Politics and Markets, by Charles E. Lindblom
Meyerson, Adam
"Politics and Markets, by Charles E. Lindblom" verse is to be forbidden. Finally, the ERA lobby, confident of success in the House and Senate, declares that decisions on all these issues rest in the exclusive province of Congress, and therefore,...
...The accomplishments of rural China result notonly from communal industriousness but also from the allocative efficiency of market-like pricing...
...Fair enough...
...for without the cost information that market prices provide for alternative uses of resources, it is difficult for planners to set their production priorities...
...To get what you want on the marketplace, it is necessary to induce someone else to provide it...
...BOOK REVIEW Politics and Markets Charles E. Lindblom / Basic Books / $15.00 Adam Meyerson Whenever they hear the word "market," half the world's leaders reach for their revolvers...
...Democratic decision-making is constrained not only by the need to satisfy business, but also, among other things, by the need to get elected, to build political coalitions, to raise revenue, and to avoid insoluble problems by deferring their consequences to the future...
...Markets, he points out, are commonly associated with corporate capitalism, but they may just as easily coordinate and motivate the decisions of public or worker-run or cooperative enterprises...
...Basically, I believe that to the extent sex is an illegitimate factor in official decision-making, it is already illegal under the Equal Protection Clause of the Fourteenth Amendment, and that the ERA is therefore unnecessary...
...However inefficient such a system may appear-"Pentagon capitalism" is not known for its cost control-it has its advantages when compared with more centralized forms of planning, and could impart to socialist economies some of the incentives, flexibility, and competitiveness of market mechanisms without sacrificing the authority of collective (or despotic) planners...
...His pronouncements in this respect have been especially vigorous for the developing countries, where the critical shortage is often not so much that of capital or technology as of decision-making ability...
...After tracing the common historical and philosophical roots of economic and political liberalism, and showing that political freedom as understood in the West requires the maintenance of some basic economic freedoms, Lindblom points out that constitutional democracy, like marketplace ideology, is based above all on a fear of concentrated power: All historical and contemporary examples [of polyarchy] are, in their anxiety over the conventional liberties, marked by a separation of powers and other devices to prevent a great mobilization of authority in one person or organization, even for what might be thought to be legitimate national purposes...
...then all 37 could, on more sober reflection, change their minds and rescind the ratification...
...that "every general medium of mass communication carries a heavy freight of business ideology," with "the possibility that businessmen achieve an indoctrination of citizens...
...Department of Energy daily scratch their noggins about problems that could best be solved by eliminating their jobs...
...And the economic transformation of South Korea, which defies all pronouncements on the hopelessness of Third World poverty, is due as much to a dollop of market freedom—to the entrepreneurial energy released by the sundering of bureaucratic straitjackets—as to a generous infusion of American aid...
...In America, meanwhile, there has been such a proliferation of organized interest groups in the last 45 years—including many conflicting ones within the business community—that business, even if it is still the most powerful of interest groups, must struggle for its influence with an increasing number of others...
...And twenty thousand memo-writers at the U.S...
...for inducing the right response can be slow and costly, and there is no guarantee of finding what you want...
...The Bella Abzugs of the world, of course, are little concerned with such matters...
...At a time when businesses are overwhelmed by court injunctions, by regulations, and by hostile articles in much of the press, Lindblom's bald assertion of corporations' "privileged position" is simply not very useful...
...Yet to read Lindblom one would have no idea that there has been a transformation of environmental and safety law...
...Finally, the ERA lobby, confident of success in the House and Senate, declares that decisions on all these issues rest in the exclusive province of Congress, and therefore, under the "political questions" doctrine, are not subject to review by the Supreme Court...
...His argument has not been libertarian: Freedom with a capital F seems to concern him little, and when it does, he is quick to point out the conventional but not-to-be-forgotten wisdom that market exchanges can be highly coercive in times of unemployment...
...and to the extent that political figures genuinely want to further the long-run economic health of their electorates, they must ensure that businessmen have sufficient opportunities for profit...
...In private-enterprise market economies, the long-run advancement of income and employment depends on the investment decisions of private businesses...
...Among other things, for example, Rees points out that the "no recision" argument is wholly inconsistent with the intent of the Framers in including the requirement that no amendment would be effective without approval of three-fourths of the states...
...They are therefore political systems that are, again, like markets...
...What intrigues him most is the "logic" of decision-making...
...To explain the nonfulfillment of a logical possibility, Lindblom invokes the bogeyman of brainwashing...
...And he is probably correct as well in arguing that business is the most influential of interest groups, for however powerful labor unions, farmers, or environmentalists may be in their respective domains, none is so critical as business to the long-run functioning of the economy...
