Capitalism Beyond the Crisis Amartya Sen March 26, 2009 Issue

1.
2008 as a year o! crises. "irst, e had a !ood crisis, particularly threatenin#
to poor consumers, especially in A!rica. Alon# ith that came a record
increase in oil prices, threatenin# all oil$importin# countries. "inally, rather
suddenly in the !all, came the #lo%al economic donturn, and it is no
#atherin# speed at a !ri#htenin# rate. &he year 2009 seems li'ely to o(er a
sharp intensi)cation o! the donturn, and many economists are anticipatin#
a !ull$scale depression, perhaps e*en one as lar#e as in the 19+0s. ,hile
su%stantial !ortunes ha*e su(ered steep declines, the people most a(ected
are those ho ere already orst o(.
&he -uestion that arises most !orce!ully no concerns the nature o!
capitalism and hether it needs to %e chan#ed. Some de!enders o!
un!ettered capitalism ho resist chan#e are con*inced that capitalism is
%ein# %lamed too much !or short$term economic pro%lems.pro%lems they
*ariously attri%ute to %ad #o*ernance /!or e0ample %y the Bush
administration1 and the %ad %eha*ior o! some indi*iduals /or hat 2ohn
McCain descri%ed durin# the presidential campai#n as 3the #reed o! ,all
Street41. 5thers do, hoe*er, see truly serious de!ects in the e0istin#
economic arran#ements and ant to re!orm them, loo'in# !or an alternati*e
approach that is increasin#ly %ein# called 3ne capitalism.4
&he idea o! old and ne capitalism played an ener#i6in# part at a
symposium called 37e ,orld, 7e Capitalism4 held in 8aris in 2anuary and
hosted %y the "rench president 7icolas Sar'o6y and the !ormer British prime
minister &ony Blair, %oth o! hom made elo-uent presentations on the need
!or chan#e. So did 9erman Chancellor An#ela Mer'el, ho tal'ed a%out the
old 9erman idea o! a 3social mar'et4.one restrained %y a mi0ture o!
consensus$%uildin# policies.as a possi%le %lueprint !or ne capitalism
/thou#h 9ermany has not done much %etter in the recent crisis than other
mar'et economies1.
Ideas a%out chan#in# the or#ani6ation o! society in the lon# run are clearly
needed, -uite apart !rom strate#ies !or dealin# ith an immediate crisis. I
ould separate out three -uestions !rom the many that can %e raised. "irst,
do e really need some 'ind o! 3ne capitalism4 rather than an economic
system that is not monolithic, dras on a *ariety o! institutions chosen
pra#matically, and is %ased on social *alues that e can de!end ethically:
Should e search !or a ne capitalism or !or a 3ne orld4.to use the
other term mentioned at the 8aris meetin#.that ould ta'e a di(erent
!orm:
&he second -uestion concerns the 'ind o! economics that is needed today,
especially in li#ht o! the present economic crisis. ;o do e assess hat is
tau#ht and championed amon# academic economists as a #uide to
economic policy.includin# the re*i*al o! <eynesian thou#ht in recent
months as the crisis has #ron )erce: More particularly, hat does the
present economic crisis tell us a%out the institutions and priorities to loo'
!or: &hird, in addition to or'in# our ay toard a %etter assessment o!
hat lon#$term chan#es are needed, e ha*e to thin'.and thin' !ast.
a%out ho to #et out o! the present crisis ith as little dama#e as possi%le.
2.
,hat are the special characteristics that ma'e a system indu%ita%ly
capitalist.old or ne: I! the present capitalist economic system is to %e
re!ormed, hat ould ma'e the end result a ne capitalism, rather than
somethin# else: It seems to %e #enerally assumed that relyin# on mar'ets
!or economic transactions is a necessary condition !or an economy to %e
identi)ed as capitalist. In a similar ay, dependence on the pro)t moti*e
and on indi*idual reards %ased on pri*ate onership are seen as
archetypal !eatures o! capitalism. ;oe*er, i! these are necessary
re-uirements, are the economic systems e currently ha*e, !or e0ample, in
=urope and America, #enuinely capitalist:
All a>uent countries in the orld.those in =urope, as ell as the ?S,
Canada, 2apan, Sin#apore, South <orea, Australia, and others.ha*e, !or
-uite some time no, depended partly on transactions and other payments
that occur lar#ely outside mar'ets. &hese include unemployment %ene)ts,
pu%lic pensions, other !eatures o! social security, and the pro*ision o!
education, health care, and a *ariety o! other ser*ices distri%uted throu#h
nonmar'et arran#ements. &he economic entitlements connected ith such
ser*ices are not %ased on pri*ate onership and property ri#hts.
