Challenges for the economists of South East Asia

Economics as a profession faces a host of challenges today. There was a time when most other social sciences bore grudge against economics. Economics had well-defined methodology, disciplinary boundaries, succeeded admirably to put together the post-war world economy, and, above all, delivered higher income and better life for all for a long time.  
Economics applied its assumptions about human nature and methodology to analyse most - if not all - the aspects of human life, for example, family, reproductive behaviour, politics, crimes, manumission, and so on. And it did commendably.
Rationality as an attribute of human beings - and the capacity for progress through use of rationality - is embedded in Enlightenment philosophy. If rationality is given up as the determining motivation of human conduct, it becomes difficult to explain human behaviour in a consistent manner. For coherence, social science or any science of human behaviour for that matter needs rationality as an axiom.   
Other disciplines also picked up its methodology and sometimes its assumptions - to establish their conclusions, or to question or modify those assumptions and methodology. They were recognised for their success to whichever end the use was made.
Herbert Simon substituted satisfying for maximising or optimising behaviour. Daniel Kahneman's challenge is more radical. An experimental psychologist, he showed how bias influences human behaviour, distorting rational calculation. In James Buchanan, rational utility diminishes into egotistic selfishness.
Mancur Olson gives utilitarian selfishness a collective twist. It is easier to organise collective action by and for a small group because the benefits and the beneficiaries are easy to identify; collective action is difficult - if not impossible - when the benefit and the beneficiary group are large and diffuse.
He explains the decline and fall of great economies by the behaviour of the distributive coalition which is more interested in gaining a larger share of the social product or wealth than fair share for all or making the social product larger.  Faith in social justice and fairness is necessary to hold the society together.
Distributive coalition at the global level explains why trade liberalisation is so difficult and took so long via GATT to WTO - and WTO does not have a smooth walk. National economies gain from liberalisation. The timing and the magnitude of gain would vary, of course, because liberalisation will come in incremental phases. The early and relatively large winners are not ready to compensate the losers during transition. While some nations bargain to retain their current advantage, others lack patience and confidence in the uncertainty of the zigzag path.   
The sceptic views can be explained in terms of limited information and limited premises of judgment. There is the Jones's effect: 'I want that which I see my neighbours have and do'. The frontier of expectation - also satisfaction - expands with expansion of production frontier and frontier of knowledge. That is an economic solution to the constraints.
THREE MAJOR FACTORS: More significantly, it seems those views can be attributed to three major factors.
First, divorce of the craft of economics from its moral philosophic and social roots. The rational human was a methodological assumption, not intended to displace the moral roots. Amartya Sen points out that Adam Smith mentions 'the invisible hand' only a few times in his Theory of Moral Sentiments; and, if I am not making a mistake, it does not occur in The Wealth of Nations. Smith wrote also on jurisprudence. Adam Smith was a professor of moral philosophy; economics was not yet a distinct academic discipline.  
Second, highly mathematical treatment of economics, making it an abstract science. Mathematics gives precision and pedagogic convenience but uses axioms, which produce consistent models or systems but leave out many idiosyncrasies of human behaviour, social organisation and culture. There are many top-class economists who declined to join the council of economic adviser to US President - e.g. Klein, and Debreu. Their plea they did not know applied economics. Klein built large econometric models, though.  
That brings me to the third factor. Economics excels for its capacity to provide precisely formulated policy advice based on analysis which is capable of predicting outcome and verifying the result. It shuts the door - or at least closes the aperture - for individual idiosyncrasies to enter the arena of public policies.
In doing so, economists translate complex analyses and policy suggestions into popular language. People not familiar with the analytic technique and the vocabulary of the discipline stretch the popularity to naiveté. The inevitable result is distortions in thought, speech and policy.
THE ROLE OF THE MEDIA: The media have an important role in conveying to the people the serious message of policy. But they are also helpless: they have to say things which the readers wait avidly to consume - and, in the first place, the avidity might have been produced by the media themselves. The result is greater amplitude of competitive distortions.
In late seventeenth century, Walter Bagehot felt that parliamentary debate kept some technicality which was a better source of information than the newspapers (of those days). Bagehot was not a politician or a professional pundit. He was a small-town journalist, share market jobber or broker, banker, and finally editor of The Economist.