...His interest has rather been in the market as a decision-making mechanism...
...Russia with its mighty forests has a paper shortage...
...But the suppression of the market also results from some silly prejudices—from associating the marketplace with the dominance of corporate (and in many countries foreign) enterprise and with a grossly unequal distribution of income and wealth...
...Business corporations confront markets in their exterior dealings: They must ply their wares before an increasingly skeptical public, and vie to attract employees from an increasingly demanding work force...
...Why, for example, is there much more popular hostility toward business in Europe than in America...
...It is no accident, he observes, that although not all market-based economies are "polyarchies" (by which he means constitutional democracies), all existing polyarchies are private-enterprise market systems...
...By ignoring for ideological reasons the informational signals Adam Meyerson, formerly managing editor of The American Spectator, is studying international business at the Harvard Business School...
...and because he can conceive of markets which are not private-enterprise systems, because he can conceive of "polyarchies" which are not market economies, he observes that there is no necessary logical connection between democracy and private enterprise...
...but if one other state then endorsed the proposal, it would become part of the Constitution...
...Yet as any resident of New York City or Buenos Aires or London will inform you, government officials are not always motivated by these long-run considerations...
...Never mind that the voters of France have on several occasions made some very earnest attempts...
...Similarly, Rees illustrates the dangers of precluding Supreme Court review of the critical constitutional questions involved...
...Specifically he argues that "businessmen generally and corporate executives in particular take on a privileged role in government...unmatched by any leadership group other than government officials themselves...
...Markets, he shows, can also be organized on the basis of "planner sovereignty," in which, rather like American defense contracting, state planners determine the allocation of resources by choosing among competing producers for their purchases...
...Corporations have often found it easier to hire direction-followers and to integrate vertically than to trust to the hurly-burly and uncertainties of the market...
...28 The American Spectator November 1978 Nor is his primarily the economist's enthusiasm for "Pareto optimality," that maximization of overall welfare for which it is impossible to add to one person's happiness without diminishing another's...
...Foreword by F.A...
...Lindblom starts off well enough on the subject, which he aptly calls "the close but uneasy relation between business enterprise and democracy...
...And in particular, he asks, "Why have no polyarchies, notwithstanding their liberal and constitutional origins, made a significant attempt at a centrally directed and authoritative system...
...And when it comes to the control of thought, one wonders whether Lindblom has read a newspaper in the last ten years...
...The Founding Fathers sought to insure substantially contemporaneous consensus among the states before any changes in our fundamental governing instrument would occur...
...American courts and regulatory agencies, for example, have recently brought to a halt the construction of nuclear power plants, have imposed enormous punitive damages on such companies as Ford and Allied Chemical, and have involved themselves in a wide variety of business decisions—from the size of tuna catches to the height of fire extinguishers above the floor...
...How is it that since the war Germany with its "social market economy" and France with its etatiste planning have achieved remarkably similar economic progress...
...The fact that it is dealing with a Constitution—a Constitution which has been a model of free government for almost two hundred years, and has been amended only fifteen times since the Bill of Rights—is being given scant, if any, consideration...
...What accounts for the relative political strength of business in, say, Chicago, and its comparative weakness in New York...
...India, with its plentiful labor and scanty savings, invests in capital-intensive heavy industry and wonders what to do about unemployment...
...But under the ERA theory, Rees notes, 37 states could ratify an amendment that was riding a temporary wave of political popularity...
...Often the reaction is a shrewd political instinct: Any self-respecting despot knows he must squelch a form of economic organization that diffuses authority and makes- a mess of planners' tidy diagrams...
...But in their internal affairs, that is to say, in the production and distribution of goods before they reach the market, Lindblom, echoing Ronald Coase and Alfred Chandler, shows that the historical role of the corporation has been to supersede the price mechanism and replace it by a series of internal CAPITAL AND ITS STRUCTURE by Ludwig M. Lachmann 156 Pages, Index $15.00 Cloth, $4.95 Paper ($5.50 in Canada) THE ULTIMATE FOUNDATION OF ECONOMIC SCIENCE An Essay on Method by Ludwig von Mises, Introduction by Israel M. Kirzner 168 Pages, Index $15.00 Cloth, $4.95 Paper ($5.50 in Canada) ECONOMICS AS A COORDINATION PROBLEM The Contributions of Friedrich A. Hayek by Gerald P O'Driscoll, Jr...
...Now I will confess that, with respect to the substance of ERA, I am an opponent of the amendment, though not a particularly perfervent one...
...With respect to the proposed extension, and the related arguments for "no recision" and "no Supreme Court review," a majority of Congress seems all too willing to treat this as just one more battle in the often cynical arena of partisan politics...
