"Efficiency": Whose Efficiency?

by **Celtiberian** Mon Nov 14, 2011 6:19 am

In the following article, Prof. Richard D. Wolff explains why attempts at calculating economic efficiency are ultimately pointless due to the problem of overdetermination.

"Efficiency": Whose Efficiency?
by Richard D. Wolff

I.

The concept of "efficiency" common to most contemporary economic theories holds that analysis can and should determine the net balance between positive and negative effects of any economic act, event, or institution. Sometimes, in practical economic applications, this same notion of efficiency refers to "cost-benefit" analysis. A quantitative measure of all the positive and negative effects of an economic act, event, or institution is undertaken to determine whether, on balance, the positives (benefits added up) outweigh the negatives (costs added up). If so, it is judged to be "efficient" and should be undertaken; if not, the reverse holds.

Such a definition and use of the term "efficiency" prevails at both the micro and macro levels of social and economic analysis. The building of a factory extension may or may not be micro-efficient. An interest rate increase may or may not be macro-efficient. At the level of society as a whole, the institution of a "free market" may or may not be efficient. This same efficiency concept serves in comparative economics. Two or more alternative acts, events or institutions are compared as to their efficiencies. Then, the one that has the greatest quantitative net balance of positive over negative aspects is designated the "more/most efficient."

II.

Such a concept of efficiency requires and presupposes, in all its usages, a rigidly and simplistically determinist view of the world. That is, it presumes that analysis can and does regularly (1) identify all the effects of an economic act, event, or institution, and (2) measure the positivity/negativity of each effect. In sharp contrast, an overdeterminist view of the world renders that concept of efficiency absurd. In this view, any one act, event, or institution has an infinity of effects now and into the future. There is no way to identify, let alone to measure, all these consequences. No efficiency measure—in any comprehensive, total, or absolute sense—is possible. Thus, none of the efficiency "results" ever announced, however fervently believed and relied upon for policy decisions, possessed any comprehensive, total, or absolute validity.

Overdeterminism undermines the efficiency calculus and the absolutist claims made in its name in yet another way. When considering the "effects" of any particular economic act, event, or institution, an overdeterminist standpoint presumes that each of such effects actually had an infinity of causative influences. The "effects" can thus never be conceived as resulting from only the one act, event, or institution chosen for the efficiency analysis. What efficiency analyses deem to be "effects" of a particular act, event, or institution are never reducible to being solely its effects. Hence, such "effects" cannot and do not measure the "efficiency" of any particular act, event, or institution. This too renders the usual efficiency calculus and the efficiency concept null and void.

III.

It follows logically that all efficiency analyses and results are relative, not absolute. They are relative to (dependent upon) a determinist view of the world, a determinist ontology that presumes unique causes and "their" effects. Efficiency as a comprehensive, total, and absolute concept-cum-policy standard has no validity in and for analysis that presumes an overdeterminist rather than a determinist ontology.

IV.

To say that all efficiency analyses are relative to a determinist ontology opens the way to a further critique of them. Given their notion of cause and effects, they all necessarily select a few among the many effects they attach to any particular act, event, or institution whose efficiency they choose to determine. No efficiency calculus could ever identify and measure all such effects. What distinguishes one efficiency analysis from another are the different principles of selectivity informing each. Usually, one principle of selectivity reigns hegemonic: one set of selected effects is deemed "important" and worth counting while others are marginalized or ignored altogether. These days, economics textbooks teach their readers which effects are to be considered in "applied economic analysis."

This has often provoked criticism. Feminist economists have shown how the hegemonic efficiency calculus has usually ignored the effects that pertain to women, households, reproduction, children, and so on. Likewise, environmentalist economists have shown how the hegemonic efficiency calculus has ignored ecological effects, and so on. All too rarely have such critical economists gone beyond the demand that formerly ignored effects be henceforth added to those selected for inclusion in the hegemonic efficiency calculus. That is, their critique of the hegemonic principle of selectivity has focused chiefly on getting their preferred effects included within the hegemonic set. The same applies to much Marxist work. It seeks to challenge the hegemonic efficiency calculus by showing especially how it ignores all sorts of class effects of economic acts, events, and institutions.

Yet all such critics could deepen and strengthen their arguments if they took the next step to challenge the hegemonic efficiency calculus per se on conceptual grounds. The relativism of all efficiency arguments and claims creates vulnerability for them and critical opportunity for those who challenge them. From an overdeterminist perspective, the economy is an object of struggle among historically conditioned social groups. As such groups emerge within the circumstances of their time and place, they develop particular understandings of their problems and devise different programs for their solution. In so doing, they inevitably concentrate on some problems rather than others (and the causes associated with them), conceive and decide among some solutions rather than others, attribute some (rather than others) effects to such solutions, and so on.

When formalized into "efficiency calculi," the different social groups perform them differently: they operate different principles of selectivity in identifying their problems and solutions, their causes and their effects.

These groups often clash. Struggles emerge that usually include conflicts over which principles of selectivity will govern the analysis of problems and solutions, which principles of selectivity will be hegemonic in their society and hence in their efficiency calculi. Each group tries to impose its particular principles of selectivity, its particular efficiency calculus, by transforming it into the absolute set of principles of selectivity for all efficiency calculi for all members of the society. In place of contending efficiency calculi there is to be one calculus to which all social conflict is to be subordinated: social conflict is to be resolved by determining what is the efficient policy or program to follow. Advancing their own particular efficiency calculus as if it were the absolute notion of efficiency is thus one form taken by the social struggle for hegemony among contending groups. In today’s world, the hegemony of social groups favoring capitalism is expressed and sustained by their heavily promoted presumption of an absolutist concept of efficiency and by policy decisions legitimated thereby. Not surprisingly, that absolute concept turns out to be their particular principle of selectivity.

