Book review: International Economics: A Heterodox Approach, 2nd ed, by Hendrik Van den Berg
International Economics: A Heterodox Approach, 2nd Edition. By Hendrik Van den Berg. Armonk and London, M.E. Sharpe, 2012, 670 pp., ISBN 978-0-7656-2544-1, ($114.95, paper).
The prospect of adapting international economics for heterodox audiences is fraught with challenges. As is the case with many economics disciplinary tracks, micro- and macroeconomics among them, the field is so intimately tied to the core of mainstream economic thought. To start with, international flows of goods and factors are theorized on a platform of comparative advantage that makes generalized affluence dependent on the unrestricted exploitation of countries’ best use of resources on a global scale. While social science scholars are not unanimously enthusiastic of the realism of this assumption, mainstream economists unabated consider it to be “the deepest and most beautiful result in all of economics” (Findlay 1987: 1). The intended audience is not a homogeneous lot. This textbook encourages students to escape the “tyranny” of just one paradigm (i.e. neoclassical economics) and to embrace such diverse alternatives as “institutionalists, Marxists, Keynesians, behaviourists, libertarians, Austrians, structuralists, and dependency theorists” (28).
With a stint in the US diplomatic corps, followed by overseas positions with two American multinationals, and then graduating a Ph.D. program in economics, Professor Van den Berg of the University of Nebraska-Lincoln seems particularly suited to embark on defying tasks. This reviewer concurs with the publisher’s endorsement as “an exceptionally broad background to the study and teaching of international economics,” an accolade which is duly acknowledged by the wide span of his interdisciplinary undertakings and rigorous reality check of theory’s explanatory power. The 21st century undergraduate may find the textbook’s lack of visuals, dreary typesetting, and large page format unappealing (although a web-based student study guide changes this for the better), but should rest assured that the value of studying it remains unaltered from aesthetic criticism. The author takes the reader through an intellectual journey which, apart from well-knit handling of applied economics, commends educated tastes by entreating interpretations of texts from novelists like Bernard de Mandeville, Joseph Conrad, Max Frisch, Walt Whitman, and F. Scott Fitzgerald, inserting real life characters of academia like J. M. Keynes or Lawrence Summers in actual decision making, as well as drawing on a vast canvas of interdisciplinary thinking from fields like “sociology, political science, ecology, psychology, neuroscience, and history” (ix). On these premises, the main achievement of this second edition of his International Economics consists in overcoming the two challenges with original and thought-provoking solutions.
On the account of distinguishing the textbook into a heterodox product, Van den Berg supplies ingredients that would make for a separate book on their own merits alone. In his interpretation, heterodoxy results from the addition of “broader issues” of human concern to the neoclassical “reductionism” focused on “producers, consumers, and markets” (37). The book’s division reflects this proffered balance by allocating equally ample space both to accomplished areas of study like international trade theory, international trade policy, and international investment and finance, in Parts Two, Three and Four respectively, and to “multi-paradigmatic” issues like “the heterodox approach” itself in Part One, the history of the international monetary system, immigration, and the ecosystem in Parts Five, Six, and Seven respectively.
Heterodoxy is a state of knowledge that at once informs and is informed by the subject matter and the method of (international) economics. The first condition reflects well on the author’s conviction that living in an integrated world directs the focus of scientific study towards all spheres of the global economy, economic, social, and natural. It is this complex systems perspective he calls holism, which should offer “a conceptual framework for organizing thought” (23) to undertake analytical reviews of “complex hypotheses” (34) about the nature of changes in “human welfare.” The themes of interest, a number of precisely twenty “fundamental ideas” being shaped by culture, complexity, feminism, scientific objectivity, environmentalism, inequality and growth, guide heterodox thinking “albeit in ways that are often difficult to distinguish clearly” (11). In the particular case of international economics, the key to explain the gains and costs of exchanges across borders, the author suggests, lies with dealing with strangers, a prosaic-turned-analytical perspective opening up the narrow view about the welfare of inert individuals towards the vivid aspirations of communities of people.
At the same time, heterodoxy coexists naturally with the ongoing, dominant frame of thought; orthodox analysis offers “good insight…even if it is not fully holistic” (201), and, in fact, both “neoclassical and heterodox interpretations…proved useful” (199). A concise five-page exercise (44-48) in the sociology of economics knowledge, in the footsteps of French sociologist Pierre Bourdieu, explains why and how this is possible. The why becomes apparent from the evolutionary nature of economics: dominant ideas achieve legitimacy and authority according to social (read: prejudice, influence, etc.) and genetic (read: the intellectual field one happens to belong to) conditioning that makes others less successful.
