From the University of Chicago's Stigler Center ProMarket blog:
It is when the behemoth of monopoly enterprise consorts with the leviathan of the authoritarian state that both are likely to achieve permanence, writes Raghuram Rajan.
Power prefers permanence. Unregulated markets tend toward concentration as the successful try and entrench themselves by pulling up behind them the ladder of competition that they themselves climbed. Equally, the politically powerful are tempted to suppress any competitive threat to their future posed by democracy. James Madison was persuaded that democracy would work in the United States because in a large country with many different competing political interests, it would be hard for any specific interest to dominate. Yet interests can coalesce.
It is when the behemoth of monopoly enterprise consorts with the leviathan of the authoritarian state that both are likely to achieve permanence. History is strewn with examples of these collusive arrangements, some of which we have already encountered. Communism brought all business enterprise under government planning and control, with the state dominated by the Communist Party, the self-appointed representatives of the proletariat. Business and the state were united under the proletarians. Fascism was different only in the language of the dominant group and its stated aims, which was national supremacy instead of the communist paradise of the universal brotherhood of workers. In practice, fascism too involved permanent party dominance of the state, and state control of industry. Today, we have milder versions of these totalitarian regimes, with state-controlled capitalism in countries like China and Russia, and authoritarian capitalism in Turkey.
While the nomenclatures vary, at the heart of such regimes is a pact between the cartelized market and the state, leaving little room for economic or political competition, or the community. Such arrangements are examples of what political economists Douglass North, John Wallis, and Barry Weingast call limited-access societies.
In contrast, the liberal market democracies in developed countries are what they call open-access societies, combining free and open markets with vibrant democratic control over the government. Implicit in the work of a number of political scientists is the belief that open-access societies are the desirable pinnacle of social development, and they will not regress back to limited- access societies because of the strong institutions that protect them. They are probably right in believing that open- access societies are the best we can do for now, but they are mistaken in thinking that open-access societies cannot regress.
To prevent regression, it is critical that the balance be maintained. As we will see now, communities of citizens, expressing their interests through democracy, played an important role in the United States in preventing a corrupt compact between the state and the markets....
...MORE
I don't think we're out of the woods quite yet.
On another topic, the good Professor (and former RBI head) has written on the farm economy crisis of the 1920's that was the trial run for the Great Depression of a few years later. I've been meaning to link to one of his papers and with the currently unfolding rural econ disaster gaining momentum should probably get it on the blog sooner rather than later. Maybe this weekend.
