neoliberal fallacy
TRANSCRIPT
-
8/19/2019 Neoliberal Fallacy
1/17
Journal of Democracy, Volume 3, Number 3, July 1992, pp. 45-59 (Article)
DOI: 10.1353/jod.1992.0044
For additional information about this article
Access provided by National University of Singapore (19 Feb 2016 05:22 GMT)
http://muse.jhu.edu/journals/jod/summary/v003/3.3przeworski.html
http://muse.jhu.edu/journals/jod/summary/v003/3.3przeworski.htmlhttp://muse.jhu.edu/journals/jod/summary/v003/3.3przeworski.html
-
8/19/2019 Neoliberal Fallacy
2/17
-
8/19/2019 Neoliberal Fallacy
3/17
T H E N E O L I B E R L F L L C Y
Adam Przeworsk i
Adam Przeworski is Martin A. Ryerson Distinguished Service Professor
of Political Science and codirector of the Center for Rationality, Ethics,
and Society at the University of Chicago. He received his M.A. from the
University of Warsaw and his Ph.D. from Northwestern University. He
has been a research associate at the Ecole Pratique des Hautes Etudes
in Paris and a visiting professor at FLACSO in Santiago, Chile. His
publications include C a p i t a l i s m a n d S o c i a l D e m o c r a c y 1985), D e m o c r a c y
a n d t h e M a r k e t : P o l i t i c a l a n d E c o n o m i c R e f o r m s i n E a s t e r n E u r o p e a n d
L a t i n A m e r i c a 1991), and E c o n o m i c R e f o r m s i n N e w D e m o c r a c i e s : A
S o c i a l - D e m o c r a t i c A p p r o a c h forthcoming).
O u r s is an e ra o f id e o l o g y . S e v e r a l c o u n t r ie s , in E a s t e rn E u r o p e a n d
e l s e w h e r e , h a v e r e c e n t l y b e g u n t h e g r e a t e s t i d e o l o g i c a l l y i n s p i r e d
e xpe r ime n t s inc e Jose f S t a l i n i n i t i a t e d the f o r c e d indus t r i a l i z a t ion o f t he
S o v i e t U n i o n i n 1 9 2 9 . A l t h o u g h t h e p r e v a i l i n g m o o d e c h o e s K o n r a d
A d e n a u e r 's d ic t u m o f n o e x p e r i m e n t s , t h e e c o n o m i c t r an s f o r m a t io n s
e n v i s a g e d i n t h e s e c o u n t r i e s i r o n i c a l l y m i r r o r t h e c o m m u n i s t p r o j e c t .
T h e y i m p l e m e n t a n i n t e l l e c t u a l b l u e p r i n t , a b l u e p r i n t d r a w n u p w i t h i n
t h e w a l ls o f A m e r i c a n a c a d e m i a a n d s h a p e d b y i n t e r n a ti o n a l f in a n c i a l
i n s t i t u t i ons . The se t r a ns f o r ma t ions a r e me a n t t o ha ve r a d i c a l e f f e c t s , t o
tu r n a l l e x i s t i ng soc i a l r e l a t ions ups id e dow n . T he y o f f e r a pa na c e a , a
m a g ic e l i x i r wh ic h , onc e t a ke n , w i l l c u r e a ll i ll s. R e p la c e na t ion a l i z a t ion
o f t h e m e a n s o f p r o d u c t i o n w i t h p r i v a te p r o p e r t y a n d p l a n w i t h
m a r k e t , a n d y o u c a n l e a v e t h e s t r u ct u r e o f t h e i d e o l o g y in t ac t . P e r h a p s
r e v o l u t i o n s a r e s h a p e d b y t h e v e r y s y s t e m s a g a i n s t w h i c h t h e y a r e
d i r e c t e d .
F a c i n g w h a t a r e o f t e n t h e g r a v e s t e c o n o m i c c r i s e s i n t h e i r h i s t o r y ,
c o u n t r i e s a l l a r o u n d t h e g l o b e a r e t o l d t o p l u n g e i n a n d p e r s e v e r e . T h e y
a r e e x h o r t e d t o p l u n g e i n t o r e f o r m s a b o u t w h i c h o n l y o n e t h i n g c a n b e
k n o w n w i t h c er ta in t y: t h e y w il l m a k e m o s t p e o p l e w o r s e o f f fo r s o m e
t i m e t o c o m e . T h e y a r e u r g e d t o s h o r t - c i r c u i t t h e d e m o c r a t i c p r o c e s s b y
Journal of Democracy Vol. 3, No. 3 July 1992
-
8/19/2019 Neoliberal Fallacy
4/17
46
Journal of emocracy
i n t r o d u c i n g r e f o r m s s o s w i f t l y t h a t c i t i z e n s w i l l h a v e n o t i m e t o m o b i l i z e
e f f e c t i v e l y a g a i n s t t h e m . E v e n a f t e r t h e p a i n s o f r e f o r m h a v e m a d e
t he m s e l ve s f e l t , po l i t i c i a ns a r e u r ge d t o s t a y t he c ou r s e , w h i c h m os t do .
U n i o n l e a d e r s s p e a k p u b l i c l y o f t h e i r h o p e [ th a t] t h e re w i l l b e
u n e m p l o y m e n t . F i n a n c e m i n i s te r s d e c l a r e t h a t i f u n e m p l o y m e n t f a il s t o
r i s e t o 8 o r 10 pe r c e n t , i t w i l l be a s i gn t ha t t he r e f o r m s a r e no t
w o r k i n g . G o v e r n m e n t l e a d e r s d e c l a r e t h e i r d e t e r m i n a t i o n t o p e r s i s t
r e ga r d l e s s o f a l l the po l i t i c a l p r e s s u r e s upo n u s . ' ' l
N e o l i b e r a l i d e o l o g y , e m a n a t i n g f r o m t h e U n i t e d S t a t e s a n d v a r i o u s
m ul t i na t i ona l a ge nc i e s , c l a i m s t ha t t he c ho i c e i s obv i ous : t he r e i s on l y
o n e p a t h t o d e v e l o p m e n t , a n d i t m u s t b e f o l l o w e d . P r o p o n e n t s o f t h i s
i d e o l o g y a r g u e a s i f t h e y h a d a L a s t J u d g m e n t p i c t u r e o f t h e w o r l d , a
g e n e r a l m o d e l o f e c o n o m i c a n d p o l it ic a l d y n a m i c s t h a t a l l o w s t h e m t o
a s s e s s t he u l t i m a t e c ons e que nc e s o f a l l pa r t ia l s t e p s . 2
Y e t th i s m o d e l is n o m o r e t h a n a m i x t u r e o f e v i d e n c e , a r g u m e n t f r o m
f i r s t p r i nc i p l e s , s e l f - i n t e r e s t , a nd w i s h f u l t h i nk i ng . M or e ove r , e ve n t hough
m a r k e t i d e o l o g y n o w s e e m s t o h a v e a t t a i n e d u n c o n t e s t e d i n t e l l e c t u a l
h e g e m o n y , th e v i r t u e s o f m a r k e t s a r e b e i n g c a l l e d s t r o n g l y i n t o q u e s t i o n
b y r e c e n t d e v e l o p m e n t s i n n e o c l a s s i c a l e c o n o m i c t h e o r y - - t h e v e r y b o d y
o f t h o u g h t th a t h e r e t o f o r e h a s u n d e r p i n n e d t h e c l a i m t h a t m a r k e t s a r e
e f f i c i e n t a l l o c a t o r s o f r e s o u r c e s . T h e o b s e r v a t i o n s t h a t a c o m p l e t e s e t o f
m a r k e t s i s u n f e a s i b l e , a n d t h a t i n f o r m a t i o n i s i n e v i t a b l y i m p e r f e c t ,
i n v a li d a te t h e c a se f o r t h e e f f i c ie n c y o f t h e i n v i s ib l e h a n d ) M o r e o v e r ,
o b s e r v e d p a t t er n s o f e c o n o m i c g r o w t h c a n n o t b e e x p l a i n e d w i t h o u t a
r e c ou r s e t o e x t e r na l i t i e s , t hus t hw a r t i ng a ny e xpe c t a t i on t ha t c om pe t i t i ve
m a r k e t s a r e e f f i c i e n t i n d y n a m i c
t e rms 4
C o n f r o n t e d w i t h t h e r e a l w o r l d , m a r k e t i d e o l o g y f a r e s n o b e t t e r . T h e
t h e m a t i c s ta t e m e n t f o r t h is s y m p o s i u m c i te s a s t h e m o d e l t o fo l l o w t h e
U n i t e d S t a t e s a nd o t he r ke y c oun t r i e s i n t he W e s t [ t ha t ] ha ve be e n
g o v e r n e d f o r t h e p a s t d e c a d e b y c o n s e r v a t i v e , p r o - p r i v a t e e n t e r p r i s e
p a r t ie s . Y e t i f a M a r t i a n w e r e a s k e d t o p i c k t h e m o s t e ff i c ie n t a n d
h u m a n e e c o n o m i c s y s t e m s o n e a r t h , i t w o u l d c e r t a i n l y n o t c h o o s e t h e
c oun t r i e s t ha t r e l y m os t on m a r ke t s . T he U n i t e d S t a t e s i s a s t a gna n t
e c o n o m y i n w h ic h r e a l w a g e s h a v e b e e n c o n s t a n t f o r m o r e t h a n a d e c a d e
a n d t h e r e a l i n c o m e o f t h e p o o r e r 4 0 p e r c e n t o f t h e p o p u l a t i o n h a s
d e c li n e d . I t i s a n i n h u m a n e s o c i e t y in w h i c h 1 1 .5 p e r c e n t o f t h e
p o p u l a t i o n - - s o m e 2 8 m i l l i o n p e o p l e , i n c l u d i n g 2 0 p e r c e n t o f a l l
c h i ld r e n l i v e s i n p o v e r t y . I t i s t h e o ld e s t d e m o c r a c y o n e a r th , b u t h a s
o n e o f th e l o w e s t v o t e r - p a r ti c i p a t io n r a te s i n t h e d e m o c r a t i c w o r l d , a n d
t h e h i g h e s t p e r c a p i t a p r i s o n p o p u l a t i o n i n t h e w o r l d . I s t h i s t h e m o d e l
t o f o l l o w ?
