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From classical economics to geoeconomics

In this section we shall show how the study of geoeconomics builds on a dynamic approach to the social sciences which can be traced back to the theory of evolution. Neoclassical economics is a static approach to the social sciences modeled on the study of physics, with the use of algebra and theories of equilibrium. That is an attempt to construct a purely scientific study of Man, avoiding values and moral issues as explanatory reasons for any outcome.

The approach taken by geoeconomics differs from that of classical economics. It bases itself on multi disciplinarily, global strategic thinking, and the tradition of critical theory. Unlike neoclassical thinking it is based not on the study of physics, but on biology.

There were many questions which inspired me to write this book. For instance: is there a correlation between classical economic theory (as standardly taught in business schools) and economic growth? If so, how is it that countries like Japan, Germany, and today China can enjoy superior economic growth without being home to any of the better-known business schools? If economic theory and economic science have been a great success over the past half-century, how is it that we continue to experience global financial crisis without, it seems, being able to draw important lessons from economics? More specifically, why it is that the country with most experts in this field, the United States, has had such large and fundamental economic problems over such a long period without being able to solve them? How is it that many of the banks which recruited graduates from what are generally acknowledged as the world's best business schools went bankrupt? Conversely, why is it that a country like China, with few well-known business schools, is doing so well economically? There seem to be a reverse correlation here. If so, what is the value of the study of neoclassical economics?

As a PhD student, especially after reading Joseph Schumpeter's last book, history of Economic Analysis,4 I became convinced that the social sciences had parted company prematurely from evolutionary theory. Further more it seemed to me that the separation of the study of politics from that of economics in the late nineteenth century had done much to sunder both disciplines from the very reality they were trying to understand. I am surrounded by colleagues who in most cases have never set foot within any private-sector company, and yet count as experts on tiny facets of management, claiming that their contributions are significant for understanding and improving the performance of all sorts of industries and businesses in all kinds of cultures, including places which they have not even seen. Just where does this conviction come from that it is possible to arrive at new knowledge without practical business experience, and without consideration of the larger complexity of social life as a whole?

A short answer suggested here is that it is based on a misconception, namely that the laws of social life can be studied from behind a desk by uncovering narrowly-defined correlations in much the same way as progress is made in the natural sciences. But the problem is more complex than that. As both political science and economics have been required to operate value-neutrally - for instance by eliminating the dimension of power, so salient in the study of geopolitics -each of these disciplines has become less relevant. The discipline of economics has abandoned the notion of power and lost its feeling for Adam Smith's concept of competitive advantage of nations.

But it has not always been that way. During the latter half of the nineteenth century it looked as though economics was destined to be based on biology and evolutionary theory. This was before the Nazis rose to power in Germany and unleashed their hatred on the world. After the Second World War, that approach had no chance of survival. Victors and victims wanted a new social science, even though some of the most important evolutionary economists at the time, such as Thorstein Veblen, were Americans. We abandoned not only evolutionary theory, but also the historical method. If it was a reliable method (the thinking went), how could all this have happened? If we cannot learn from history, then history should not play such an important role in the future study of economics. These reactions were understandable, but they were irrational and immature.

When economics developed as an independent discipline it defined itself as the study of scarce resources - not seen from a collective perspective, but from the narrower perspective of the individual, in accordance with individualist philosophy as developed in the latter part of the twentieth century. The assumption was again wrong when taken to the extreme: that what is best for the individual is best for society too. For some, this assumption had the added virtue of conforming with the value system inherited from the Reformation, under which Christianity centred on the relationship between the individual and God. The assumption was that free, individual choice would lead to a competitive advantage for all organizations, even nations. When we observe the rise of China today, especially in the light of the current economic crisis, it seems clear that this assumption must be questioned. The competitive advantage of the Western world is no longer self-evident. Instead we must reinterpret how we compete with other nations.

The irrelevance of much current social science research has been exacerbated by the degree of specialization found nowadays in empirical papers in the scholarly journals. What we call "theory" in the study of economics today is all too often a long listing of empirical studies which only seldom apply directly to the problem at hand, and from which we tend to draw unduly broad conclusions. And when we avoid doing that, when we express ourselves more cautiously, we seem to say hardly anything of value at all - as you will often find if you watch economic experts interviewed on television. Their comments seem to consist mainly of jargon, common-sense truisms, and rhetorical tricks, largely aimed at reassuring shareholders and stakeholders. This has become a dilemma for development of a critical approach to economics and management, which by many critics are seen primarily as a kind of sophism. The rhetoric defends a system, a way of life, our existing institutions. A good example has been the reassuring discourses offered by European leaders about the current economic situation in Europe. Faced with this problem, the tradition of critical theory has taken on new relevance as the only established approach for criticizing modern social-science theory.

The problem with much existing criticism of neoclassical economics is that it stops too soon. It has been normal enough for a long while now to accept the less controversial kinds of criticism leveled in recent decades against standard economic theory, such as protests against the assumptions of rational choice theory; many people agree with those who say that collective decisions are often made with only weak elements of rationality. Much of this has become common sense, but it does not get us to the real paradigm shift that is needed in the discipline of economics.

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