Market-failure

The traditional response to apparent failures of the free market is to create new government policies, as well as bureaucracies to implement them. Mitchell and Simmons explain why the usual result is "government failure."

Simply put, transferring an issue from the market to government does not eliminate self-interested behavior. Those who have the most at stake will make the necessary effort to have the most influence. Government policies frequently confer large benefits on a small number of people, while spreading the costs among many. Those many, therefore, each have too little at stake to make large investments in influence. The result is rent-seeking - the economists' term for using government to create markets that are distorted in favor of producers.

The other crucial problem with government policymaking is that decision-makers do not have to compare costs and benefits and make economically wise decisions. In fact bureaucrats have a strong incentive to overstate the magnitude of problems and to avoid seeking real solutions, because doing so allows them to continue to request funding - thus creating job security.

My view is, of course, somewhat biased, because I am Bill Mitchell's student. But knowing him personally, I also know that his intent is not to demonize government employees (who are all acting rationally in response to the distorted incentives they face). Nor is he a right-winger intent on helping businesses oppress consumers and destroy the environment. In fact the best parts of the book, in my opinion, are the chapters showing how the incentive structure in government results in policies that actually hurt consumers and the environment.

Parts of this book are easy to read, but other parts, including the opening chapters, are likely to be difficult for anyone without some background in economics. If the book has one flaw, it is that the authors assume the reader will understand the more technical terms. The book is brief enough that they could have easily included vivid examples to make the meanings clear.

Nevertheless, this book is by far the best available on the problem of government policy failure. Most are either interminably long and academically complex, or shallow and polemical. This book is that rare blend of true intellectual analysis in a readable format.

An excellent review of how things went wrong in the 1987 Stock market crash in New Zealand - covering the fall from grace of many NZ 1980's iconic companies - the book tells the poignant story of how one error was compounded by government misdirection and how a chain reaction of of collapse occured throughout 1987-90. The final chapters are indicative of the impotency that Newland and his colleagues faced when betrayed by merciless bankers who were former friends.
What then, makes this story any better than other tales of the "glory days" in NZ? Mr Newland's courage should be noted - he has little hesitation in apportioning blame on himself where it is due - certainly he castigates himself in one area where he was "suckered" by a business opponent suffering from a terminal illness. Olly called off the hostile takeover, and the opponent staged a full recovery. Needless to say, Mr Newland did not let the same mistake happen again.
I personally found the final page to be a blueprint for modern business practices - and of economic intelligence - 4 simple tips that had Olly himself followed (in hindsight - few others did in the glory days of the 1980's), he and his kin would now be enjoying the wealth that they had so well accumulated pre-crash

Although this excellent collection was published in 1988, before the term "New Economy" came into currency, it examines ideas very relevant to the role of government during times of technological change. Recent discussions of "market failure" resulting from network effects or "externalities" have been critiqued by others, especially Margolis and Liebowitz. Cowen's collection digs deep into the economic theory of public goods, externalities, and free riding, as well as providing case studies of the successful private provision of supposedly public goods. Essays include Robert Axelrod on "The Problem of Cooperation", and Nobel Prize winner Ronald Coase, with a helpful and substantial overview by Cowen. One point running throughout the essays is that new technologies, given clear property right assigments, can solve public goods problems and that this is typically a better solution than government involvement.

This is the first book of the series that I read and it hooked me and spurred me on to read the rest of them. Although the author, J.A. Jance is a woman, she writes very convincingly about a male character, J. P. Beaumont. We see the struggle between his personal and his professional life as he is summoned to a Shakespeare Festival where his daughter is pregnant and soon to be married. After his arrival, two actors are murdered and Beaumont uses his professional skills as a policeman to solve the murder while trying to be civil to his prospective son-in-law and his daughter's artsy friends. Beaumont has a wry way of looking at his own foibles which endears him to readers. If you enjoy this book, there are several more in the series.

In "Failure to Appear" lone-wolf Seattle homicide detective J.P. "Beau" Beaumont finds himself a fish out of water surrounded by family in southern Oregon and on the outside of a murder investigation.

Quite often, when a mystery author tries to fit so much of a protagonist's personal life into a book, the plot drags to a halt and the investigation into the crime is treated superficially because the focus is on massive character development. Jance manages to keep things moving at a fast clip and provide a mystery that is as multi-faceted as her lead character's personal difficulties. Beau has a lot to deal with in this book: a daughter who starts out a missing person and winds up pregnant and about to be married, a re-married ex-wife and her husband, a new girlfriend, a murder suspect that awakens painful memories, the siren song of a bottle of MacNaughton's, and a couple police officers out to nail his hide to a wall - not to mention the book's three murder victims or the loved one Beau loses in the course of the investigation.

