical ideologies from economic facts. Only a materialistic dialectic, as established by Marx, can overcome this separation of ideas from reality and get to the bottom of the shifts in political, economic, and social organization.

Behavioral and sociological justifications for the dialectic

As argued just above, Marx anticipated the more realistic behavioral economics approach to human behavior. Yet, international economics continues to use almost exclusively neoclassical models, which usually assume that economic actors are rational individuals who take only their own material well-being into consideration when they make economic choices. Often such models are reduced to representative agent models, in which one average economic person, or homo oeconomicus, represents aggregate economic behavior. Among the many costs of the intellectual mistake of placing an unrealistically individualistic and self-centered homo eoconomicus at the center of economic analysis is that it prevents economists from analyzing the important economic roles of groups and organizations. The behavior of business firms, labor unions, government agencies, and entire classes of people cannot be explained or analyzed in a meaningful way. Also, the emphasis on the individual makes it difficult for mainstream economists to analyze the development of social phenomena such as institutions and culture. This denial of humans as fundamentally group animals, in turn, has resulted in the lack of realistic analysis of the role of large corporations in our contemporary globalized society.

Human rationality

Behavioral economists have suggested that humans follow more realistic strategies. For example, Simon (1955) has used experiments to show that people are likely to take short-cuts and engage in “satisficing, ” and Simon (1959) later described people as doing the best they can, but that they are only “boundedly rational” because humans often need to make decisions quickly and without all the facts in hand. Keynes (1936) people, including the managers of business firms, go by “convention,” in the sense that, for lack of anything better, some ideas seem to provide a reasonable guide for action, which then becomes the conventional way of doing things. Also, in Chapter 12 of his General Theory, Keynes (1936) compared innovators to explorers of the South Pole, who, in a state of uncertainty, drew on their animal spirits to decide when to move forward and when to be cautious.

Neuroscientific research provides further evidence that humans do not function as the hypothesized homo oeconomicus. According to Churchland (2002, p. 308):
The Brain’s earliest self-representational capacities arose as evolution found neural network solutions for coordinating and regulating inner-body signals, thereby improving behavioral strategies. Additional flexibility in organizing coherent behavioral options emerges from neural models that represent some of the brain’s inner states as states of its body, while representing other signals as perceptions of the external world. Brains manipulate inner models to predict the distinct consequences in the external world of distinct behavioral options.
Using these methods, scientists such as Lebeouf (2002) and Medin and Bazerman (1999), among many other researchers, have confirmed that the automatic and emotional processes in the human brain depend largely on the recognition of patterns. Their experiments show that the human brain becomes agitated when unfamiliar patterns emerge or familiar patterns cannot be found in what is being observed. But it is important to note that, as experiments reported in Frederick (2005) clearly demonstrate, even the most intelligent people routinely misinterpret a problem or an observation because they place it in a familiar pattern that, in fact, does not accurately apply to the problem at hand. By relying in patterns, people often make mistakes, but overall the strategy must have worked because humans have become a dominant species on Earth.

The human brain thus evolved not only to use abstract reasoning to deal with complex issues, but also to derive practical rules to guide human actions within that complex reality. Quick reactions were required to deal with predators and unexpected natural disasters; long deliberations were not a practical way to deal with the bear that suddenly appeared at the cave entrance. Humanity did not survive on practical combinations of abstract thinking and clever short-cuts alone, however; humans survived because they also maintained cohesive groups in which members could efficiently interact to generate social outcomes greater than what a simple sum of individual actions could accomplish. The evolution of humans into group animals reflects the safety of numbers, the efficiency of splitting tasks, the benefits of sharing knowledge, and the ability to carry out large projects.

The group can only be maintained if its members are able to suppress individual thoughts and actions that would be detrimental to the survival of their social groups. A sharing of perceptions, ceremonial actions, traditions, and social norms, that is, culture, helps to sustain group solidarity in the face of external threats.

This is not to say that human culture always achieves the fundamental goal of survival. There have certainly been many conflicts among individuals and between groups of individuals. And, virtually all human civilizations ultimately collapsed because they were not able to deal with all the social and natural challenges they faced. Overall, however, human culture has been quite successful in that it has enabled humans, in a very short evolutionary period of time, to gain a large presence on Earth. Unfortunately, economists have not done a very good job analyzing the group and organizational behavior that enabled this human evolutionary success.