...These other constraints, which vary from time to time and from place to place, often lead to the removal rather than the granting of privileges to business...
...The American Spectator November 1978 29 insights which make up most of the book, and more for a hackneyed and outdated series of chapters on the political role of corporate enterprise in market economies...
...To that extent, Lindblom is entirely correct in observing that "the unspoken possibility of adversity for business operates as an all-pervasive constraint on government authority...
...Charles Lindblom, a political economist at Yale, has long been one of the most articulate chroniclers and advocates of this "rediscovery of the market...
...The ERA position would leave no avenue of judicial challenge to such a high-handed procedure...
...Conversely, to the extent the ERA would render suspect recognition of differences between the sexes in areas where such differences may indeed be important—for example, alimony and child-custody disputes—I think the ERA might well prove a nuisance and a source of bad law...
...On the one hand, they would like to see their particular vision of a perfect universe given constitutional sanction...
...If, in the process, they do irreparable damage to the careful and deliberately difficult procedures for amending the basic charter of our Republic, they are unperturbed...
...Given the foregoing, and the fact that the change being advocated is one of constitutional dimensions, I believe rejection of the ERA is the wisest course...
...All planned economies, he observes, use the market mechanism for some purposes-usually, within certain limits, for the allocation of labor and consumer goods...
...Moreover, I believe, with George Gilder, that differences between the sexes are an integral part of human nature, and the source of much of the beauty and mystery of existence on this planet, and-that efforts to ignore and eradicate such differences, first, are mistaken, and second, would require totalitarian authority for successful implementation...
...Thus he has urged the use of market pricing as an instrument of socialist planning...
...grow out of a struggle to control authority rather than to create it or make it more effective...
...Lindblom does not mention the obvious point that private enterprises can often be very happy in systems with few political freedoms—witness Nazi Germany or contemporary Brazil...
...What differences are there in the political behavior of bankers and industrialists...
...With his fertile imagination, Lindblom also severs the popular link between markets and that _ idol of businessmen, consumer sovereignty...
...Hoff Epistemological Problems of Economics, by Ludwig von Mises The series will also include translations of previously inaccessible writings by Carl Menger, Richard Strigl, Ewald Schams, Leo SchOnfeld-Illy, Ludwig von Mises, and others...
...To the degree that the ERA is a primary rallying point for those, like Bella Abzug, who nonetheless seem bent on such efforts, my opposition to the amendmentincreases...
...and incentives of market prices, political leaders the world over have made decisions with consequences they did not intend...
...All of which is unfortunate, for Lindblom has both the insight and the broad sweep of history to tackle some of the more important questions in this subject...
...But unfortunately, Politics and Markets has been receiving less attention for such thought-provoking STUDIES IN ECONOMICTHEORY INTRODUCING A DISTINGUISHED NEW BOOK SERIES CAPITAL, INTEREST, AND RENT Essays in the...
...Why does the idea of the marketplace have more ideological appeal for North American than for South American businessmen...
...If Lindblom had looked at business as imaginatively as he has considered politics and markets, this would be a masterpiece of a book...
...That is the market's great libertarian virtue, for transactions result from mutually beneficial exchange rather than force (though, as Lindblom points out, the threat of terminating an existing exchange can be a potent tool of coercion...
...Theory of Distribution by Frank A. Fetter Edited with an Introduction by Murray N. Rothbard 408 Pages, Index $12.00 Cloth, $4.95 Paper ($5.50 in Canada) THE ECONOMIC POINT OF VIEW An Essay in the History of Economic Thought by Israel M. Kirzner Introduction by Laurence S. Moss 248 Pages, Index $12.00 Cloth, $4.95 Paper ($5.50 in Canada) AMERICA'S GREAT DEPRESSION by Murray N. Rothbard 381 Pages, Index $12.00 Cloth, $4.95 Paper ($5.50 in Canada) THE ECONOMICS OF LUDWIG VON MISES Toward a Critical Reappraisal Edited with an Introduction by Laurence S. Moss 140 Pages, Index $12.00 Cloth, $3.95 Paper ($4.50 in Canada) Forthcoming titles in the Studies in Economic Theory series will feature major new works by contemporary Austrian economists plus republication of such seminal classics as: Principles of Economics, by Carl Menger Economic Calculation in the Socialist Society, by T.J.B...
...There is some truth to the first of these propositions...
...It is also a practical disadvantage...
...In Italy today, no managerial decision is made without the support of Communist-controlled unions, and in almost all of Western Europe it has become enormously difficult for corporations to lay off workers...
