Theoretical development

John Nevile’s approach to economics and how he developed it provide fine role models. While he is not what would now be regarded as an orthodox economist, he was for much of his career a highly respected and prominent member of the Australian economics profession – a leading macroeconomist. His work was mainstream Keynesian with a few twists, and he can be seen as Australia’s first empirical Keynesian in the sense that his judgments were explicitly guided by a macroeconometric model of the economy. He was very much in the thick of the battle against Monetarism. Later, as money and finance and rational expectations and neo classical ideas penetrated the mainstream, he became less and less enamoured of modern macroeconomics (as were others like Solow) and focused his attention on broader societal issues.

Not all strands of John’s analysis evolved simultaneously (though he would rightly stress the importance of the process of mutual determination; see Reference Kriesler, Nevile, Arestis, Desai and DowKriesler and Nevile, 2002). Rather, his intellectual progress has been sequential and recursive. His earliest graduate work gave him a firm grip on the general nature and details of the dynamics of modern advanced economies. Few economists understand Reference HarrodRoy Harrod’s (1939, Reference Harrod1948) seminal and now classic contributions more deeply and thoroughly than John Nevile. Over the years, he has continued to write on Harrod and Harrod-like issues, as indicated by his most recent article in the Cambridge Journal of Economics (Reference Nevile and KrieslerNevile and Kriesler, 2011).

With this background, John used his comparative advantage as an outstanding applied economist and econometrician to provide the first econometric model of the workings of the Australian economy (Reference NevileNevile, 1962). ^{Footnote 2} He went on to tackle many issues, especially those associated with the impact of fiscal measures and with their optimum coordination in an Australian setting. ^{Footnote 3} His modelling exercises always served the purpose of devising practical and humane policies that could bring about and sustain full employment, tackle inflationary pressures, sustain growth and be combined with measures aimed at achieving distributions of income and wealth, which would not have occurred unaided from the workings of the Australian economy, even had these other economic goals been attained.

Thus, John Nevile is known for his combining of policy objectives with a close examination of ways to achieve and protect human rights. Many of his most important articles are concerned with the workings of labour markets and policies to make them work better for individuals and in aggregate. He recognised early on that sustained full employment could only come about if combined with permanent incomes policies reflecting the history, sociology and institutions of each society. Thus, he was a great supporter of the Commonwealth Conciliation and Arbitration Commission (now Fair Work Australia) and the centralised incomes policies associated with it, especially in the early years of the Australian Prices and Incomes Accord – an agreement between the Labor Government and the peak union movement during the 1980s whereby wage moderation was compensated by ‘social wage’ measures such as guaranteed superannuation access. The deliberate dismantling of central labour relations institutions and policies since the mid-1990s has not met with John’s approval.

Ethical underpinning of Nevilian economics

Early in his career, John abandoned the false claim that the economist’s trade is a value-free objective social science – a canard that is still taught to most undergraduates and accepted by the well-trained, technically able, but uncritical cogs of capitalism which modern graduate schools tend to produce. John argues that because ‘economic actions, institutions and policies affect people’ they have an ethical dimension (Reference Hawtrey and NevileHawtrey and Nevile, 1986: 1). He profoundly regrets that the ethical foundations of economics, described by Adam Smith, for example, in The Theory of Moral Sentiments, are now tacitly embedded and at best implicit in economic analysis, rather than being made explicit. He emphasises, with Max Weber, that entrepreneurs will not retain the confidence of their customers and employees unless they have ‘highly developed ethical qualities’ (Reference Hawtrey and NevileHawtrey and Nevile, 1986: 2).

A clear expression of ethical values was his 1998 critique of the nature of so-called ‘economic rationalism’, as ‘social philosophy masquerading as economic science’ (Reference Nevile, Smyth and CassNevile, 1998: 170). He claimed that worldwide there had been ‘a deliberate political campaign to change the prevailing political ideology to that held by the economic rationalists’ (p. 170). He argued that ‘one of [economic rationalists’] many tricks is to present their policy recommendations as no more than the logical consequences of orthodox economics’ despite the dependence of these policies more on ‘values than on the theorems of economics [perhaps, in their case, lemmas]’. He emphasised that the principal change resulting from the implementation of economic rationalist policies had been the displacement of full employment as a goal of public policy and the elevation in its place of inflation control as the pre-eminent goal – a reversal of ideological priorities (p. 170).

The fact that controlling inflation should oust the goal of full employment reflects both odious human values and perhaps also the possibly unconscious realisation that capitalism needs unemployment if it is to continue to ‘work’, to survive. Why? The argument is that it will not work unless unemployment is maintained at levels which make the ‘sack’ an effective weapon with which to control the working class. Kalecki’s argument about the need for unemployment in a capitalist society is one answer which is well known and which is accepted by John, who also accepts that there are always basic contradictions present in capitalism. He emphasises an underlying structural flaw in modern capitalism, namely, that when the very well off engage in personal gratification, or conspicuous consumption, and their increases in income are highlighted by the media, this harms the work ethic on which capitalism depends.

For those who support John Nevile’s strong commitment to the idea that economics is not value free, the question arises of how to determine appropriate values and ethics that might underlie economics. Economics started as part of Moral Philosophy, and it is important that its moral aspect not be forgotten. Economic analysis informs important policy decisions, which influence the lives of most of the population. This, as already argued, is why John saw ethical judgments, explicit or implicit, as unavoidably lying at the heart of economic analysis.