Two hundred years since Bagehot, in late 1990's, Robert Schiller did not feel confident about the reports or debates among experts on share market in the media. They tend to wind up the bubble when it is growing and offer myriad explanations after the bubble has burst. The media do not provide reliable information on share market. Schiller is the leading expert on share market and housing market in USA.  
That indicates the challenges that economists face today, exacerbated since the current downturn. 'How did we get it so wrong' - is a confessional statement from well-placed economists.   
INTEGRATION OF SOUTH ASIA: On the issue of integration of South Asia, a couple of comments based on my experience:
The Prime Ministers of Bangladesh and India issued a Joint Communiqué in January 2010, expressing the intention for cooperation between the two countries and also its extension to Bhutan and Nepal. The Framework Agreement for Cooperation for Development, signed in August 2011, laid down the legal groundwork for durable cooperation. Geography determined the region for cooperation, not politics or diplomacy. In fact, by signing the documents the Prime Ministers went beyond diplomacy and politics dominated by convention and mistrust.  
It was the result of the visions of the two prime ministers - and for the Prime Minister of Bangladesh, an act of courage given the communalism and militant fundamentalism which had been nurtured since August 1975. In fact communalism had been re-invented to pre-1971 political psyche and invigorated by imported fundamentalism accompanied by convoluted violence.
The critique from the erstwhile left, which joined with communalism while wearing an ultra-nationalist mantle, shows further convolution which is inexplicable. Ultra-nationalism fed on communalism as a parasite on the host plant. The old radical's reaction is reflexive, obsolete perhaps. Obsolescence joined together communalism, ultra-nationalism and reflexive radicalism.
The cooperation is yet to pick up full steam, however. There are infrastructural bottlenecks and regulatory issues. The agenda now entail resolution of technical investment and regulatory issues. Sub-regional cooperation needs a distinct integrated strategic focus; disparate departmental approach cannot fathom its depth and breadth.
To make it clear: cooperation needs to be planned as integrated unitary strategy while the technical tasks will be executed by the organisations which have the technical competence. It needs skill to build up the complex organisation, and substantial change of behaviour of the persons involved. The conventional departmentalisation may not deliver the promise.   
That suggests how the economists can respond to the challenges generally and with respect to South Asia.
First, re-establish close relationship between rational human behaviour and moral philosophy and the social system, i.e. structural features of the society. The economic policies work through human responses which are influenced by the social structure and culture. A deterministic view is defeatist and historically false.
Second, while it is important to speak in the language intelligible to the policy makers and the people, the economists should not shy away from disclosing that their advice is informed by rigorous analysis. Knowledge has a persuasive force of its own.
Third, they should propagate their analysis forcefully against popular prejudice and ignorance. Vendors of prejudice and uninformed opinions dispense bad coins.  
Finally, they may use the network [South Asia Network of Economic Research Institutes (SANEI)] to promote the idea of beneficial regional cooperation. The knowledge network represents a region which has resources for high growth but remains strapped in poverty by adversarial relationship and mutual suspicion at the state level.  
Lord Keynes had observed that economists need to be philosophers, historians, statesmen - all rolled into one. That is a tall order even for Keynes himself. At Bretton Woods, he was the most important contributor - intellectually. The negotiated document that emerged did not bear his stamp as prominently as it was expected.
There are fingerprints of another person: Harry Dexter White, Assistant Secretary in US State Department. He carried the day because USA alone had resources enough to bid for the Bretton Woods Sisters.  We do not hear about him except in the context of the tortuous history of the Bretton Woods.
The Bretton Woods institutions were in accord with the particular hegemonic world order that had emerged after the war. The hegemonic power also assumed the new responsibility - in fact, there was none other which could. That order is now in disarray. There are fragmented initiatives for new blocks and institutions in a relatively flat world.   
The forces that bore down on the hegemonic power have not gone away. Those forces originated in the domestic sphere and ironically within the hegemonic structure. The world has to wait to see how the broken pieces are picked up and put together in the flat world. The central problem is still there - namely global payments instrument issued by and not subject to the vagaries of any national economy.  
Without truly international payments instruments, the blocks will be less than optimal.      
The writer is Economic Adviser to Prime Minister. This is an edited and moderately expanded version of the address he delivered as Special Guest at the South Asia Network of Economic Research Institutes (SANEI)  conference in Dhaka on August 30, 2014. tkc51@yahoo.com