The Strategy of Conflict is perhaps Thomas Schelling’s most well-known work. As Peter Boettke and Tyler Cowen explained, Schelling’s work has put meat around the bones of game theory and extended the economists’ power of analysis.
While the Nobel Prize was awarded to this great man, in France, the country of my birth, social unrest is taking place more deeply every day. In Marseille, unions are blocking the harbor and some of them even high-jacked the ferry crossing between Marseille and Bastia (though it was empty of passengers).
Economics at the beginning of the 21st century is in a weird position. We do not know much more than what Adam Smith and the classics knew in terms of how society works, and this is especially true with regard to one subject: social change.
We know that prosperity and social progress are a matter of institutions based on natural justice (property rights, free prices, and freedom of contract) on the one hand, and human ingenuity (entrepreneurship) on the other. However, we don’t know how to start the process. Worse, we don’t really know how to keep societies from falling into the abyss. In other words, economics in the 20th century has not developed the tools that would enable us to implement positive social change on demand.
Thanks to Ludwing von Mises and Friedrich A. Hayek, we have come to appreciate the impossibility of socialism and central economic planning. We also understand the consequences of the folly of putting the production of money in the hands of a government monopoly. Israel Kirzner has developed the notion of the entrepreneurial market process, which made the Smithian and Schumpeterian processes of economic development more intelligible to us. However, all this doesn’t tell us much about how to produce positive social change.
A GMU student is currently working on piqueteros in Argentina. It’s a movement of people who block main roads for days and so disrupt economic life in order to obtain money from the government. While piqueteros create havoc in many parts of Argentina, especially in Buenos Aires, the majority of the population supports them as they consider the movement to be just.
Same is true in France where those who block Marseille harbor are seen as justly defending their rights to work and be employed, even if it is at the expense of many others – especially businesses – who have no access to transport and cannot cater to the needs of their customers.
In both of these situations, belief systems are very strong. So strong, actually, that they hinder positive social change. This probably defines the conditions for social revolutions and radical policy changes. Milton Friedman emphasized this view in his 1982 preface to Capitalism and Freedom. The role of economists he said is to “develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”
Again, Friedman reminded us that we know what good policies look like but we don’t control when and how they could be implemented. In some cases, the opportunity comes, is seized (by social entrepreneurs), and policy changes are carried out (e.g. New Zealand in the 1980s and early 1990s), but in others, countries never recover and are stuck in perpetually paralyzing social movements. Others still implement the wrong policies at the right time. This was the case of Russia in the 1990s for instance. (Those interested in the subject in general should check the paper the authors of this blog have in the current issue of RAE on the field of comparative political economy.)
I do not know if economics can provide the tools to implement positive social change. Countries such as New Zealand have turned around arguably because they had the necessary institutional and cultural conditions to do so. While development is not a matter of luck, what triggers it is not easy to understand. This is probably because the starting process is itself an emergent social order rather than a designed policy.
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