‘Becoming furious’ – The Hirschman cycle of growth, inequality and reform

Hirschman cycle

History doesn’t repeat itself, but it rhymes. This piece  explores what we can learn for today  from  the way in which Latin America’s surging optimism of the 1950s curdled by the 1970s into authoritarianism, conflict and despair. It does so by drawing on the insights of  the great scholar and interpreter of Latin American development,  Albert Hirschman. (A longer version, complete with detailed references and footnotes, available via this link, was presented at a recent conference on Hirschman’s legacy.)

The ‘cycle’ of development change laid out above is built around three of Hirschman’s core  ideas:

  • That growth is an ‘unbalanced’ process, characterized by leads and lags – staying on track calls for ongoing shifts in policy priorities.
  • That movements from one phase of the cycle to another can come unexpectedly, catching policymakers and other elites by surprise. And
  • That post-crisis renewal of a cycle of inclusive growth is likely to come (if it does), not from a pre-occupation with narrowly pro-growth policies but from a revitalization of hope among those who had been left behind by the earlier, unbalanced process.

Hirschman’s vision of growth as an ‘unbalanced’ process was laid out in his landmark 1957 book, The Strategy of Economic Development, at a time of Latin American optimism. Explicitly drawing the contrast with a planned (‘balanced’) approach to growth, Hirschman viewed the principal task for policymakers as  identification and support for catalytic entry points which could both kickstart momentum, and have strong ‘linkages’ – thereby pulling forward other parts of the economy and society. Here’s how, in a 1980 article in a book on the turn to authoritarianism in Latin America,  he framed the challenge:

“Two principal tasks or functions  must be accomplished in the course of the growth process The first of the two tasks is the unbalancing function, the entrepreneurial function, the accumulation function…… Increasing social and income inequalities are an important part of this picture.”

By 1980, though,   Hirschman’s focus was no longer principally on ‘unbalancing’. On the contrary:

In time, pressures will arise to correct some of these imbalances,  to improve the welfare and position of groups that have been neglected or squeezed, and at redistribution of wealth and income in general. This is the ‘equlibrating’ distributive, or reform function….”.

This brings us to Hirschman’s second core idea –  the ending of a growth phase can take elites by surprise.  In a 1974 article, musing on why “society’s tolerance for disparities [may initially] be substantial”, he drew the analogy with being stuck in intermittently moving traffic:

“Suppose I run into a serious traffic jam in a two-lane tunnel. After a while the cars in the other lane begin to move. Naturally, my spirits lift considerably…. Even though I […may not gain…]…. I feel much better off than before because of the expectation that I shall soon be on the move….. As long as [this phase] lasts, everybody feels better off, both those who have become richer and those who have not…. “

“But this tolerance… is like a credit that falls due at a certain date. It is extended in the expectation that eventually the disparities will narrow again. But if the expectation…. does not occur, there is bound to be trouble and, perhaps, disaster…… Nonrealization of the expectation that my turn will soon come will at some point result in my ‘becoming furious’ that is, in my turning into an enemy of the established order…… “

“No particular outward event sets off this dramatic turnaround… Rulers are not necessarily given any advance notice about [the tunnel effect’s]  decay and exhaustion…. On the contrary, they are lulled into complacency by the easy early stage when everybody seems to be enjoying the very process that will later be vehemently denounced and damned as one consisting essentially in ‘the rich becoming richer’ ”.

The parallels to our times are obvious. Since the 1950s, repeated waves of accelerating globalization and technological change have brought massive worldwide gains in human wellbeing (see here and here). But now, unexpectedly, we find ourselves in a time of reaction – with backlashes in country after country from those  who perceive themselves as losers, or made vulnerable, by accelerating change. The rise of ethno-nationalism in the United States and Europe comprise obvious examples. A parallel process is evident across a range of middle-income countries, as well. This is in part because new waves of change threaten beneficiaries of earlier waves –  and, in part because, as per the ‘tunnel effect’ (and as illustrated by countries as varied as Brazil, the Philippines and South Africa)  only a small proportion of society turned out to benefit from the new opportunities for  upward mobility (with the process all-too-often short-circuited by corruption, state capture and power asymmetries which favored the more-established elites).

This brings us to the third set of ‘Hirschmanian’ ideas –  how countries which seemingly have been engulfed by reaction can renew their growth cycles. Hirschman’s insights are  especially counter-intuitive vis-a-vis the neoliberal discourse of the past four decades – a discourse pre-occupied with market-oriented, private-sector-led visions of development, propelled forward by improvements in the business environment (as measured by one or another variant of Doing Business indicator).  Hirschman suggests that once a crucial threshold has been crossed, development and growth are not renewed by doubling-down on the entrepreneurial function, but by an embrace of reform.

In an orderly universe, policymakers would alternate between the two functions, giving emphasis to the response which best fits the moment. But that is not how growth, Hirschman-style works in practice. Rather:

The appearance of the reform function on the stage at the right time and with the right strength is not in any reliable fashion co-ordinated with the entrepreneurial function and its performance. In fact while the performance of both functions (in some proper sequence) may be ‘objectively’ essential for the growth process, their protagonists are more often than not determined adversaries….. When reformers enter the stage they may well be full of invective against the entrepreneurial groups, who will return the compliment….”.

Yet, paradoxically, as the Hirschman cycle suggests, renewed growth comes from successfully carrying out the  redistributive, reform function.

The suggestion that the seemingly dark times of Latin America in the 1970s carried within themselves seeds of renewal was typical of Hirschman. Indeed,  in its 2012 remembrance,  the New York Times described Albert Hirschman as “the optimistic economist”. Hirschman himself described the “fundamental bent” of his writing as being “to set the stage for conceptions of change to which the inventiveness of history and a ‘passion for the possible’ are admitted as vital actors” – a sensibility which was informed, as he put it, by “a bias for hope”.

But there is another way to interpret Hirschman, also rooted in an historical parallel, this time the 1930s. In the fall of 1932 he entered the University of Berlin as a first year student. By early 1933 Hitler and the Nazi Party had come to power,  and Hirschman, of Jewish background and with  left-wing political sympathies,  had gone into exile. In the early 1940s, he helped smuggle many of Europe’s leading artists and intellectuals across the Pyrenees into Portugal, from where they could make their way to the United States.  Hirschman’s optimism was the willed optimism of a search for silver linings –  an optimism which knows that, in times of light, the potential for darkness looms – but also that, during times of darkness, seeds of renewal can germinate.

So, too, in our times. A renewal of hope is possible – but there are no guarantees. Deepening darkness also looms as a possibility.

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