The Fundamental Incompatibility of Market Economies with Long-Run Prosperity, Equity, and Broad Participation in Decision Making
The cases discussed enable us to reconstruct and analyse the complete developmental path of market economies. At the start, and triggered by waves of social revolts, there is a positive feedback mechanism between increasing freedom, growing factor markets, and economic growth. After two or three centuries, as a result of increasing economic inequality and the rise of new market elites, this turns into a negative feedback mechanism, between social polarization, institutional sclerosis, markets becoming skewed towards the interests of the market elites, and economic growth stagnating or even turning into decline. Possible counterbalancing mechanisms, including those offered by the state, prove futile. The market elites acquire a grip over state power and use this to further skew the markets to their interests, thus speeding up the process. No correction mechanism is available to counter the negative feedback cycle.
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