Whither Socialism? (Wicksell Lectures) [Paperback]

Joseph E. Stiglitz (Author)

Book Description

Series: Wicksell Lectures | Publication Date: January 31, 1996

The rapid collapse of socialism has raised new economic policy questions and revived old theoretical issues. In this book, Joseph Stiglitz explains how the neoclassical, or Walrasian model (the formal articulation of Adam Smith's invisible hand), which has dominated economic thought over the past half century, may have wrongly encouraged the belief that market socialism could work. Stiglitz proposes an alternative model, based on the economics of information, that provides greater theoretical insight into the workings of a market economy and clearer guidance for the setting of policy in transitional economies.Stiglitz sees the critical failing in the standard neoclassical model underlying market socialism to be its assumptions concerning information, particularly its failure to consider the problems that arise from lack of perfect information and from the costs of acquiring information. He also identifies problems arising from its assumptions concerning completeness of markets, competitiveness of markets, and the absence of innovation. Stiglitz argues that not only did the existing paradigm fail to provide much guidance on the vital question of the choice of economic systems, the advice it did provide was often misleading.The Wicksell Lectures

Editorial Reviews

Review

"A disproportionate amount of the best in modern economics isStiglitz's creation. This book uses it to illuminate a classicquestion concerning the organization of the public side of ourlives. Judged in terms of both depth and reach, this elegantlywritten volume is never less than what we have come to expectfor one of the most significant social thinkers of our time." Partha Dasgupta, University of Cambridge

"Whither Socialism? is to be recommended. It offersdeep new thinking on a big subject: the role of the state.It is rigorous and accessible, a rare combination." The Economist

About the Author

Joseph E. Stiglitz, a Fellow of the American Academy of Arts and Sciencessince 1983, is University Professor at ColumbiaUniversity. He won the Nobel Prize in economicscience in 2001. His recent books include"Globalization and Its Discontents" (2002) and"The Roaring Nineties: A New History of theWorld's Most Prosperous Decade" (2003). Heis indebted to the MacArthur, Mott, and FordFoundations for financial support.

Product Details

• Paperback: 352 pages
• Publisher: The MIT Press (January 31, 1996)
• Language: English
• ISBN-10: 0262691825
• ISBN-13: 978-0262691826
• Product Dimensions: 9.1 x 5.7 x 0.7 inches
• Shipping Weight: 1 pounds (View shipping rates and policies)
• Average Customer Review: 3.1 out of 5 stars  See all reviews (11 customer reviews)
• Amazon Best Sellers Rank: #832,025 in Books (See Top 100 in Books)

More About the Author

Joseph E. Stiglitz is a professor of economics at Columbia University and the recipient of a John Bates Clark Medal and a Nobel Prize. He is also the former senior vice president and chief economist of the World Bank. His books include Globalization and Its Discontents, The Three Trillion Dollar War, and Making Globalization Work. He lives in New York City.

Customer Reviews

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37 of 47 people found the following review helpful:

4.0 out of 5 stars Exposes informational shortcomings of Neo-classical model, March 21, 1999

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[e-mail] (George Mason University) - See all my reviews

This review is from: Whither Socialism? (Wicksell Lectures) (Paperback)

Joseph Stiglitz makes a powerful argument that neither capitalism nor socialism can achieve the economically efficient outcome suggested by the neo-classical model. Neither markets nor central planners can optimally direct resources to their most productive uses. The information required to do so is simply not available.

The neo-classical model suggests that the forces of supply and demand result in equilibrium, market clearing prices - a single price for each commodity. We see all around us evidence that real world processes to not achieve this optimal end. The same items sell for different prices at different stores; it is possible for significant numbers of workers to remain unemployed for long periods of time. Stiglitz explains that this outcome reflects informational imperfections in market generated prices. It is costly for shoppers to compare prices in every store before they make purchases. Employers may pay employees higher than market clearing wages to increase worker productivity, resulting in prolonged unemployment. If market generated prices and wages were as informationally efficient as the neo-classical model suggests, Stiglitz argues that market socialism could be just as efficient as free market capitalism. Markets could be permitted to function to the degree necessary to generate prices, which central planners could use to direct the economy. Stiglitz further argues that the most critical information planners need, to plan large scale investments, are not generated by markets anyway, because the appropriate futures markets (where investors could insure against bad investments) can not exist.

