1. First Elements Towards the Foundations of an Anticipatory Approach in Economics
Neantro Saavedra Rivano
First International Conference on Anticipation
Trento, 5-7 November 2015

2. The subject and objects of Economics
People: agents and groups/organizations
The physical environment: land, resources, artifacts (simple and complex)
Transformations of the physical environment: the “know-how” (skills, technology); actual actions (such as creation, transformation, consumption) on the environment
Exchanges (in particular, markets)
The human environment:
Institutions
Abstract artifacts
Belief systems
Superstructures (political / social / cultural)

3. Economics as practiced and taught
The human environment is taken for granted and implicitly assumed to be independent of time and space
This neglect implies that agents rules of behavior, dependent as they are on the human environment, become also independent of time and space
“My impression is that the best and brightest in the profession proceed as if economics is the physics of society. There is a single universally valid model of the world. It only needs to be applied.” (Richard Solow, Economic History and Economics, AER, 1985)
Neoclassical long-term economic theories are not really long-term and their “solutions” typically find stationary (steady) states for the economic system
“New” growth theories improve somewhat on this situation by incorporating technology more thoroughly and generating endogenous growth

4. An example: labor Conventional approach
Worker’s labor force is sold and bought in labor markets
Formal and informal labor (market regulation)
Minimum wages and market-clearing wages; unemployment
Looking at the historical record
Slavery and child labor were common through most of human history
In communal societies labor was supplied collectively
Envisioning the future
Robots will progressively substitute human manpower
Telecommuting is bound to have profound impact on labor relations
Example illustrates how the human environment affects organization of the economy

5. A first step towards an anticipatory approach in Economics: Douglass North’s on economic change
Uncertainty
Risk and uncertainty according to Frank Knight
The contribution of Heiner: uncertainty as the origin of predictable behavior
Douglass North on uncertainty: five levels (lack of information; limited stock of knowledge; inadequate institutions; inadequate system of beliefs; residual uncertainty)
Man and his environment
Physical vs human environment
A non ergodic world
Transformation of man’s environment as a reaction to uncertainty
The physical environment
North on the “taming” of our physical environment
A critique of North

6. A second step: elements for a theory of crises
A crisis as rupture or failure of the process of transformation
Two types of failure: Knowledge Failure and Governance Failure
The unfolding of crises through time and their outcomes
Example I: the environmental crisis (a crisis affecting our physical environment, compounded by failure of global governance)
Example II: the financial crisis (a crisis affecting our human environment, compounded by failure of global governance)

7. Anticipation in Economics and consequences for economic theory
From an anticipatory perspective, the most important economic events are transformations in its environment: institutions, rules of the game
Previous discussion indicates this transformations can happen in one of two ways
change to reduce uncertainty (à la North)
change provoked by crises (catastrophic or not)
Challenge is to “anticipate” these transformations
This anticipation can be passive or active
Passive (or positive) anticipation
takes the position of an external observer to build scenarios for the expected change
two roles for economic theory: adapt the economic system to these changes; develop a theory of institutional dynamics
Active (or normative)
is involved in the transformation process and advocates a particular solution
role for economic theory is to design the new system in order to produce the desired behavior

8. An example of positive anticipation: human capital formation
The paradox of human capital formation: albeit families have the principal role on decisions to invest in human capital (of their offspring) most of the gains derived from this investment accrue to society at large
The dilemma posed by this paradox: how to answer to the lack of incentives (to invest in HC) and the inefficiencies of the current system
the growing perception by families of the inadequate returns to their investment in HC has undesirable demographic implications
the imbalance between family and social motivations, together with existing social and economic inequalities, lead to great inefficiencies in HC investment
An obvious solution
to socialize investment in human capital formation
but, how?

9. Example continued: implementation
The conventional solution: transfers
Political issues
Economic issues
Although interesting, this solution has reduced effects, especially in the case of developing countries
A market solution: securitization of human capital
investment in human capital loses its dynastic character
HC securities spread their risk among an entire generation
Mixed solutions: combination of transfers, markets (securitization), and family expenditure

10. Example continued: pros and cons
Advantages
Positive effect on equity
Positive effect on economic growth (especially in developing countries)
Allows for convergence between social benefit and market interest
Challenges
Bound to increase tensions within families
Adjustment of economic system
Resistance to change (transformational impact)