Dr Mark Cloney, Professor of Practice, Economics
By Mark Cloney
Mark Cloney is a Professor of Practice at La Trobe Business School. In the following piece, POP Mark Cloney observes that economic theory has been a bit slower than other sciences to catch up to the changing nature of knowledge and the dynamics of the knowledge-based global economy [1]
He argues in the following entry that this has implications doe the discipline in terms of its capacity to engage with contemporary economic challenges, and also raise questions about the teaching of economics.
Capitalism has variously been described as an economic system with private or corporate ownership of capital goods; where investments are determined by rational decision makers and supply and demand; and production and the distribution of goods determined mainly by competition in a free market. These microeconomic foundations stem from neoclassical economics through the writings of economists such as Marshall [2].
Marshall’s Principles of Economics (1890) formalised the move from labour to utility as the source of value: a commodity’s value came from its utility to consumers through the forces of the market (i.e. supply and demand) [3]. Accordingly, in the marketplace people are rational and utility maximisers characterised as households, consumers or economic agents. These concepts were formalised in pure mathematical form in the general equilibrium model by Arrow and Debrea (1954) based on Walras’s earlier theory of equilibrium [4].
This general equilibrium model has formed the basis for economic thinking in most Western economies and university teaching of economics for the last 60 years or so.
So microeconomics analyses, the market behaviour of individual consumers and firms, is an attempt to understand the decision-making process concerned with the factors that influence the choices made by buyers and sellers, price, and supply and demand in individual markets. And, this is what drives innovation, economic development and firm behaviour in a globalised knowledge–based economy – or is it?
One of the problems with this perspective is that factors such as investment in research and development (R&D) or where actual research is conducted matters very little [5]. The traditional neoclassical view of knowledge as a public good is that it is available everywhere and to everybody simultaneously which implies that innovation flows in a frictionless manner from producers to a full set of intended and unintended beneficiaries, contributing to generate a long-term process of convergence across countries and regions (see Rodriguez-Pose 2008). [6]
But what happens if competitive advantage in a global knowledge-based economy is as much actually determined by local non-market factors including its institutions, networks and innovation ecosystems? Or, by the forces of ‘collaboration’ not ‘competition’, or maximising ‘social and shared value’ not profits for stakeholders but for the community within in which firms operate? Do these orthodox microeconomic foundations still hold up?
The emergence of the knowledge-based economy, where knowledge, learning and innovation are the new drivers of economic growth and competitiveness, is premised on a distinct shift in the mode of production from the traditional capital and labour divisions to knowledge generation and diffusion [7]. This understanding of the knowledge economy comes from evolutionary, neo-Schumpeterian and economic geography economic theories. [8] Complementing this work are studies into the entrepreneurial society and creativity where entrepreneur capital is a key driver for economic growth [9].
Internationally, innovation and regional development policy that focuses more explicitly on the ‘institutional’ and ‘locational’ dimensions of enterprise and socio economic development has emerged as a major policy tool to foster competitive advantage [10]. That is, there has been an increasing recognition by many that non-market factor influence competitiveness of firms just as supply and demand. So government policies have been designed to better coordinate collaboration structures in regions or local innovation ecosystems between government, education and the private sectors. Here local institutions including financial and legal support the supply side inputs and entrepreneurial activity that drives economic development and innovation [11].
These ideas support a range of alternative government policies targeted at small to medium business, industry clusters, business incubators and accelerators, strengthening institutional arrangements and networks, encouraging university/industry collaboration, local capacity building (including education, training and entrepreneur skills) and regional innovation ecosystems.
Consistent with these trends, Michael Porter and Mark Kramer (2011) [12] argue for the importance of creating shared value, which focuses on policies, collaboration and operation practice that enhances competiveness of a company while simultaneously advancing the economic and social conditions in the communities in which they operate. They cite firms such as Google, IBM, Intel, Jonson and Johnson, Nestle, Unilever and Wal-Mart as examples of companies that have embarked on shared value initiatives within the community’s where they operate. The notion of shared value changes the traditional emphasis on profit and price to a much broader definition.
Porter has suggested elsewhere that government policy, business and community processes (in other words institutional arrangements) are as important determinants of industry success as is ‘price’ [13].
The move to ‘shared value’ has seen the rise of B Corps which are for-profit companies certified by the non-profit B Lab to meet higher standards of social and environmental performance, accountability, and transparency. More than 1,400 Certified B Corps from 42 countries and over 120 industries are working together toward the goal: to redefine success in business [14]. B Corps meet high standards of verified social and environmental performance, public transparency, and legal accountability, and aspire to use the power of markets to solve broader social and environmental problems. In 2013 the United States introduced legislation to recognise this new type of corporate legal entity which has now been passed into law in 17 states [15]. Under this legislation companies must have a corporate purpose to create a material positive impact on society and the environment, director’s duties include consideration of non-financial stakeholders, besides shareholders, and it includes a reporting obligation on the social and environmental activities (verified through third parties).
