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The Griffith Review has just published a substantial essay of mine that?I’ve been working on for some time. I reproduce the introductory section below after which?you’ll have to hightail it to?their website to finish. But it would be good to see?you back here for comments which aren’t provided for on the Griffith Review website.

Designing institutions to force (or nudge) entirely self-interested individuals to achieve better outcomes has been the major goal posited by policy analysts for governments to accomplish for much of the past half century. Extensive empirical research leads me to argue that instead, a core goal of public policy should be to facilitate the development of institutions that bring out the best in humans.

Elinor Ostrom, Nobel Lecture, 2009

SINCE ADAM SMITH, economists have marvelled at competition’s capacity to improve our world – not by fostering virtue, but by harnessing the opposing self-interest of buyer and seller in a market. As Smith himself famously suggested, instead of trusting his wellbeing as a consumer to the benevolence of the butcher, baker or brewer, he’d rather rely on their regard for their own interests in competing for his custom.

There’s a lively debate today about how to inject greater competition into Australia’s notoriously oligopolistic industries – like finance, supermarkets, fuel, energy and telecommunications – not to mention our new global digital overlords like Facebook and Google. And there’s a more ideologically charged debate about whether competition will drive better or worse outcomes in sectors where non-market values are important – like health, education and social services.

Having offered some thoughts on those issues elsewhere, in this essay I discuss something more fundamental and, because of that, widely overlooked. We’re falling for the ‘competition delusion’ by which I mean this: In our embrace of private competition as a goal, we mostly pass over a prior issue – which is the terms on which that competition takes place. That’s undermining trust in a remarkably wide range of institutions in our economic and public life.

The analogy with sport is illuminating. Australian Rules football is the crucible of some of the most intense competition you can imagine. But unlike some thinkers about our economy and society, its administrators understand that competition won’t amount to a hill of beans unless the rules of the game make it the game we want to follow. Seeing things this way, it’s an obvious mistake to ask whether football should be competitive or cooperative. Competition and cooperation are inextricably entangled in the game, each defining the other.

The competition delusion sees competition and cooperation as two ends of an ideological spectrum. And it presumes that, where one has to choose, competition should be presumed preferable to cooperation. The perspective I’m sketching here suggests a new take on JK Galbraith’s argument about private affluence amidst public squalor. As he put it in 1958:

Cars are important, roads are not… Vacuum cleaners to ensure clean houses boost our standard of living, street cleaners are an unfortunate expense. Thus we end up with clean houses and filthy streets.

Whatever the validity of this critique of America’s real economy of the 1950s, it’s a remarkably and increasingly apt picture of the knowledge and ideas that govern our economy and society in the age of the competition delusion.

OUR LEGAL SYSTEM illustrates the issues. CONTINUED AT THE GRIFFITH REVIEW Continue reading →

I have little economic insight to add to the various projections made by other economists in Britain about the Brexit scenario that follow under various outcomes of the negotiations with the EU. Like all of them, I think severing trade ties will not work out well in the short run for the economy of the UK, though I am less convinced than others that it will necessarily all work out badly in the longer run.

Most importantly, Britain can always come back to the EU in the future, so if it doesn’t work out as you thought, you Brits can change your mind again.

Yet, I think economics is a distraction, even though all kinds of economic interest groups are tugging in various directions. Break-ups are nearly always bad for the purse, but the immediate reason is seldom money but emotions and identity.

I thus want to talk about the feelings and identity of the Brexiteers, which I think is the heart of the matter.

A large number of you were persuaded you did not belong with the rest of Europe. You were seduced by over 30 years of negative media stories that the rest of Europe looked down on you and was looking for ways to get one over you. You were constantly told and encouraged to believe that you were different, better in fact, than the rest of us Europeans. That mentality is perhaps best illustrated by the ‘Football is coming home’ anthem so popular in the UK at the time of the World Cup. That smug entitlement mentality stings us ‘other’ Europeans but we will try and keep our disdain to a minimum because you remain family. In my case, with an English mum and a Dutch dad, you are literally family.

What I want to mention is the political perspective from one of your main friends in Europe: the Netherlands, perhaps your strongest and oldest ally, sharing royal families since William and Mary, and being very close language and culture wise too. We are close cousins in the Germanic language tree, with old English very close to Frisian (a language and people in the North of the Netherlands and along that coastline into Denmark). There were also several waves of immigrants to Britain via what is now the Netherlands. And of course, we have been on the same side in the second World War when our government and Queen was seated in London.

In truth, English culture is largely a blend of the Dutch and the French. The structure of your language is largely Dutch, with massive French influences. Whilst your words for some of the animals you eat are hence the same as in Dutch (‘Cow’ is ‘Koe’, ‘Sheep’ is ‘Schaap’, and ‘Goat’ is ‘Geit’), what you call them when they are cooked is French (‘Beef’ is ‘boeuf’, ‘veal’ is ‘veal’, and ‘Pork’ is ‘porc’).

So too English culture. The class structure, with elite schools and an upper layer that has owned most of the country for centuries is quintessentially French. They got rid of their nobility in the Napoleontic Wars and in the two World Wars, whereas you were (un)lucky enough not to have yours swept out by an invader. Your nobility, which of course is largely French or other-European in origin, headed by the House of Hannover (!), never left. You have elite private schools and Oxbridge, the French have ‘Grand Ecoles’ and ‘Lycea’. Like your language is old-Dutch, your class system is old-French. Continue reading →