by Anthony Painter

There is a strangely diffident sub-title to Paul Ormerod’s passionate and personality filled look at the state of modern economics. In it, he argues quite clearly not simply that networks can revolutionise but that they do. Not only is the force of networks felt in the field of economics but it is felt across society, politics and beyond into the physical and natural world. Network theory is profoundly important for understanding our world. The question is what this means for political economy.

At its heart, the book is the latest corrective to the hubris of economics and orthodox de-humanised economic theory with its dynamic stochastic general equilibrium theories and the like. Paul Ormerod is by no means the first person to venture onto this territory. Yet, since his provocative The death of economics in the early 1990s it is an argument he has consistently made. Neo-classical economic theory is deficient. Ormerod is no Jonny-come-lately.

This makes Positive Linking a very confident book but no unreasonably so. It is not about explaining the latest economic crisis – though he does precisely that in passing. It is about looking at a deep intellectual crisis in a single subject. The problem for us is that the subject – economics – has perhaps more influence on our lives than any other with the possible exception of the bio-medical sciences. This stuff matters.

The key to networks in the economic world is influence. Traditional economics relies on incentives. If Coke reduces its price then it will sell more units. But in a world of overflowing information, advertising trickery, where consumers and producers can interact in a myriad of ways to influence one another, and the “rational” strategy is copy others, the actual outcome becomes skewed away from a “normal distribution”.

Coke could have reduced its price in response to the success of the marketing of the Pepsi brand. If Pepsi is cool – a status or a Veblen good in other words – then Coke’s price cut may have no effect whatsoever. Indeed, it could be completely counter-productive not only in terms of revenues but in terms of maintaining its position of influence within the network of people who want to look cool drinking a certain drink.

Skews, influence, copying, crowd-behaviour, influencers, network hubs – real life in other words – all distort the explanatory power of conventional economics. Ormerod likes to turn things on their head as he does when he cites John Maynard Keynes as a guru of network theory – what else are those “animal spirits” of which Keynes talked? Keynes’s primary concern was the influence of people on one another and periodic collapses in confidence of economic actors. Ormerod sees our current economic predicament in precisely these terms – a fatal collapse of confidence rippling through networks starting with the banks ceasing to trust one another from 2007 onwards.

Keynes is normally associated technocratic macro-economic management. That is not the Keynes we see in these pages. We see the Keynes of uncertainty, doubt and scepticism about human nature in economic affairs. This is a Keynes that stands in stark contrast to the certainty of modern day Keynesianist macroeconomic disciples. One can’t help wondering what he would have made of it all. Economic management becomes a bit of a confidence trick. Unfortunately, it is not all clear that this is a confidence trick that will come off.

Positive linking has some very sound suggestions for dealing with the uncertainty. Communities should take responsibility for outcomes rather than relying upon some external, magical power to solve the problem. As Ormerod argues:

“They [communities] themselves are in a much better position to realise the benefits of positive linking than some remote, would-be bureaucrat still burdened with the mind-set of a central planner.”   

This is a clever point. Too often, economists seek to replace one failed model of rational planning with another one. So the “orthodox Treasury view” is replaced with “Keynesianist” demand management. Coming into view we now have “nudge” theory and happiness economics. Both have potential to become a central planning nightmare. The basic problem is a pervasive lack of humility amongst our politicians, civil servants and intellectuals.

But perhaps this has a consequence for economics greater than even Positive Linking quite faces up to. For if networks have the degree of explanatory power that this book outlines then isn’t the power of economics diminished? Does it deserve a special place amongst social science and the humanities?

If what is most important is the way that humans interact, influence and are influenced then in floods religion, politics, culture, psychology, anthropology, history, biology, criminology, sociology, law, geography, architecture, town planning, communications theory, technology and so on.

Economics loses its unique power over our lives through the actions of policy-makers. Economics could have two uses: to warn us off stupid economic policies (such as those pursued in Zimbabwe, say) and to help spot network effects when they appear. That’s a much more humble mission. Ormerod acknowledges all of this but shies away slightly from accepting economics’ diminished status.

One of the examples of a network in action is the subak organisation of collective farming in Bali. Subaks are co-operatives designed to accommodate fair access to irrigation for rice cultivation. They suppress free-riding, spread resources and have arisen through centuries of collective action and cultural adaptation.

As it happens, I was given a background to the subak and a tour by a local farmer while on a recent trip to Bali. The interesting features of the subak are not that we are seeing a network effect but rather how and why that came about and what it means. They are crafted around the family and village. Religion and superstition serve a purpose in keeping the collective together. Co-operative action is maintained on the basis of centuries of tradition. They are motivated by the provision of enough food for the family and not a search for surplus value.

Actually, subaks are more akin to a network of small-scale institutions than what would be considered a network such as we see, say, on Facebook. They are hierarchical in many ways. The fundamental point though is that all of the interesting analysis of the subak comes from understanding providing by subjects way beyond economics. The same would be true for, say, a local jobs and training programme to get young people their first chance at a job. A knowledge of networks can give us a sense of a broad strategic approach. However, all the elements that would actually make it work – the important elements – are beyond that.

This explains why economics has colonised so many other subjects in its attempts to re-invent itself. That’s why psychologists and political scientists now win the Nobel Prize for Economics. If one were being harsh, this could be seen as an act of desperation and despair.

Positive Linking is sweeping, masterful, confident and humane. It brilliantly mixes anecdote and the full intellectual arsenal. Paul Ormerod was asked to write a new textbook of economics but his publisher ultimately came to the conclusion that there was just too much vested interest in the old, out of date textbooks.

This book is that new textbook in full narrative flow. The introduction warns economists to read lots of other stuff. Perhaps the final page of the textbook could simply read in big block capitals: YOU’VE ONLY JUST BEGUN. Having said that, if I were a novice economist, I’d start with Positive Linking.

Anthony Painter is an author and a critic

Tags: Anthony Painter, dismal science, economics, Paul Ormerod, Positive Linking

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