Unless you’re a leftist, you’ve probably been brought up to believe that a free market economy, mode rately regulated, is the answer to all our economic woes. Materialism is stated to be the foremost human motivator and so ‘greed’ in business is an acceptable way of making people part with their money for goods and services they want.
But what would happen if such very ‘greedy’ people dominate society? Should we increase the role and scope of regulators Will this ensure economic prosperity for all?
John Kay’s book ‘The Truth About Markets: Their genius, their limitations and their follies? aims to answer the above questions. If competition results in better quality of goods and services, globalisation and technological innovations result in technology transfer and mass markets, why do some states continue to be rich while others remain abysmally poor? The answer, according to Kay, is complex. Effective market economies, he says, ‘are embedded in an elaborate social, political and cultural context and could not function outside that context’.
Kay’s analysis is easy to read and, compared to most works on economics, relatively easy to understand. By using the lives of various couples living in different states and economies around the world, Kay effectively weaves together all the factors involved to present a holistic picture. In each chapter, he deals with one such factor that affects economic growth. He illustrates how available resources, economic structures and political and social institutions influence and affect the thought processes and decisions of individuals. In turn, these factors determine whether a state can achieve and sustain economic progress. Globalisation, Kay says, has not homo-genised our world. In fact it emphasizes the disparities in the lives of citizens across the world.
Economists, Kay says, assume that individuals are rational and materially motivated. This assumption, he believes, along with some other economists, is simplistic and the focus should instead be on patterns of ‘irrationality’ to predict human behaviour and develop effective market mechanisms and politico-economic policies.
Human behaviour is a product of people’s environment. In this context, Kay has wittily used Pakistan as an illustrative example. He questions why Pakistani scientists are able to produce atom bombs but are not able to organize effective vaccination programs, and why educated Pakistanis are more productive in Silicon Valley than in Pakistan. Also, he wonders if James Wolfensohn, President of the World Bank, would be corrupt if he were a Pakistani civil servant.
According to Kay, our behaviour is the result of adaptation to the environment and the incentives we receive through it. ‘The same people might be corrupt in a corrupt environment and honest in an honest one’.
Perhaps the most interesting observation that Kay makes is how we now misinterpret the word ‘market’. With the rise of business channels and e-business, we consider the financial market and its indicators as the prime indicators of a country’s economic progress. But Kay points out that the markets for ‘food and clothing, for flowers and electricity’ are the real markets. We don’t need investment bankers to predict the future and help us understand rapidly changing figures; we need economists who realize that human beings are irrational, that acqui-sition of wealth is not the only way to ?leave footprints in the sands of time’.
We need economists who can understand that happiness is quintessential to human survival and is the result of how well our achievements match our expectations: economists who can help us evolve intellectually, politically and socially into sustainable rich states.