Also, the mar'et economy has depended !or its on or'in# not only on
ma0imi6in# pro)ts %ut also on many other acti*ities, such as maintainin#
pu%lic security and supplyin# pu%lic ser*ices.some o! hich ha*e ta'en
people ell %eyond an economy dri*en only %y pro)t. &he credita%le
per!ormance o! the so$called capitalist system, hen thin#s mo*ed !orard,
dre on a com%ination o! institutions.pu%licly !unded education, medical
care, and mass transportation are @ust a !e o! many.that ent much
%eyond relyin# only on a pro)t$ma0imi6in# mar'et economy and on
personal entitlements con)ned to pri*ate onership.
?nderlyin# this issue is a more %asic -uestionA hether capitalism is a term
that is o! particular use today. &he idea o! capitalism did in !act ha*e an
important role historically, %ut %y no that use!ulness may ell %e !airly
e0hausted.
"or e0ample, the pioneerin# or's o! Adam Smith in the ei#hteenth century
shoed the use!ulness and dynamism o! the mar'et economy, and hy.
and particularly ho.that dynamism or'ed. SmithBs in*esti#ation
pro*ided an illuminatin# dia#nosis o! the or'in#s o! the mar'et @ust hen
that dynamism as poer!ully emer#in#. &he contri%ution that &he ,ealth
o! 7ations, pu%lished in 1CC6, made to the understandin# o! hat came to
%e called capitalism as monumental. Smith shoed ho the !reein# o!
trade can *ery o!ten %e e0tremely help!ul in #eneratin# economic prosperity
throu#h speciali6ation in production and di*ision o! la%or and in ma'in#
#ood use o! economies o! lar#e scale.
&hose lessons remain deeply rele*ant e*en today /it is interestin# that the
impressi*e and hi#hly sophisticated analytical or' on international trade
!or hich 8aul <ru#man recei*ed the latest 7o%el aard in economics as
closely lin'ed to SmithBs !ar$reachin# insi#hts o! more than 2+0 years a#o1.
&he economic analyses that !olloed those early e0positions o! mar'ets and
the use o! capital in the ei#hteenth century ha*e succeeded in solidly
esta%lishin# the mar'et system in the corpus o! mainstream economics.
;oe*er, e*en as the positi*e contri%utions o! capitalism throu#h mar'et
processes ere %ein# clari)ed and e0plicated, its ne#ati*e sides ere also
%ecomin# clear.o!ten to the *ery same analysts. ,hile a num%er o!
socialist critics, most nota%ly <arl Mar0, inDuentially made a case !or
censurin# and ultimately supplantin# capitalism, the hu#e limitations o!
relyin# entirely on the mar'et economy and the pro)t moti*e ere also clear
enou#h e*en to Adam Smith. Indeed, early ad*ocates o! the use o! mar'ets,
includin# Smith, did not ta'e the pure mar'et mechanism to %e a
!reestandin# per!ormer o! e0cellence, nor did they ta'e the pro)t moti*e to
%e all that is needed.
=*en thou#h people see' trade %ecause o! sel!$interest /nothin# more than
sel!$interest is needed, as Smith !amously put it, in e0plainin# hy %a'ers,
%reers, %utchers, and consumers see' trade1, ne*ertheless an economy
can operate e(ecti*ely only on the %asis o! trust amon# di(erent parties.
,hen %usiness acti*ities, includin# those o! %an's and other )nancial
institutions, #enerate the con)dence that they can and ill do the thin#s
they pled#e, then relations amon# lenders and %orroers can #o smoothly
in a mutually supporti*e ay. As Adam Smith roteA
,hen the people o! any particular country ha*e such con)dence in the
!ortune, pro%ity, and prudence o! a particular %an'er, as to %elie*e that he is
alays ready to pay upon demand such o! his promissory notes as are li'ely
to %e at any time presented to himE those notes come to ha*e the same
currency as #old and sil*er money, !rom the con)dence that such money
can at any time %e had !or them.1
Smith e0plained hy sometimes this did not happen, and he ould not ha*e
!ound anythin# particularly pu66lin#, I ould su##est, in the diFculties !aced
today %y %usinesses and %an's than's to the idespread !ear and mistrust
that is 'eepin# credit mar'ets !ro6en and pre*entin# a coordinated
e0pansion o! credit.
