Academic journal article World Review of Political Economy

THE POWER OF ECONOMICS vs THE ECONOMICS OF POWER: INTRODUCTION

Academic journal article World Review of Political Economy

THE POWER OF ECONOMICS vs THE ECONOMICS OF POWER: INTRODUCTION

Article excerpt

While attending a conference of mostly very conservative economists, I heard a sophisticated and in-depth analysis of the development of ronald coase's influential suggestion for environmental regulation through voluntary negotiation published as "the Problem of Social cost." I found nothing in the paper with which to disagree-within the context of conventional economics. In coase's setup, because voluntary arrangements can necessarily lead to efficient outcomes, regulatory power is an unnecessary intrusion that serves no purpose.

In reality, lacking power, I would be unlikely to get major corporations to sit down to negotiate with me, let alone satisfactorily compensate me or anyone else (save a few friendly politicians) for their destructive activities. Even taking such businesses to court is virtually impossible. In the unlikely case that I could be able to get a hearing at court, any legal help that I might afford is almost certain to be outgunned by the corporation's powerful legal team.

In short, within the context of economic theory, coase's suggestion makes sense, but only because of the exclusion of any consideration of power. In a utopian society in which universal consent was required for permitting such investments, all affected parties could arrive at a mutually satisfactory solution.

Most of the other papers at the conference discussed how markets evolve naturally and work efficiently. Nowhere was there any consideration of power. the participants clearly understood the discipline of economics, but perhaps that was also their problem. their training conditioned them to instinctually avoid any consideration of power, other than those presumptive abuses of government that interfere with the functioning of markets. In conventional economics, power is reduced to a metaphor. We have the power of the market or the power of competition, but corporate power is nowhere to be found.

A few days later at another conference, I heard another interesting paper about the problems created by the so-called experts working for the government in the area of financial regulation.

The idea of the paper was that regulators relied upon experts, whose expertise may be either limited or contaminated by what Schumpeter called a pre-analytic vision-what less academically inclined people might call bias. the inefficiencies resulting from flawed expertise reflect the misapplication of ill-advised government power, which could only gum up the works of an otherwise efficient economy.

This paper posed an interesting challenge. Obviously, expertise can be abused- even economists' expertise. Given that expertise is a very important factor in shaping many aspects of the economy as well as society as a whole, some kind of expertise on the subject of expertise might be useful, except no one could be sure that those experts would be any more objective or informed than the existing universe of experts.

I want to consider how a different treatment of power might affect these two papers. Begin with the example of the so-called coase theorem. Suppose a large corporation locates a toxic waste dump, which threatens my property values or even my health. the profits from this venture might well be sufficient for the company to offer me enough sufficient compensation to agree to the establishment of the toxic waste dump. If so, both the company's management and I could be made better off by the creation of the toxic waste dump, ignoring, of course, the effects on others.

Why in the world would the corporation bother to sit down and negotiate with me? many economists believe that corporations have the legal and moral obligation to maximize profits. I could threaten to sue, but the corporation could easily find experts who could undermine my claim to have been harmed. lacking standing, I would be unlikely to have my case heard before a jury. Even if legal proceedings are a possibility, I am unlikely to be able to mount a legal team capable of matching the power of the high-priced attorneys representing the corporation. …

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