After neoliberalism: economic theory and policy in the polycrisis

Mainstream economic theory and policy have struggled to address (and in some cases have made worse) the multiple economic crises since 2008—global financial crash, austerity, stalled productivity, wage stagnation, rising inequality, inflation, climate and environmental breakdown. At the root of this failure is the ‘ontological individualism’ which underpins neoclassical economic theory: the belief that individual households and firms are sovereign actors. It proposes in its place a premise of ‘ontological institutionism’—the view that economic behaviour is primarily influenced by the institutional structures and rules within which it occurs. Commonplace in other social sciences, this view radically changes economic analysis and policy prescription. Based on an explicit ethical definition of policy objectives, the article offers an ‘institutionally pluralist’ view proposing different kinds of institutions for five different spheres of economic life. Arguing that economic policy should be seen as a process of institutional design (not simply making markets more efficient), it offers some illustrative policy proposals in key fields, from climate change to business investment.