… is from page 142 of an advance copy of Samuel Gregg’s excellent and important forthcoming book, The Next American Economy: Nation, State, and Markets in an Uncertain World:
In a corporatist world, success depends less on innovation and much more on your institutional clout.
DBx: Indisputably so. In free markets the allocation of resources is informed by prices (including wages) and incited by the prospect of profit and the fear of loss. These prices, profits, and losses are generated by consumers and producers spending their own money, and with no one having the power to compel anyone either to take some action or to refrain from some peaceful action.
In stark contrast, under industrial policy – which is a species of corporatism – the information and incentives of the market are forcibly overridden by the commands of politicians and bureaucrats spending other-people’s money. Anyone who believes that resource allocation done by political machinery will be superior – from the perspective of improving the living standards of ordinary men and women – to resource allocation done by the market process lives in a dream world. That person not only has no credible explanation of how government officials will acquire the information that they need in order to allocate resources productively, that person also is as naïve as is a dull pre-schooler about the reality of politics.