It can of course be argued that concerns around global debt levels are really nothing new, and have generally always been forced back onto the sidelines, with Italy standing out as a perennial ‘offender’ in this regard. Despite often shrill warnings about it hurtling towards a default, above all during the Eurozone debt crisis, these ultimately receded without a full blown default. Thus, for many in financial markets, the temptation to suggest that those warning about a pending global debt crisis are ‘crying wolf’ will be substantial, given that worst case scenarios have not crystallized in the developed world, even though many in Greece would beg to differ. But is this perhaps a moment to revisit Hirschman’s ‘hiding hand’, especially given the seemingly relentless increase in political polarization, which is antithetical both to debate, and to reaching a compromise on any given issue, above all in a crisis.
Developmental economist Albert Hirschman articulated the principle of the “Hiding Hand”, as a counter to the hegemony of neo-classical economics’ adherence to Adam Smith’s “Invisible Hand” - the principle that “the general welfare is best served by everyone catering to his private interests, legitimated total absorption of the citizens in their own affairs”. Hirschman challenged the latter’s over simplification of human behaviour into a set of axioms steeped in ‘laissez-faire’ and ‘rational choice’ dogma. In quite sharp contrast to Schumpeter’s concept of ‘creative destruction’ (which is the underlying principle behind tech sector ‘disruption) , Hirschman’s ‘Hiding Hand’ argues that creativity is the key problem solving tool when we face unexpected situations; and that it is only via the experience of impotence when faced with the unexpected that we
develop the innovative knowledge to solve problems, and that ‘rational choice’ often stifles innovation and creativity. That was all too clearly evident during the Covid-19 pandemic, specifically in the race to find a vaccine, and is in truth always on display in the global commodity trade’s remarkable ability to overcome the many slings and arrows that are thrown at it, year in and year out.
As financial market participants continue to fret about the lack of visibility on the outlook for the global economy, above all the threats of ‘secular stagnation’ in many developed economies, or a sharp and protracted slowdown in China, policymakers (the world over) might be well advised to revisit some of Hirschman’s ideas; above all his work in developmental economics. Hirschman stressed the need to understand local structures and resources prior to any intervention, and to eschew formulaic World Bank criteria, assumptions and models. He also emphasized the need for ‘latitude’ in planning and directing projects, on the basis that rigid project structures and procedures stifle managers’ creativity and indeed their confidence, and more than likely lead to the exclusion of solutions and products, which may perhaps be ‘no less desirable, and far more feasible, than some other’ (Hirschman, ‘Latitudes and Disciplines’ 1967). He also noted that prescribed assumptions about how and when
FOR MANY IN FINANCIAL MARKETS, THE TEMPTATION TO SUGGEST THAT THOSE WARNING ABOUT A PENDING GLOBAL DEBT CRISIS ARE ‘CRYING WOLF’ WILL BE SUBSTANTIAL...
26 | ADMISI - The Ghost In The Machine | Q4 Edition 2024
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