Although in its relative infancy this movement is attempting to overcome market failures and treat as endogenous the negative externalities typically associated with the dynamics of neo-classical theory. This may or may not be a lasting trend, but what if it became the norm for firm behaviour and economic development in the knowledge-based economy?
What assumptions and economic theories can best capture these economic and policy trends and explain the broader social-political context shaping these ideas, firm behaviour and competitiveness? This is the real challenge for the next generation of economic theorists.
One of the major challenges for orthodox economics is that its theory is embedded in axioms that used to understand the world as largely stable and predictive, and which are now seen as unstable and largely unpredictable [16], as the Global Financial Crisis demonstrated in 2008.
Since the 1960s there has been profound advances in how other science disciplines understand and teach the systematic nature of botany, biology, physics, computer science, neuroscience, oceanography, and atmospheric sciences to name a few. As Liu and Hanauer (2016) [17] argue across these fields we have seen a set of conceptual shifts in understanding from: simple to complex; atomistic to networked; linear to non-linear; mechanistic to behavioural; efficient to effective; predictive to adaptive; independent to interdependent; individual ability to group diversity; rational calculator to irrational approximators; selfish to strong reciprocal; win-lose to win-win or lose-lose; and, competition to cooperation.
More contemporary economic theory such as complexity, evolutionary and behavioural economics [18] are incorporating these types of conceptual shifts and as such challenge orthodox economic theories. These contemporary approaches variously emphasise the actual motivations for firm and human behaviour, the importance of networks, ecosystems and endogenous processes, and the dynamics of constant innovation and disequilibrium as the basis for better understanding the empirical reality of the knowledge-based economy.
The remaining challenge is to design a new economic pedagogy (conceptual models and theories) to support the teaching of these alternative approaches and to incorporate them into undergraduate economic degrees.
Dr Mark Cloney
Professor of Practice – Economics
Department of Economics and Finance
La Trobe Business School
College of Arts, Social Sciences and Commerce | La Trobe University | Bundoora Victoria 3086
T: 03 9479 5621 |M: 0428173880 |
E: M.Cloney@latrobe.edu.au
[1] See Ngai-Ling Sum and Bob Jessop (2013) Competitiveness, The Knowledge-based economy and Higher Education, Journal of the Knowledge Based Economy, Vol.4 pp 24-44.
[2] See E.K. Hunt. (1979), History of Economic Thought; A Critical Perspective, Wadsworth Publishing
[3] Ibid
[4] John, Peters, John Elliott and Stephen Gullenberg (2002), Economic Transition as a Crisis of Vision: Classical versus Neo-classical Theories of General Equilibrium, Eastern Economic Journal, Vol.28, No.2, Spring 2002.
[5] Andre’s Rodriguez-Pose and Richard Crescenzi (2008), Research and Development, Spillovers, Innovation Systems, and the Genesis of Regional Growth in Europe, Regional Studies, Vol 42.1, pp51-63, February.
[6] Ibid.
[7] Mark James Cloney. (2003), Regional Development in Australia: Rethinking the Basis for Regional Policy, PhD Economics, University of Sydney & Maskell, P. and Malmberg, A. (1999), Localised learning and industrial competitiveness, Cambridge Journal of Economics, 23 (2):167- 185.
[8] Ibid.
[9] David. B. Audrestsch (2009), The entrepreneurial society’, The Journal of Technology Transfer, Vol. 34, Issue 3, June, pp. 245-254
[10] Giordano, B. (2001) Institutional Thickness: political sub-culture and the resurgence of regionalism in Italy a case study of Northern League in the province of Varese, Transactions of the Institute of British Geography, 26 (1): 25-41.
[11] Ngai-Ling Sum and Bob Jessop (2013), p. 32.
[12] Michael E. Porter and Mark R. Kramer (2011) The Big Idea: Creating Shared Value, Rethinking Capitalism, Harvard Business Review, Jan- Feb – https://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/pr
[13] See Michael Porter (1990) The Competitive Advantage of Nations, McMillian Press, Hong Kong.
[14] http://www.bcorporation.net/what-are-b-corps
[15] Gove, Andrea; Berg, Gary A. (2014), Social Business: Theory Practice, and Critical Perspectives, Springer-Verlag Berlin and Heidelberg GmbH & Co.p165.
