Dr. Teun Wolters: Markets, for better and for worse
Whatever may happen, markets represent an mechanism necessary to let the economy have its way. Moreover, governments have much to arrange and regulate, so that it will be a true relief to them if certain matters can be left to markets.
However, markets are not perfect. There is, what economists call, market failure as there is government failure. Furthermore, there is a large area of social responsibility which requires good citizenship and ‘inclusive’ thinking which precede or transcend market-based operations.
At the moment (June 2012) the Dutch senate is investigating the history of various major privatisation projects meant to let the market mechanism work for the common good (railways, energy, post). The results are disappointing. One of the conclusions was that when these projects started, privatisation was in the air. It was fact-free ideology rather than evidence-based policy that determined the political agenda.
It, however, remains an open question whether the final outcome of such large privatisation projects should be ascribed to markets or a lack of them as the wider economic environment remained characterised by monopoly power and continued governmental influence.
The same type of dilemma appears when contemplating the recent credit crisis (in the wake of which the political scene is struggling to get over it). The crisis (originating in the US) is said to have been caused (at least for a considerable part) by letting markets take care of themselves, including monitoring and supervision. On the other hand, a crucial role was played by the government-sponsored enterprises Fannie May and Freddy Mac. This meant that certain financial risks could be shifted toward the government.
Other perspectives on the government-economy relationships emerge when considering what has happened in Asia. A major conclusion could be that governmental roles in the economy are ‘here to stay’ but tend to create long-term disequilibria which are a far cry from the nice equilibrium promised by ‘government-free’ economic theories about markets and competition. Business schools are in need of conceptual models which give a realistic picture of today’s political-economic reality. Such models must be able to connect the macro world with corporate realities and the moral dilemmas which appear at the micro level.
Dr Teun Wolters