T h e s e r e m a r k s s h o u l d n o t b e c o n s t r u e d a s a d e f e n s e o f t r a d it i o n a l
pa t t e r n s o f s t a t e i n t e r ve n t i on , w he t he r unde r c a p i t a l i s m o r s oc i a l i s m ; a s
a n a r g u m e n t a g a i n s t r e l y i n g o n m a r k e t s ; o r a s a n a t t a c k o n p r o m a r k e t
r e f o r m s . T h e y a r e , r a t h e r , i n t e n d e d a s p a r t s o f a c a u t i o n a r y t a l e w a r n i n g
-
8/19/2019 Neoliberal Fallacy
5/17
Capitalism Socialism and Democracy/Przeworski 7
a ga ins t t he da nge r s o f e xc e s s ive ide o log ic a l z e a l . W ha t I a r gue be low i s
t h a t w e s t i l l k n o w l i t t l e a b o u t m a r k e t s a n d d e m o c r a c i e s , a n d t h a t t h e
l i t t l e w e d o k n o w d o e s n o t s u p p o r t a n y i d e o l o g i c a l b l u e p r i n t s .
M a r k e t s a n d f f i c ie n c y
I n th e f ir s t m o m e n t s o f p o s t c o m m u n i s t e u p h o r i a in E a s t e r n E u r o p e ,
t h e m o d e l t o f o l lo w s e e m e d o b v io u s . Y e t v a g u e n o t io n s a b o u t m o v i n g
i n t h e d i r e c ti o n o f ' n o r m a l ' e c o n o m i e s , e m b r a c i n g t h e m o d e l t e s t e d b y
t h e h i s to r ic a l e x p e r i e n c e o f t h e d e v e l o p e d c o u n t r i e s , o r c o n s t r u c t i n g a
m a r k e t e c o n o m y l ik e i n t h e W e s t w e r e n o t , a r e n o t , a n d c a n n o t b e
s u f f ic i e n t t o g u i d e th e p r o c e s s o f e c o n o m i c t r a n s fo r m a t i o n . N o r m a l
e c o n o m i e s d i f f e r g r e at ly a m o n g t h e m s e l v e s - - i n t h e d e g r e e o f s ta te
in t e r ve n t ion ; i n t he wa y tha t t he i r f i r ms , i ndus t r i e s , a nd f ina nc ia l
in s t it u t ions a r e o r ga n iz e d ; i n t he i r c o l l e c t ive ba r ga in ing sys t e ms ; a nd in
t h e i r s y s t e m o f s o c ia l w e l f a r e p r o v is i o n . I m i t a ti n g t h e U n i t e d S t a te s d o e s
n o t p o i n t i n t h e s a m e d i r e c t i o n a s i m i t a t i n g S w e d e n o r J a p a n . M o r e o v e r ,
i t i s no t a t a l l c e r t a in tha t t he a l t e r na t ive s f a c ing Ea s t e r n Eur ope a r e
i n d e e d l i m i t e d t o t h o s e a l r e a d y t e s t e d e l s e w h e r e . F o r o n e t h i n g , s o m e
k i n d o f a r e f o r m e d s t a t e s e c t o r i s l i k e l y t o c o n t i n u e p r o d u c i n g m o s t o f
the na t iona l p r oduc t i n t he se c oun t r i e s w i th in the f o r e se e a b le f u tu r e . I n
a d d i t i o n , s e n t i m e n t f o r s o m e k i n d o f a w o r k e r s ' s e l f - m a n a g e m e n t s y s t e m
r e ma ins s t r ong .
I n b r oa d ou t l i ne , t he i s sue s a r e : t he r o l e o f t he s t a t e i n c oo r d ina t ing
r e sou r c e a l loc a t ion , t he we l f a r e a nd d i s t r ibu t iona l p r ope r t i e s o f a l t e r na t ive
s t ru c t u re s o f o w n e r s h i p , a n d d e v e l o p m e n t s t r at e g ie s , i f a n y . T h e l o n g
h i s t o ry o f r e fl e c t io n o n t h e s e p r o b l e m s n e e d n o t c o n c e r n u s h e r e . I n s t ea d ,
I w i l l f oc us so l e ly on que s t ions tha t a r e o f imme d ia t e p r a c t i c a l
s ign i f i c a nc e in the g loba l Ea s t a nd S ou th .
T h o s e w h o e x p e c t t h e m a r k e t t o c o o r d i n a t e e c o n o m i c a c t i v i t i e s t o
p r o d u c e i n t e rt e m p o r a l l y e f fi c i e n t a l lo c a t io n s o f r e s o u r c e s a s s u m e t h e t r u th
o f th e p r o p o s i t i o n - - k n o w n a s t h e fi rs t t h e o r e m o f w e l fa r e
e c o n o m i c s - - t h a t c o m p e t i t iv e m a r k e t s a re s u f f i c i en t t o g e n e r a t e e f f ic i e n c y ,
a t l e a s t i n t he a bse nc e o f pub l i c g ood s , e x t e r na l i t i e s , o r i nc r e a s ing
r e tu r n s . Y e t th i s b e l i e f h a s b e e n u n d e r m i n e d b y t h e d e v e l o p m e n t o f t h e
e c o n o m i c s o f i n c o m p l e t e m a r k e t s a n d i m p e r f e c t i n f o r m a t i o n . A s J o s e p h
S t ig l it z p u t s it , A d a m S m i t h ' s i n v i s ib l e h a n d m a y b e m o r e l ik e th e
Em pe r o r ' s ne w c lo the s : i nv i s ib l e be c a use i t is no t t he r e . '5
T h e b l u e p r i n t o f e f f i c i e n t m a r k e t s w a s d e v e l o p e d g r a d u a l l y b y l a t e
n i n e t ee n t h - a n d e a r ly t w e n t i e t h - c e n t u r y e c o n o m i s t s l i k e L 6 o n W a l ra s a n d
V i l fr e d o P ar e to b e f o r e b e in g f o r m a l i z e d b y K e n n e t h A r r o w a n d G e o r g e s
D e b r e u i n 1 9 5 4. 6 T h e m o d e l i s s i m p l e : I n d i v i d u a ls k n o w t h a t t h e y h a v e
n e e d s a n d e n d o w m e n t s , a nd t h e y f r e e ly p r o d u c e a n d e x c h a n g e g o o d s a n d
se r v ic e s . I n e qu i l ib r ium, a l l i nd iv idua l s ' e xpe c ta t ions a r e f u l f i l l e d , a nd a l l
m a r k e t s c l e a r , H e n c e t h e p r i c e s a t w h i c h i n d i v i d u a l s e x c h a n g e r e f l e c t
-
8/19/2019 Neoliberal Fallacy
6/17
8 Journal of emocracy
t h e i r p r e f e r e n c e s a n d t h e r e la t i v e s c a rc i ti e s o f v a r i o u s g o o d s a n d s e r v i c e s ;
t h e s e p r i c e s i n f o r m i n d i v i d u a l s a b o u t a l l t h e o p p o r t u n i t i e s t h e y f o r s a k e .
A s a r e s u l t , r e s ou r c e s a r e a l l oc a t e d i n s uc h a w a y t ha t a l l ga i n s f r om
t r a d e a r e e x h a u s t e d ; n o o n e c a n b e b e t t e r o f f w i t h o u t s o m e o n e e l s e b e i n g
w o r s e o f f ; a n d t h e r e su l t in g d i s tr i b u ti o n o f w e l f a r e w o u l d n o t b e a l t e r e d
u n d e r a u n a n i m i t y r u l e . T h e s e a r e t h r e e e q u i v a l e n t d e f i n i t i o n s o f
c o l l e c t i v e r a t i o n a l i t y ( a l s o k n o w n a s P a r e t o o p t i m a l i t y ) .
T h e c a s e f o r m a r k e t s a s e f f i c i e n t r e s o u r c e a l l o c a t o r s h i n g e s o n t h e
a s s u m p t i o n t h a t m a r k e t s a r e c o m p l e t e , o r i n o t h e r w o r d s , th a t t h e r e i s
a m a r k e t f o r e v e r y c o n t i n g e n t st a te o f n a t u re . B u t a s K e n n e t h A r r o w
h i m s e l f s h o w e d i n 1 9 6 4 , t h is a s s u m p t i o n is u n w a r r a n t e d : s o m e f u t u re s
m a r k e t s , p a r t ic u l a r l y r i s k m a r k e t s , a r e i n e v i t a b l y m i s s i n g . 7 W i t h s o m e
m a r k e t s a b s e n t , p r i c e s n o l o n g e r s u m m a r i z e a l l t h e o p p o r t u n i t y c o s t s ,
w h i c h i m p l i e s t h a t n o t a l l e c o n o m i c a g e n t s a r e o p e r a t i n g w i t h t h e s a m e
i n f o r m a t i o n . L a b o r m a r k e t s , c a p i t a l m a r k e t s , a n d g o o d s m a r k e t s d o n o t
c l e a r , a n d t h e r e s u l t i n g a l l o c a t i o n w i l l h a v e r o o m f o r i m p r o v e m e n t .
M o r e o v e r , a s G r e e n w a l d a n d S t i g l i t z h a v e s h o w n , i f a n y m a r k e t s a r e
m i s s i n g , th e n e v e n t h e a l lo c a t i o n o f th o s e r e s o u r c e s f o r w h i c h m a r k e t s
do e x i s t w i l l n o t be e f f i c ie n t , s
T o e x a m i n e t h e ef f e c t o f m a r k e t -o r i e n t ed r e f o r m s o n g r o w t h , w e n e e d
t o d i s t i ngu i s h t h r e e que s t i ons : 1 ) W hy do s t a b i l i z a t i on a nd l i be r a l i z a t i on
( o f f o r e i g n t r a d e a n d d o m e s t i c c o m p e t i ti o n ) i n d u c e r e c e s s i o n s ? 2 ) W h y
d o s o m e s t a b i l i z a t i o n p r o g r a m s u n d e r m i n e f u t u r e g r o w t h ? 3 ) A r e s t a b i l i t y
a n d c o m p e t i t i o n s u f f ic i e n t f o r a r e s u m p t i o n o f g r o w t h ? 9
S t a b i l i z a t i o n p r o g r a m s t e n d t o i n d u c e r e c e s s i o n s , e v e n w h e n t h e y a r e
no t a c c om pa n i e d by l i be r a l i z a t i on . T he r e a r e a t l e a s t t w o r e a s ons f o r t h i s :
s t a b i l i z a t i o n i s u s u a l l y a c h i e v e d b y r e d u c i n g d e m a n d ; a n d s u c c e s s f u l
s t a b i l i z a t i on m a ke s i n t e r e s t r a t e s s oa r . M or e ove r , t he r e duc t i on o r
e l i m i na t i on o f s ubs i d i e s t o i ndus t r i e s , p r i c e s uppo r t s , a nd i m por t t a r i f f s ,
a l o n g w i t h d o m e s t i c a n t i m o n o p o l y m e a s u r e s , a l l t e n d t o d e p r e s s r a t e s o f
r e t u r n o n i n v e s t m e n t a n d b o o s t u n e m p l o y m e n t .
