The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [126]
Because, second, institutions need public acceptance and consent to be effective. This might not amount to formal institutions of democracy—looking at China, for example, it’s hard to be sure whether freedom in the political and freedom in the economic sphere have to go hand in hand. However, governance is more likely to be effective if those “governed” are not only willing but also able to modify and improve the institution. In markets, choices about what to buy and supply, and at what prices, provide ample feedback mechanisms. Their radical democracy is one of the many merits of markets. In other contexts, including business, good feedback mechanisms are important.
A third principle concerns the availability of information. As set out earlier, information asymmetries are a source of market failure and also explain many of the actual features of economic institutions. Of course, information has become much more widely available and we swim in a constant ocean of the stuff now, but there are some things that can’t easily be known or observed. Ostrom gives an example of controlling a hunting ground: it will be much easier to prevent overhunting by setting seasons when it’s permitted and others when it is banned rather than by setting quotas for hunters. It’s easy to observe whether or not people are violating rules about closed seasons, but not easy to measure how many animals each hunter is killing. The design of rules is an important knack. The traffic light as an elegant self-enforcing mechanism, described earlier, is a good example.29
Finally, for all their merits, the institutional scaffolding for the economy needs to address important market failures. One of the central failures is the inability of markets and politics alike to make decisions with regard to a longer time horizon. In earlier chapters I wrote of the need for the pace of growth and the amount of consumption to ensure that we leave something for posterity—that the comprehensive measures of wealth we will bequeath are no lower than those we inherit. Only the right institutions can ensure that decisions taken today have a sufficiently long time horizon.
Institutional innovation will be vital in the Economy of Enough. Finding better institutional structures—using the new technologies—will be key to ensuring decisions about today’s choices and activities give proper weight to the needs of the future. The right structures will involve a more productive and thoughtful interplay between markets and governments than we’ve typically had in the past, one taking account of the dramatic technological and structural change in the economy. There will need to be an acceptance of the reality that governments and markets will often “fail” in the same contexts because of transactions costs and information asymmetries, so neither one nor the other is likely to offer the best solution. And institutions will need to embody decision-making for a time horizon long enough to represent the interests of future generations.
The time has come to turn to some possible solutions or at least directions for the future.
PART THREE Manifesto
NINE The Manifesto of Enough
The first part of this book set out the dimensions of the multiple challenges currently facing the leading industrial economies. It’s mainly in the context of climate change that the wider public have become aware of looming crisis, and even in that context there is little sign of tremendous public appetite for changing behavior. But alongside the potential impact of climate change, we face a debt crisis, a result of untenable social security arrangements in aging societies as well as the impact of bailing out the banks that caused the financial crisis; a strong sense