It is also orth mentionin# in this conte0t, especially since the 3el!are
state4 emer#ed lon# a!ter SmithBs on time, that in his *arious ritin#s, his
o*erhelmin# concern.and orry.a%out the !ate o! the poor and the
disad*anta#ed are stri'in#ly prominent. &he most immediate !ailure o! the
mar'et mechanism lies in the thin#s that the mar'et lea*es undone. SmithBs
economic analysis ent ell %eyond lea*in# e*erythin# to the in*isi%le hand
o! the mar'et mechanism. ;e as not only a de!ender o! the role o! the
state in pro*idin# pu%lic ser*ices, such as education, and in po*erty relie!
/alon# ith demandin# #reater !reedom !or the indi#ents ho recei*ed
support than the 8oor Gas o! his day pro*ided1, he as also deeply
concerned a%out the ine-uality and po*erty that mi#ht sur*i*e in an
otherise success!ul mar'et economy.
Gac' o! clarity a%out the distinction %eteen the necessity and suFciency o!
the mar'et has %een responsi%le !or some misunderstandin#s o! SmithBs
assessment o! the mar'et mechanism %y many ho ould claim to %e his
!olloers. "or e0ample, SmithBs de!ense o! the !ood mar'et and his criticism
o! restrictions %y the state on the pri*ate trade in !ood #rains ha*e o!ten
%een interpreted as ar#uin# that any state inter!erence ould necessarily
ma'e hun#er and star*ation orse.
But SmithBs de!ense o! pri*ate trade only too' the !orm o! disputin# the
%elie! that stoppin# trade in !ood ould reduce the %urden o! hun#er. &hat
does not deny in any ay the need !or state action to supplement the
operations o! the mar'et %y creatin# @o%s and incomes /e.#., throu#h or'
pro#rams1. I! unemployment ere to increase sharply than's to %ad
economic circumstances or %ad pu%lic policy, the mar'et ould not, on its
on, recreate the incomes o! those ho ha*e lost their @o%s. &he ne
unemployed, Smith rote, 3ould either star*e, or %e dri*en to see' a
su%sistence either %y %e##in#, or %y the perpetration perhaps o! the
#reatest enormities,4 and 3ant, !amine, and mortality ould immediately
pre*ailH.42 Smith re@ects inter*entions that e0clude the mar'et.%ut not
inter*entions that include the mar'et hile aimin# to do those important
thin#s that the mar'et may lea*e undone.
Smith ne*er used the term 3capitalism4 /at least so !ar as I ha*e %een a%le
to trace1, %ut it ould also %e hard to car*e out !rom his or's any theory
ar#uin# !or the suFciency o! mar'et !orces, or o! the need to accept the
dominance o! capital. ;e tal'ed a%out the importance o! these %roader
*alues that #o %eyond pro)ts in &he ,ealth o! 7ations, %ut it is in his )rst
%oo', &he &heory o! Moral Sentiments, hich as pu%lished e0actly a
-uarter o! a millennium a#o in 1CI9, that he e0tensi*ely in*esti#ated the
stron# need !or actions %ased on *alues that #o ell %eyond pro)t see'in#.
,hile he rote that 3prudence4 as 3o! all the *irtues that hich is most
use!ul to the indi*idual,4 Adam Smith ent on to ar#ue that 3humanity,
@ustice, #enerosity, and pu%lic spirit, are the -ualities most use!ul to
others.4+
Smith *ieed mar'ets and capital as doin# #ood or' ithin their on
sphere, %ut )rst, they re-uired support !rom other institutions.includin#
pu%lic ser*ices such as schools.and *alues other than pure pro)t see'in#,
and second, they needed restraint and correction %y still other institutions.
e.#., ell$de*ised )nancial re#ulations and state assistance to the poor.!or
pre*entin# insta%ility, ine-uity, and in@ustice. I! e ere to loo' !or a ne
approach to the or#ani6ation o! economic acti*ity that included a pra#matic
choice o! a *ariety o! pu%lic ser*ices and ell$considered re#ulations, e
ould %e !olloin# rather than departin# !rom the a#enda o! re!orm that
Smith outlined as he %oth de!ended and critici6ed capitalism.