W hi l e h i gh i n t e r e s t r a t e s m a y be t r a ns i t o r y , t he i r e f f e c t s l i nge r a f t e r
t he i n i t i a l pe r i od o f s t a b i l i z a t i on i s ove r . A s S t a n l e y F i s c he r ha s po i n t e d
out :
Investment will not resume unti l real interest rates reach a reasonable
level, and prolonged periods o f high real interest rates create financial
crises and bankruptcies even for firms that would be viable at reasonable
levels o f interest rate. 1~
T h e s e c o n d r e a s o n w h y s t a b i l i z a t i o n p r o g r a m s o f t e n u n d e r m i n e t h e
p r o s p e c t s f o r f u t u r e g r o w t h h a s b e e n h i g h l i g h t e d b y V i t o T a n z i , w h o
o b s e r v e d t h a t s p e n d i n g c u t s m a d e u n d e r t h e p r e s s u r e o f f i s c a l c r i s e s t e n d
n o t t o d i s c r i m i n a t e b e t w e e n g o v e r n m e n t c o n s u m p t i o n a n d p u b l i c
i n v e s t m e n t . A f t e r e x a m i n i n g s e v e r a l i n s t a n c e s i n w h i c h s t a b i l i z a t i o n
p o l i c i e s u n d e r m i n e d t h e c a p a c i t y f o r g r o w t h , T a n z i c o n c l u d e d :
-
8/19/2019 Neoliberal Fallacy
7/17
Capitalism Socialism and Democracy/Przeworski 49
In al l these examples, the supply has been reduced, thus creating
imbalances that, in t ime, h ave ma nifested them selves as excessive demand.
In these cases, dema nd-m anag em ent policies alone would ha ve reduced the
sym ptom s of these imbalances b ut wo uld not hav e eliminated the causes.
Thus, stabilization p rog ram s m igh t succeed stabilization p rog ram s without
bringing about a durable adju stm ent) l
I n d e e d , i n v e s t m e n t p r o j e c t s a r e o f t e n p o l i t i c a l l y e a s i e r t o c u t t h a n
g o v e r n m e n t s e r v i c e s o r p u b l i c e m p l o y m e n t . B o t h p u b l i c i n v e s t m e n t s i n
i n f r a s t r u c t u r e a n d m e a s u r e s t o i n d u c e p r i v a t e i n v e s t m e n t a r e r e d u c e d ,
t hus d i m i n i s h i ng f u t u r e s upp l y .
F i n a l ly , e v e n i f th e y a r e s u c c e s s f u l i n t h e i r o w n t e r m s , m a r k e t -
o r i e n t e d r e f o r m s a r e n o t l i k e l y t o g e n e r a t e c o n d i t i o n s c o n d u c i v e t o
g r o w t h . N e o c l a s s i c a l e c o n o m i c t h e o r y h a d l i t t l e t o s a y a b o u t g r o w t h . I t s
p r e o c c u p a t i o n s w e r e m a i n l y s t a t i c , a n d a n y o n e w h o h a s r e a d S c h u m p e t e r
k n o w s t h a t s t a t i c e f f i c i e n c y i s a p o o r c r i t e r i o n o f w e l f a r e . D y n a m i c
e c o n o m i e s a r e n o t e f f i c i e n t i n t h e s t a t i c s e n s e : t h e y u s e a n u m b e r o f
t e c hn i que s , w i t h d i f f e r e n t c o s t - be ne f i t r a t i o s . I n t u r n , t he que s t i on o f
w h e t h e r a c o m p e t i t i v e m a r k e t g e n e r a t e s d y n a m i c e f f i c i e n c y i s h i g h l y
c o m p l e x . T h e t h e o r y t h a t d i d e m e r g e f r o m n e o c l a s s i c a l e c o n o m i c s , t h e
S o l o w - S w a n m o d e l o f e x o g e n o u s g r o w t h , a r g u e d th a t c o m p e t i t iv e
e qu i l i b r i um i s e f f i c i e n t bu t a l s o t ha t i t l e a ds t o s t a gna t i on o f i nc om e i n
t h e a b s en c e o f e x o g e n o u s p o p u l a ti o n g r o w t h a n d e x o g e n o u s t e ch n i c a l
c h a n g e . T h i s t h e o r y p re d i c t e d th a t t h e l e v e ls o f e c o n o m i c d e v e l o p m e n t
s h o u l d c o n v e r g e a m o n g a ll c o u n t r ie s , a n d t h e y d o n o t ) 2 R e c e n t m o d e l s
d o p r o v i d e a n e n d o g e n o u s e x p l a n a ti o n o f e c o n o m i c g r o w t h , b u t i n th e s e
t h e o r ie s t h e c o m p e t i t i v e e q u i l ib r i u m is n o l o n g e r e f f i c i e n t ) 3 T h e e n g i n e
o f g r ow t h i s a s e t o f e x t e r na l it i e s i n e duc a t i on , s k i l l s, t e c hn o l og y , a nd
s o o n . C o m p e t i t i v e m a r k e t s , i n w h i c h f i r m s d o n o t c a p t u r e f u l l r e t u r n t o
t h e i r e n d o w m e n t s , t e n d t o u n d e r s u p p l y t h e f a c t o r s t h a t g e n e r a t e s u c h
exte rna l i t i e s .
T h e S ta te a n d c o n o m i c G r o w t h
H e n c e t h e p r e s e n t s t a t e o f e c o n o m i c t h e o r y d o e s n o t s u p p o r t t h e
c o n c l u s i o n t h a t c o m p e t i t i v e m a r k e t s a r e s u f f i c i e n t e i t h e r t o a l l o c a t e
r e s o u r c e s e f f i c i e n t l y o r t o g e n e r a t e g r o w t h . W h e t h e r o n e t a k e s t h e t h e o r y
o f i n c o m p l e t e m a r k e t s , w i t h t h e ir i n f o r m a t i o n a l a s y m m e t r i e s ; o r t h e
t h e o r y o f e n d o g e n o u s g r o w t h , w i t h c o n s t a n t r e t u r n s t o a s i n g l e f a c t o r a n d
e x t e r n a l i t i e s ; o r t h e t h e o r y o f n o n - W a l r a s i a n t r a d e , o n e w i l l d i s c o v e r
n e o c l a s s i c a l a r g u m e n t s w h i c h s u g g e s t t h a t s o m e s t a t e i n t e r v e n t i o n i s
n e c e s s a r y f o r g r o w t h . T h e n o t i o n t h a t th e m a r k e t b y i t s e l f c a n e f f i c ie n t l y
a l l oc a t e s c a r c e r e s ou r c e s i s pu r e l y ho r t a t o r y . 14
T h e c e n t r a l le s s o n o f th e e n d o g e n o u s - g r o w t h t h e o r i e s is th e
i m p o r t a n c e o f e d u c at io n , w h e t h e r m e a s u r e d b y s c h o o l - e n ro l l m e n t r a te s
o r b y i n d i c e s s u c h a s l i t e r a c y . P r i m a r y e d u c a t i o n f o r w o m e n h a s
-
8/19/2019 Neoliberal Fallacy
8/17
5 Journal of emocracy
p a r t ic u l a r ly h i g h r e t u r n s i n t e r m s o f p e r c a p i t a g r o w t h . A n d w h i l e n o
s i m i l a r s t a t i s t i c a l s t ud i e s s e e m t o be a va i l a b l e w i t h r e ga r d t o he a l t h
e x p e n d it u re s , t h e W o r d B a n k ' s 1 99 1 Worm evelopment Report c i t e s
i m p r e s s i v e e v i d e n c e o n t h e p r o d u c t i v i t y - b o o s t i n g e f f e c t s o f h e a l t h
p r o g r a m s , a s w e l l a s t h e s t r o n g s t a t i s t i c a l c o r r e l a t i o n b e t w e e n m o r e e q u a l
d i s tr ib u t io n s o f i n c o m e a n d f a s t e r g r o w t h .
T h e e f f e c t o f p u b l i c i n v e s t m e n t o n g r o w t h i s a t o p i c t o o c o n t r o v e r s i a l
t o b e d e a l t w i t h i n a s u m m a r y f a s h i o n , y e t r e c e n t r e s e a r c h s u m m a r i z e d
b y G e n e G r o s s m a n s h o w s t h a t g o v e r n m e n t s s h o u l d e n g a g e i n
i n f ra s tr u c t u ra l i n v e s t m e n t s n o t s u p p l i e d e f f i c i e n t l y b y p r i v a t e a g e n t s , a n d
s h o u l d p u r s u e m e a s u r e s t h a t i n c r e a s e th e r a t e o f r e t u rn t o p r i v a t e
p r o j e c t s . ~5 T h i s r o l e i nc l ude s a s e l e c t i ve i ndus t r i a l po l i c y t ha t w o u l d
c o m p r i s e p r e f e re n t i a l c r e d i t r a t e s f o r h i g h - t e c h n o l o g y i n d u s tr i e s ( i n w h i c h
t h e m a r k e t ra t e o f r e tu r n i s m u c h l o w e r t h a n t h e s o c i a l ra t e ); f o r p r o j e c t s
t h a t s u f f e r f r o m h i g h c o s t s o f e n t r y , s u b s t a n t ia l e c o n o m i e s o f s c a l e , o r
s t e e p l e a r n i n g c u r v e s ; a n d f o r p r o j e c t s t h a t h a v e p o t e n t i a l s p i l l o v e r s
a c r o s s f i n n s d u e t o e x t e r n a l i t i e s a n d a s y m m e t r i e s o f i n f o r m a t i o n b e t w e e n
b u y e r s a n d p r o d u c e r s . O t h e r r e c e n t f i n d i n g s b y e c o n o m i s t s s u c h a s
R o b e r t B a r r o a n d R o n a l d F i n d l a y r e i n f o r c e t h e i d e a t h a t s o m e
i n te r m e d i at e le v e l o f p u bl ic i n v e s t m e n t a n d e m p l o y m e n t - - f a r b e l o w 1 00
p e r c e n t b u t a l s o f a r a b o v e z e r o - - i s o p t i m a l f o r e c o n o m i c g r o w t h . 16
T h e s e f i n d i n g s c o n c e r n i n g t h e r o l e o f t h e s t a te i n p r o m o t i n g a n d
s u s t a i n i n g d e v e l o p m e n t r a i s e t h e f u n d a m e n t a l i n s t i t u t i o n a l q u e s t i o n o f
h o w t o o r g a n i z e s t a t e i n s t i t u t i o n s s o t h a t t h e y i n t e r v e n e o n l y w h e n
a p p r o p r i a t e . N e o l i b e r a l e c o n o m i s t s s u c h a s R o b e r t T o l l i s o n a n d G e o r g e
S t i g l e r r e m i nd u s t ha t t he s t a t e ' s a b i l i t y t o e nga ge i n p r oduc t i ve a c t i v i t i e s
o r d i f f e r e n t i a l l y f a vo r p r i va t e p r o j e c t s c a n e a s i l y g i ve r i s e t o r e n t
s e e k i ng . ~7 Bu t w h i l e t he que s t i on o f t he s oc i a l l y op t i m a l i n s t it u t i ona l
r u l e s a n d s t r u c t u r e s r e m a i n s o p e n , i t w o u l d b e a m i s t a k e t o a n s w e r t h a t
t h e s t a t e s h o u l d b e p r e v e n t e d f r o m a n y d i s c r e t i o n a r y i n t e r v e n t i o n ,
l i m i ti n g it s r o l e t o p r o m o t i n g t h e f r e e d o m o f i n d iv i d u a l e n t e r p r i s e .
