J. Bradford DeLong
delong@econ.berkeley.edu
http://www.j-bradford-delong.net/

January 2002


For more than one hundred years it has been clear that modern industrial economies can be successful only if they are mixed economies. Socialism-as-we-knew-it produced either too many meetings or too little freedom, and over time led to extraordinary low levels of efficiency as the absence of hard budget constraints for organizations meant that there were no effective counterpressures to bureaucratic stagnation. Attempts to diminish the role of government and have a "market only" society proved to be pure fantasy: too much of what is needed for a modern economy to run are "public" goods that an unfettered government-free market simply will not provide, too many disputes over who owns what and what exactly are contractual obligations must be refereed by something--and that something is the government--and there is no guarantee that the market distribution of income will be politically acceptable unless the government puts its large thumb on the scale. As Jeffrey Garten has said, the issue is "not whether a market-oriented society should be dominated by either business or government, but rather what the appropriate balance is. It is difficult enough to get consensus on exactly what this balance should be in any one country. But when you consider the global economy -- made up as it is of nations of differing stages of development, political systems, histories, cultures, and national preferences -- figuring out the right balance is an awesome challenge."

The past two decades have seen one swing of the pendulum. Consensus opinion on the proper balance point in the mixed economy has swung from "social democracy" to "neoliberalism." The belief grew that in the industrial core that regulation had too-often led to the capture of regulatory agencies by would-be monopolists, and that public ownership had sacrificed economic efficiency and consumer welfare in order to provide cushy jobs for politically well-connected boys. The belief grew that in the developing periphery attempts by the government to guide industrial and economic development had been un- or counter-productive, leading in most cases to massive corruption and slow growth. Hence the enthusiasm almost everywhere to lower corruption-enabling trade barriers, to reduce the size of government and to give freer rein to market forces--deregulation, privatization, liberalization.

Now the pendulum is swinging back. Enron. The Asian financial crisis. The collapse of Argentina's currency board system--everyone now agrees that we need better government regulation. Many wonder whether we might need more government regulation. And it is now more fashionable to raise questions about how to provide what Joe Stiglitz calls "global public goods"--things like global environmental control, global macroeconomic stability, improvements in the world distribution of income, research into important but underfunded health issues like tropical diseases, and others that can only be provided not just by governments but by large coalitions of governments.

In addition, there is as September 11 showed the possibility that national defense will once again become the highest priority of government. What Martin van Creveld has called the transformation of war--the rise of non-state combattants who believe that terror and chaos will restore the medieval Caliphate, or advance whatever their cause is. The post-September 11 role of government in society may be very different along many dimensions.

With this as background, Jeffrey Garten has posed seven questions for the session to discuss: