In any case, market socialists concede that externalities lead to inefficient allocations of resources, and that non-competitive market structures and disequilibrating forces are additional sources of inefficiencies. And they concede that efficiency requires “socializing” the market with policies designed to internalize external effects, curb monopolistic practices, and ameliorate market disequilibria. But what market admirers do not concede, but conveniently ignore is:
- External effects are the rule rather than the exception.
- There are no convenient or reliable procedures in market economies for estimating the magnitude of external effects. This means accurate “Pigouvian” taxes are hard to calculate even in an isolated market.
- Because they are unevenly dispersed throughout the industrial matrix, the task of correcting for external effects is even more daunting.
- In the real world, where interest and power take precedence over economic efficiency, the beneficiaries of accurate Pigouvian taxes are usually dispersed and powerless compared to those who would be harmed. Moreover, any hope of accurately estimating the magnitudes of external effects lies with willingness to pay and willingness to accept damage surveys which have well known biases that can be challenged, and discrepancies that can be exploited by special interests.
- Endogenous consumer preferences imply that the degree of misallocation that results from predictable under correction for external effects will increase, or “snowball” over time.
correctives are likely to fall far short of what is required, and the problem will grow worse. And since maneuvering over shares in a world that does not outlaw differences in economic power is usually the first strategy that occurs to most business people – even if it never occurs to economists – the waste of resources due to distributive struggles will be even more substantial.
In sum, convenient deals with mutual benefits for a buyer and seller should not be confused with economic efficiency. When some kinds of preferences are consistently under represented because of transaction cost and free rider problems, when some resources are consistently over exploited because they are common rather than private property, and when profits come as often from greater power as greater contribution, theory predicts free market exchange will result in a misallocation of resources. And when markets are less than perfect – which they always are – and fail to equilibrate instantaneously – which they always do – the results are that much worse.
This won’t be news to most human beings, it may be news to some economists.
I want to point out that the special position of economics among the social sciences is revealed by the fact that we speak of “dissenting” economists. The question is of course, dissenting from what. In other branches of social science we also have alternative and competing theories, some of which may be more accepted and some less, but a large number of them will exist side by side taking part in a continuing debate. Only in economics do we observe this sharp division between a ruling, dominant paradigm which enables one to speak of other theorists as “dissenters.”
When we look critically at this situation of the economic establishment we should first of all make it clear that the criticism of contemporary mainstream economics with regard to its neglect of power and other socio-political and psychological factors should not be regarded as a wholesale repudiation of neoclassical theory. On the contrary, the elaborate structure of that theory and its capacity to analyze complicated interrelations in the market network make it an essential element in the economist’s tool-box. What can and should be criticized is the narrow methodological perspective of that theory which hinders interdisciplinary work, the tendency to jump too quickly from the restricted universe of the theory to policy conclusions for a far more complicated and heterogeneous economic reality, and finally, but not least important, the claims for dominance vis-à-vis other approaches which have a lot to offer both in criticism and in complementing the mainstream studies.
Secondly, we should also be aware that the community of critics and dissenters is today wide enough to present an impressive basis and critical mass for developing the necessary complementary and alternative theories which can take care of the various elements which are neglected in the mainstream.
So what are we complaining about? The answer is quite simple: What is “wrong” is the inequality of opportunity. The trouble is not that or how much economists differ about the pros and cons of various theories whose coexistence is—as I have pointed out before—unavoidable in a complex social reality. What is a problem is that one “school” has obtained a privileged position in the academic world and is claiming—under a very debatable definition of “science”—a dominant position for the neoclassical theory both with regard to teaching and the access to the so-called core journals. It is this privileged position with its self-enforcing character which can be accused: students are taught one-sidedly and accept the neoclassical standards so that they can teach them and can publish their work in the career-determining core journals.
Not only is this unfair to economists of other “schools” whose chances of being discussed and of finding attractive jobs are reduced, it means above all that the pattern of economic research is distorted in one direction with unfortunate effects for economic science and its progress as a whole. In other words, the question is not, important as it may be, how effectively neoclassical theory manages to deal with economic problems by itself and in comparison to other theories, but whether we can come to an arrangement, where the various theories can meet and listen to each other on equal terms in the lecture rooms of the universities, in the text books, and in the journals. This actually is—in contrast to the more radical aims of 1968—the very modest demand of the so-called post-autistic movement of France’s economics students who—with an amazing echo among the public and in political and academic circles—are asking just this: to be informed on a broader scale.
To move in this direction, even if intended, would not be an easy task. Too great are the sunk costs of neoclassical investment in human capital to be modified easily. But the progress towards greater openness in theoretical discussions may be helped by the fact that the breath-taking changes which we experience just now in technology, politics, and economics ask in any case for new ideas in the social sciences in general and economics in particular.