The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [120]
The firms reveal themselves, say, as solid green areas with faint interior contours marking out divisions and departments. Market transactions show as red lines connecting firms, forming a network in the spaces between them. . . . Organizations would be the dominant feature of the landscape. A message sent back home, describing the scene, would speak of “large green areas interconnected by red lines.” . . . When our visitor came to know the green masses were organizations and the red lines connecting them were market transactions, it might be surprised to hear the structure called a market economy. “Wouldn’t ‘organizational economy’ be the more appropriate term?” it might ask.17
Institutional economics was recognized in the award of the 2009 Nobel Prize jointly to Elinor Ostrom and Oliver Williamson, the former a specialist in collective, social institutions and their boundary with markets, the latter in the economics of the firm, and the boundary between businesses and markets.18 The central message in Williamson’s work is that the more people depend on each other, perhaps because they have made specific investments to do business with each other, or perhaps because the business involved is complex and difficult to explain definitively in a written contract, the more likely it is that they will be inside the same firm rather than transacting via a market exchange. Ostrom’s focus has been on a type of institution previously overlooked, collective institutions that are neither arms of government nor businesses, but provide effective ways of governing common property such as water rights. She identified, through extensive fieldwork, grassroots institutions that worked better than top-down government interventions based on inadequate local knowledge and detail. Her work helps to steer us even more firmly away from the tempting but bogus idea that we must choose between either “government” or “markets.” The institutional canvas is much wider than these conventional tramlines suggest, and this is an important point when it comes to thinking about how, as nations and as a global society, we can design answers to the challenges and crises set out in the first half of this book.
Indeed, Ostrom has set out the central challenge in building the Economy of Enough:
Human societies endure across decades, centuries, and millennia. Citizens in democracies are mortal and endure only for a generation, so to speak. Memory, knowledge, and skills are erased with death. Open, democratic, self-governing societies face the challenge of transmitting information, knowledge, and skills from one generation to the next. Civic knowledge is necessary to sustain the continuity of civil relationships in the conduct of civic affairs by both drawing on past achievements and realizing new potentials. Human rationality is grounded in the condition of fallibility, with potentials for learning. How to realize such potentials will engage each of us in our quest for meaning about the conditions of life that we share with others.19
Setting out both the failures of government and the failures of markets is a useful corrective to the tendency to contrast sharply “markets” and “government.” Both are vital economic institutions. Both are needed to find effective ways of coordinating our lives together in large and complex societies. The debate about whether “free markets” or “intervention” is best, which has so dominated politics and policy for decades, is pointless. Markets work well where governments work well. Governments can only deliver for their citizens if what they do is complemented by a thriving market economy, creating wealth.
In practice, there is a fuzzy boundary between organizational arrangements, and moreover different countries vary enormously in the forms of government intervention in the economy and in what activities take place in the public rather than the private sector. Both the United States and Sweden are very prosperous economies, despite