These competing worlds of knowledge accommodate themselves in a mechanism of selection defined on cultural premises. “Subjective dispositions” are crucial in setting measures of success and rules of survival within a particular field with which people identify themselves. At some time, the dominance of a particular paradigm empowers economists with credentials, prestige and other signs of cultural capital, which make them predisposed to “symbolic violence.” For example, the devastation of the rural society in Mexico, a direct, predictable result of regional trade agreements, does not appear among the mainstream themes as it is considered to be outside the scope of economics and so less worthy of study.
Students of this textbook test their ability to prospect reality through these lenses in answering end-of-chapters questions such as “Evaluate the Universal Declaration of Human Rights… Does trade affect these rights?” (197) or attempting to “write an alternative history [of the gold standard] that begins with a narrow electoral victory by William Jennings Bryan in the 1896 US presidential election” (446) (Hint: read and react on the (only) appendix providing the candidate’s speech of 9 July 1896). With these assignments, the textbook makes good on the promise that we will arrive at conclusions that differ sharply from neoclassical international economic models.
The corroborating probe rests with addressing a diverse audience. Theories from a wide spectrum of social scholarship find their utility as they bridge the unexplored gaps between the narrow market view and the holistic ecosystem. The positive correlation between trade liberalization and development certainly needs corrections when viewed from the prism of evolutionary and behavioural economics. The Heckscher-Ohlin model does not suffice; options about income distribution need to be examined more thoroughly, for example, by appealing to philosophers’ criteria for social justice or psychologists’ experimental results about people’s desires, hopes, and expectations. Dependency theory and structuralism offer new insights that challenge us to take on increasingly complex assumptions. Brazil’s historical case of industrialization and trade integration is dedicated as much space as the mainstream economic analysis of international trade or increasing returns to scale and international trade to make clear that government power, political privileges, coercive power, military force count among the determinants of the world patterns of trade with as much force as comparative costs.
Approaching the monetary economy sheds light on the issues of growth and macroeconomic equilibria replacing the hitherto emphasis on development and gains from world integration. The jargon here also changes, and with its innumerable acronyms describes investment and finance decisions seemingly detached from “superficially” (380) explanatory technical models. The author follows closely unconventional theories, such as Keynes’ perspective of uncertainty and expectations and Minsky’s financial instability hypothesis, to arrive at credible analytical frameworks of crises and macroeconomic fluctuations. To round off the whole argument, he embarks on a historical view of the international financial system accompanied by a set of six criteria – i.e. employment, growth, globalization, policy independence, price stability and distributive justice – for determining how well monetary orders worked.
Two-thirds of the way through the book, we find the orthodox models of trade and finance augmented to the point of overcoming the idealistic, overtly simplistic economics of a world of “7 billion socially isolated but somewhat fully informed individuals” (580). Yet, a sense of theoretical incompleteness, the author suggests, is inescapable. Imbalances accumulating in the world economy, elusive knowledge of solutions for the looming crises, and, after all, uncontrollable environmental degradation ask for in-depth understanding of dealing with strangers. Immigration and ecological economics bring this issue to the forefront over a consistent, final part of the textbook. Against this background, the economics of human interaction across borders loses much of its accuracy while gaining much in relevance for practical action.
This textbook marks a milestone rather an endpoint along the way of reforming economics. The contours are firmly carved in what the author calls international economic integration instead of international economics. The changed emphasis results from the goal of “cooperating and acting collectively to deal with difficult systemic issues” (581) replacing “logically consistent models of individual consumers and producers” (37). Other ambitions are less satisfactorily exhausted. For example, the premise “the scientific method can be followed using words as well as mathematics” (39) at times becomes obscured: a two-country partial equilibrium investment model clashes indecisively on the same page with constraints originating in a “variety of people’s tastes, ages, family responsibilities, and present and expected wealth and income, and lenders’ willingness to bear risk” (316). Yet, Professor Van den Berg lays in front of us a daring project, singular in its scale and introspection to this reviewer’s knowledge, against which any new attempt of rethinking the basics of economics should necessarily be measured.
Findlay, Ronald. (1987) “Comparative Advantage,” in John Eatwell, Murray Milgate and Peter Newman (ed.), The New Palgrave: A Dictionary of Economics, Vol. 1, London: Macmillan, pp. 514-17.
Reviewed by Valentin Cojanu
Bucharest Academy of Economic Studies