Grasping Reality on TypePad, by Brad DeLong

Productivity: Economists have tried to parcel out in multiplicative fashion the twenty-fold difference in the productivity levels of economies around the world --what factors double prosperity, and what factors increase it by only 10% or so? And they have found robust factors:

• keeping your children in school--and making sure that the schools are good
• saving and investing in capital
• making markets competitive
• virtuous circle effects, as investment that makes you richer allows you to save and invest more and keep your children in school longer.

But when all that is said and done, fully half of productivity differences seem due not to the machines you work with or the absence of monopoly or longer schooling, but to be simply in the (relatively local) air. People learn things from and are more productive when they are embedded in a successful community of engineering practice. That is the reason that in the early 19th century almost all U.S. textile mills headed for Lowell, MA; why Henry Ford and other auto producers all landed in Detroit; why Silicon Valley is Silicon Valley. An overly strong dollar disrupts the growth and maintenance of these communities of engineering practice that do so much to boost what economists call total factor productivity...

Polanyi: The mid-twentieth century Hungarian sociologist Karl Polanyi wrote that a market economy was a fine thing—it made great sense for individual businesses that made bread or ran streecars had to pass a market-profitability test in order to survive. But, he wrote, a market society is not. Attempting to implement a market society is very dangerous. Why?

• Because a market society turns finance into a commodity—which means that the industry you work in and the kind of job you get have to in mass pass a market test.
• Because a market society turns land into a commodity--which means that the community you live in has to in mass pass a market test.
• Because a market society turns labor into a commodity—which means that attaining the standard of living you expect and feel you deserve has to pass a market test.

And people have very strong feelings about these three. People believe that they have a right to the standard of living they expect and deserve, to working in the particular industry at the kind of job that makes up a key piece of their identify, and to the stability of the community that they are used to. People believe they have rights to these things. Yet in a market society the only rights that matter are property rights.

And those rights are controlled by distant sinister people and forces far from the blood-and-soil realities…

And, in Polanyi’s analysis it least, it is the backlash to the late nineteenth and early twentieth century project of implementing a market society that triggered the totalitarian disasters which he watched and from which he fled.

But I digress…