The power of culture

Culture consists of the set of common patterns of human activity and behavior that people value and identify with. Culture consists of informal institutions such as traditions, myths, religions, norms of behavior, manners, artistic expressions, and symbols. Culture emerged from the process of human evolution because it enabled humans to cope with the growing complexity of their existence. Fundamentally, culture serves to enhance social cohesion by inducing independently-thinking but socially-inclined individuals to conform to the patterns recognized by others who embrace the same culture.

The work of the French sociologist Pierre Bourdieu provides a useful framework for understanding why economists developed and sustain a culture that effectively makes is difficult for economists to escape from the well-established culture of individualism, especially because this culture prevents economists from seriously recognizing the shortcomings of its own culture.

Bourdieu takes as his starting point the work of the early twentieth century sociologist Max Weber (1978), who recognized that people generally adhere to more than one culture because their position in society often cuts cross traditional concepts of class or culture. Professions like sociology or economics develop strong subcultures that are embraced by practitioners that, simultaneously, live in different national and ethnic cultures. This embrace of multiple cultures is important for understanding the widespread acceptance of neoclassical analysis by economists the world over; the economics subculture can apparently survive within many different national and ethnic cultures.

Bourdieu’s first analytical concept is the field, which he defines as the social or intellectual arena within which people spend much of their day and within which they can best advance their primary economic and social interests. People normally identify with broad national or ethnic cultures, but in going about their daily activities they tend to pay the most attention to their immediate professional or social environments. Many people closely identify themselves with the culture of a particular job, industry, or work environment in which they spend much of their available time and effort. For academics, the term field is straightforward because most of an intellectual’s life is spent within a well-defined intellectual field. Note, however, that Bourdieu’s concept of a field is more general. For example, teenagers tend to embrace the culture of their school environment and the new social relationships that they develop there. Members of the military adopt a distinctive military culture of hierarchy, obedience, and violence. And, athletes focus on a culture likely to include specific rules, norms, and perspectives on repetitive training, physical prowess, competition, and, depending on the sport, aggressive behavior.

Each individual usually spends a large proportion of time focused on the one field because that is where they judge their success in life. For example, a teenager may clash with the culture of his/her household or even that of his/her nation, but showing up in school wearing clothes that clash with the school culture would be unthinkable! Similarly, economists come from a great many ethnic, national, and other social cultures, but as quickly becomes obvious to anyone attending an international economics conference, they all dress, act, talk, and present research that uses very similar models, procedures, and presentations. Nearly all economists tend to judge their colleagues by the same set of criteria covering the subjects, methods, and procedures that have come to be viewed as appropriate in their field.

Bourdieu develops two useful concepts that help to more precisely describe the culture of a field. First, people in a field adopt certain attitudes, behaviors, and dispositions, which Bourdieu defines as the field’s habitus, a term he took from the writings of Aristotle and Max Weber. A habitus is a set of subjective but persistent perceptions, customs, conventions, norms, mannerisms, behaviors, expressions, and procedures that are deemed appropriate or “normal” by practitioners in the field. Habitus effectively constitutes both a person’s personal disposition towards others and the set of behaviors by which she thinks others within the field will judge her to be one of them. Bourdieu effectively straddles the long-running sociological debate between subjectivity and objectivity by defining the field as objective and the habitus as subjective. Bourdieu argued that people develop the subjective dispositions and attitudes of their habitus in order to be successful in their well-defined objective field.

A soldier, therefore, is likely to adopt a habitus characterized by a clear willingness to engage in aggressive behavior, an unquestioning acceptance of authority and rank, as well as a strong affirmation of group loyalty. A businessperson’s habitus tends to be characterized by an admiration for aggressive salesmanship, a disdain for government restrictions on business activity, and a positive response to monetary rewards. An economist’s habitus most likely includes the use of neoclassical models to analyze a set of issues from the perspective of a market economy, a preference for mathematics in stating hypotheses, familiarity with statistical methods, and a reluctance to address issues that extend beyond the market economy or, heaven forbid, into other disciplines. Recall our general discussion of culture and group behavior; venturing into other disciplines tends to be viewed as disloyalty to one’s own culture, and such disloyalty could weaken the cohesion of the group. Hence, outside ideas are instinctively mocked, but the models and methods that fit the neoclassical framework of the habitus are seldom criticized from within the field.

