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Chapter 10 | Clarence S. Bayne (continued) An understanding of how the market model fails, leads to important insights and critical thinking about a number of public policy issues. The Heckscher-Ohlin or Edgewood geometric presentation have proven powerful instrument in helping us to explore the possible applications of Walrasian general equilibrium (Masc-Colell, Whinston and Green, 1995; Lancaster, 1957). To make practical sense the model must be adjusted to take into consideration the real world existence of consumer and producer external economies and diseconomies; fundamental dissimilarities in consumer preferences; differences in the concentration of wealth and ownership; sectorial differences in capacity to access and use technology; the exercise of monopoly power. The model tells us that the exercise of monopoly creates social costs that may be unacceptable. These costs are incurred in addition to the social cost of negative goods that may be produced as a part of the process of production in general (producer externalities): pollution, the destruction of non-replaceable natural resources, global warming and the destruction of the ozone, etc. The exercise of monopoly power, and consumer and producer externalities are the major economic reasons for market failure. The uninhibited market does not take social cost into consideration and therefore tends to overproduce goods that have negative by-products associated with their production. On the other hand, the market does not reward suppliers for the social benefits of producing certain goods or services. So the supplier tends to produce less than the socially desirable amount. I think it is fair to say that there is the possibility in the “laissez faire” market exchange economy to get close to maximizing our satisfaction with respect to our strictly utilitarian needs, but at the same time creating an environment that keeps us on a low level of the social cohesion index. Because of market failure, government intervention is required; or at least considered useful for regulating the use of monopoly power, especially with respect to essential or socially strategic (public) goods. The introduction of NGOs to the social and market system is a response to both market failure and government failure, as well as the failure of these civil society institutions/NGOs themselves. Obviously vigilance and awareness are extremely important to the maintenance of a desired state of social cohesion. This response mechanism is external (exogenous) to the market system. But it is part of the democratic process in a “free society.” It does not reject the market system as such. But it reflects the fact that the profit oriented market system (corporate society) cannot or will not provide all the goods and services necessary to satisfy all the needs of the members of society; and at the same time produce a distribution of wealth and a quality of life that puts that society on the highest possible level of the social cohesion index. It recognizes that it requires non-profit oriented institutions (NGOs) to provide those goods and services that the corporate private sector will not; or cannot provide: alternative visions of society, teaching and sustaining the values of good citizenship and loyalty to community above and beyond profits, experiments in the development of healthy communities and institutions free from excesses of selfish individualism and corporate control; facilitating and monitoring the necessary transfers of wealth to adjust for market failure resulting from externalities; and the uneven distribution of the application of cost reducing technologies between the services sector (health, education, the arts, culture, etc) and the physical goods sector. We can extend the analysis to include goods such as ideas (transmitted through the mass media and education institutions), cultural goods of all types, public and social cohesion goods (preservation of the environment, protection of animals, healthy environments, parks, arenas, athletic facilities, cultural facilities, safety and protective services, etc). The model raises questions about the fairness of any distribution of wealth that is not uniform. It assumes that all individuals are identical in their preferences. Thus any sense of equity or distributive justice would require uniformity in the distribution of assets and or goods. But this would end the necessity to trade or to carry on exchange. Society would become atomistic in its economic functions. However, uniformity is impossible because of the dispersion in physical location and ownership of specialized resources (land, mineral resources, scenic value of landscapes, differences in historical sites, art and cultural assets, etc). This means that if disproportionate ownership of resources is inevitable then equity, in the sense of uniformity, requires a new form of ownership or a different system of redistribution of the wealth created by the productive use of these resources. Unless, of course, one assumes that everyone will be satisfied with whatever share of the pie that the “invisible hand” serves him/her. The fact that this assumption is not realistic is partly the reason that issues of social cohesion arise. Poverty may be defined as not having the means to afford a lifestyle above the subsistence level. But one’s self esteem and sense of progress is not measured in terms of distance from a subsistence income; but rather in terms of how well one is doing relative to one’s fellow citizens. Income is partly a measure of that. But increasingly the research shows that “how income is spent” may provide an important index of social cohesion. Laroche et al. (1998) show that the goods that different ethnic minorities spend their incomes on can be classified as cultural resistant/incorporation products or cultural shift products. The first category is determined by their ethnic origin and are extremely resistant to acculturation. The second category is determined by the extent to which the group has been exposed to the culture of the other group. Therefore the traits which distinguish the various groups identity will play a role in determining whether the market is providing the kinds of goods that are necessary for a sense of the cultural wholeness of specific subgroups. In the Canadian case, this is particularly important in the cultural sector and the way funds are distributed for the funding of the arts and culture. |
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