How Markets Work and Fail, and What to Make of Them

How Markets Work and Fail, and What to Make of Them

New Horizons in Institutional and Evolutionary Economics series

In this thought-provoking book, Bart Nooteboom offers a radical critique of the principal intellectual and moral assumptions underlying economic science, unravelling the notion of markets: how they work and fail, and how they may be redirected to better serve us.

Chapter 6: Alternatives

Subjects: business and management, corporate governance, organisational innovation, organisation studies, economics and finance, evolutionary economics


Two alternatives are seen for the allocation of goods in an economic system: by government and by markets. To quote Kay (2004: 78): One type is political, hierarchical and personalized: the mechanism of complaint is voice. The other is market-based, decentralised, and anonymous: the mechanism of complaint is exit. Voice here means deliberation, in an attempt at joint problem solving. Exit means walking out, in switching to another supplier, firing people, selling part of a firm, ending a contract, ending a relationship. Voice is seldom without limit: usually exit lurks in the background, to fall back on if voice persistently fails. But I recommend voice as the default: that is what one should try first. Similarly, I recommend trust, not mistrust, as the default. First try trust and if that fails face the need for distrust. For the arguments I refer to Nooteboom (2002). Another way of contrasting markets and public administration is the following. Markets are assumed to promote efficiency without regard to further societal goals, while public administration should aim at societal goals, without an inherent drive towards efficiency. In fact next to public service politicians and even civil servants also have their private interests and urges towards power, fame, career and money. Publicly, however, they have to legitimize their conduct in terms of public interest, and some may still harbour the corresponding ethic.

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