- In Defense of Neoliberalism
I will address my comments primarily to Adam Przeworski's wide-ranging essay on the relation between differing economic approaches and democracy. He offers much to give pause to those who are overly optimistic about the possibilities of a swift and easy transition to a decent, humane, and reasonably affluent social order in Central and Eastern Europe, or who think that it is obvious that developments there must lead to a benign combination of markets and democracy. Przeworski's reflections should also give pause to those who think that such a combination will necessarily work; most importantly, he reminds us of our ignorance.
Nonetheless, I do have some reservations. Although the essay is rather diffuse and pursues many different issues, its overall thrust is regrettably negative. It is understandable that Przeworski should be fed up with ideologically inspired overconfidence, but it is a shame that he stopped at pure critique when the problems at hand are so great and so pressing.
More seriously, I also have reservations about the adequacy of the criticisms he aims at "neoliberal ideology." Przeworski tells us that his observations "should not be construed as a defense of traditional patterns of state intervention, whether under capitalism or socialism; as an argument against relying on markets; or as an attack on promarket [End Page 75] reforms." But in light of the contents of his essay, much of which is directed against what he takes to be the rationale for promarket approaches, this disclaimer seems to be largely pro forma. He advances a variety of considerations that appear to argue in favor of the state's playing a larger role in development. And he seems to suggest that it is, distinctively, neoliberals who are engaged in morally problematic experiments with the well-being of their fellow citizens.
Let us consider three topics that Przeworski discusses as he elaborates these criticisms: 1) market imperfections and Adam Smith's "invisible hand"; 2) the positive role of the state in bringing about economic development (a topic that moves Przeworski to ponder the advantages of the Swedish model); and 3) issues of pluralism and social "experiments" that affect the lives of actual human beings.
In his comments on market imperfections and Smith's invisible hand, Przeworski refers to well-known ways in which actual market institutions can fail to meet the conditions that are needed for the realization of general market equilibrium. He places particular emphasis on the imperfection of our knowledge—on human ignorance, in other words. This and other points that Przeworski makes are correct, but they in no way constitute a significant argument against the neoliberal view.
After all, it was Schumpeter's fellow Austrian, Friedrich Hayek, writing a little before the publication of Capitalism, Socialism and Democracy, who raised just this issue of human ignorance in the course of his argument about the insurmountable difficulties of economic calculation under socialism.1 Hayek went on to explain how the limitations of human knowledge also posed difficulties for the notion of intertemporal general equilibrium, an idea with which he had previously been working. Hayek's own subsequent work, and that of many neoliberals who followed him, has referred precisely to human ignorance, to the disaggregated and sometimes tacit character of human knowledge, and to the importance of learning by trial and error in making the case for markets as opposed to the state.2 Hayek, when discussing the problems that the imperfection of human knowledge posed for the idea of general equilibrium, also stressed that it was essentially an empirical matter as to which institutional arrangements would lead people's plans into coordination. This is not the place to discuss Hayek's work in any detail. Suffice it to say that the claim that the real world satisfies the assumptions of general equilibrium theory plays no role in the work of Hayek or, as far as I know, any other neoliberal defender of markets. (It is worth noting that there is virtually no mention in Przeworski's essay of the actual works of the neoliberals whom he criticizes.)
Przeworski presents the same points as telling against Adam Smith's famous idea of the...