Herbert Simon, the 1978 Nobel laureate in economics who was a pioneer of the study of business organizations (see Thing 16), put this point succinctly in 1991 in ‘Organisations and Markets’, one of the last articles he wrote. If a Martian, with no preconceptions, came to Earth and observed our economy, Simon mused, would he conclude that Earthlings live in a market economy? No, Simon said, he would almost certainly have concluded that Earthlings live in an organizational economyin the sense that the bulk of earth’s economic activities is coordinated within the boundaries of firms (organizations), rather than through market transactions between those firms. If firms were represented by green and markets by red, Simon argued, the Martian would see ‘large green areas interconnected by red lines’, rather than ‘a network of red lines connecting green spots’.[2] And we think planning is dead.
Simon did not talk much about government planning, but if we add government planning, modern capitalist economies are even more planned than his Martian example suggests. Between the planning that is going on within corporations and various types of planning by the government, modern capitalist economies are planned to a very high degree. One interesting point that follows from these observations is that rich countries are more planned than poor countries, owing to the more widespread existence of large corporations and often more pervasive (albeit often less visible, on account of its more subtle approach) presence of the government.
The question, then, is not whether to plan or not. It is what the appropriate levels and forms of planning are for different activities. The prejudice against planning, while understandable given the failures of communist central planning, makes us misunderstand the true nature of the modern economy in which government policy, corporate planning and market relationships are all vital and interact in a complex way. Without markets we will end up with the inefficiencies of the Soviet system. However, thinking that we can live by the market alone is like believing that we can live by eating only salt, because salt is vital for our survival.
Thing 20
Equality of opportunity may not be fair
Many people get upset by inequality. However, there is equality and there is equality. When you reward people the same way regardless of their efforts and achievements, the more talented and the harder-working lose the incentive to perform. This is equality of outcome. It’s a bad idea, as proven by the fall of communism. The equality we seek should be the equality of opportunity. For example, it was not only unjust but also inefficient for a black student in apartheid South Africa not to be able to go to better, ‘white’, universities, even if he was a better student. People should be given equal opportunities. However, it is equally unjust and inefficient to introduce affirmative action and begin to admit students of lower quality simply because they are black or from a deprived background. In trying to equalize outcomes, we not only misallocate talents but also penalize those who have the best talent and make the greatest efforts.
Equality of opportunity is the starting point for a fair society. But it’s not enough. Of course, individuals should be rewarded for better performance, but the question is whether they are actually competing under the same conditions as their competitors. If a child does not perform well in school because he is hungry and cannot concentrate in class, it cannot be said that the child does not do well because he is inherently less capable. Fair competition can be achieved only when the child is given enough food – at home through family income support and at school through a free school meals programme. Unless there is some equality of outcome (i.e., the incomes of all the parents are above a certain minimum threshold, allowing their children not to go hungry), equal opportunities (i.e., free schooling) are not truly meaningful.
In Latin America, people frequently use the expression that someone is ‘more Catholic than the Pope’ (mas Papista que el Papa). This refers to the tendency of societies in the intellectual periphery to apply doctrines – religious, economic and social – more rigidly than do their source countries.
Koreans, my own people, are probably the world champions at being more Catholic than the Pope (not quite in the literal sense – only around 10 per cent of them are Catholics). Korea is not exactly a small country. The combined population of North and South Koreas, which for nearly a millennium until 1945 used to be one country, is about 70 million today. But it happens to be bang in the middle of a zone where the interests of the giants – China, Japan, Russia and the US – clash. So we have become very adept at adopting the ideology of one of the big boys and being more orthodox about it than he is. When we do communism (up in North Korea), we are more communist than the Russians. When we practised Japanese-style state capitalism (in the South) between the 1960s and the 1980s, we were more state-capitalist than the Japanese. Now that we have switched over to US-style capitalism, we lecture the Americans on the virtues of free trade and shame them by deregulating financial and labour markets left, right and centre.
So it was natural that until the nineteenth century, when we were under the Chinese sphere of influence, we were more Confucian than the Chinese. Confucianism, for those who are not familiar with it, is a cultural system based on the teachings of Confucius – the Latinized name of the Chinese political philosopher, Kong Tze, who lived in the fifth century bc. Today, having seen the economic successes of some Confucian countries, many people think it is a culture particularly well suited to economic development, but it was a typical feudal ideology until it came to be adapted to the requirements of modern capitalism in the second half of the twentieth century.[1]
Like most other feudal ideologies, Confucianism espoused a rigid social hierarchy which restricted people’s choice of occupation according to their births. This prevented talented men from lower castes from rising above their station. In Confucianism, there was a crucial divide between the farmers (who were considered to be the bedrock of society) and other working classes. The sons of farmers could sit for the (incredibly difficult) government civil service examination and get incorporated into the ruling class, although this happened rarely in practice, while the sons of artisans and merchants were not even permitted to sit for the exam, however clever they might be.
China, being the birthplace of Confucianism, had the confidence to take a more pragmatic approach in interpreting the classical doctrines and allowed people from merchant and artisanal classes to sit for the civil service examination. Korea – being more Confucian than Confucius – adamantly stuck to this doctrine and refused to hire talented people simply because they were born to the ‘wrong’ parents. It was only after our liberation from Japanese colonial rule (1910–45) that the traditional caste system was fully abolished and Korea became a country where birth does not set a ceiling to individual achievement (although the prejudice against artisans – engineers in modern terms – and merchants – business managers in modern terms – lingered on for another few decades until economic development made these attractive professions).
2
H. Simon, ‘Organizations and markets’,
1
On how the Confucian culture was