...And much like Friedrich Hayek, Lindblom has long argued that markets, by breaking up big problems into a decentralized collection of little ones, and by reducing complex information to a simple determination of marginal gains and losses, can facilitate decision-making-whatever one's ideology...
...The question Lindblom should have asked is not whether businessmen have a privileged position, but what exactly are and are not their privileges, and for which businessmen...
...It takes no special training in law or constitutional history to perceive the cynical one-sidedness of these various positions...
...and that the "universal hostility" of constitutional democracies to central production planning is attributable mainly to business control of popular thought and decision-making...
...Close therefore...
...He does not discuss wnat antitrust was used for afterwards...
...One can only hope that most of Congress will, upon reflection, adopt a more far-sighted and statesmanlike posture...
...30 The American Spectator November 1978...
...Likewise Lindblom barely mentions antitrust except to observe that "the Sherman Act, ostensibly enacted to regulate industrial monopoly, was [originally] used to constrain unions rather than enterprises...
...In Politics and Markets, his most ambitious consideration of the possibilities of markets, Lindblom's imagination soars -sometimes into a rarefied atmosphere of abstract categories and wishful thinking, but always above the heaviness of most ideological debate...
...See my article, "Co-op Capitalism," which was inspired by Lindblom's ideas, in the April 1978 issue of this journal...
...This is nothing to be ashamed of...
...Grover Rees—who apparently does possess such training—has gone further by persuasively demonstrating the absurdities implicit in the various ERA positions in an excellent recent article in National Review...
...Market economies, meanwhile, all contain significant elements of hierarchic authority, and not solely as a result of government meddling...
...But my opposition to the extension proposal currently before Congress has nothing to do with my view of the underlying merits of the ERA itself...
...Lindblom blurs the distinction between market and planned economies in other ways...
...Yet a. new interest in markets is burgeoning, and in some unlikely corners...
...When it comes to getting the amendment enacted, they are perfectly willing to act like so many ward-healers ramming through a questionable zoning ordinance...
...A brilliant, if utopian, theoretician of the French Socialist Party, Michel Rocard, hopes to combine worker self-management with the decentralization and decision-making flexibility of the marketplace...
...Polyarchies...
...But then Lindblom suddenly gets suspicious: If other organizational forms are logically possible, why haven't they been tried...
...A congress, subject to intense political and electoral pressures, could pass an amendment one day, announce the next day that it had received evidence sufficient to satisfy it that three-fourths of the state legislatures had approved, and then declare the amendment a duly ratified constitutional provision...
...So far so brilliant...
...Why uneasy...
...Antitrust, of course, is not always opposed by businesses (certainly not by Berkey Photo), and it is probably no coincidence that the two countries with the most vigorous antitrust policies—the United States and West Germany—are also the two most committed to a market economy...
...In the one case that he cites, the judge refused to award punitive damages to a drug company, on the grounds that the concern had "wrought much good in the past...
...The human condition," he writes in Politics and Markets, "is small brain, big problems...
...They practice decentralization, diffusion of influence and power, and mutual adjustment so that individuals and small groups rather than national collectivities can strive for whatever they wish...
...But in antitrust as in general, Lindblom selectively chooses his evidence so as to attribute to business political advantages that no longer exist...
...Hayek 240 Pages, Index $15.00 Cloth, $4.95 Paper ($5.50 in Canada) NEW DIRECTIONS IN AUSTRIAN ECONOMICS Edited with an Introduction by Louis M. Spadaro 256 Pages, Index $15.00 Cloth, $4.95 Paper ($5.50 in Canada) CAPITAL EXPECTATIONS, AND THE MARKET PROCESS Essays on the Theory of the Market Economy by Ludwig M. Lachmann, Edited with an Introduction by Walter E. Grinder 360 Pages, Index $15.00 Cloth, $4.95 Paper ($5.50 in Canada) MAN, ECONOMY, AND STATE A Treatise on Economic Principles by Murray N. Rcthbard 1005 Pages, Index $30.00 Cloth (2 Volumes), $10.00 Paper THE FOUNDATIONS OF MODERN AUSTRIAN ECONOMICS Edited with an Introduction by Edwin G. Dolan 248 Pages, Index $12.00 Cloth, $4.95 Paper ($5.50 in Canada) SHEED ANDREWS Si/6MM & McMEEL, INC 6700 Squibb Road/Mission, KS 66202commands...
...Indeed, while admitting that Yugoslavia's workers' councils are largely rubber stamps for Communist Party management, he looks to that country's attempts at market socialism as a grand experiment-fashioning not only new kinds of market enterprises but also a socialism which, at least on paper, minimizes bureaucratic control...
Vol. 11 • November 1978 • No. 11