Bourdieu points out that there is an inherent conflict between the reality of one’s field and the arbitrary nature of much of what comprises the field’s habitus. Psychologically, it is difficult for an intelligent person to deal with this combination of an objective field and a subjective habitus. Therefore, human societies, groups and organizations within human societies, and fields develop, largely unconsciously, sets of beliefs, symbols, and popular stories that provide some justification for the subjective and somewhat arbitrary habitus associated with one’s objective field. Bourdieu calls these sets of well-established but largely unproven beliefs, stories, and philosophies doxa. These doxa include unproven but widely accepted religious dogma, general social philosophies, and assorted political views. Doxa provide the broad patterns with which people judge their behavior in their field, and the behavior of others within their field and elsewhere. Together, the habitus and its supporting doxa constitute what we call culture.

A field’s doxa includes the “half-baked ideas” that North (2005) has argued were social constructs that enabled people and societies to deal with the poorly understood complexities that they routinely faced. Bourdieu (2005b) and Wacquant (2009) explicitly describe the doxa of economics as consisting of neoliberal ideas that include the characterization of individual humans as always rational and scientifically objective in their decision making, a strong belief that “an economy” can be reasonably modeled as a system of competitive markets in which the “invisible hand” does a reasonable job of transforming self-interested individual behavior into an optimal state of general well-being, a conviction that markets offer greater freedom and better options than “coerced” government programs and regulatory regimes, and strong biases against collective action and in favor of private enterprise.

The policies imposed on many indebted developing economies by the International Monetary Fund after the 1982 global debt crisis, the so-called Washington Consensus policies, were a direct reflection of this neo-liberal doxa. These policies included free trade, privatization of government assets, conservative monetary policies to reduce inflation, balanced government budgets, the elimination of labor market regulations, and diminished financial market regulation. The austerity policies currently being imposed in indebted countries of the European Union, such as Greece and Ireland, are another reflection of the Washington consensus and its underlying neoliberal doxa. It is still not clear that these policies have actually improved human well-being anywhere, but they have nevertheless been given very favorable treatment in economic textbooks and most research without causing much debate among mainstream economists. Of course, it is not the function of a doxa to generate debate; the doxa must have widespread and unquestioned acceptance if it is to serve its function of mitigating the urge for economists to question the arbitrariness of the methods and policy options that are in economists’ habitus.

The neoliberal doxa of free markets and individualism closely reflects many fundamental aspects of the broader Western social culture, especially that of the United States, the United Kingdom, and other countries with strong Anglo-Saxon cultural heritage. Economists, by projecting their subculture into the rest of the world, are, therefore, effectively forcing major elements of Western culture on others in the guise of science. Third world economists trained at Western universities or taught from Western economics textbooks effectively serve as the foot soldiers for Western culture in their native countries. Respected Western economists use neoclassical models to judge economies and economic policies everywhere in the world. In short, most economists behave like the Western sociologists Bourdieu criticized for judging foreign cultures from the perspective of their own Western cultures.

The obvious example of bias in the subject matter of economics is the tendency for economists to focus exclusively on market activities, to use data generated by markets, and to interpret the observed results as if all economic activity was undertaken by rational individuals operating in competitive markets. Recall the quote by Bourdieu at the start of this article. Hence, most economic research analyzes activities included in measured GDP, uses market prices and quantities to quantify human economic activity, and even uses market generated prices to proxy for the value non-market activity if such activity is included in the analysis. Of course, most non-market activity, such as household production and volunteer work, is effectively ignored and given the implicit value of zero.⁸ Any objective examination of real world economic activity shows that most human economic interactions do not occur among individuals in formal markets, but among people interacting in a great variety of non-market settings, including within households, within business organizations, in voluntary interactions, in government, and in various collective activities.

At the same time, the neoliberal doxa of economics leads most economists to view issues such as psychological happiness, environmental problems, and species losses in the natural environment as non-economic issues that fall outside the field of economics. The narrow scope of most professional economics journals reflects the conformity of the economics habitus to the neoliberal doxa that closely equates economic activity with market activity.

A most important aspect of the culture of economics is that it discourages economists from studying group behavior and the role of organizations in human societies. Therefore, despite overwhelming evidence to the contrary from numerous fields of science and social science, mainstream economists still almost exclusively use welfare functions that aggregate the individual welfare of separable individuals. Even after giving Nobel prizes to behavioral economists, for example Kahnemann, Tversky, and Akerlof, for studying the psychological aspects of economic activity, and organizational economists such as Ostrom and Williamson for studying organizational aspects of economic activity, most economists continue to measure economic growth in terms of individuals interacting in markets. They thus pay relatively little attention to the role of groups and organizations, such as labor unions, large corporations, and large financial firms, in explaining economic outcomes. The power of culture is strong.