« Obstacles to equality | Main | Luck and inequality »

July 19, 2007

Comments

Luis Enrique

is this the mythical article where mainstream economists finally tackle 'power' relations, like the heterodox gang think they ought?

chris

Yup.

Bob B

I'm none too clear on quite how jungle capitalism differs from the bandit capitalism of Russia during much of the 1990s.

By many accounts, successful business owners there at the time were obliged to hire armed bodyguards for their personal security and to protect their assets from business competitors. Indeed, the notion of competitive response took on a whole new dimension although that may not have been very different from what prevailed in Chicago during Al Capone's heyday in the prohibition era.

We can't let the opportunity pass without recalling the interview in the Financial Times of Edouard Balladur in the early 1990s:

"Edouard Balladur, the former French [Gaullist] prime minister, memorably once asked: 'What is the market? It is the law of the jungle, the law of nature. And what is civilisation? It is the struggle against nature.'"
http://www.ft.com/cms/s/ebeeefe6-6d3b-11db-9a4d-0000779e2340,dwp_uuid=bacf21f0-8088-11db-9096-0000779e2340.html
http://www.wired.com/wired/archive/3.05/culture.html

At least since the reign of Louis XIV, the French state has engaged in dirigist policies to promote internal business and protect it from the prospect of harmful competition by foreign-owned business, which partly explains why Napoleon introduced the Continental System:
http://en.wikipedia.org/wiki/Continental_System

Bastiat memorably satirised this national trait in a spoof petition to the National Assembly (1845):
http://www.econlib.org/library/bastiat/basSoph3.html

All to no avail. Nothing has changed. Doubtless, readers will recall that President Sarkozy successfully intervened during the recent EU summit in Brussels on the new EU Treaty to ensure the stated commitment in the preamble to "undistorted competition" in the EU was duly expunged:
http://www.ft.com/cms/s/8f4a5126-2033-11dc-9eb1-000b5df10621.html

Mari Monti and Peter Sutherland - former EU Commissioners for Competition Policy - were quick to appreciate the implications of the excision, as were Romano Prodi, the Italian prime minister, and Jan Peter Balkenende, the Dutch premier:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/23/cneu123.xml

Even so:

"President Nicolas Sarkozy of France was yesterday claiming a victory over Britain at the end of a two-day summit of Europe's leaders in Brussels.

"The new French President said he had managed to dilute the EU's commitment to free-market economic policies in a European 'mini-treaty', claiming at a pre-dawn press conference that he had struck a blow against the 'dogma' of competition. This was presented by his allies as a defeat for Tony Blair and his incoming successor, Gordon Brown.

"'The new mini-treaty', said Mr Sarkozy, 'will give Europe more humanity' because he had secured the deletion of the words "undistorted competition" from the EU constitution's objectives. 'The word "protection" is no longer taboo,' he said, adding: 'Competition as an ideology, as a dogma, what has it done for Europe?'"
http://news.independent.co.uk/europe/article2701327.ece

Think of it, without the meddling EU Commission, France could have even more celebrated projects like Crédit Lyonnais:
http://en.wikipedia.org/wiki/Cr%C3%A9dit_Lyonnais
http://www.economist.com/research/backgrounders/displaybackgrounder.cfm?bg=1325321

jameshigham

Discovering the set of circumstances or, more appropriately, the sequence of events that could cause such failures is better than a Neo-Walrasian equilibrium mentality, yes? wish I knew what I was talking about.

dearieme

"if the initial wealth is allocated unfairly, dishonestly or arbitrarily": I'd have said that the idea of "initial" needs a bit of teasing out. What's initial in the British Isles - what the upper paleolithic coves found as they wandered north from Basqueland? And how come they owned Basqueland - because they ate the Neanderthals?

Bob B

"the sequence of events that could cause such failures is better than a Neo-Walrasian equilibrium mentality, yes?"

Correct. Think on it this way - this following quote is among the central observations of Keynes's General Theory of Employment, Interest and Money (1936):

"it is an outstanding characteristic of the economic system in which we live that, whilst it is subject to severe fluctuations in respect of output and employment, it is not violently unstable. Indeed it seems capable of remaining in a chronic condition of sub-normal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse." [p.249]
http://etext.library.adelaide.edu.au/k/keynes/john_maynard/k44g/

The notion of a Neo-Walrasian equilibrium does not admit of the possibility of "a chronic condition of sub-normal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse."

Mark Wadsworth

Jungles are a disgrace.

If New Labour were in charge of jungles, they would all be much more organised and much better and there's be less inequality.

Bob B

For those tolerably familiar with mainstream welfare economics, there is no special aura associated with any Paretian optimum situation.

There is absolutely nothing illogical or unreasonable about saying: I prefer situation A to situation B, even though situation B is Paretian optimal, because I regard the distribution of income associated with situation A as preferable - an argument which could, in principle, be mounted in favour of the Corn Laws, as repealed in 1846, or in favour of taxing the rich until the pips squeak, depending on personal inclination.

All that can be said in favour of any particular Paretian optimum is that any alternative makes some individual worse off. Period. The "best" situation, if it is attainable, is a particular Paretian optimum with a "good" or "acceptable" income distribution.

Any who wish to see evidence of this claim might like to read through a classic and lucid restatement of mainstream welfare economics in Francis Bator: The Simple Analytics of Welfare Maximisation (AER 1957):
http://instruct1.cit.cornell.edu/courses/econ335/out/bator_aer.pdf

One escape from the implied restriction on contemplating any change in policy because someone would be made worse off is to invoke the so-called Kaldor-Hicks Compensation Test:
http://en.wikipedia.org/wiki/Kaldor-Hicks_efficiency

This is to argue in favour of a particular policy change if those who gain could in principle compensate those who lose, perhaps with an additional proviso that the distribution of income is made at least no worse.

The complex issues raised by compensation tests are extensively discussed in:

IMD Little: A Critique of Welfare Economics (OUP 2nd ed. 1957)
EJ Mishan: A Survey of Welfare Economics (EJ 1960)
http://cepa.newschool.edu/het/profiles/mishan.htm

athur

http://arielrubinstein.tau.ac.il/papers/74.pdf

He's been floating this idea around for a while. Like Dearieme, I don't get the bit about people not owning anything initially either. Is the primitive accumulation process endogenised?

Kevin Carson

There's a lot to be said for those radical free market traditions that want to address the problem of initial distribution of land and capital, eliminate privilege and barriers to competition, and then let the market loose. I'm thinking of Hodgskin in the UK, and the individualist anarchists and Georgists over here. Likewise, Roemer's idea that exploitation results not from the free market, but from privileged access to land and capital.

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