[16] Eric Liu and Nick Hanauer (2016), Traditional Economics Failed. Here’s the New Blueprint’, http://evonomics.com/traditional-economics-failed-heres-a-new-blueprint/
[17] Ibid
[18] Amna Silim (2016), What is New Economic Thinking? Three strands of heterodox economics that are leading the way, https://evonomics.com/new-economic-thinking/
LBS Researchers attend the International Conference on Responsible Marketing at XLRI
1st row L –R: Marthin Nanere, Tata L. Raghuram, P. Venugopal, Timothy Marjoribanks, Clare D’ Souza, (Ms), Sanjeev Varshney, Supriti Mishra, Vinay Kanetkar
2nd row L – R: Shubhangi Salokhe, Suchita Jha, Sasmita Dash, Ms. Anne Renee Brouwer, Mr Anabel Benjamin Bara, ShabbirHusain R.V., Bharti Varshney,
3rd row L – R: Aniruddha Chatterjee, Shaunak Roy, Peter Mathies, Ashok Prasad, Jubin Jacob John, Pranay Kumar Singh, Arvind Selvaraj, Pratyush Ranjan
XLRI- Xavier School of Management (Jamshedpur – India) in collaboration with La Trobe Business School, organised the ‘International Conference on Responsible Marketing’ on January 23-24, 2017. XLRI is also a PRME (Principles for Responsible Management Education) signatory and in 2015-16 was ranked 4th among the prestigious 91 business schools in India. The Chairs of this conference were Prof. Pingali Venugopal, and Prof. Sanjeev Varshney from XLRI. It was co-chaired by staff from the La Trobe Business School, Associate Professor Clare D’Souza, Professor Timothy Marjoribanks and Associate Professor Suzanne Young.
The conference invited researchers and practitioners to share their understanding on Responsible Marketing and provided a forum to engage in ideas, new directions and create innovative practices that impact responsible marketing. Discussions evolved around the theoretical underpinnings of the multi-dimensional nature of sustainability, responsible marketing, ethical issues, knowledge and behaviour towards sustainable consumption.
The 56 papers presented at the conference came from different business schools in India, Australia, USA, Canada and Pakistan. It brought together a strong network of connections and provided a platform for researchers and practitioners to explore future strategies in the area. Indeed! it stirred up the ‘responsibility revolution’ for local businesses.
Fr. Abraham (SJ) gave the welcome address (centre). Mr. Anand Sen (second left) inaugurated the conference. There was some discussion around XLRI activities which was given by Prof. P Venugopal (second right).
Fr. Abraham (SJ) gave the welcome address. Mr. Anand Sen (President, TQM and Steel Business, Tata Steel) inaugurated the conference. In his address, Mr. Anand Sen highlighted the need to advocate responsible consumption and decrease wastage. There was some discussion around XLRI activities which was given by Prof. P Venugopal.
The key note addresses were given by Fr. Oswald Mascarenhas, S.J. (JRD Tata Chair Professor of Business Ethics at XLRI), who addressed the topic of “Responsible Marketing in a Turbulent market” and Mr. B. Hariharan (Vice President, ITC Hotels) who described how ITC is “Designing & Marketing Responsible Luxury”.
Professor Timothy Marjoribanks (Associate Head of La Trobe Business School) keynote speech addressed the conference theme, as well as the profound role and reflection of LTU’s business school activities. He captured the essence of PRME, a core tenet of sustainability and highlighted LTU’s position of strength by being the first PRME signatory in Australia. His address was infused with a sense of optimism for responsible marketing. He emphasized that such opportunities for dialogue, research and collaboration with XLRI make important contributions to our common endeavor of fostering partnerships and attaining goodwill. Furthermore, cross country collaboration results in a vortex of ideas and outcomes that is highly significant.
LBS PhD students, Mr. Peter Matheis (left), Ms. Anne Brouwer (center) and Mr. Jubin Jacob John (right)
Three of our enterprising PhD students, Mr. Peter Matheis, Ms. Anne Brouwer and Mr. Jubin Jacob John presented their work at this conference. Peter’s work hinges around ethical consumption and sustainability, where he explores the mechanics of ethical behaviour of consumers and examines the complexities of the intention-behaviour gap. Anne’s paper on greenwashing and its influences on consumer decision making offered great practical insights on how to effectively identify greenwashing. Jubin’s work resonates on institutional pressures for responsible supply chain procurement. The scientific efforts in the supply chain procurement identifies ISO 14000 standards to induce greater systemic efficacy. They were interesting papers, addressing emerging new knowledge that pioneers in scholastic and research fields within this area can use some of these theoretical underpinnings to expand their work.
Dr Marthin Nanere
Is Green Marketing – a Myth, a Fallacy or Prophecy? Several authors have provided a critique of both theory and practice on green marketing. Dr Marthin Nanere from the Business School presented his discussion around green marketing and showed how eco-labels, can contribute to progress towards greater sustainability. Taking eco labels into account and integrating it with the principles of green marketing provide opportunities for gaining competitive advantage. His paper makes a meaningful contribution to the field of responsible marketing.
In addition to the conference, there was a two-day Faculty Development Program on Responsible Marketing to help faculty and doctoral students develop curriculum and cases for teaching Responsible Marketing. In the photograph below are the participants and members of the Faculty Development Program. The Faculty Development Program was conducted by faculty from XLRI and La Trobe University. Both days had highly stimulating sessions that concluded in awarding the best team a prize for their outlined curriculum.
The buzz surrounding the conference, the sessions featuring practitioners and how they approach responsible marketing, the academic debates on responsibility and ethics whetted the audience’s appetite. La Trobe staff and students were proud to be part of this amazing conference as engaged and valued members.