+.
;istorically, capitalism did not emer#e until ne systems o! la and
economic practice protected property ri#hts and made an economy %ased
on onership or'a%le. Commercial e0chan#e could not e(ecti*ely ta'e
place until %usiness morality made contractual %eha*ior sustaina%le and
ine0pensi*e.not re-uirin# constant suin# o! de!aultin# contractors, !or
e0ample. In*estment in producti*e %usinesses could not Dourish until the
hi#her reards !rom corruption had %een moderated. 8ro)t$oriented
capitalism has alays dran on support !rom other institutional *alues.
&he moral and le#al o%li#ations and responsi%ilities associated ith
transactions ha*e in recent years %ecome much harder to trace, than's to
the rapid de*elopment o! secondary mar'ets in*ol*in# deri*ati*es and other
)nancial instruments. A su%prime lender ho misleads a %orroer into
ta'in# unise ris's can no pass o( the )nancial assets to third parties.
ho are remote !rom the ori#inal transaction. Accounta%ility has %een %adly
undermined, and the need !or super*ision and re#ulation has %ecome much
stron#er.
And yet the super*isory role o! #o*ernment in the ?nited States in particular
has %een, o*er the same period, sharply curtailed, !ed %y an increasin#
%elie! in the sel!$re#ulatory nature o! the mar'et economy. 8recisely as the
need !or state sur*eillance #re, the needed super*ision shran'. &here as,
as a result, a disaster aitin# to happen, hich did e*entually happen last
year, and this has certainly contri%uted a #reat deal to the )nancial crisis
that is pla#uin# the orld today. &he insuFcient re#ulation o! )nancial
acti*ities has implications not only !or ille#itimate practices, %ut also !or a
tendency toard o*erspeculation that, as Adam Smith ar#ued, tends to #rip
many human %ein#s in their %reathless search !or pro)ts.
Smith called the promoters o! e0cessi*e ris' in search o! pro)ts 3prodi#als
and pro@ectors4.hich is -uite a #ood description o! issuers o! su%prime
mort#a#es o*er the past !e years. Jiscussin# las a#ainst usury, !or
e0ample, Smith anted state re#ulation to protect citi6ens !rom the
3prodi#als and pro@ectors4 ho promoted unsound loansA
A #reat part o! the capital o! the country ould thus %e 'ept out o! the
hands hich ere most li'ely to ma'e a pro)ta%le and ad*anta#eous use o!
it, and thron into those hich ere most li'ely to aste and destroy it.K
&he implicit !aith in the a%ility o! the mar'et economy to correct itsel!, hich
is lar#ely responsi%le !or the remo*al o! esta%lished re#ulations in the
?nited States, tended to i#nore the acti*ities o! prodi#als and pro@ectors in a
ay that ould ha*e shoc'ed Adam Smith.
&he present economic crisis is partly #enerated %y a hu#e o*erestimation o!
the isdom o! mar'et processes, and the crisis is no %ein# e0acer%ated %y
an0iety and lac' o! trust in the )nancial mar'et and in %usinesses in #eneral
.responses that ha*e %een e*ident in the mar'et reactions to the se-uence
o! stimulus plans, includin# the LC8C %illion plan si#ned into la in "e%ruary
%y the ne 5%ama administration. As it happens, these pro%lems ere
already identi)ed in the ei#hteenth century %y Smith, e*en thou#h they
ha*e %een ne#lected %y those ho ha*e %een in authority in recent years,
especially in the ?nited States, and ho ha*e %een %usy citin# Adam Smith
in support o! the un!ettered mar'et.
K.
,hile Adam Smith has recently %een much -uoted, e*en i! not much read,
there has %een a hu#e re*i*al, e*en more recently, o! 2ohn Maynard <eynes.
Certainly, the cumulati*e donturn that e are o%ser*in# ri#ht no, hich
is ed#in# us closer to a depression, has clear <eynesian !eaturesE the
reduced incomes o! one #roup o! persons has led to reduced purchases %y
them, in turn causin# a !urther reduction in the income o! others.
