Whither Socialism?

by Joseph E. Stiglitz

The rapid collapse of socialism has raised new economic policy questions and revived old theoretical issues. In this book, Joseph Stiglitz explains how the neoclassical, or Walrasian model (the formal articulation of Adam Smith's invisible hand), which has dominated economic thought over the past half century, may have wrongly encouraged the belief that market socialism could work. Stiglitz proposes an alternative model, based on the economics of information, that provides greater theoretical insight into the workings of a market economy and clearer guidance for the setting of policy in transitional economies.

Stiglitz sees the critical failing in the standard neoclassical model underlying market socialism to be its assumptions concerning information, particularly its failure to consider the problems that arise from lack of perfect information and from the costs of acquiring information. He also identifies problems arising from its assumptions concerning completeness of markets, competitiveness of markets, and the absence of innovation. Stiglitz argues that not only did the existing paradigm fail to provide much guidance on the vital question of the choice of economic systems, the advice it did provide was often misleading.

Genres: Economics, Politics, Nonfiction, Philosophy

338 pages, Kindle Edition

First published December 1, 1993

About the author

Joseph Eugene Stiglitz, ForMemRS, FBA, is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is also the former Senior Vice President and Chief Economist of the World Bank. He is known for his critical view of the management of globalization, free-market economists (whom he calls "free market fundamentalists") and some international institutions like the International Monetary Fund and the World Bank.

In 2000, Stiglitz founded the Initiative for Policy Dialogue (IPD), a think tank on international development based at Columbia University. Since 2001, he has been a member of the Columbia faculty, and has held the rank of University Professor since 2003. He also chairs the University of Manchester's Brooks World Poverty Institute and is a member of the Pontifical Academy of Social Sciences. Professor Stiglitz is also an honorary professor at Tsinghua University School of Public Policy and Management. Stiglitz is one of the most frequently cited economists in the world.

Reviews

[Gregg Wingo · Rating 5 out of 5]

This is perhaps Stiglitz' masterpiece since he is now devoting himself to popular works on current economic events. Written in the midst of Eastern Europe's transition out of communism, it reflects on the problems of market systems and, necessarily, on socialism. It is a profound look at the spectrum of capitalism from neo-liberalism to market socialism.

If you can remember your first economics course you will recall that it began with a set of fundamental assumptions, one of which was information is equally available to all parties in the market at no cost. However, we know that in the real world this is not the case. Marketing and arbitrage are expensive and profit making activities that focus on the asymmetry of information in the marketplace. Stiglitz has spent his professional life researching and exploring the difference between the theoretical and the factual conditions of information in the market and developed the field of information economics into a science.

This is not a mathematical text but rather like Smith and Marx before him Stiglitz has committed empirical research and synthesized an explanation of the real nature of capitalism. He critiques the failures of real world markets to achieve the efficiencies envisioned by classical and neo-liberal economists and gives credit to both Marx and Schumpeter for their realization of the importance of technological innovation in the evolution of markets. He also pays homage to the intellect of Keynes by analyzing the different roles of government intervention in the various forms of capitalism present in contemporary societies.

This is a manifesto for serious and balanced government intervention in order to ensure that markets are competitive for the benefit of both buyers and sellers. It is also an excellent work for introducing the reader to the empirical knowledge that has been generated in the field of economics since Marx. While the author provides philosophical reflections this is not the point of the book for it is actually a work of a scientist not a philosopher.

This is not an easy read but it is a worthwhile one.

[Sebastian Waisbrot]

Although the book is a bit dated as it discusses the transition for former soviet republics into market economy, the analysis of the role of the government and centralization vs decentralization is enlightening. Anyone interested in economics or politics should read it.

[April · Rating 1 out of 5]

The book includes a useful overview of new information economics - and associated critiques of mainstream neoclassical economics. Despite the title, it doesn't provide illumination on the forces that led to the breakdown of the socialist economies. Anyone interested in that topic should read one of Janos Kornai's books, "The Socialist System: The Political Economy of Communism" or "From Socialism to Capitalism: Eight Essays."

[Nick Huntington-Klein · Rating 5 out of 5]

A fantastic work. Thorough, measured, and complex. A rough read but very much worth it. You won't find many works in economics that are really willing to face up to the complexity of the topic at hand (rather than pointing out that complexity makes other explanations wrong and favoring their own panacea). Definitely worth the read.