P r o b l e m s o f i n st it u ti o n a l d e s i g n c a n n o t b e s o l v e d b y p r e t e n d i n g t h a t th e
s ta te c a n s o m e h o w b e w a l l ed o f f fr o m t h e e c o n o m y , b u t m u s t b e
c on f r on t e d a s s uc h .
N o r c a n i n s ti t u ti ona l que s t i ons be l i m i t e d t o t he r o l e o f t he s t a t e .
A n y c a p i t a l i s t e c o n o m y , i n w h i c h m a r k e t s a r e i n e v i t a b l y i n c o m p l e t e a n d
p a r t i c u l a r e c o n o m i c a g e n t s h a v e a c c e s s t o d i f f e r e n t i n f o r m a t i o n , i n c l u d e s
s e v e r a l d i f fe r e n t t y p e s o f p r i n c i p a ls a n d a g e n t s: m a n a g e r s a n d e m p l o y e e s ,
o w n e r s a n d m a n a g e r s , c r e d i t o r s a n d e n t r e p r e n e u r s , c i t i z e n s a n d
p o l it ic i an s . T h e p e r f o r m a n c e o f p a r ti c u l a r f i r m s - - a n d u l t i m a t e l y o f th e
w h o l e e c o n o m y - - -- d e p e n d s o n t h e d e s i g n o f i n s t it u ti o n s t h a t r e g u l a t e t h e s e
r e l a t i o n s . W h a t m a t t e r s i s w h e t h e r t h e e m p l o y e e s h a v e i n c e n t i v e s a n d c a n
b e m o n i t o r e d t o m a x i m i z e e f f o r t ; w h e t h e r m a n a g e r s h a v e i n c e n t i v e s a n d
c a n b e m o n i t o r e d t o m a x i m i z e p r o f i t s ; a n d w h e t h e r t h e s t a t e h a s
i n c e n t i v e s a n d c a n b e m o n i t o r e d t o r e s i s t p r e s s u r e f r o m w e a k f i r m s o r
-
8/19/2019 Neoliberal Fallacy
9/17
Capi ta l ism Soc ia l ism and Dem ocracy /P rzeworsk i 5
s p e c i al i n te r es ts . T o s p e a k o f t h e m a r k e t a s t h e o b j e c t o f s t a t e
i n t e r ve n t i on obs c u r e s the r e a l i s s ue s : t he p r o b l e m w e f a c e is no t a
s i m p l e m a t t e r o f t h e m a r k e t v e r s u s t h e s t a te , b u t o f s p e c i f i c
i n s t i t u t i o n a l m e c h a n i s m s t h a t c a n p r o v i d e p a r t i c u l a r e c o n o m i c a g e n t s ,
i nc l ud i ng t he s t a t e , w i t h i nc e n t i ve s a nd i n f o r m a t i on t ha t w i l l l e a d t he m
t o b e h a v e i n a c o l l e c t i v e l y r a t i o n a l m a n n e r . T
T h e p r a c t i c a l c o n s e q u e n c e s o f i g n o r i n g s u c h i s s u e s a r e b e s t i l l u s t r a t e d
b y t h e v a g a r i e s o f p r iv a t i z a ti o n i n E a s t e r n E u r o p e . F o r m e r P o l i s h f i n a n c e
m i n i s t e r L e s z e k B a l c e r o w i c z h a s d e f e n d e d p r i v a t i z a t i o n a s f o l l o w s :
A market economy based on a broad par t ic ipat ion of di f ferent forms of
private ownership permits the achievement of the highest degree of
e f fec t iveness - -among a ll economic sys tems known in prac t i ce - - in us ing
the material and spiritual resources of a society. As a result, it generates
the quickest im pro vem ent in the living standard o f citizens. Th is is so
becau se economizing costs , good organization of work, high quali ty of
production, the effectiv e search for new markets, an d technical pro gres s
and development are in the interest of
the proprietors wh o dire t the wo rk
of enterprises f l
T h e s e k i n d s o f h o p e s r e g a r d i n g p r i v a t i z a t io n r e s t o n t h r e e f a l s e
a s s u m p t i o n s : 1 ) t h a t p r i v a t e p r o p e r t y w i l l s o l v e p r i n c i p a l - a g e n t p r o b l e m s ,
f o r c i n g m a n a g e r s t o m a x i m i z e p r o f i t ; 2 ) t h a t t h e m a r k e t i s a s o u r c e o f
i n c e n t iv e s f o r e m p l o y e e s r a th e r t h a n i n f o r m a t i o n f o r m a n a g e r s ; a n d 3 )
t h a t e n o u g h c a p i t a l w i l l b e f o r t h c o m i n g t o i n f u s e i n v e s t m e n t i n t o n e w l y
p r i v a t e f i n n s . T h e f i r s t t w o a s s u m p t i o n s a r e b a s e d o n n i n e t e e n t h - c e n t u r y
c o n c e p t i o n s o f c a p it a l is m . T o s e e t h e f l a w i n th e l a s t a s s u m p t i o n r e q u i r e s
o n l y e l e m e n t a r y a c c o u n t i n g : g i v e n t h a t p r i v a t e s a v i n g s i n E a s t e r n E u r o p e
d o n o t e x c e e d 1 0 p e r c e n t o f c a p it a l s to c k , a n d a s s u m i n g t h a t f o r e i g n e r s
w i l l b u y a t m o s t a n o t h e r 1 0 p e r c e n t , w h e r e i s t h e r e s t o f t h e c a p i t a l t o
c o m e f r o m ? A s a r e s u l t o f s u c h m i s c o n c e p t i o n s , P o l a n d h a s s p e n t t w o
ye a r s a r gu i ng a bou t p r i va t i z a t i on , l e a v i ng i n unc e r t a i n t y t he s t a t u s o f t he
s t a t e e n t e r p r i s e s t h a t c o n t i n u e t o p r o d u c e a b o u t 7 0 p e r c e n t o f
nona g r i c u l t u r a l ou t pu t .
em ocracy and Econom ic
P e r f o r m a n c e
O n e w o u l d c e r t a i n l y w i s h t o a g r e e w i t h t h e B o n n C o n f e r e n c e o n
E c o n o m i c C o o p e r a t i o n i n E u r o p e t h a t d e m o c r a t i c i n s ti tu t i o n s a n d
e c o n o m i c f r e e d o m f o s t e r e c o n o m i c a n d s o c ia l p r o g r e s s . Y e t g i v e n t h e
c u r r e n t st a te o f k n o w l e d g e , w e d o n o t k n o w i f t h is i s tr u e . T h e
u n d e r l y i n g p r e m i s e i s t h a t d e m o c r a c y s a f e g u a r d s p r o p e r t y f i g h t s a n d
t h e s e i n t u r n , b y d i m i n i s h i n g t h e r i s k t o i n v e s t o r s , f o s t e r e c o n o m i c
g r o w t h . I t m a y b e t ru e , a s s o m e h a v e a r g u e d , t h a t s e c u re p r o p e r t y r i g h t s
f o s t e r g r o w t h . Y e t , e v e n i f d e m o c r a c y f o s t e r s g r o w t h , i t m u s t b e f o r
r e a s o n s o t h e r th a n i t s g u a r a n te e o f p r o p e r t y f i g h ts . M o r e o v e r , w e d o n o t
-
8/19/2019 Neoliberal Fallacy
10/17
52 Journal o f emocracy
k n o w w h e t h e r d e m o c r a c y p r o m o t e s e c o n o m i c d e v e l o p m e n t , h in d e r s it, o r
i s i r re l evant to i t .
T he s t a t i s t i c a l e v i de nc e i s i nc onc l u s i ve a nd t he s t ud i e s t ha t p r oduc e d
i t a r e a l l s e r i ous l y f l a w e d . I r e v i e w e d 17 s t ud i e s t ha t ge ne r a t e d 20
f i n d in g s ( s o m e d i s ti n g u i s h e d s e p a r a t e a r e a s o r p e r i o d s ) . 2~ A m o n g t h e m ,
e i g h t f o u n d i n f a v o r o f d e m o c r a c y a n d e i g h t i n f a v o r o f a u t h o r i t a r i a n i s m ;
t h e o t h e r f o u r d i s c o v e r e d n o d i f f e r e n c e . W h a t i s e v e n m o r e p u z z l i n g i s
t ha t a m ong t he 11 r e s u l t s pub l i s he d i n 1987 o r e a r l i e r , e i gh t f ound t ha t
a u t h o r it a ri a n r e g i m e s g r e w f a st e r, w h i l e n o n e o f t h e n i n e r e s u l t s
pub l i s he d a f t e r 1987 s uppo r t e d t h i s f i nd i ng . S i nc e t h i s d i f f e r e nc e doe s
n o t s e e m a t t r i b u t a b l e t o s a m p l e s o r p e r i o d s , o n e c a n o n l y w o n d e r a b o u t
t h e r e l a t i o n b e t w e e n s t a t i s t i c s a n d i d e o l o g y . D u e t o c e r t a i n t e c h n i c a l
p r o b l e m s , I h e s i t a t e t o a t t a c h m u c h s i g n i f i c a n c e t o t h e s e r e s u l t s o n e w a y
o r a n o t h e r . H e n c e I a m n o t s u g g e s t i n g t h a t d e m o c r a c y g e n e r a t e s i n f e r i o r
e c o n o m i c p e r f o r m a n c e - - - o n l y t h a t w e s ti ll d o n o t k n o w w h a t t h e fa c t s
are
D e m o c r a c y m a y p r o m o t e e c o n o m i c g r o w t h f o r a v a r i e t y o f r e a s o n s :
f o r e x a m p l e , b e c a u s e i t i s i n f o r m a t i o n a l l y e f f i c i e n t i n t h e s e n s e o f
p u n i s h i n g b a d r u l er s a n d r e w a r d i n g g o o d o n e s . 21 B u t d e m o c r a c y a s s u c h
d o e s n o t n e c e s s a r i l y s a f e g u a r d p r o p e r t y r i g h t s .
