THE TRUTH ABOUT MARKETS - John Kay

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THE TRUTH ABOUT MARKETS - John Kay Penguin 2003 new material 2004 3 70 pages plus notes ISBN 0-140-29672-7 Price -£8.99

The thrust of this book is an argument that market economies solve economic problems more effectively than planned economies. It sets out the "American Business Model" as a new paradigm for success and then criticises the version which encompasses greed as a motivator and financial markets as main regulators, with the role of the state as enforcing property rights and contracts. The book explores why this model alone cannot explain the successes of the developed nations, arguing they have advanced because of an "embedded market" set in particular social, political and cultural contexts, with associated institutions supporting private enterprise and self interest.

Kay draws on a wide ranging survey of theoretical concepts, economic histories, philosophies of economic thought and examples. He uses case studies of individuals from Sweden, India, Russia and Switzerland with references to Bloomberg television to provide personal interest and commentary to enliven the detailed arguments.

The book follows a logical progression by considering the reasons for the relative wealth, productivity and development of rich and poor countries. Part 2 deals with production and exchange and associated decision making frameworks. Part 3 gives examples of markets in action supported by descriptions of the way the Arrow-Debreu model might apply to these to achieve efficiency and equilibrium positions. Part 4 deals with neo classical thinking, explaining some of its deficiencies, particularly the role that pluralism, co-operation, coordination and adaptation play in the successful operation of markets. Part 5 uses case studies to summarise the preceding ideas, with explanation of why four individuals' lives arc so different. Part 6 deals with market failures and the impact of rent (aka "economic rent") as a motivator. This section concludes that the ABM is "naïve" as it omits consideration of propriety rights, imperfect information, risk and the effects of cooperation. Developing the embedded market in both developed and developing economies is essential to produce new market solutions for market failures. Many others have argued along these lines but this book does so very successfully from premises firmly drawn from current and past economic theory. …

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