>I suspect the discipline of economics is approaching a major shift in
>how costs are understood. As an undergraduate geology student in the
>mid-60s I remember well the growing understanding of the need to
>incorporate global tectonics across what we were already then doing.
>Mineralogy, stratigraphy, paleontology, etc. were not discredited or
>invalidated, rather, global tectonics gave them an overarching
>framework within which they could more usefully (and more correctly) be
>interpreted and applied in the service of our collective understanding
>of the system.
>
>Perhaps in an economics of true-cost the issue of subsidies will be
>largely moot.
>
Very insightful observation, I think. A clue to what is in store has
already been given by the economists themselves in their Nobel Prize to
Douglass North. North is considered the foremost expert on "transaction
costs". This innocent-sounding idea really holds implies a revolution in
economic thinking along the lines you suggest. North's real thrust is the
study of the institutional context of economics. Markets don't exist in a
vacuum, as some would have us belief, but always in the context of a set of
rules, institutions, ways of doing things, in a word, in a culture. "The
market" is really only good at doing anything when it has the right
cultural and institutional context--e.g Western European and American
capitalist society. It is often very bad at doing the same things when,
say, the IMF imposes "market logic" on place with a very different
cultural and institutional context--e.g. Russia or Malaysia. The results
can be dramatically negative. The structure and content of these
institutions is the "overarching framework" necessary for understanding
markets.
Transaction costs are what a firm has to invest in order to maintain the
rules of doing business. "The cost of doing business". North estimates
that transaction costs were around 25% of the economy at the end of the
last century; now they represent something like 85%. (Think of money spent
lobbying, for example) This is clearly indicative of a major change in "the
way of doing business", in the institutional context of "the market".
Huge transaction costs of the 'global economy' are highly distorting of an
ideal 'free market' situation, as John Ikerd described. Corporations,
especially working together (e.g. the Transatlantic Business Dialogue) can
write off large transaction costs and thus have an decisive advantage
against small businesses, e.g. small farmers, even if they are far less
efficient and produce junk. Such is our world.
For more, read:
North, Douglass C. (1990) Institutions, Institutional Change and Economic
Performance. Cambridge: Cambridge University Press.
Ronald Nigh
Dana, A.C.
Mexico, D.F. & San Cristóbal de Las Casas, Chiapas
Tel. y FAX 525-666-73-66 (DF)
529-678-72-15 (Chiapas)
danamex@mail.internet.com.mx
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