Towards a Well-Functioning Economy: The Evolution of Economic Systems and Decision-Making.

Author:Webb, James L.

by Louis Haddad. Cheltenham, U.K.: Edward Elgar. 2002. Cloth, ISBN: 1858988926, $110.00. 294 pages.

The author intends "to see how and why economic systems work and change across time and space, and to establish some plausible conditions for a well-functioning economy" (p. 1). The book has three parts: first, an abstract taxonomy of economic systems which attempts to incorporate elements of mainstream theory (especially the treatment of principal-agent relations, information, and decision making); second, a historical discussion organized around modal types of economic systems (customary, command, competition, and composite); and third, a normative discussion of the well-functioning economy.

Louis Haddad's knowledge of centrally planned economies of the Soviet type and their transitions to decentralized, privatized systems leads him to believe that simplistic theories and historical narratives are inadequate. He sees historical centrally planned economies as quite diverse--Stalinist Soviet planning as the extreme but not typical case. Clearly Haddad objects to the simplistic centralized/decentralized dichotomy as presented by Frederick Hayek.

The taxonomy is based on five dichotomized dimensions: decision-making authority (centralized/decentralized), decision-making procedures (authoritarian/democratic), information flows (concentrated/diffused), decision-making criteria (economic/non-economic), and incentives (altruistic/egoistic), yielding a matrix of thirty-two ideal types. The values of each dimension are assumed to lie on a continuum whose extremes could be taken as ideal types. Thus decision-making procedures are characterized as authoritarian or democratic at the extremes and presumably some blend, compromise, or average (arithmetic or geometric mean?) along intermediate points of the continuum. Not only are the individual dimensions treated as continua but the product of all of the dimensions (that is, each of the thirty-two ideal types) is also treated as lying along a single grand continuum (with Soviet-style central planning versus a laissez-faire economic system as extrema).

The author undermines the taxonomy by suggesting that several of the thirty-two ideal types have not existed empirically and are logically implausible and by citing experience in which apparently highly centralized planned economies have a much more complex system of authority and decision making than stereotypical accounts suggest. The second section of the...

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