There are a few nits that could be picked (Oregon vanity plates don't have 8 letters, for instance), but the quality of the rest of the book more than compensates. All in all, a great read.

This was the first Jance book I encountered. I decided to read it because it takes place in the town I live and work in. As much as I enjoyed reading about the places and cities I know well what I really enjoyed was the character of JP Beaumont. He is an ordinary man (a Seattle Cop wih an extraordinarily inherited fortune) who is caught between his work and his family. The characters seem very real and Jance's writing gives them a life and humanity that appeals strongly and makes you really care about them. The story never lets up either and you will find yourself hard pressed to put the book down. I have read every book Jance has written now and she is always on the top of my list of series that I am waiting for the next installment of!

Contributor Laszlo Andor and editor Martin Summers review the implementation of economic reforms in Eastern Europe. They present a strong critical analysis of the effect of economic reforms on the people in the post Soviet bloc countries. In great detail, they cover the fight to implement Western financial investment policies in order to break communist political legacies. The authors express their dissatisfaction with the results of reforms in the last decade. This is an important book for individuals who want another perspective on the rush to implement western financial policies globally. However, the book assumes some strong background knowledge of the region's political history and the financial concept of globalization. We [...] recommend this book to anyone who does business in Eastern Europe or who is intrigued by the politics of economic reform.

Written from a populist perspective, Market Failure does well to analyze the disasters that have overtaken Eastern Europe. The authors have done a good job in relating the political developments in the region to the economic crisis there, and the social breakdown that followed the regression from socialism to capitalism. The decision to focus on food, in one chapter, as an indicator of overall well being (or misery in this case,) was also very apt, and shows up clearly the fallacies of the market fundamentalists who believed that 'shock therapy' and Hayek-Friedman style capitalism were the solution to Eastern Europe's problems. The authors are also on the ball when they compare Eastern Europe's plight to that of the Third World, and when they point out that realpolitik would dictate that E. Europe is inside NATO and outside the EU. However, the authors fail in their advice on two counts. Their analysis of the collapse of the Soviet Bloc is somewhat faulty - it was more a case of a party elite selling out socialism in favour of capitalism, (and whipping up and exploiting popular discontent in order to do so,) than a popular revolt, (see the book Revolution from Above for an indication of this happening in Russia.) Secondly, their suggested solutions to the problems of Eastern Europe, which derive from the theories of Bakunin, Chayanov, E.F. Schumacher, and other naive leftists, is simply not feasible in the age of global capitalist imperialism. In short, they fail to appreciate that Eastern Europe has a simple choice - either the 'free' market or Stalin. In 1989 they made the wrong choice. They're suffering for it now.

Reviewed by Andrew Kilmister in Labour Focus on Eastern Europe, no. 59, 1998 (re-printed with permission): László Andor and Martin Summers, Market Failure: Eastern Europe's "Economic Miracle" (Pluto Press 1998) pp. vi + 209, ISBN 0 7453 0886 4 (pb), £9.99.