;oe*er, <eynes can %e our sa*ior only to a *ery partial e0tent, and there is
a need to loo' %eyond him in understandin# the present crisis. 5ne
economist hose current rele*ance has %een !ar less reco#ni6ed is <eynesBs
ri*al Arthur Cecil 8i#ou, ho, li'e <eynes, as also in Cam%rid#e, indeed
also in <in#s Colle#e, in <eynesBs time. 8i#ou as much more concerned
than <eynes ith economic psycholo#y and the ays it could inDuence
%usiness cycles and sharpen and harden an economic recession that could
ta'e us toard a depression /as indeed e are seein# no1. 8i#ou attri%uted
economic Ductuations partly to 3psycholo#ical causes4 consistin# o!
*ariations in the tone o! mind o! persons hose action controls industry,
emer#in# in errors o! undue optimism or undue pessimism in their %usiness
!orecasts.I
It is hard to i#nore the !act that today, in addition to the <eynesian e(ects o!
mutually rein!orced decline, e are stron#ly in the presence o! 3errors o!H
undue pessimism.4 8i#ou !ocused particularly on the need to un!ree6e the
credit mar'et hen the economy is in the #rip o! e0cessi*e pessimismA
;ence, other thin#s %ein# e-ual, the actual occurrence o! %usiness
!ailures ill %e more or less idespread, accordin# Mto hetherN %an'ersB
loans, in the !ace o! crisis o! demands, are less or more readily o%taina%le.6
Jespite hu#e in@ections o! !resh li-uidity into the American and =uropean
economies, lar#ely !rom the #o*ernment, the %an's and )nancial
institutions ha*e until no remained unillin# to un!ree6e the credit mar'et.
5ther %usinesses also continue to !ail, partly in response to already
diminished demand /the <eynesian 3multiplier4 process1, %ut also in
response to !ear o! e*en less demand in the !uture, in a climate o! #eneral
#loom /the 8i#o*ian process o! in!ectious pessimism1.
5ne o! the pro%lems that the 5%ama administration has to deal ith is that
the real crisis, arisin# !rom )nancial mismana#ement and other
trans#ressions, has %ecome many times ma#ni)ed %y a psycholo#ical
collapse. &he measures that are %ein# discussed ri#ht no in ,ashin#ton
and elsehere to re#enerate the credit mar'et include %ailouts.ith )rm
re-uirements that su%sidi6ed )nancial institutions actually lend.
#o*ernment purchase o! to0ic assets, insurance a#ainst !ailure to repay
loans, and %an' nationali6ation. /&he last proposal scares many
conser*ati*es @ust as pri*ate control o! the pu%lic money #i*en to the %an's
orries people concerned a%out accounta%ility.1 As the ea' response o! the
mar'et to the administrationBs measures so !ar su##ests, each o! these
policies ould ha*e to %e assessed partly !or their impact on the psycholo#y
o! %usinesses and consumers, particularly in America.
I.
&he contrast %eteen 8i#ou and <eynes is rele*ant !or another reason as
ell. ,hile <eynes as *ery in*ol*ed ith the -uestion o! ho to increase
a##re#ate income, he as relati*ely less en#a#ed in analy6in# pro%lems o!
une-ual distri%ution o! ealth and o! social el!are. In contrast, 8i#ou not
only rote the classic study o! el!are economics, %ut he also pioneered the
measurement o! economic ine-uality as a ma@or indicator !or economic
assessment and policy.C Since the su(erin# o! the most depri*ed people in
each economy.and in the orld.demands the most ur#ent attention, the
role o! supporti*e cooperation %eteen %usiness and #o*ernment cannot
stop only ith mutually coordinated e0pansion o! an economy. &here is a
critical need !or payin# special attention to the underdo#s o! society in
plannin# a response to the current crisis, and in #oin# %eyond measures to
produce #eneral economic e0pansion. "amilies threatened ith
unemployment, ith lac' o! medical care, and ith social as ell as
economic depri*ation ha*e %een hit particularly hard. &he limitations o!
<eynesian economics to address their pro%lems demand much #reater
reco#nition.
