409. Revival of risk and variety
political scientist Paul Frissen proposed that a number of countries (he
pointed to the Netherlands) are caught between a cramp of control and a cramp
of conformity. The cramp of control arises from the modernist, technocratic
dream of a society that is rationally designed, and where all risks and
contingencies are under control. The cramp of conformity arises from a romantic
populism of national spirit and culture that are to be kept pure and
uncontaminated by foreign influence.
This is a
disastrous situation. Especially for a country (such as the Netherlands) that
used to derive its strength from pragmatic improvisation and tolerance of the
foreign. Attempts to eliminate risk yield a glut of regulations and restrictions
that squeeze out all room for novelty and creativity, and produce an
explosion of cost. Xenophobic elimination of difference kills the variety that
is a source of novelty and creativity. Together, risk avoidance and
xenophobia suffocate society. The first halts breathing and the second takes
away the oxygen.
How to get
away from this? How to regain room and incentives for risk taking and variety?
Those are precisely virtues of markets. I am deeply critical of market
ideology, but instead of eliminating markets, if anyone were to plead for that,
I advocate to harness their power while bending it and preventing perversities.
blog I discuss economics and markets. I argue that the core virtues of markets
are that they allow for and utilize diversity, variety of local ideas and
initiatives, while efficiently selecting out ventures that are not viable. This
selection of course entails risk of failure, the risk of entrepreneurship. Not
many people would want to take such risks, but entrepreneurs do. The virtue of
markets is that they privatize risk. Risk are not imposed on unwilling
taxpayers but on entrepreneurs, who take them voluntarily. But then they must
be allowed to reap the advantages of profits when those occur, at least up to a
point. And obstacles from institutions and vested interests must be eliminated
to give them room.
perverse effect of markets, the conduct of bankers led to the reverse, the
socialization of risk: private risks of banks were hived onto the public.
complications. Entrepreneurial innovation entails creative destruction, eliminating
old technologies, industries, skills and employment. Unjust consequences for
the victims are to be compensated by schemes of re-training and of social
security for those who cannot catch up.
This is my
not so new plea for an apparently neglected combination of markets and social
security, in a society that is open to diversity and to risk and compensates
for the latter’s injustices when those arise. We had that to some extent in
past capitalism, but have somehow lost it.