The attempt to divorce economic analysis from its ethical impacts has been formalised in mainstream economics in the normative versus positivist science debate. John’s rejection of the idea, taught by ‘most economic departments that positive economics is value free’ (Reference Nevile, Smyth and CassNevile, 1998: 175) is based on the argument that

The basic ethical judgement in economics is the Pareto one. However, we know that this is extremely problematic. Pareto efficiency implies the power of veto of any policy by any one member of society. Reference SenSen (1970), in particular, has been extremely critical of Pareto optimality, arguing that ‘a society or economy can be Pareto optimal and still be perfectly disgusting’ (p. 22). In addition, Sen has argued that the Pareto optimality criterion clashes with the basic concepts of liberalism. The fundamental problem with the Pareto criterion is that almost any imaginable change, no matter how much it improves the welfare of the general population, is likely to make at least one person worse off. As a result, the change will not satisfy the Pareto criterion.

The alternative to the Pareto criterion is the use of interpersonal utility comparisons, but these have remained theoretically problematic despite the best efforts of neoclassical theory. ^{Footnote 4} Thus, the Pareto criterion, despite its flaws, remains the tacit policy guide to ‘value-free’ economists. John saw the impotence of this criterion as lying in the reality that all policy has winners and losers:

Some economists have suggested that if winners could compensate losers, then it would be acceptable to implement the policy. There was much debate in the 1930s and 1940s about the Compensation Principle, as it was called, and it clearly provides the rational for cost/benefit analysis (for an overview of the Compensation Principle and this debate, see Reference Chipman, Eatwell, Milgate and NewmanChipman, 1987). Clearly, if winners actually did compensate losers, then the policy would lead to a Pareto improvement. Much economic policy has been predicated on these principles. However, according to John, whether winners actually compensate losers is a political and a moral issue, and economists opt out and forget to tell people (Reference NevileNevile, 1994, Reference Nevile, Smyth and Cass1998).

With characteristic balance, John acknowledges that the so-called ‘economic rationalists’ have made a contribution to Australia by turning it from ‘an inward looking country emphasising protection to an export oriented country’ (Reference NevileNevile, 1994: 42). But he goes on to emphasise ‘that the great bias of economic rationalists against acknowledging market failure leads to flawed policy advice’ and to note the

An alternative to the utility approach, which some economists have advocated as a good foundation for ethical economic analysis, is Rawls’ analysis of justice as fairness. Rawls derives his analysis of fairness from what he calls the ‘original position’ where all citizens of a society get together under a veil of ignorance as to their actual social, racial, gender or economic position, in a society whose political, social and economic parameters are unknown. These citizens then agree to the basic principles of justice, which will be incorporated into their actual society. From this analysis emerges a ‘difference principle’, which is the cornerstone of Rawls’ ethical criteria and requires any change to be in the interest of the ‘worse off in society’. Included in this is the idea that it is acceptable for inequality to increase, as long as the worse off are in a better absolute position.

Given that one of John Nevile’s main interests is in employment and work, a more telling criticism of Rawls is that his analysis focuses on distribution and exchange, with agents not caring about how things are produced or about labour processes, only how final commodities are distributed. As a result, it ignores production and, in particular, the work process. In addition, it disregards important questions relating to the ownership of the means of production such as those concerned with issues of class and power in society. This means that it would be very difficult to use Rawlsian analysis to meaningfully discuss the right to full employment or the right to a decent job, both of which feature prominently in John’s writings.

In his 1979 book The Root of All Evil, John had the foresight to advocate the introduction of a prices and incomes policy as a way of directly addressing the underlying cause of inflation – the competition for income. He recognised that this would require union and corporate restraint but argued that this might be acceptable if it was demonstrated that it would prevent most of the costs of anti-inflationary measures being born by those forced into unemployment. In his ethical evaluation of the Accord when it subsequently became operational after 1983, he argued that access to work is essential to self-fulfilment and in order to enable men and women to serve one another and to help the needy. Furthermore,

Yet that is exactly what happens when contractionary fiscal and monetary policies are used to constrain economic activity so as to reduce the rate of inflation. ‘The Bible is very scathing about those who secure their own economic well-being at the expense of others’ (Reference Hawtrey and NevileHawtrey and Nevile, 1986: 20). In contrast, the Accord attempted through a cooperative framework of voluntary wage restraints to provide a basis for expansion of the social wage, which would lead to simultaneous reduction of unemployment and inflation. This worked for about 6 years from 1983 to 1989 during which time unemployment fell from over 10% to under 6% and inflation also steadily declined. John saw the Accord as promoting cooperation rather than confrontation, which was also of value from a Christian ethical standpoint. He saw the Accord as ‘an attempt to break the yoke of unemployment imposed through tight monetary and fiscal policy’ and quoted Isaiah 58: 6 as one of many supportive biblical passages:

John also supported the Accord because he saw it as enabling the economy to run at a higher level of economic activity and at an agreeable rate of growth. He argued that this economic progress was vital if the needs of the vulnerable are to be adequately met, which he saw as the main purpose of wealth creation. There was a lovely example of John’s integration of the biblical emphasis on justice with his policy recommendations when, in an interview on his retirement, he was asked if he still believed in a guaranteed minimum income for all. He replied that he did,

These values are entrenched in the Universal Declaration of Human Rights, and the International Covenant on Economic, Social and Cultural Rights. In essence, these provide the basic requirements for a decent life and something which we are all, as humans, entitled to.

According to the Universal Declaration of Human Rights – Article 23:

1. 1. Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.

2. 2. Everyone, without any discrimination, has the right to equal pay for equal work.

3. 3. Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity and supplemented, if necessary, by other means of social protection.

4. 4. Everyone has the right to form and to join trade unions for the protection of his interests. ^{Footnote 6}

The recognition of these fundamental rights underlies much of John Nevile’s work. In a series of articles for well over a decade, John has been examining the implications of policies and their consequences for the advancement of these rights. Importantly, he sees economic rights as nested in other individual and social rights, as a synergistic entity, rather than purely in their own terms.