Reihan: Markets and the Left

One thing a lot of classical liberals fail to understand is that the left is far more sophisticated about markets than they think. The meliorist left sees markets in a mostly benign light. And the alterglobalization, participatory left has a fundamentally different, solidaristic orientation that can't be "disproven" by arguments from inefficiency. But I do think this Alesina-Giavazzi essay is useful nevertheless for all the reasons Free Exchange explains better than I can.

It is particularly important to understand that a roughly similar set of institutions mean very different things in different contexts. For example, the kind of labor market protections that seem benign (wrongly, in my view) in Western Europe are clearly pernicious in a place like India or even Brazil, where the formal sector is a far smaller partof the broader economy. That's why an attack on "neoliberalism" writ large is so flawed: "neoliberalism" can, in an essentially feudal economy, be a destabilizing force on behalf of the very poor. And the "neoliberal" structural reforms pursued by the Nordic economies have preserved the most valuable parts of the social-democratic inheritance.

This is part of the reason why I find Roberto Unger very interesting. Smart liberals tend to dismiss Unger and his "superliberalism" for the decent reason that it is highly, eccentric, deliberately obscure, and, well, illiberal: if the rule of law is the sine qua non of a liberal society, a context-smashing "destabilization branch" is clearly illiberal. But Unger is smart enough to know that in the Third World, a "centrist" politics is often more radical (in the best sense) and pro-poor than a "social-democratic" politics that represents the interests of a narrow, entrenched, privileged minority of formal sector employees.

Comments

One thing a lot of classical liberals fail to understand is that the left is far more sophisticated about markets than they think.

Similarly, I think that sophisticated liberals have done a much better job of internalizing concepts such as rent seeking and pubic choice economics into their thinking. The problem (from a libertarian perspective) is that, if you accept the reality of these factors, but, for any number of reasons believe that a robustly interventionist public sector is a still a good thing, it can lead to some really counterintuitive results. For example, take cost-benefit analysis regarding environmental regulations. A liberal policy maker may agree in principle that environmental regulations should pass a cost benefit test. But he may worry, with justification, that a cost benefit regulatory process is particularly subject to regulatory capture. Thus he may favor a system of heightened environmental protection which gives regulators less discretion - not because he thinks that such a system is "better" than a cost-benefit regime in an abstract sense, but because it is "better" in the real world given the imperfection of political institutions.

This might even be a partial explanation for liberal opposition to neo-liberal policies in the third world, but I haven't pulled the threads of the argument together enough to do more than assert such possibility.

Posted by LarryM | October 5, 2007 12:36 PM

This makes a lot of sense to me.

Posted by Reihan | October 5, 2007 4:41 PM

1. This is the second time today you linked to an article I posted on my Facebook. (Great minds etc?)

2. Your assessment of the meliorist left, while empirically true, leaves me with a bitter after taste. In Europe at least, especially with the older generation (yes, they are on their way out, but still), you get the feeling that even though they are pro-market, they see the market only as a necessary evil, whereas I think it should be viewed as a force for good.

You get the feeling from these guys that, yes, since the Berlin Wall they realized that, for some reason they can't quite figure out, you do need a market system in there somewhere, but o God be as wary of it as possible, because we don't know what this weird force is about.

This is why I don't like the argument many "reformist" lefties make, which is: "Without growth, you won't be able to fund all those social services." This is absolutely true. But the implied belief here is that the social services are the end, and the market is the unfortunate means you have to resort to. I wish for a society where it is the other way around.

Posted by PEG | October 5, 2007 5:41 PM

But I don't see why you'd wish for such a society, PEG. It seems to me that your kind of Friedmanesque (Milt, not Tom) confusion of the market as an End rather than a Means is the true problem with contemporary capitalism.

I also wonder what kind of mutually incommensurable ethical codes we are each invoking here, because as I see it, the Market society, as opposed to the alternatives: social democracy, i.e., Europe; or, what we're going to be forced towards, some kind of politico-economic system that does not have as a central premise the psychotic exploitation of limited stocks of 'ecological capital'; is inherently untenable.

The example of fish is a good one on the issue of ecological capital, since we've pretty much eaten all the good ones and are now rebranding previous crap-species as 'Chilean seabass' when they are really called Patagonian Rockfish: if you look at the post WWII move, by countries like Japan, Peru, Chile, Iceland, Norway, etc (US is guilty, but not proportionally as much), to truly rationalize fish 'production,' it's correlates with the rapid crash of fishing stocks. That is, I don't think it's unreasonable to see that certain capitalist features -- 'factory' ships, limitless accumulation, vast economies of scale -- relegated oceanic fish stocks to the liminal place they are in now.

The Market is a strange group-organism that ineluctably destroys its food-stocks, at least when it comes to natural resources.

Which, in the end, are all that really matter: because who cares about the price of the yen (or dollar) when no one has any rice or fish (or wheat or beef) to eat?

Posted by Ben Cronin | October 6, 2007 10:04 PM