T h e m a r k e t i s a s y s t e m i n w h i c h s c a r c e r e s o u r c e s a r e a l l o c a t e d t o
a l te r n a t iv e u s e s b y d e c e n t r a l iz e d d e c i s i o n s . Y e t u n d e r c a p i t a l i s m p r o p e r t y
i s i n s t i t u t i ona l l y d i s t i nc t f r om a u t ho r i t y : i nd i v i dua l s a r e s i m u l t a ne ous l y
m a r k e t a g e n t s a n d c i t i z e n s . A s a r e s u l t , t h e r e a r e t w o m e c h a n i s m s b y
w h i c h r e s o u r c e s c a n b e a l l o c a t e d t o u s e s a n d d i s t r i b u t e d a m o n g
h o u s e h o l d s - - t h e m a r k e t a n d t h e s t a t e . T h e m a r k e t i s a m e c h a n i s m i n
w h i c h i n d iv i d u a l s c a s t v o t e s f o r a l l o c a ti o n s w i th th e r e s o u r c e s t h e y
ow n , r e s ou r c e s t ha t a r e a l w a ys d i s t r i bu t e d une qua l l y ; t he s t a t e i s a
s ys t e m t ha t a l loc a t e s r e s ou r c e s w h i c h i t doe s no t ow n , w i t h f i gh t s
d i s t r i b u t e d d i f f e r e n t l y f r o m t h e m a r k e t . H e n c e t h e t w o m e c h a n i s m s l e a d
t o th e s a m e o u t c o m e o n l y b y a f l u k e . T h e a l l o c a t i o n o f r e s o u r c e s t h a t
i nd i v i dua l s p r e f e r a s c i t i z e ns ge ne r a l l y f a i l s t o c o i nc i de w i t h t he
a l l o c a t i o n t h a t t h e y d e c i d e u p o n t h r o u g h t h e m a r k e t .
D e m o c r a c y ' s r u le o f o n e c i ti z e n , o n e v o t e e x a c e r b a t e s t h is
d i v e r g e n c e b y e q u a l i z i n g t h e r i g h t t o i n f lu e n c e t h e a l l o c a t io n o f r e s o u r c e s
t h r ough t he s ta t e . I t i s ha r d l y s u r p r i s i ng t ha t d i s t r i bu t i ons o f c o ns u m pt i o n
p r o d u c e d b y t h e m a r k e t d i f f e r f r o m t h o s e c o l l e c t i v e l y p r e f e r r e d b y t h e
e l e ct o r at e , s in c e d e m o c r a c y o f f e rs th o s e w h o a r e p o o r , o p p r e s s e d , o r
o t he r w i s e d i s s a t i s fi e d w i t h the i n it ia l d i s tr i bu t i on o f e nd ow m e n t s a n
o p p o r t u n i t y t o s e e k r e d r e s s v i a t h e s t a t e . E n d o w e d w i t h p o l i t i c a l p o w e r
i n t h e f o r m o f u n i v e r s a l s u f f r a g e , t h o s e w h o s u f f e r a s a c o n s e q u e n c e o f
p r i v a t e p r o p e r t y w i l l a t t e m p t t o u s e t h i s p o w e r t o r e d i s t r i b u t e w e a l t h . T o
pu t i t i n te c hn i c a l t e r m s : i f the m e d i a n v o t e r i s de c i s i ve , a nd i f t he
m a r k e t - g e n e r a t e d di st ri b ut io n o f i n c o m e is s k e w e d t o w a r d l o w e r i n c o m e s
( a s i t a l w a ys i s) , t he n m a j o r i t y r u l e w i l l c a l l f o r a n e qu a l i t y o f i nc om e s . 22
-
8/19/2019 Neoliberal Fallacy
11/17
Capitalism Socialism and Demo cracy/Przeworski 5
T h e q u e s t i o n o f d e m o c r a c y ' s i m p a c t u p o n t h e i n s ti t u ti o n o f p r iv a t e
p r o p e r t y l a y a t t h e h e a r t o f d e b a t e s o v e r t h e r i g h t s t o v o t e a n d t o
a s s o c i a t e i n W e s t e r n E u r o p e a n d N o r t h A m e r i c a d u r i n g t h e n i n e t e e n t h
c e n t u r y . C o n s e r v a t i v e s c o n c u r r e d w i t h s o c i a l i s t s t h a t
. . . s oc i e t y , by wh ich
I mean a l l t he
p e o p l e o f a c o u n t r y
ac t ing th rough a
democra t i c p roces s ,
can dec ide
c o l l e c t i v e l y t h a t
g o o d s o t h e r t h a n
t h o s e m a x i m i z e d
b y t h e m a r k e t
s h o u l d b e t h e g o a l
o f d e v e l o p m e n t .
d e m o c r a c y - - s p e c i f i c a l l y u n i v er s al s u f fr a g e
a n d t h e r ig h t o f w o r k e r s to o r g a n i z e - - m u s t
t h r e a t e n p r o p e r t y . M a d i s o n , M a c a u l a y ,
R i c a r d o , a n d M a r x a l l a g r e e d t h a t p e o p l e
w i t h l i t t l e o r n o p r o p e r t y w o u l d u s e t h e i r
po l i t i c a l r i gh t s t o e xp r op r i a t e t hose w i th
m o r e , t h u s u n d e r m i n i n g c a p i t a l i s m . T h e
S c o t t i s h p h i l o s o p h e r J a m e s M a c k i n t o s h
p r e d ic t e d in 18 18 tha t i f t he l a bo r io us
c l a s se s we r e t o ga in t he f r a nc h i se , a
p e r m a n e n t a n i m o s i t y b e t w e e n o p i n i o n a n d
p r o p e r ty m u s t b e t h e c o n s e q u e n c e . D a v i d
R i c a r d o w a s p r e p a r e d t o e x t e n d s u f f r a g e
o n l y t o th a t p a r t o f [ th e p e o p l e ] w h i c h
c a n n o t b e s u p p o s e d t o h a v e a n i n t e r e s t i n
ove r tu r n ing the r i gh t t o p r ope r ty . '23 Th om a s
B a b ing ton Ma c a u la y , i n h i s 1842 spe e c h on the C ha r t i s t s , p i c tu r e d
un ive r sa l su f f r a ge a s t he e nd o f p r ope r ty a nd thus o f a l l c iv i l i z a t i on . 24
E i g h t y e a r s l a t e r , K a r l M a r x e x p r e s s e d t h e s a m e c o n v i c t i o n t h a t p r i v a t e
p r o p e r t y a n d u n i v e r sa l s u f f ra g e a r e i n c o m p a t i b l e ) 5
I n r e t r o s p e c t , t h e s e c o n c l u s i o n s w e r e o b v i o u s l y t o o s t r o n g . T h e r e a r e
1 4 c o u n t r i e s i n t h e w o r l d t o d a y t h a t h a v e r e m a i n e d c o n t i n u o u s l y
c a p i ta l is t a n d d e m o c r a t i c f o r t h e p a st h a l f - ce n t u r y . Y e t i f t h e p e o p l e
( in i t s e igh te e n th - c e n tu r y s ingu la r ) i s sove r e ign , i t ma y p r e f e r a n
a l l o c a t i o n a n d d i s t r i b u t i o n o f r e s o u r c e s t h a t d i f f e r s f r o m t h e m a r k e t
o u t c o m e . T o c i t e B r ia n B a r r y , I t is p r e c i s e ly b e c a u s e t h e m a r k e t i s
i n c o m p a t i b l e w i t h t h e i n t r o d u c t io n o f c o n s i d e r a t io n s o f d i s t r ib u t i v e j u s t i c e
t h a t it c a n n o t b e a c c e p t e d a s t h e a r b it e r o f i n c o m e d i s t r ib u t i o n . A s
Dia ne E l son ha s n i c e ly pu t it , i n t he ma r ke t , c ho ic e in the sma l l doe s
n o t p r o v i d e c h o i c e i n t h e l a r g e ; i n d i v i d u a l s c a n c h o o s e b u t s o c i e t y
c a nno t . 26 A nd soc i e ty , by wh ic h I m e a n a l l t he p e op le o f a c ou n t r y
a c t in g t h r o u g h a d e m o c r a t i c p r o c e s s , c a n d e c i d e c o l l e c t i v e l y t h a t g o o d s
o t h e r t h a n t h o s e m a x i m i z e d b y t h e m a r k e t s h o u l d b e t h e g o a l o f
d e v e l o p m e n t . D e m o c r a c y in e v i t a b l y t h r e a te n s p r o p e r t y r i g h t s .
Y e t d e m o c r a c i e s a re n o t a l l th e s a m e . S y s t e m s o f re p r e s e n t a ti o n ,
a r r a n g e m e n t s f o r d i v i d i n g a n d s u p e r v i s i n g p o w e r , m e t h o d s o f o r g a n i z i n g
in t e r e s t s , l e ga l doc t r ine s , a nd the r i gh t s a nd ob l iga t ions a s soc i a t e d w i th
c i t i z e n s h i p d i f f e r s i g n i f i c a n t l y a c r o s s r e g i m e s i n w h i c h p a r t i e s c o m p e t e
a nd ind iv idua l s e n joy po l i t i c a l r i gh t s . Ta ke n toge the r , suc h d i f f e r e nc e s
g e n e r a t e e f f e c t s w h i c h , i n s p i t e o f t w o t h o u s a n d y e a r s o f r e f l e c t i o n a n d
inve s t iga t ion , a r e s t i l l poo r ly unde r s tood .
-
8/19/2019 Neoliberal Fallacy
12/17
54 Journal of emocracy
M o r e s p e c i f i c a l l y , w e n e e d t o k n o w t h e c o n d i t i o n s u n d e r w h i c h
d e m o c r a t i c i n st it u ti o n s w o r k a n d e n d u r e . B y w o r k , I m e a n t h a t t h e y
a c h i e v e s u c h w i d e l y d e s i r e d e f f e c t s a s e c o n o m i c g r o w t h , m a t e r i a l
s e c u ri ty , f r e e d o m f r o m a r b i tr a r y v i o l e n c e , a n d s o o n . B y e n d u r e , I
m e a n t h a t th e y a b s o r b a n d e f f e c t i v e l y r e g u l a t e a l l m a j o r c o n f l ic t s , s o t h a t
l a w s a n d o t h e r r u l e s a r e c h a n g e d o n l y i n a l a w f u l a n d r e g u l a r f a s h i o n .