A third ay in hich <eynes needs to %e supplemented concerns his relati*e
ne#lect o! social ser*ices.indeed e*en 5tto *on Bismarc' had more to say
on this su%@ect than <eynes. &hat the mar'et economy can %e particularly
%ad in deli*erin# pu%lic #oods /such as education and health care1 has %een
discussed %y some o! the leadin# economists o! our time, includin# 8aul
Samuelson and <enneth Arro. /8i#ou too contri%uted to this su%@ect ith
his emphasis on the 3e0ternal e(ects4 o! mar'et transactions, here the
#ains and losses are not con)ned only to the direct %uyers or sellers.1 &his
is, o! course, a lon#$term issue, %ut it is orth notin# in addition that the
%ite o! a donturn can %e much )ercer hen health care in particular is not
#uaranteed !or all.
"or e0ample, in the a%sence o! a national health ser*ice, e*ery lost @o% can
produce a lar#er e0clusion !rom essential health care, %ecause o! loss o!
income or loss o! employment$related pri*ate health insurance. &he ?S has
a C.6 percent rate o! unemployment no, hich is %e#innin# to cause hu#e
depri*ation. It is orth as'in# ho the =uropean countries, includin# "rance,
Italy, and Spain, that li*ed ith much hi#her le*els o! unemployment !or
decades, mana#ed to a*oid a total collapse o! their -uality o! li!e. &he
anser is partly the ay the =uropean el!are state operates, ith much
stron#er unemployment insurance than in America and, e*en more
importantly, ith %asic medical ser*ices pro*ided to all %y the state.
&he !ailure o! the mar'et mechanism to pro*ide health care !or all has %een
Da#rant, most noticea%ly in the ?nited States, %ut also in the sharp halt in
the pro#ress o! health and lon#e*ity in China !olloin# its a%olition o!
uni*ersal health co*era#e in 19C9. Be!ore the economic re!orms o! that
year, e*ery Chinese citi6en had #uaranteed health care pro*ided %y the
state or the cooperati*es, e*en i! at a rather %asic le*el. ,hen China
remo*ed its counterproducti*e system o! a#ricultural collecti*es and
communes and industrial units mana#ed %y %ureaucracies, it there%y made
the rate o! #roth o! #ross domestic product #o up !aster than anyhere
else in the orld. But at the same time, led %y its ne !aith in the mar'et
economy, China also a%olished the system o! uni*ersal health careE and,
a!ter the re!orms o! 19C9, health insurance had to %e %ou#ht %y indi*iduals
/e0cept in some relati*ely rare cases in hich the state or some %i# )rms
pro*ide them to their employees and dependents1. ,ith this chan#e,
ChinaBs rapid pro#ress in lon#e*ity sharply sloed don.
&his as pro%lem enou#h hen ChinaBs a##re#ate income as #roin#
e0tremely !ast, %ut it is %ound to %ecome a much %i##er pro%lem hen the
Chinese economy decelerates sharply, as it is currently doin#. &he Chinese
#o*ernment is no tryin# hard to #radually reintroduce health insurance !or
all, and the ?S #o*ernment under 5%ama is also committed to ma'in#
health co*era#e uni*ersal. In %oth China and the ?S, the recti)cations ha*e
!ar to #o, %ut they should %e central elements in tac'lin# the economic
crisis, as ell as in achie*in# lon#$term trans!ormation o! the to societies.
6.
&he re*i*al o! <eynes has much to contri%ute %oth to economic analysis and
to policy, %ut the net has to %e cast much ider. =*en thou#h <eynes is
o!ten seen as a 'ind o! a 3re%el4 )#ure in contemporary economics, the !act
is that he came close to %ein# the #uru o! a ne capitalism, ho !ocused on
tryin# to sta%ili6e the Ductuations o! the mar'et economy /and then a#ain
ith relati*ely little attention to the psycholo#ical causes o! %usiness
Ductuations1. =*en thou#h Smith and 8i#ou ha*e the reputation o! %ein#
rather conser*ati*e economists, many o! the deep insi#hts a%out the
importance o! nonmar'et institutions and nonpro)t *alues came !rom them,
rather than !rom <eynes and his !olloers.
