‘When the world is very calm, and everyone thinks that risk has gone down, we should be very concerned.’ These words by the late US economist Hyman Minsky – who came up with a hypothesis on financial instability – may in hindsight have been prophetic of the global financial crash.

However, Minsky has been dead for nearly two decades and his perplexing theory that ‘stability is unstable’ has not yet made it into the conventional economics books.

This could be about to change, as an increasing number of economics students and lecturers demand that their curriculum be revised to take alternative theories into account that better reflect a new economics model for the world. Their movement criticises the fact that the traditional theories did not foresee the 2008 global financial crisis – and can’t even explain it adequately now.

Janine Mukuddem-Petersen, associate professor in finance at the University of Cape Town’s Graduate School of Business [GSB], says that the perception of economics as a subject has changed because of that one event. ‘We need to revolutionise the way economics is being taught in South Africa. Fortunately, this is the case at the UCT GSB where the economics course encourages debate about global events.

‘We strive to encompass a wider range of economic viewpoints and theories in our module, in order to remain relevant and to stay abreast of the ever-changing nature of economics. This pluralist approach is encouraged via debate or discussion, presenting relevant video clips, analysing case studies, dramatisation of a key concept, group presentations and having expert guest speakers from the industry.’

At Rhodes University, Owen Skae, director of Rhodes Business School (RBS) and president of the SA Business Schools Association, adds that the crisis has resulted in a stronger focus on the ethics of business. ‘Behavioural economics is also considered more,’ he says.

‘The relationship between politics, economics and the social impact of this nexus is also interrogated. In South Africa, the development economists are also required to consider fundamental questions, such as “The labour intensive versus the capital intensive route” and “What industrial policy decisions should be pursued?”, down to more basic questions such as “What is a fair wage?”’

At RBS, academic case studies are used to contextualise economic issues. More precisely, Skae says that the emphasis is on ‘good governance and the recommendations of King III regarding risk, and particularly the guardianship role of auditors, audit committees and managers’.

Adrian Saville, economics professor at the University of Pretoria’s Gordon Institute of Business Science (GIBS) and CIO of Cannon Asset Managers, finds merit in the use of models to demonstrate the economic systems and transmission mechanism. He says, however, that these are ‘never taught in text-book fashion. Every class that we do revolves around a case study, which is very powerful’.

Saville teaches MBA and executive short courses, using the same approach for both. The only difference is that in the degree courses, he is able to delve deeper into the subject matter. ‘I have the privilege of spending four days with the MBA students, whereas in an executive programme you are lucky if you get half a day together,’ he says. ‘The first thing I tell my students is that economics didn’t lose its way in the global financial crisis – it lost its way much earlier, with the Americanisation of economics.

‘If you read the major economic journals, you need postgraduate mathematics to understand and capture the content. It’s bizarre to suggest that something as intricate and complex as economics can be distilled into mathematics.’

Saville’s second point argues that macroeconomics is not about supply and demand first – one also needs to consider the political environment, geographic setting and social fabric, as well as the psychology – for instance, the behaviour of crowds. ‘The more you bring those avenues into the examination of the economic environment, the better your chances are of not just explaining events after the fact but to actually recognise them beforehand,’ he says.

‘Economics is progressing with the times. the recognition that we have to do more with less is hitting home’

OWEN SKAE, DIRECTOR OF RHODES BUSINESS SCHOOL AND PRESIDENT OF THE SA BUSINESS SCHOOLS ASSOCIATION

His counterpart at the University of Stellenbosch Business School (USB), economics professor André Roux, is the director of the university’s Institute for Futures Research. Like Saville, he too teaches both MBA and executive courses.

Roux explains that their learning outcomes include ‘the ability to contextualise, synthesise and argue in a logical, objective and reasoned fashion, as well as the ability to see the bigger picture and not just the detail of a specific, narrow problem’.

He adds that ‘subject-specific outcomes include understanding how economics influence all stakeholders in society, understanding the implication of the interaction between changes in a range of macro economic forces, and integrating the above to understand how economic policy decisions are made’.

Asked how he ensures that his graduates are not too focused on risk assessment and maths models but can apply them in the real world, Roux says: ‘The focus on what you refer to as “the real world” permeates throughout USB’s programmes, whether it is in economics, business ethics or development finance. For example, some of the topics covered in this year’s MBA economics for managers’ assignments include the more hard-core economics like “Inflation targeting in South Africa”, coupled with such topics as “Social grants in South Africa” and “To frack or not to frack: an economic analysis”.’

So at postgraduate and executive levels, the country’s leading universities and business schools are already teaching pluralist approaches and taking the SA context into account. But what about the undergraduate courses?

Saville says conventional supply and demand curves and mathematical principles tend to set undergraduates off on the wrong path. ‘If you gave me a magic wand, I would insist that economics 101 everywhere around the world start with economics history, complemented with studies on sociology, psychology, human behaviour and politics. Macroeconomic models don’t explain what’s going on in SA right now. They might give a sense of what is missing but to explain what’s going on in a country, you need to look at sociology, history and politics.’

Reza Daniels, a senior economics lecturer at UCT, agrees. ‘My understanding is that not much has changed at undergraduate level due to the financial crisis, while a lot has changed at post-graduate level. Particularly at first-year under-graduate level, it is difficult to teach too far away from the textbook because you usually sequence both the first-year majoring stream microcourse and the macrocourse to the same book.’

In an effort to revolutionise this, he recently became the first lecturer in Africa to introduce curriculum open-source resources in economics (CORE) – a first-year-level pilot project.

‘We need the best economic ideas and economists possible to help find solutions to SA’s economic problems’

REZA DANIELS, SENIOR ECONOMICS LECTURER, UCT

Sponsored by the Institute for New Economic Thinking in New York, CORE offers free educational materials for a more modern approach to teaching economics to undergraduates. According to Daniels, it has distinct advantages over the traditional teaching of economics.

‘It is more historically grounded; uses more flexible tools, including but not limited to neo-classical economics; introduces behavioural economics early on, including game theory, which allows you to study conflicting heterogeneous agents sooner in the undergraduate curriculum; it has modelling tools that are more relevant in finance, behavioural macroeconomics, trade, and all kinds of other sub-disciplines in economics.

‘In a country that is known worldwide as being one of the most unequal societies on the planet – and one that has stayed that way for the last 20 years – we need the best economic ideas and economists possible to help find solutions to SA’s economic problems. CORE represents that at first-year level.’

Things seem to be happening. The French economist Thomas Piketty’s best-seller, Capital in the 21st Century – which looks at wealth concentration and inequality, and proposes redistribution though global wealth tax, has not gone unnoticed in SA.

Skae sums up the situation when he says: ‘Piketty has also shaken things up a bit, and while there is not complete agreement as to whether what he has found is valid or not, it has done enough to consider the wealth gap and disparities, and how we can address this.

‘Economics has so many branches now. It is an alive subject that is progressing with the times. From an environmental, to the behavioural, developmental, industrial and agricultural aspects, the recognition that we have to do more with less is hitting home.’

By Silke Colquhoun
Image: Gallo/GettyImages