O d d a s i t m a y s e e m , t h e a n s w e r s e l u d e u s e v e n t o d a y .
T h i s i s n o t t o s a y t h a t t h e r e a r e n o c l u e s - - s t u d i e s o f d e v e l o p e d
c a p i t a l i st c oun t r i e s , f o r i n s t a nc e , s ho w t ha t un t i l t he e a r l y 1980s , be t t e r
e c o n o m i c p e r f o r m a n c e w a s m o s t o f t e n e n j o y e d b y c o u n t r i e s i n w h i c h
e n c o m p a s s i n g , c e n t r a l i z e d u n i o n s n e g o t i a t e d w i t h e m p l o y e r s i n t h e
p r e s e nc e o f a s t at e c on t r o l l e d by a s oc i a l de m oc r a t i c pa r t y . S t a t i s t ic a l
a n a l ys e s o f th e O E C D c o u n tr ie s h a v e s h o w n r e p e a t e d ly t h a t l o w e r
i n c o m e i n e q u a l i t y , m o r e e x t e n s i v e w e l f a r e s e r v i c e s , a m o r e f a v o r a b l e
t r a d e - o ff b e t w e e n e m p l o y m e n t a n d i n fl at io n , a m o r e f a v o r a b l e t r a d e - o f f
b e t w e e n w a g e s a n d i n v e s tm e n t , a n d a m o r e f a v o r a b l e t r a d e - o f f b e t w e e n
g r o w t h a n d s o c i a l p o l i c i e s a r e t o b e f o u n d i n c o u n t r i e s t h a t c o m b i n e
s t ro n g u n i o n s w i t h s o c i a l d e m o c r a t i c c o n t ro l o v e r t h e g o v e r n m e n t .
M y o w n s t u d y o f 14 O E C D c o u n t ri e s b e t w e e n 1 9 6 0 a n d 1 98 1 s h o w s
t h a t t h e w e l f a r e o f t h e a v e r a g e a d u l t , t h e a v e r a g e w o r k e r , a n d t h e
a v e r a g e m a n u f a c t u r i n g e m p l o y e e w a s h i g h e r i n s o c i a l d e m o c r a t i c
c oun t r i e s . ( W e l f a r e he r e i s de f i ne d a s t he u t i l i t y , t a k i ng i n t o a c c oun t r i s k
a v e r s i o n , o f a l o t t e r y c o m p o s e d o f m a r k e t i n c o m e , u n e m p l o y m e n t
c o m p e n s a t i o n , a n d s o c i a l w a g e . ) T o p u t i t s i m p l y , t h e o n l y c o u n t r i e s i n
t h e w o r l d i n w h i c h a l m o s t n o o n e i s p o o r a f t e r t a x e s a n d t r a n s f e r s a r e
t hos e t ha t p u r s ue s oc i a l de m oc r a t i c po l i c i e s . 27
W h a t s e e m s t o m a t t e r f o r e c o n o m i c p e r f o r m a n c e a n d s o c i a l w e l f a r e ,
t h en , i s n o t j u s t d e m o c r a c y i n g e n e r a l b u t sp e c i f i c d e m o c r a t i c
i n s t i t u t i ons a nd po l i c i e s . I nde e d , t he c o r r e c t que s t i on i s no t w he t he r
d e m o c r a c y a s w e h a v e k n o w n i t w i l l d e v e l o p i n t h e c o u n t r i e s t h a t h a v e
r e c e n t l y e x p e r i e n c e d a c o l l a p s e o f a u t h o r i t a r i a n i s m , b u t r a t h e r w h i c h
s o rt s o f d e m o c r a t i c in s ti tu t io n s , a n d w i t h w h a t e c o n o m i c o u t c o m e s , a r e
l i k e l y t o e m e r g e .
M o d e r n i z a t i o n v i a I n t e r n a t i o n a l i z a t i o n
W h i l e t h e c a u s e s o f t h e c o l la p s e o f g r o w t h i n t h e g l o b a l S o u t h a n d
E a s t a r e h a r d t o d i a g n o s e , t h e m o s t c o m m o n r e s p o n s e t o i t s e e m s e a s i e r
t o i d e n ti f y . I t i s b e s t d e s c r i b e d a s m o d e r n i z a t i o n v i a
i n t e r na t i ona l i z a t ion . D i f f e r e n t po l i t i c a l f o r c e s in the c a p i t a l is t S ou t h a nd
t h e p o s t c o m m u n i s t E a s t se e n o a l t er n a ti v e b u t to e m b a r k o n t h e N o r t h -
W e s t P a s s a g e - - - a r o a d t h a t w o u l d l e a d t h e i r so c i e t ie s t o th e F i r s t
W o r l d , f o r s o m e t h e N o r t h , f o r o t h e r s t h e W e s t . T h i s i s a s t r a te g y
o f t r y in g t o a d o p t t h e p o l i ti c a l, e c o n o m i c , a n d c u l t u ra l p a t t e r n s
( d e m o c r a c y , m a r k e t s , a n d c o n s u m e r i s t i n d i v i d u a l i s m ) t h a t d o m i n a t e t h e
-
8/19/2019 Neoliberal Fallacy
13/17
Capitalism Socialism and Democracy/Przeworski
a d v a n c e d c a p i t a l i s t w o r l d . M o d e r n i z a t i o n b e c o m e s s y n o n y m o u s w i t h
in te rna t iona l iza t ion .
T h e p o l i ti c a l a n d e c o n o m i c p r o g r a m t h a t g u i d e s th e m o s t i m p o r t a n t
p o l i ti c a l f o r c e s t h r o u g h o u t E a s t e r n E u r o p e is t o j o i n t h e W e s t o r
r e e n t e r E u r o p e . T h i s p r o g r a m i s b a s e d o n w h a t w e m i g h t c a ll t h e
E a s t E u r o p e a n s y l l o g i s m . T h e m a j o r p r e m i s e o f t h is s y l lo g i s m is , I f i t
h a d n o t b e e n fo r c o m m u n i s m , w e w o u l d b e li k e t h e W e s t . T h e m i n o r
p r e m i s e i s N o w c o m m u n i s m i s g o n e . T h e co n c l u s i o n n o t o n l y a s se rt s
t h a t E a s t e r n E u r o p e s h o u l d a n d w i l l e m b r a c e t h e W e s t e r n m o d e l , b u t
a l s o p r o m i s e s t h a t t h i s m o d e l w i l l g e n e r a t e t h e w e a l t h a n d g l a m o r o f
de v e lop e d c a p i t a li sm. S imi l a r no t ions a r e c u r r e n t in La t in Am e r i c a , a s
w i t n e s s M e x i c a n p r e s i d e n t C a r l o s S a l i n a s d e G o r t a r i ' s p r o m i s e t o t a k e
h i s c o u n t r y t o t h e F i r s t W o r l d , o r B r a z i l ia n p r e s i d e n t F e m a n d o C o l l o r
d e M e l l o ' s t a l k o f
integrac ro competitiva
T h i s s t r a t e g y a p p e a r s t o b e w i t h o u t p r e c e d e n t i n h i s t o r y . A l l p r e v i o u s
a t t e m p t s a t m o d e r n i z a t i o n c o n c e i v e d o f d e v e l o p m e n t a s a p r o j e c t l i n k e d
t o n a t i o n a l , e c o n o m i c , a n d p o l i t i c a l i n d e p e n d e n c e . A l l p r e v i o u s
mode r n i z ing l e a de r s a s se r t e d the impor t a nc e o f na t iona l c u l tu r e s , c a l l e d
f o r po l i t i c a l i n s t it u t ions c o ns i s t e n t w i th na t iona l t r a d i ti ons , a nd e nv i sa ge d
gr ow th l e d b y n a t iona l i ndus t r i e s a nd o r i e n t e d tow a r d loc a l m a r ke t s . 2g I n
c o n t r a s t , t h e s t r a t e g y o f m o d e r n i z a t i o n b y i n t e r n a t i o n a l i z a t i o n e x p l i c i t l y
a c c e p t s a t l e a s t a pa r t i a l su r r e nde r o f na t iona l sove r e ign ty in t he po l i t i c a l ,
e c onomic , a nd c u l tu r a l r e a lms . Th i s s t r a t e gy ope ns l oc a l ma r ke t s t o
f o r e ign pe ne t r a t i on , a bo l i she s c u l tu r a l ba r r ie r s , a nd se e ks t o m od e l
p o l i t i c a l i n s t i t u t i o n s o n p a t t e r n s d e v e l o p e d e l s e w h e r e . C o c a - C o l a i s n o
longe r t he impe r i a l i s t d r ug bu t t he ne c t a r o f un ive r sa l p r ospe r i t y .
H i s t o r y s h o w s t h a t e v e n i n t h o s e c a s e s w h e r e m o d e r n i z a t i o n w a s a
s t r a t e g y o f a u t o n o m o u s n a t i o n a l d e v e l o p m e n t , i t t e n d e d t o c r e a t e
e n o r m o u s t e n s i o n s b y b r i n g i n g a b o u t c h a n g e s i n t h e d i s t r i b u t i o n o f
inc ome , sh i f t s i n powe r r e l a t i ons , a nd p r o f ound c u l tu r a l t r a ns f o r ma t ions .
F a r f r o m e s c a p i n g s u c h t e n s i o n s , t h e p u r s u i t o f m o d e r n i z a t i o n v i a
i n t er n a ti o n a li z a ti o n a c t u a l ly e x a c e r b a t e s t h e m . T h e r e a r e t w o r e a s o n s f o r
th i s . The f i r s t l i e s i n t he s t r a t e gy ' s c ompe t i t i ve na tu r e : a l l c oun t r i e s
c a n n o t s i m u l t a n e o u s l y h a v e a p o s i t i v e b a l a n c e o f p a y m e n t s . T h e r a c e t o
m o d e r n i z e w i l l i n e v i t a b l y h a v e i t s w i n n e r s a n d l o s e r s . M o r e o v e r , t h e
winne r s a nd the l o se r s w i l l no t be na t ion - s t a t e s bu t r e g ions , s e c to r s ,
i ndus t r i e s , a nd pa r t i c u l a r soc i a l g r oups . S ha r p inc r e a se s i n r e g iona l ,
s e c to r a l , a nd soc i a l i ne qua l i t y a c r os s a nd w i th in na t ions w i l l f o l l ow . A t
the s a me t ime , t h i s s t r a t e gy r e qu i r e s na t iona l gove r nme n t s t o r e l i nqu i sh
s o m e o f t h e tr a d it io n a l i n s tr u m e n t s o f e c o n o m i c p o l ic y : t h e y p e g
e x c h a n g e r a t e s, t h e y a d j u s t d e m a n d t o t h a t o f t h e i r t r ad i n g p a r t n e r s , t h e y
sub je c t t he mse lve s t o va r ious t a r ge t s a nd c ond i t i ons s e t by in t e r na t iona l
l e nde r s . As a r e su l t , na t iona l gove r nme n t s su f f e r a s e r ious de c l ine i n
t h e i r c a p a c i t y to c o m p e n s a t e l o s e r s a n d m a n a g e s o c i a l t e n s io n s g e n e r a l l y .