A crisis not only presents an immediate challen#e that has to %e !aced. It
also pro*ides an opportunity to address lon#$term pro%lems hen people
are illin# to reconsider esta%lished con*entions. &his is hy the present
crisis also ma'es it important to !ace the ne#lected lon#$term issues li'e
conser*ation o! the en*ironment and national health care, as ell as the
need !or pu%lic transport, hich has %een *ery %adly ne#lected in the last
!e decades and is also so !ar sidelined.as I rite this article.e*en in the
initial policies announced %y the 5%ama administration. =conomic
a(orda%ility is, o! course, an issue, %ut as the e0ample o! the Indian state o!
<erala shos, it is possi%le to ha*e state$#uaranteed health care !or all at
relati*ely little cost. Since the Chinese dropped uni*ersal health insurance in
19C9, <erala.hich continues to ha*e it.has *ery su%stantially o*erta'en
China in a*era#e li!e e0pectancy and in indicators such as in!ant mortality,
despite ha*in# a much loer le*el o! per capita income. So there are
opportunities !or poor countries as ell.
But the lar#est challen#es !ace the ?nited States, hich already has the
hi#hest le*el o! per capita e0penditure on health amon# all countries in the
orld, %ut still has a relati*ely lo achie*ement in health and has more than
!orty million people ith no #uarantee o! health care. 8art o! the pro%lem
here is one o! pu%lic attitude and understandin#. ;u#ely distorted
perceptions o! ho a national health ser*ice or's need to %e corrected
throu#h pu%lic discussion. "or e0ample, it is common to assume that no one
has a choice o! doctors in a =uropean national health ser*ice, hich is not at
all the case.
&here is, hoe*er, also a need !or %etter understandin# o! the options that
e0ist. In ?S discussions o! health re!orm, there has %een an
o*erconcentration on the Canadian system.a system o! pu%lic health care
that ma'es it *ery hard to ha*e pri*ate medical care.hereas in ,estern
=urope the national health ser*ices pro*ide care !or all %ut also allo, in
addition to state co*era#e, pri*ate practice and pri*ate health insurance, !or
those ho ha*e the money and ant to spend it this ay. It is not clear @ust
hy the rich ho can !reely spend money on yachts and other lu0ury #oods
should not %e alloed to spend it on MOIs or C& scans instead. I! e ta'e our
cue !rom Adam SmithBs ar#uments !or a di*ersity o! institutions, and !or
accommodatin# a *ariety o! moti*ations, there are practical measures e
can ta'e that ould ma'e a hu#e di(erence to the orld in hich e li*e.
&he present economic crises do not, I ould ar#ue, call !or a 3ne
capitalism,4 %ut they do demand a ne understandin# o! older ideas, such
as those o! Smith and, nearer our time, o! 8i#ou, many o! hich ha*e %een
sadly ne#lected. ,hat is also needed is a clearheaded perception o! ho
di(erent institutions actually or', and o! ho a *ariety o! or#ani6ations.
!rom the mar'et to the institutions o! the state.can #o %eyond short$term
solutions and contri%ute to producin# a more decent economic orld.
."e%ruary 2I, 2009
Getters
;ealth Care, =lsehereA An =0chan#e 2uly 16, 2009
1
Adam Smith, An In-uiry into the 7ature and Causes o! the ,ealth o!
7ations, edited %y O.;. Camp%ell and A.S. S'inner /Clarendon 8ress, 19C61,
I, II.ii.28, p. 292.P
2
Smith, &he ,ealth o! 7ations, I, I.*iii.26, p. 91.P
+
Adam Smith, &he &heory o! Moral Sentiments, edited %y J.J. Oaphael and
A.G. Mac)e /Clarendon 8ress, 19C61, pp. 189Q190.P
K
Smith, &he ,ealth o! 7ations, I, II.i*.1I, p. +IC.P
I
A.C. 8i#ou, Industrial "luctuations /GondonA Macmillan, 19291, p. C+.P
6
8i#ou, Industrial "luctuations, p. 96.P
C
A.C. 8i#ou, &he =conomics o! ,el!are /GondonA Macmillan, 19201. Current
or's on economic ine-uality, includin# the ma@or contri%utions o! A.B.
At'inson, ha*e %een to a considera%le e0tent inspired %y 8i#ouBs pioneerin#
initiati*eA see At'inson, Social 2ustice and 8u%lic 8olicy /MI& 8ress, 198+1.P
R 196+$201K 7SO=T, Inc. All ri#hts reser*ed.