The Price of Civilization_ Reawakening American Virtue and Prosperity - Jeffrey D. Sachs [18]
Second, we should turn to government to ensure the fairness and sustainability of market outcomes, including the broad distribution of income in the society. Market forces that cause wage levels to rise or fall can usefully direct workers to the sectors that need employment and away from those that do not, but the resulting distribution of income may be unjust. Many people can fall into destitution if they find themselves in sectors that face a sudden collapse of market demand or if they have skills that suddenly become obsolete. Or the generation alive today may be enticed to consume too many of nature’s resources at great cost to future generations. The government should therefore use its powers to tax and transfer incomes, on a prudent and targeted basis, to help those who can’t help themselves and to protect the well-being of future (still unborn) generations.
Third, we should recognize that the knowledge of science and technology is a public good that should be promoted actively by government alongside the private sector. Markets alone will not create the twenty-first-century knowledge society. America’s huge interest in the accumulation and diffusion of knowledge calls for ample public spending on research and development, public education, e-governance, and open-source online materials, as complements to the market system of patents and copyrights. In this regard, patents and copyrights are double-edged swords. We use them to create a profit incentive to producers of knowledge, but we must also recognize that patents and copyrights create temporary monopolies that cause high drug prices, delays in research breakthroughs (when patented knowledge is a key input for further research), and an artificial digital divide of haves and have-nots.
Fourth, as economic life becomes more complex, we should expect the role of government to become more extensive. Therefore, expecting to find good twenty-first-century economic answers in a constitution that dates back to 1789 is unrealistic. The Founding Fathers were clever, to be sure, but the cleverest thing they realized is that Thomas Jefferson’s famous aphorism that “the earth belongs to the living” means laws from a premodern age should not blindly bind us today. We need fresh thinking about our circumstances, especially at a time of rapid globalization, environmental threats, and a knowledge-based economy.
Fifth, we should appreciate that circumstances as to the appropriate role of markets and government differ across countries. There is no reason to expect that the United States, Europe, China, India, and others will or should make exactly the same choices about the roles of government and markets. History has shown that the emerging economies such as Brazil, China, and India should devote special government resources and policies to closing the technology gap, while countries in the lead (such as the United States) should devote special government resources to cutting-edge research and development. Thus, China and the United States each needs its own distinctive kinds of industrial policies, China’s to facilitate rapid catching up and America’s to facilitate scientific and technological leadership. In neither case would a naive free-market position be warranted.
A Market Economy? Yes—with Balance
To recap, the modern market economy is an amazing human contrivance.15 In a highly decentralized way it engages the self-interest of billions of people in millions of businesses and more than 1 billion households around the world to organize the use of labor time, natural resources, and produced capital goods (such as machinery