Monday, February 07, 2005

The mistakes of laissez-faire revisited

Larry Elliott
It has become clear in recent years that there is a need for bodies that can help manage globalisation. Unlike a decade ago, it is no longer assumed - even by multinational corporations - that everything can be left to the self-regulating market. Put bluntly, the modern world is re-learning some of the lessons of the past. Back in the 19th century, there was a similar belief that leaving the forces of supply and demand unencumbered by restrictions and constraints would lead to perfect equilibrium. If only wages could be set by demand and supply, if only all tariffs could be removed, if only entrepreneurs could be encouraged by low taxes, there would be a state of grace.

Things didn't quite work out as planned. The Austrian economist and historian Karl Polanyi pointed out in his book The Great Transformation that this was a wholly utopian view of the world and he was absolutely right. Those who were victims of 19th century laissez-faire did not just take it on the chin.
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