Markets or Government? Balancing Imperfect and Complementary Alternatives

Abstract

The political-economic question of this century, in my opinion, is: What is the appropriate balance between government and markets in achieving desired economic objectives? This question is the underlying theme from which many historical transformations have unfolded, especially during the past two decades. Interestingly, those recent transformations-all sharing a common trend from centralized authority to decentralized decision making, from government-based to marketbased decision making-have occurred without conquering armies and without colonial power interventions. Instead, this transformation is largely attributed to the power of, and demand for, individual choice, in both political and economic arenas, in determining the direction of economic development. This phenomenon has been almost universal. Though Cuba and North Korea stand as notable exceptions, the Soviet Union has disintegrated, elections were held in South Africa, and we now stand poised to observe free-market Hong Kong reunited with the conditionally free-market China. While the drive for more market oriented economic systems has reached its fullest manifestation during the late twentieth century, this trend clearly does not present a new economic question in world history (nor in the history of economic thought). In 600 B.C., Anacharsis of Scythia defined a market as a place set apart where men may deceive one another. In nineteenth century England, the Corn Laws were established to protect farmers from market forces associated with the industrial revolution. Since the end of World War II, the question of the relative virtues of markets and governments has been at the core of the debates of Milton Friedman's popular Free to Choose and John K. Galbraith's Age of Uncertainty. And with the shutdown of the U.S. government in December 1995, and again in January of th s year, a current example of this central question was dramatically played out in our own political arena.