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A Design for a Market Economy

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A Design for a Market Economy A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Clapham, Ronald Article — Digitized Version A design for a market economy Intereconomics Suggested Citation: Clapham, Ronald (1974) : A design for a market economy, Intereconomics, ISSN 0020-5346, Verlag Weltarchiv, Hamburg, Vol. 09, Iss. 8, pp. 242-246, http://dx.doi.org/10.1007/BF02929106 This Version is available at: http://hdl.handle.net/10419/139059 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu ARTICLES Economic Order A Design for a Market Economy by Dr Ronald Clapham, Cologne * in most LDCs, the public sector and dirigisme have been allotted a vast, if not dominating, influence over the national economy. As a viable alternative to this widespread trend, the author seeks to develop an economic pattern of development policy based on the principles of market economy. or a long time already, a controversy has been may lead to encouraging attempts to join up iso- F raging over the question whether it is at all lated attempts to create a design for market- possible to base LDCs' economies on a market oriented proposals into a grand overall develop- economy design, in order to bring forth economic ment concept, based on actual experience I. and social progress. A majority of experts seems to incline to the view that the special social and Minimum Conditions economic conditions in such countries would stultify permanent economic growth along the The first basic question that has to be answered lines of a strategy for market economy. The effect in this context is whether it is at all possible to is that dirigisme has been conceded a vast, if not impose a market economy design on LDCs. In overpowering, degree of influence. In practice, order to settle this it is possible to define clearly this means overall economic planning by govern- the minimum conditions for setting up a "modern ment, control over, and guidance for, the rem- market economy", which will be very different nants of permitted private investment activities, from the, historically predominating, "traditional government-owned industrial and trading agen- semi-monetary market economy", and to compare cies, price fixing and physical production and them with actual conditions prevailing in the least- turnover quotas being imposed, and government developed of LDCs. There is some agreement on control of foreign trade. the following conditions being sufficient: This kind of economic policy is widespread, but [] A framework of rules, institutions, and laws, the attempt will be made here to oppose it by a created by government, that is suitable to the pur- viable design for development policies based on a pose. This includes, as major elements, a stable market economy. Due to theoretical deliberations rule of law, institutions that are able to work, and and empirical experiences it must again be dis- efficient government departments and agencies. cussed. One of the major reasons for this attempt Empirically, such foundations for viable and mod- is the fact that, during the last twenty years or so, ern market operations have been found to exist a number of LDCs have succeeded in attaining a only in part in LDCs. Problems and obstacles are high rate of economic growth whilst basing their often the lack of uniform and nationwide legisla- economic policies on the principles of market tion, the scant social understanding of modern economy (e.g. Taiwan, South Korea, Thailand, Me- law, the uncertainty of legal rules and customs xico, the Ivory Coast, etc.). Moreover, recent emp- about landed property, the big gaps in specifically irical studies of the sociology of economic institu- economic and trade legislation, and the weakness tions and patterns of acting in traditional societies of general protection of the inhabitants and their have come to the conclusion that a great lot of just claims by rules of law. Moreover, public ad- the views uncritically embodied in the fashionable ministration and the civil service are frequently theories of development have absorbed a high degree of "economic folklore". Such observations ' cf. R. C I a p h a m, Marktwlrtschaft in Entwicklungsl&ndern. Zur Anwendung und Leistungsf&hlgkeit des marktwirtschaftlichen Kon- zeptes. (Market Economy in LDCs. About Practising a Market- * University of Cologne. oriented Design and its Feasibility.) Freiburg, 1973. 242 INTERECONOMICS, No. 8, 1974 ECONOMIC ORDER inefficient. In many cases, even limited duties to may mean to be unfettered from the shackles of be performed by the public power, which are in- traditional societies. dispensable for the survival of an organised commonwealth, and which will grow in the course However, it is far too little known what a power- of economic development, cannot be tackled sat- ful influence, at the same time, is brought to bear isfactorily by government authorities, since they by the equipment with additional resources (capi- are woefully understaffed and undertrained. tal, technology, etc.) and, above all, by the govern- ment's economic policies on the supply of entre- [] Markets for goods and factors must be able to preneurial talent and activities. In order to make operate. Market forces will enforce optimal effects a successful trader willing and able to change of pricing as a steering, incentive and distribution himself into an industrial manufacturer, the de- mechanism only on condition that the easiest cisive need is for him to know what are the possible and unhindered access to the market, a chances for him to earn a profit, and how great free price formation, and effective competition ex- the risks will be, that arise from such an entirely ist. The fact is, however, that in LDCs the markets novel activity. Provided there are ironclad guaran- for capital, goods, and labour are of a low and tees for the security of private property and for weak profile and only partly integrated in the the unfettered right of the owner-producer to buy national economy. This is caused mainly by eco- and sell his production implements freely, both nomic dualism and by government-operated and formally and actually, this alone will favour the private manipulation of the markets. Subsistence emergence of enterprising manufacturers who farming, through the irreversible spread of a mon- develop long-term investment programmes. Seen etary economy, is being drawn into a monetary from this aspect, it is clear that an actual scar- market economy with painful slowness. city of entrepreneurial talent and initiatives is often due to the anti-entrepreneurial attitudes and Where such conditions prevail, prices in the local creeds of both the government and its civil ser- markets are different from those which would vice. arise if and when these markets were fully inte- grated in the national economy and in equilibrium. [] Widespread reactions to economic incentives: This means that also price relations in the Any active evolution from the basis of economic "modern" sector of a given LDC do not indicate plans that have been designed for operating in a the overall economic scarcity of actually marketed decentralised fashion, and which will actually goods and services. Therefore, it is very doubtful operate in this way, presupposes that the society whether scarce resources will be allocated ex- within which they are to be practised contains a clusively through the market price mechanism. sufficient number of members who will react, and repeatedly react, to economic incentives. It is often drawn into doubt that such conditions exist Hostility to the Business Community at all in LDCs. In order to explore the actual reac- tions of people under the same social circum- [] In a genuine market economy, industrial entre- stances, it might be advisable to study the behav- preneurs have a key function as innovators and iour of peasant farmers - who, in most cases of imitators. Generally, it is frequently pointed out LDCs, are the most numerous social group - that LDCs are swarming with extremely capable towards production and supplies offered to them. traders, gifted craftsmen, and moneylenders, but Empirical studies under different geographical it is being regretted that there is an extreme and historical conditions have shown that price scarcity or even complete absence of native entre- elasticity of farm production (measured by the preneurs (manufacturers). That factor of produc- size of the areas farmed) appears, indeed, to exist tion which, according
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