Stiglitz's explanation of how the neo-classical model of constrained optimization cannot describe real world phenomena is compelling, as is his argument that both market socialism and market capitalism face problems of information and incentives. Where Stiglitz is weakest is when he casually asserts, as he often does in this book, that government intervention could resolve some of these problems under either system. He routinely asserts that government intervention could address, for instance, problems of externalities through the application of Pigouvian taxes. He does not, however, discuss how government might determine the proper tax,(in the absence of a market in the externality), or how it might insure its application in the face of special interest political pressure. In his calls for government intervention, government is treated as benevolent, omnipotent and omniscient.

Stiglitz presents a coherent argument of why market socialism failed in the real world, and further, why market capitalism, as we see it practiced around us, does not live up to the promise of the neo-classical model.

53 of 70 people found the following review helpful:

1.0 out of 5 stars At the Heels of Giants, June 4, 2004

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D. W. MacKenzie (New London CT) - See all my reviews
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This review is from: Whither Socialism? (Wicksell Lectures) (Paperback)

This book possesses two distinct features. First, it errs frequently. Second, it errs amateurishly. Perhaps the most important error in this book is in how it was researched. It references nothing that Lange and Hayek wrote during the Interwar Debate on Socialism. It references none of the articles that Lerner or Knight published in this debate. It references nothing by Mises, Robbins, Durbin, Dickinson, or Dobb at all. The only article from this debate that Stiglitz read was Taylor's 1929 article- the worst one from the socialist side. Stiglitz also ignores the work of interpreters of this debate. He does not reference Bergson, Heilbroner, Lavoie, Kirzner, T Hoff, Roberts, Murell... In other words, Stiglitz barely scratched the surface of what was actually written in this debate- yet HE claims that THEY did not know what they were talking about. Of course, he did do some research for this book. Stiglitz referenced 126 of his own publications.

The shoddy research of this book shows up in its arguments. Stiglitz refers to the Arrow-Debreu model in discussing the debate between Lange and Hayek. In the ADM scheme of things there is a complete set of markets where unrestricted competition among perfectly informed persons reigns. Naturally, such perfect conditions yield perfect results- on paper. Actual markets do not deliver these results so "the competitive paradigm is not robust" (p107). Of course, it makes no sense to think of the Lange-Hayek debate in terms of Arrow Debreu anyway. This debate over socialism took place mainly in the nineteen thirties. The ADM was published in 1954. Socialism also suffers from incentive problems, so Stiglitz tells us that the Lange-Lerner model of market socialism does not depict reality either. He claims that Lange did not understand the difficulties in allocating capital. In reality, Lange (1938) and Dickinson (1939)wrote explicitly about severe problems in allocating capital.

For those who have actually read and understood the writings of the old socialists, like Lange, Schumpeter, and Dickinson, and their opponents Mises, Hayek, and Robbins this debate looks quite different. All of these economists recognized problems in both systems and wrote about them explicitly. Lange is well known for admitting to the danger of the bureaucratization of economic life under socialism. Hayek stressed the problems with information under both systems, and in fact spelled out the crucial informational imperfections in markets by 1937. Mises, Hayek, Lange, and Schumpeter all thought in dynamic terms that went far beyond the models with which Stiglitz likes to play. Stiglitz tries to reduce Schumpeter's process of creative destruction to a simple (and weak) game theoretic argument. He also ignored Mises completely- this is an unforgivable error.

The main purpose of this book is to play up the importance of its authors prior writings on imperfect information. All past accomplishments on both sides of this debate get recast into a form that makes the author of this book the only one who has made a worthwhile contribution, when in reality it is the contributions of intellectual giants like Hayek, Mises, Lange, Dickinson, and Schumpeter that rise above all else. Modest scholars recognize the shoulders that they stand upon from the past. The author of this book shows little such modesty, and even less in terms of important and original advances. This book should not be taken seriously.

19 of 24 people found the following review helpful:

5.0 out of 5 stars Economics of the Real World, January 23, 2002

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Michael Greinecker (Vienna, Austria) - See all my reviews
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This review is from: Whither Socialism? (Wicksell Lectures) (Paperback)

Stiglitz shows how much things can change, when you drop assumtions like costless information, zero transaction costs etc. According to the general equilibrium theories he crizices, a central planner could archive an outcome that is at least as efficient or better than the market, by imitating perfect competition (Lange-Lerner-Taylor Theorem). Stiglitz shows that by dropping unrealistic assumptions both real markets and market socialism aren't that efficient as the perfect competition paradigma predicts. What is needed is competition and some state regulation. He makes a good case for a third way between neoliberalism and central planning.

There is no math in the book, so it can be read at many levels. It covers a broad range: Competition policy, privatization theory, forms of competion and much more. After reading it, I had a much better understanding of real world problems economies face.

On a side note: Nicholas review is simply wrong. Stiglitz employs almost only rational choice models. Problems occur because information is costly, not because people are dumb.