Up until now there has been no general overview of economic developments in Central and Eastern Europe and the former USSR since 1989 written from the left. This book aims to fill that gap. Written by Laszlo Andor, a lecturer at the Budapest University of Economic Sciences associated with the Hungarian Left Alternative grouping, and by Martin Summers who has worked on Eastern Europe for the Catholic Fund for Overseas Development and the New Economics Foundation, it represents a searing attack on the management of economic policy in the region over the last decade. Those determining this policy, both from inside the region as neo-liberal politicians and from outside as economic advisers, are described by Andor and Summers as "Market Maoists" who are undertaking a "Great Bourgeois Cultural Revolution". Like Mao in the Great Leap Forward of 1959 the Market Maoists have substituted an idealist revolution based on a schematic plan for an analysis of concrete realities. This book is designed to outline the effect of this revolution on the peoples of the region and to suggest alternatives. Andor and Summers begin by outlining the context within which transition in Eastern Europe has taken place, with a special focus on the role of the international institutions such as the IMF and World Bank. They compare the activities of these institutions and related `experts' with their roles in other regions, notably Latin America, and argue that differing institutional policies, for example those propounded by Jacques Attali during his period in charge of the European Bank for Reconstruction and Development (EBRD) have been systematically sidelined. They then move on to discuss the effect of price liberalisation and associated monopolistic exploitation and the reasons for the collapse of production in the early 1990s. This is followed by an account of privatisation and the formation of a "noveau nomenklatura" through the privatisation process and associated corruption. Later chapters deal with agriculture and rural development, inequality both within the region and between Eastern and Western Europe and political developments in the East on both the left and right. The book concludes with an examination of possible alternatives to the Market Maoist approach. Andor and Summers write well and one very attractive feature of their book is the genuine passion and anger about what has been done in the area which shines through their writing and differentiates it from the vast bulk of what has been written on this subject, especially in conventional textbooks. Another strong feature of their account is its range, as detailed above. The book covers a large amount of issues in a relatively short space. However, this also brings with it certain costs. While there are a number of very telling and suggestive statistics, for example on the dramatic decline in food production, they remain illustrative and there is little space for more detailed analysis. This is especially telling in the sections on inequality where it would have been good to have had some more specific information on the growth and nature of divisions within Eastern Europe since these have been largely ignored in more orthodox accounts. There are also costs associated with trying to cover such a wide range of countries within a single account. In particular there is no real discussion of the extent to which the former Soviet Union exemplifies a distinctively different pattern of transition from that in Eastern and Central Europe. In many ways the most interesting aspect of Andor and Summers' account is their analysis of alternatives. They consider a very diverse set of perspectives here. When writing about privatisation they draw a distinction between Anglo-American capitalism and that practiced in Japan and Germany. The implication is that the Eastern European privatisation programmes are the result of opting for an Anglo-American model and that this was a mistake compared to the Japanese-German alternative. In their final chapter Andor and Summers discuss a number of more specific alternative policy proposals. One of these is that put forward in 1991 by the Polish economist Marek Gruchelski. This was essentially a policy of work sharing, with each worker working every second day to preserve employment during the transition. It would have been interesting to have related this more explicitly to the current debates in Western Europe, particularly France and Italy, on the shorter working week. Other models discussed include the Scottish Community Business movement, Chinese Township and Village Enterprises and credit unions. Finally the authors argue for increased co-operation within Eastern Europe, at least to the level of a payments union. The range of alternatives analysed here shows two strengths of the book; firstly, the insistence throughout that the Market Maoist model with its disastrous consequences was not an inevitable response to the crisis of Stalinist planning and secondly, the authors' willingness to consider concrete issues of policy as well as to describe problems. However, their sheer range and the obvious conflicts that exist between some of them also indicate that this book can only be a start in initiating a critical discussion of the orthodox approach to the East European transition. Andor and Summers would surely be the first to recognise this: they conclude by writing that `if this short book has helped to educate the reader about the nature of the problems we all face and stimulated further informed reflection and committed action, then it will have served its purpose' (p. 191). It is to be hoped that the book will have this effect and will encourage an overdue investigation of possible ways forward in Eastern Europe that will also convey lessons for those opposing Market Maoism in other parts of the world.

Andrew Kilmister.

I was really disappointed with this book, particularly given that it was written by seasoned bankruptcy experts. The book is very skinny on content - it spends about 30 pages on bankruptcy law and its procedures, a few on case studies that are superficial/poorly written and several on bond analysis, and standard research tools that are well-known to a person with basic financial knowledge, ie the sort of people who would be interested in something relatively exotic as Bankruptcy Investing. The few useful pages that there are are marred by poor writing, and a complete absence of analytical frameworks that stay with the reader.

Bankruptcy is a complex topic and there is a need for a book of the sort Branch and Ray have attempted. However, this is most certainly not that book.

Great introduction and overview of the world of distressed and bankruptcy investing. The authors managed to synthesize a very complicated subject into an easy-to-read and understandible book. Of course no one book can cover the entire subject in detail, but this one comes amazingly close. Highly recommended.

This book has everything I needed to make money in this market. They do need to update their data and bring it forward, but the analysis is first rate and the methodology was very new to me although quite understandable in plain english for someone without a law degree or an mba. I now understand what is going on here and I can see how the vulture investors get the large returns. I reread the first part after several months of buying and it all still held together. Interesting and moneymaking as well.

My master thesis is about East Asian Miracle and Crisis.I read this book very carefully and I enjoy this book.Because it explains the economic growth of South Korea very good.Also author explains the discussion of revisionist and neo-classics view detailed.I think that a person who works about S.Korea and East Asia must read this book.

ALL MY BEST WISHES

In this extremely elegant and condensed work, Salanie once again provides a great externality to his readers (continuing after "The Economics of Contracts"): at the end it leaves a unequivocal desire to dive deeper in the subject.

Limitations? As mentioned in the introduction, the book is extracted from a series of lectures the author gave; lets say, they are great lectures but without the session of Q&A (questions and answers). Therefore, there is little communication with the reader's questions, the reader is required to investigate more in his/her own, e.g. no end of chapter problems or things like those.

In short, I will strongly recommended it along with the traditional material of a General Equilibrium course (e.g. Mas-Colell et.al.). But do not expect a treatise, it is more a general overview.