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Wednesday, May 11, 2011

Success Requires More Than Individual Initiative

Dani Rodrik:

Economists and Democracy, by Dani Rodrik, Project Syndicate: ...Raised on textbooks that obscure the role of institutions, economists often imagine that markets arise on their own, with no help from purposeful, collective action. Adam Smith may have been right that “the propensity to truck, barter, and exchange” is innate to humans, but a panoply of non-market institutions is needed to realize this propensity.
Consider all that is required. Modern markets need an infrastructure of transport, logistics, and communication, much of it the result of public investments. They need systems of contract enforcement and property-rights protection. They need regulations to ensure that consumers make informed decisions, externalities are internalized, and market power is not abused. They need central banks and fiscal institutions to avert financial panics and moderate business cycles. They need social protections and safety nets to legitimize distributional outcomes.
Well-functioning markets are always embedded within broader mechanisms of collective governance. That is why the world’s wealthier economies, those with the most productive market systems, also have large public sectors. ...

Those who are successful within these systems -- those who pat themselves on the back and attribute their success to their own merit and then oppose taxes to pay for the institutions needed to have "well-functioning markets" -- have a tendency to forget the contribution that society makes to their success.

    Posted by on Wednesday, May 11, 2011 at 10:53 AM in Economics | Permalink  Comments (25)


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