D e m o c r a c y s u f f e r s a s w e l l w h e n d e c i s i o n s t h a t w e r e o n c e c o n t r o l l e d b y
-
8/19/2019 Neoliberal Fallacy
14/17
6 Journal of emocracy
e l e c t e d n a t i o n a l o f f i c i a l s p a s s i n t o t h e h a n d s o f a c t o r s w h o c a n n o t b e
v o t e d i n o r o u t . T h e c o m b i n a t i o n o f i n c r e a s i n g i n e q u a l i t y a n d d e c r e a s i n g
n a t i o n a l s o v e r e i g n t y t h r e a t e n s t o e x a c e r b a t e s o c i a l c o n f l i c t s a n d w e a k e n
na sc e n t de moc r a t i c i n s t i t u t i ons .
T h e p o l i c y s t y l e i n h e r e n t i n n e o l i b e r a l e c o n o m i c r e f o r m p r o g r a m s
Since the
neoliberal 'cure '
is a painful one,
w i th s ign i f i can t
social costs ,
re forms tend to
be in i t ia ted f rom
above and launched
by surprise,
independen t ly o f
pub l ic op n on
a n d w i t h o u t t h e
par t i c ipa t ion
o f organ ized
pol i t ica l forces .
c o n t r i b u t e s t o t h i s p r o c e s s i n t h e f o l l o w i n g
w a y . S i n c e t h e n e o l i b e r a l c u r e i s a
pa in f u l one , w i th s ign i f i c a n t soc i a l c os t s ,
r e f o r m s t e n d t o b e i n i t i a t e d f r o m a b o v e a n d
l a u n c h e d b y s u r p r i s e , i n d e p e n d e n t l y o f
p u b l i c o p i n i o n a n d w i t h o u t t h e p a r t ic i p a t io n
o f o r g a n i z e d p o l i t i c a l f o r c e s . R e f o r m s t e n d
t o b e e n a c t e d b y f i a t , o r r a i l r o a d e d t h r o u g h
le g i s l a tu r e s w i thou t a ny c ha nge s r e f l e c t ing
t h e d i v e r g e n c e o f i n t e r e s t s a n d o p i n i o n s .
T h e p o l i t i c a l s t y l e o f i m p l e m e n t a t i o n t e n d s
t o w a r d r u l e b y d e c r e e ; g o v e r n m e n t s s e e k t o
m o b i l i z e t h e i r s u p p o r t e r s r a t h e r t h a n a c c e p t
t h e c o m p r o m i s e s t h a t m i g h t r e s u l t f r o m
pub l i c c onsu l t a t i on . I n t he e nd , t he soc i e ty
i s t a ugh t t ha t i t c a n vo te bu t no t c hoose ;
l e g i s l a tu r e s a r e g ive n the impr e s s ion tha t
t h e y h a v e n o r o l e t o p l a y i n t h e e l a b o r a t i o n
o f po l i c y ; na sc e n t po l i t i c a l pa r t i e s , t r a de
un ions , a nd o the r o r ga n iz a t ions l e a r n tha t t he i r vo i c e s do no t c oun t . The
a u t o c ra t ic c h a r a c t e r o f s u c h W a s h i n g t o n - s t y l e r e f o r m s h e l p s t o
unde r mine r e p r e se n ta t ive i n s t i t u t i ons , pe r sona l i z e po l i t i c s , a nd e nge nde r
a c l ima te i n wh ic h po l i t i c s be c ome s e i t he r r e duc e d to f i xe s , o r e l s e
i n f la t e d i n t o a s e a rc h f o r r e d e m p t i o n . T h u s e v e n w h e n n e o l i b e r a l re f o r m s
m a k e e c o n o m i c s e n se , t h e y w e a k e n r e p r e s e n t a ti v e i n s ti tu t io n s . I n P o l a n d ,
t h e f o u r i n s t i t u t i o n s e n j o y i n g t h e g r e a t e s t c i t i z e n c o n f i d e n c e w h e n t h e
f i r s t p o s t c o m m u n i s t g o v e r n m e n t c a m e i n t o o f f i c e i n 1 9 8 9 w e r e t h e t w o
h o u s e s o f p a r li a m e n t , th e M a z o w i e c k i g o v e r n m e n t , a n d t h e C a t h o l i c
C h u r c h . E i g h t e e n m o n t h s i n to t h e e c o n o m i c r e fo r m s , t h e t h r e e i n s t it u ti o n s
t h a t e n j o y e d th e m o s t c o n f i d e n c e w e r e t h e a r m y , t h e p o l ic e , a n d t h e
C hur c h , i n t ha t o r de r .
I t is s o b e r i n g t o n o t e h o w o f t e n s t r a te g i es o f m o d e r n i z a t i o n h a v e
f a i l e d i n t h e p a s t . J o i n i n g t h e F i r s t W o r l d c l u b o f d e m o c r a c y a n d
p r o s p e r i t y i s n o m e a n f e a t . S i n c e W o r l d W a r I I , o n l y G r e e c e , J a p a n ,
P o r t u g a l , a n d S p a i n h a v e d o n e i t . S o u t h K o r e a a n d T a i w a n m a y b e o n
t h e t h re s h o ld ; c e r t a i n l y t h e y a r e t h e m o d e l s t h a t e v e r y o n e w a n t s t o
i m i t a t e . Y e t w h i l e s u c h a c c o m p l i s h m e n t s a r e n o t i m p o s s i b l e , t h e y h a v e
b e e n e x c e e d i n g l y r a r e .
I s t h i s r oa d to t he F i r s t W or ld t he on ly a l t e r na t ive a va i l a b l e t o t he
l e s s de ve lope d c oun t r i e s o f t he Ea s t a nd S ou th? I s t h i s s t r a t e gy v i a b l e
-
8/19/2019 Neoliberal Fallacy
15/17
Capitalism, Socialism, and Democracy/Przeworski
57
e c o n o m i c a l l y ? C a n i t g a i n a n d k e e p l o c a l p o l i t i c a l s u p p o r t i n th e f a c e o f
m a s s i v e d i s l o c a t i o n s c a u s e d b y e c o n o m i c t r a n s f o r m a t i o n a n d i t s a t t en d a n t
s o c i a l c o s ts ? W h a t s o r ts o f c u l tu r a l f o r c e s , n a t i o n a l i s t i c o r r e l i g i o u s , i s
t h is s t r a te g y l i k e ly to u n l e a s h ? W h e r e i s i t l i k e l y t o l e ad , e c o n o m i c a l l y
a n d p o l i t i c a l ly ? W h a t k i n d o f a n i n t e r n a t i o n a l o r d e r w i l l it c r e a t e ? W h a t
w i l l h a p p e n i f a n d w h e n t h e s e s t r a t e g i e s f a i l t o g e n e r a t e p r o s p e r i t y ?
M y a r g u m e n t t h r o u g h o u t h a s b e e n o n l y th a t w e m u s t t a k e s u c h
q u e s t i o n s s e r i ou s l y . F r e e d o m a n d m a t e r i a l s e c u r i ty a r e t h in g s t h a t m o s t
p e o p l e p r i z e h i g h l y , b u t i d e o l o g i c a l z e a l te n d s o n l y t o i n c r e a s e h u m a n
s u f f e r i n g - - a n d m a n y o f t h e c u r r e n t l y f a s h i o n a b l e p o l i c y p r e sc r i p t i o n s a r e
b a s e d o n n o t h i n g m o r e t h a n z e a l . E v e r y t i m e I a p p l y f o r a g o v e r n m e n t
r e s e a r c h g r a n t , I a m r e q u i r e d t o s i g n a f o r m d e c l a r i n g t h a t I w i l l n o t
e x p e r i m e n t o n h u m a n s u b je c t s . I w i s h g o v e r n m e n t s h a d t o d o t h e sa m e .
N O T E S
1. The first statement, by Barbara Labuda, a leader of Solidarity and parliamentary
deputy, is quoted in Zbigniew Domaranczyk, 100 dni Mazowieckiego (Warsaw:
Wydawnictwo Andrzej Bonarski , 1990). The second is f rom Eco nom ics M inister Vladim ir
Dlouhy of the Czech and Slovak Federat ive Republic , quoted in the
Financial Times
(London), 6 February 1991; while the last is from Poland's former finance minister Leszek
Balcerowicz,
Financial Times
(London), 16 July 1990.
2. This posture is puzzling given how flimsy is the knowledge on which this advice,
and the m oney that fo l low s the words, are based. A s one reads the successive Wo rld Bank
Development Reports,
one f inds solid research which speaks in favo r of m obil iz ing pun ic
savings, supports the importance of incom e equality and o f educational and hea lth
expenditures for econ om ic growth, and highlights cautionary tales about the dangers o f
financial deregulation and badly tim ed trade liberalization. Ye t the po licy recommendations
are as one in insisting on the virtues of markets. The same is true of the International
Monetary Fund: some of the most skeptical analyses of the Fund 's polic ies come from i ts
own researchers, whose work has little if any discernible impact on 1MF policy. See in
particular the studies collected in Mario Blejer and Ke-young Chu, eds., Fiscal Policy,
Stabilization, and Growth in Developing Coun tries
(Washington, D.C.: International
Monetary Fund, 1989).
3. Joseph A. Stiglitz, W hither Socialism? Perspectives fro m the Eco nom ics of
Information (Wicksell Lectures, Stockholm, Sweden, 1990), and Th e Invisib le Ha nd and
M odem W elfare Econom ics (National Bureau of Econo mic Research, W orking Paper no.
3641, 1991).
4 . Robert E . Lucas, Jr ., On the Mechanics of Economic Develo pm ent,
Journal of
Monetary Economics 22 (1988): 3-42.
5. Stiglitz, Whi ther Social ism? 12.
6 . Kenneth A rrow and Georges Debreu, Existence of an Equil ibr ium for a Com peti t ive
E c o n o m y ,
Econometrica
22 (1954): 256-90.
