Any debate on economics tends to
evoke extremes rather than any midway or realistic paths. There is a polarization
between those who advocate free markets to the extreme and those who advocate
total command and control economy. The former are usually identified with Adam
Smith though Smith rarely talked about free markets at its fullest. The latter
are usually associated with Karl Marx and communism though Marx was more a
reaction to the diminishing returns of capitalism. The schools of thought that
evolved over a century and half since Marx have generally associated with a
degree of polarization among the two different streams. As the social media
gathered momentum, the debate on economics and economic thinking often revolve
around these extremes. At times it seems there is little meeting ground between
the two. There is something normative as suggested by the proponents on either
side of the divide and there is something realistic, something that exists on the
ground which might be contrary to what the theoretical poles might suggest.
Prima facie, there exists little
ground to suggest a carte blanche prescription for economic woes. Neither
markets at their extreme nor command and control at its extreme will be able to
resolve the resource contestation problem. At heart, in conventional economics,
scarcity would be a problem that has to be resolved through a manifestation of production,
distributive and allocative efficiencies. It is about the method chosen to
resolve these problems of resource allocation rather than ideological
grandstanding. Governments of the day have usually tended to be pragmatic with
a mix of approaches barring those which have ideological fixation. Therefore,
at some stage, it needs to be thought over on what works and what would not. Rather
than a doctrinaire approach, it would be interesting to visualize the realities
on the ground and examine the ideological positioning.
The presumption of markets
organizing the economic activity is based on the assertion by Adam Smith about
the self-interest. Implied in Smith’s assertion was the presence of
self-interest would lead to collective interest and enlightened collective interest.
Yet this would not pass muster in numerous cases. As highlighted in the past
posts, the question about an economic agent acting in their own self-interest
cannot be examined in isolation. It has to be examined in the context of not
just the individual’s interest but the societal interest as well. If there
exists an alignment of societal and individual interests, Smith’s assertions
would work fairly well. This does happen in numerous instances. Yet there are
many instances wherein there exists a conflict between what is good for the society
and what might be good for an individual. In this context, there might be
antithetical results in terms of market applications.
National security, law and order, justice
are some of the important points that need to be considered. Given the inherent
nature of non-excludability, they face a problem of perennial free-riding. This
would lead to distortion of resources something no private sector would like to
undertake. There exists a potential for market failure. in the context of
pandemics, the health system if left purely to the market forces would lead to
market failure given the asymmetric nature of demand and supply. The interest
of private goods and service provider and the consumer of those goods and
services might be different thus leading to market failure and inefficiencies in
distribution and allocation. This is somewhere the state needs to intervene. To
most economists of the market hue, they do concede that states can intervene
and allocate resources better in some contexts.
On the other hand the command and
control economy would deprive the people of economic freedom. At the heart of
individual nature lies economic freedom. There is a right to practice the
profession as also entrepreneurship. The command and control economy would put
the power not in the hands of the individual but in the top elite which manages
the show. While in name, the communes would exercise ownership, in practice it
is the new bourgeoisie that is created in the command and control system. The barriers
to exit and entry are very high. The individual interests are sacrificed at the
alleged altar of community interests. Yet, it is rarely the community interests
that are served since in most instances, community interest might be the
aggregation of individual interests. This is something manifest in the failure of
command and control economies like the erstwhile Soviet Union. China has
adopted party capitalism and the judgment would have to wait for some time for
it to emerge.
Each context has to have a specific
variant of allocative mechanism. Markets perhaps work best when dealing with
private goods and to a significant extent when dealing with club goods. Yet,
when it comes to dealing with public goods, markets fail. The reason is obvious
as stated above the free rider problem. The commons are often thought to be
converted to a club or private good so that markets might manage it better rather
than treating it a state managed public good. Yet, evidence does point out in
significant manner of non-market, non-state based approaches that have
protected and sustained commons over the millennia. Therefore, when one
examines the nature of goods, it is evident that characteristics good possesses
would determine the shades of grey that would govern it. In fact, there is
hardly anything that might be termed extreme market barring a few private
goods. The role of the state or a society is something significant that cannot
be discounted.
The shades of grey being applied
would depend on the context. The market advocates would prefer introduction of
excludability into the common property resources to make it a private good. The
advocates of the state seek to make a public good by bringing an element of
non-rivalry. In the context of club goods, the advocates of command and control
seek to eliminate the excludability factor. The public goods are sought to be
converted into something of rivalry by those advocating market models. Therefore,
there would be a debate, however polarizing it might be. Yet when it comes to
the ground applications, there would be numerous shades of grey. Anything that
discounts these shades of grey would be staring at a crisis, literally
speaking.
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