Andrei Shleifer on government: A rejoinder

Abstract

Although Shleifer himself might not interpret his paper (1998) as an unwarranted and gratuitous attack on philosophical anar-chism, that is precisely its thesis, as shall be demonstrated below.

This author starts off by noting that, at least compared to the views espoused by the leading economists of the 20^th century compared to the decades at its close, opinion has shifted in the direction of less and less government participation in the economy. However, his (1998, 134) treatment is marred by characterizing Hayek (1944) and Simons (1948) as advocates of free enterprise. They were, instead, advocates of moderate socialism (Block, 1996, 2002). And this is nothing compared to Shleifer’s (1998, 135) citation of Samuelson’s (1948) description of the «free enterprise system» as one of «tremendous vitality.» Skousen’s (1997) read on Samuelson is far more apt. Skousen finds Samuelson with his pants down around his ankles in the latter’s comparison of the economic systems of the U.S. and U.S.S.R., where this Nobel Prize winning economist (in 1970)¹ expects the latter to catch and surpass the former.

What, then, is Shleifer’s thesis? He states (1998, 135): «This paper beings by evaluating the case for in-house provision of goods and services by employees of a benevolent government. It argues that the conditions under which government ownership is superior in a country with good contract enforcement are very limited, and involve particular cases where soft incentives are extremely valuable and competition is very limited.» We begin to get the hint, though, that for this author the question is not really one of government or private provision of goods and ser - vices. Rather, the often explicit and always implicit assumption is that government must be in control of theoretically all decisions in the market, and the only real question is whether government should do the actual provision, or, under its total and complete supervision and control, sub contract the actual work to the so called «private» sector. It is as if we are in the last days of the U.S.S.R., or Castro’s Cuba or North Korea, and it is a given that the government should remain in overall control. The only issue is whether this continued management should be exercised in the same old way, by government itself, or, should we turn over a new leaf and allow private firms to achieve «social goals» as articulated by government, through contracting out the actual work to private entrepreneurs.