7 . Arrow, The Ro le of Securit ies in the Optimal Allocat ion of Risk-B earing,
R e v i e w
of Economic Studies 3L (L964) 91-96.
8. Bruce Greenwald and Joseph E. Stiglitz, Externalities in Eco nom ies with Impe rfect
Information and Incomplete Markets, Quarter ly Journal o f Econo mics 90 (1986): 229-
64.
-
8/19/2019 Neoliberal Fallacy
16/17
5 8 J o u r n a l o f D e m o c r a c y
9 . Th i s d i scu ss i o n fo ll o ws a l m o s t v e rb a t i m Lu i z Ca r l o s B resse r Pe re ira , Jo s6 Mar i a
Marav a l l , an d Ad am Przewo rsk i , E c o n o m i c R e f o r m i n N e w D e m o c r a c i e s (New Yo rk :
Camb r i d g e Un i v e rs i t y Pre ss , 1 9 9 2 ) , wh e re t h e read e r can f 'md ev i d en ce fo r t h e p o i n t s
developed here .
10. Stanley Fischer et al . , eds. , Lessons o f Economic S tab i l i za t i on and I t s A f t e rma th
(Cambridge: MIT Press , 1991) , 404-5 .
1 . Vi t o Tan z i , F i sca l Po l icy , S t ab il i z a ti o n , an d Gro wt h , i n B l e j e r an d Ch u , ed s . , o p .
cit., 30.
1 2 . See t h e ex ch an g e b e t ween Brad fo rd DeLo n g an d Wi l l i am Bau mo l co n ce rn i n g
Pro d u c t i v i ty Gro w t h , Co n v e rg en ce , an d W el fa re i n A m e r i c a n E c o n o m i c R e v i e w 78 (1988):
1 1 3 8 5 9 .
13. See Lucas , op . c it .; G ary Becker e t al ., H um an Capi ta l , Fer t i l i ty , and Eco nom ic
G r o w t h ,
Journa l o f Po l i t i ca l Economy
98 (1990): 12-38; and Paul M. Romer,
E n d o g e n o u s T e c h n i ca l C h a n g e ,
Journa l o f Po l i t i ca l Economy
98 (1990): $71-S103.
1 4 . Pe t e r Mu rre l l , Can N eo c l a ssi ca l Eco n o m i cs Un d e rp i n t h e Re fo rm o f Cen t ra l ly
P l a n n e d E c o n o m i e s ? Journa l o f Economic Perspec t i ves 5 (1991): 59-76 .
1 5. Gen e Gro ssm an , Pro mo t i n g New In d u s t r ia l Ac t i v i ti e s : A Su rv ey o f Recen t
A r g u m e n t s a n d E v i d e n c e ,
OECD Economic S tud i es
14 (Spring 1990): 87-125.
1 6. Ro b e r t Ba r ro , Go v e rn m en t Sp en d i n g i n a S i mp l e Mo d e l o f En d o g en o u s Gro wt h ,
Journa l o f Po l i t i ca l Economy 98 (1990): S103-25; Ron ald Fin lay , Th e New P ol i t i ca l
Eco n o my : I t s Ex p l an a t o ry Po wer fo r t h e LDCs ,
Economics and Po l i t i c s
2 (1990): 193-
221.
17 . See George St ig ler ,
The Ci t i zen and the S ta t e : Essays on Regu la t ion
(Chicago:
Un ivers i ty of Chicago Press , 1975); and Robert D. Tol l i son , Re nt Seeking: A S urvey ,
K y k l o s 35 (1982): 575-602.
1 8. Th e sem i n a l fo rmu l a t i o n o f t h is p ro b l em i s Leo n i d Hu rw i cz , Th e D es i g n o f
Reso u rce -Al l o ca t i o n Mech an i sms ,
A m e r i c a n E c o n o m i c R e v i e w
63 (1973): 1-30.
19. Gaze ta wyborcza (Warsaw), 13 July 1990 (i tal ics added ).
2 0 . Ad am Przewo rsk i , Pa r t y Sy s t ems an d Eco n o m i c Dev e l o p me n t , Ph .D. d is se r t a ti o n ,
No r t h wes t e rn Un i v e rs i t y , 1 9 6 6 ; I rma Ad eh n an an d Cy n t h i a Mo rr i s ,
Socie ty Pol i t ics and
Economic Deve lopmen t (Ba l t i mo re : Jo h n s Ho p k i n s Un i v e rs i t y Pre ss , 1 9 6 7 ) ; Wi l l i am G.
Di ck , Au t h o r i t a r i an v e rsu s No n au t h o r i t a r i an Ap p ro ac h es t o Eco n o m i c Dev e l o p m en t ,
Journa l o f Po l i t i ca l Economy
82 (1974): 817-27; Sam uel P. Hunt ing ton and Jorge I .
Do m i n g u ez , Po l i t ic a l Dev e l o p men t , i n F . I . Green s t e i n an d N.W. Po l sb y , ed s .,
H a n d b o o k
o f Po l i t ica l Sc i ence
vol . 3 (Reading , Mass . : Addison -W esley , 1975); Ro bert M. M arsh ,
D o e s D e m o c r a c y H i n d e r E c o n o m i c D e v e l o p m e n t i n t h e L a t e c o m e r D e v e l o p in g N a t i o n s?
Compara t i ve Soc ia l Research 2 (1 9 79 ): 2 1 5 -4 8 ; E r i ch W eed e , Th e Imp ac t o f Dem o cracy
o n Eco n o mi c Gro wt h : So me Ev i d en ce f ro m Cro ss -Na t i o n a l An a l y s i s , K y k l o s 36 (1983):
2 1 -3 9 ; Ro g e r C . Ko rm en d i an d Ph i l i p G. Meg u i re , M ac ro eco n o m i c De t e rm i n an t s o f
G r o w t h , J o u r n a l o f M o n e t a r y E c o n o m i c s 16 (1985): 141-63; Atu l Koh l i , De m ocra cy
an d Dev e l o p m en t , i n Jo h n P . Lewi s an d Va l e r i an a Ka l l ab , ed s . , Deve lopmen t S t ra t eg i e s
Recons idered (New Bru n swi ck : T ran sac t i o n Bo o k s , 1 9 86 ); Dan i e l Lan d au , Go v e rn m en t
an d Eco n o mi c Gro wt h i n t h e Less -Dev e l o p ed Co u n t r i e s : An Emp i r i ca l S t u d y fo r 1 9 6 0 -
1980,
Economic Deve lopmen t and Cu l tu ra l Change
35 (1986): 35-76; John Sloan and
Ken t L . Ted i n , Th e Co n seq u en ces o f Reg i me Ty p e fo r Pu b l i c -Po l icy Ou t p u t s ,
Comparat ive Pol i t ica l S tudies 20 (1987): 98-124; Marsh , Soc io log ica l Exp lanat ions of
E c o n o m i c G r o w t h ,
S tud ies i n Compara t i ve I n t e rna t iona l Research
13 (1988): 41-76;
Ab b as Po u rg e rami , Th e Po l i ti c a l Eco n o m y o f Dev e l o p m en t : A Cro ss -Na t i o n a l Cau sa l i ty
Tes t o f t h e Dev e l o p men t -Demo cracy -Gro wt h Hy p o t h es i s ,
Pub l i c Cho ice
58 (1988): 123-
4 1 ; Ge ra l d W. Scu ll y, Th e In s t i tu t i o n a l F ram ewo rk an d Eco n o m i c Dev e l o p m en t , J o u r n a l
o f Po l i t i ca l Economy
96 (1988): 652-62; R obert J . Barro , A Cross -Cou nt ry Study of
Gro w t h , Sav i n g , an d Go v e rn m en t (NBE R Wo rk i n g Pap e r 2 8 5 5 , 1 9 8 9) ; Kev i n B . Gr i e r
-
8/19/2019 Neoliberal Fallacy
17/17
Capi ta li sm Sociali sm and Dem ocrac y/Prze wor ski 59
and Gordon Tullock, An Empirical Analysis of Cross-National Economic Growth, 1951-
80, J o u r n a l o f M o n e t a r y E c o n o m i c s 24 (1989): 259-76; Karen Remmer, Democracy and
Economic Crisis: The Latin American Experience, World Po l i t i c s 42 (1989-90): 315-35;
Pourgerami, The Political Economy of Development: An Empirical Investigation of the
Wealth Theory of Democracy,
Journa l o f Theore t i ca l Po l i t i c s
3 (1991): 189-211.
21. Brendan O'Flaherty, Why Are There Democracies? A Principal-Agent Answer,
Economics and Po l i t i c s 2 (1990): 133-55.
22. Allan H. Meltzer and Scott F. Richard, A Rational Theory of the Size of
Government, Journa l o f Po l i t i ca l Economy 89 ( 1981): 914-27.
23. Mackintosh and Ricardo are quoted in Stefan Collini et al., Tha t Nob le Sc i ence o f
Pol i t ics (Cambridge: Cambridge University Press, 1983), 98, 107.
24. Thomas Babington Macaulay, Comple t e Wr i t i ngs (20 vols., Boston and New York:
Houghton-Mifflin, 1900), 17:263-76.
25. Karl Marx,
The Class S t rugg le i n France 1848 to 1850
(Moscow: Progress
Publishers, 1952), 62.
26. Brian Barry, The Continuing Relevance of Socialism, in idem, D e m o c r a c y P o w e r
and Jus t i ce : Essays i n Po l i t i ca l Theory (Oxford: Oxford University Press, 1989), 529;
Diane Elson, Socialization of the Market, N e w L e f t R e v i e w 172 (1988), 3-44.
27. Among the seven countries compared in the most careful research on this topic to
date, the percentage of persons who are poor after taxes and transfers is 4.8 (195,000) in
Norway, 5.0 (410,000) in Sweden, 6.0 (3.23 million) in West Germany, 8.8 (1.61 million)
in the United Kingdom, 12.1 (2.88 million) in Canada, 14.5 (446,000) in Israel, and 16.9
(36.88 million) in the United States. These figures are from Timothy Smeeding et al.,
Pover t y I nequa li t y and I ncome Di s t ribu t ion in Compara t i ve Perspec t i ve
(Washington,
D.C.: The Urban Institute, 1990).
28. This is true of Eastern Europe as well. The Soviet Union did attempt to impose its
own political institutions and economic integration on its satellites in Eastern Europe, yet
the model of economic development there was to a large extent autarkic: even Stalinist
development produced large steel mills in each country. Moreover, insofar as this model
was internationalist it tumed out to be unworkable, precisely because it came up against
national aspirations.