Look. Somewhere I have Ceci Rouse's notes from when she was a section leader the last time Larry Summers taught at Harvard, undergraduate public finance, Economics 1410. IIRC, one section of them goes something like this: "Divergence between maximizing real GDP and maximizing social welfare... monopoly... externalities... income distribution... the market maximizes *a* social welfare function, but unless the distribution of wealth is exactly right there is no reason to believe that it maximizes *the* social welfare function..."
I know--Lant knows--Larry knows--Joe knows that even if government policy is carefully tweaked to preserve competitition and neutralize all externalities by providing the right incentives to producers and consumers, there is still a big gap between the market's equilibrium and the social welfare maximum. I know--Larry knows--Lant knows--Joe knows that Bengal's market economy in 1942 was in a Pareto-optimal equilibrium, only because two million people had no wealth and no income and thus a zero weight in the market's calculus, they were about to die. If everyone has the same indirect utility function that is (say) logarithmic in real income, then the market's calculus maximizes a weighted sum of individuals' utilities, with each individual's weight being proportional to his or her income. That's what the market does. If you don't like the distribution of wealth, you *cannot* like the market equilibrium.
And all of this does not even consider the power dimension (which I know Larry thinks about, but have never talked to Lant or Joe about). Until there was a flourishing transatlantic shipping capability and a demand in Europe for sugar and tobacco, there was little demand in the Caribbean for slaves. Until there was a flourishing demand in the Caribbean for slaves, the rewards to coastal African kings from undertaking slave raids into the interior were low, so few slaves were taken. But once there was both a transatlantic shipping trade and strong European demand for sugar, the west African slave trade took off...
Similarly, if there were no oil in Ogoniland it would not be worthwhile for generals in Lagos to kill, torture, and terrorize: after all, if you go into the bundu you might get hurt. But once there is oil--and companies to buy it--all of a sudden the level of violence goes *way* up, because now there is something to kill, torture, and terrorize for.
You can talk about--I do talk about--the opportunities for Pareto-preferred exchange and universal increases in wealth and welfare produced by increased globalization. But you must also recognize that most governments are made up of thugs with spears, and when there is more wealth to be extracted by being more thuggish you will find a lot more governments behaving more thuggishly--whether Polish nobles enserfing peasants so they can increase grain shipments down the Vistula, or the African slave trade, or the expulsion of the Dakota from the Black Hills, or UNITA's funding of its continued campaign in Angola via diamond sales.
It's no secret which way I come down--I am a card-carrying neoliberal, after all. Let free trade and investment rip, watch wealth accumulate, hope that sweet commerce creates softer forms of rule, and get ready for the next turn of the political wheel which will make movement toward social democracy possible in a generation or so. That seems much better to me than, say, telling Malaysians that they cannot have steelworker jobs because that would raise pollution levels in their rivers, or telling Ecuadorians they cannot have electricity because coal-burning power plants raise SO2 levels, or telling Mexicans they cannot build automobiles because autoworker jobs belong in Michigan.
But I am aware that the neoliberal bet is a *bet*, and that it may come out very badly. Lots of bets have come out very badly in this century: look at Lenin, or Nehru, or Mugabe.
>Stiglitz defended Suharto, saying of him, "He wasn't
>really that bad...He was no Moi." Lots of polite embarrassed smiles around the
>head table.
Suharto killed 700,000 people. Suharto also poured money into rural education like there was no tomorrow. And under Suharto rural material standards of living appear to have doubled, and nationwide GDP per capita quadrupled.
If Indonesia continues to spiral downward I will wind up viewing Suharto much like I view Marshall Tito: someone with very bloody hands who was (unless you were one of the dead) a relatively good dictator--and under Suharto Indonesia's economy appears to have grown much faster than Yugoslavia's under Tito.