V.

An overdeterminist critique of efficiency focuses on deconstructing the claim that any one efficiency calculus—one subset of the countless effects attributed to any act, event, or institution—has some absolute or socially neutral validity. There is no single standard of efficiency. Society always displays different, alternative understandings of and solutions for society’s problems. Different social groups struggle for their alternative social programs utilizing an arsenal of weapons that includes, for many, their respective efficiency calculi. When and where an absolute efficiency calculus is believed to exist, there one particular efficiency calculus and one particular group (or set of groups) has established its hegemony over others. Success in the struggle by those others to undo that hegemony requires undermining its absolutism as a key component of that struggle. An absolutized efficiency calculus will be used by the social groups that support it as a weapon to suppress contending social groups, their social analyses, and their programs for social change.

by Red Aegis Sat Jul 21, 2012 6:00 pm

While this is not completely about efficiency, it does contain a discussion on efficiency. One thing that annoys me in this discussion is that they, both Wolff and Fraad, pretend that co-operatives are not capitalistic in nature. They are an improvement compared to the regular corporate structure but they are still capitalist.

http://rdwolff.com/content/precarious-jobs-economics-and-psychology-insecure-work-podcast

by **Celtiberian** Sat Jul 21, 2012 11:50 pm

Red Aegis wrote:both Wolff and Fraad, pretend that co-operatives are not capitalistic in nature. They are an improvement compared to the regular corporate structure but they are still capitalist.

I disagree. I described the manner by which they differ elsewhere, but, to repeat: worker cooperatives aren't inherently capitalistic, as they don't practice the capitalist fundamental class process, i.e., the bourgeois appropriation of surplus value and/or the expropriation of surplus labor from the working class. Though labor-managed firms must operate in competitive market environments—and competing with multinational corporations often compels them to emulate some harmful capitalist business practices (e.g., managerial hegemony)—the market isn't capitalism's defining characteristic; markets long antecede capitalism. What renders capitalism a historically unique mode of production is the exploitation of wage labor. As Karl Marx explained,

"Property in money, means of subsistence, machines, and other means of production, does not as yet stamp a man as a capitalist if the essential complement to these things is missing: the wage-labourer, the other man, who is compelled to sell himself of his own free will . . . Capital is not a thing, but a social relation between persons which is mediated by things."
Marx, Karl. Das Kapital Vol. I, p. 932.

The market socialist theorist David Schweickart (whom I disagree with on a number of critical issues) expounded upon this quite well when he wrote,

"The identification of capitalism with the market is a pernicious error of both conservative defenders of laissez-faire [capitalism] and most left opponents . . . If one looks at the works of the major apologists for capitalism . . . one finds the focus of the apology always on the virtues of the market and on the vices of central planning. Rhetorically this is an effective strategy, for it is much easier to defend the market than to defend the other two defining institutions of capitalism. Proponents of capitalism know well that it is better to keep attention toward the market and away from wage labour or private ownership of the means of production."
Schweickart, David. Market Socialism: The Debate Among Socialists, p. 11.

by Red Aegis Sun Jul 22, 2012 12:22 am

I concede that co-ops in which there are only employee-owners are not capitalist enterprises. They are not socialist though, as far as what I have come to know the definition of it as. While Professor Wolff and his colleague did not specifically say that co-ops were socialistic it seemed to be implied but I may have been wrong.

by **Rev Scare** Sun Jul 22, 2012 1:41 am

It depends upon one's definition of "socialism." It is a diverse concept with a heterogeneous history. If workers self-manage and appropriate the surplus they create, as they do in cooperatives, I would argue that this does indeed meet the criteria of a form of socialism, as the fundamental class process of capitalism is eliminated and workers directly own the means of production. The market, existing as a mechanism of allocation and distribution, is not exclusive to capitalism. Mutualism, for example, is an early theory of market oriented socialism.

Basically, we view market socialism as a viable transitional stage toward a planned economy. Unfortunately, there is a minority of delusional idealists, let us call them "free access communists," who reject any models that do not strictly conform to their fanciful interpretation of the slogan "from each according to his ability, to each according to his need." One such group of eccentrics is the World Socialist Movement, who propound a very vague notion of "socialism" founded upon "free access." As Paul Cockshott aptly reasoned, however, such an interpretation of Marx is fallacious:

"What Marx was referring to here was something quite specific: that different workers have different needs. Some have families, some do not, some have more children than others. Thus even equal hourly pay rates would leave some families and individuals better off than others. 'To each according to need' in this context means that those with children should be paid more than those who are single. Those with specific disabilities which give rise to special needs should be compensated. These are now very familiar principles to us. They lie at the foundation of the welfare state with child benefits, family tax credits, disability living allowances, medical treatment on the basis of need, etc. What Marx was saying is that as society becomes richer it will be able to afford a much more comprehensive and generous welfare provision. And who can now doubt that he is right? Rich France can certainly provide a welfare state that would be totally infeasible in poor Côte d'Ivoire."
Letter to the Editors of the Weekly Worker, p. 9.

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