1/26/2010

The State as Market

by Edgar Revéiz
Revision by Jorge Iván González
Professor, National University
May 25, 1997


In the introduction to the text On Economic Inequality, Amartya Sen, an Indian economist who has dedicated his life to joining ethics and economics, shows that rebellion and inequality are intimately related; that inequity feeds rebellion. In recent years, economic theory has turned its eyes toward the functioning of institutions, the development of human capital and ethical problems. Although moral philosophy enmark reflections from classical authors - let us not forget that Adam Smith was Professor of Moral Philosophy at the University of Glasgow - with the passage of time, the excessive preoccupation with quantification and formalization led economists to forget the social nature of the discipline.

This abandonment of the ethical and social dimension limited the development of economic theory and furthermore, reduced the possibilities of its figuring in the betterment of the majority of the population's welfare.
In his book, The State as Market, Professor Edgar Revéiz examines the relationship between ethics and economics in the case of Colombia. He shows that growth also depends on institutional and political factors. The conventional macroeconomic variables: investment, employment, savings, etc. are not adequate to understand the characteristics of Colombian development. In the author's words, the investigation "... intends to establish the relationship which those variables considered extra-economic have towards growth." (p. 103). In the Colombian academic context, Revéiz' study is novel not only because of what it proposes, but also because of its method. The author must create his own analytical instrument. As we economists are not accustomed to thinking about growth from the political or social perspective, the discipline cannot assume to have the tools with which to carry out this type of exercise.

The book examines in detail the form that the mesocontratos have "...privatized the intervention of the State" (p. 34), creating propitious conditions for the establishment of "the violence of inertia" which decays Colombian society. The conditions of participation have been very different for the "co-opted," the "non co-opted," and the "illegal’s". From these three types of collectives or societies, the author constructs socio-economic and institutional matrixes which shows how the form as well as the correlation of forces between these collectives and the State have continued to configure the economic development in Colombia.

The historical focus and the numerous concrete examples which the author presents aid in understanding of the characteristics of each period. Between 1958 and 1991 dominated "political capitalism". The 1991 Constitution secured "competitive capitalism," which is, at least in theory, more democratic, less presidentialist and as such, more participatory and just. Revéiz carefully examines the changes in the institutional order and gradually constructs a hypothesis as to how these changes have resounded through economic growth and political stability. This focus has a great advantage in that it permits the author to approach such a complex topic as the 8,000 Trial from a global perspective, avoids falling into the trap of moralistic accusation and permits him to distinguish those aspects which configure the ethical-cultural dimension of Colombian society.
In The State as Market, Revéiz continues the line of reflection which his previous book with its prophetic title: Democratize in order to survive.


Presentation "Economic and Political Governability"
by Professor Edgar Revéiz
Revision by Jorge Iván González
Professor, National University
May 25, 1997


The work of Professor Revéiz is a stimulating invitation to consider the complex interaction between ethics, economics and politics. Confronted with the idea of joining these three dimensions, Hayek's question resurfaces: Is this an issue of economics as a political form or a science?
Without Professor Revéiz raising the question explicitly, there are indeed elements by which it can be concluded that the connections to politics and ethics are inherent in the task of the discpline of economics.

The great scientific task of economics is to understand how suprisiing coherence is achieved "between the vast number of individual and apparently separate decsions about the purchase and sale of goods... the form in which this coordination occurs has been a central preoccupation of ecnomic theory since Adam Smith" (Arrow 1972, pp. 155, 157). Arrow's treatment leads us to reflect on market budgets. If we claim to inform about the
market based on the market itself, our reflection would be a tautology.

Tests to the existence of this balance are posterior to the question by the powers pulling on those agents to carry out trade. It is a question, then, of understanding why successful trade exists? Why is it possible? Koslowski (1992, p. 28) considers that a market theory must include those "ethical-cultural motives" which determine supply and demand. Ethics, together with culture and its own institutions, is constituents to market relations. For this reason, there is no market without an ethic which fixes the rules of the game. The market does not appear from one moment to the next. It constructs itself over a period of time. In trying to explain why the Eastern countries still have not managed to consolidate a market economy, Koslowski (1992 b) puts forward a hypothesis that these societies are still in the process of defining ethical conduct and the moral norms compatible with process of private contracting.

The ethical dimension is constituents to the market, not only because of the above, but also because it is present in the moment of trade and because it transcends it to define the function of social welfare. Arrow's "constitution", Buchancan's "constitutional choice" and Musgrave's "community of preferences" approach the same objective: to show that market relations are ethically conditioned.

By making the space for ethics explicit, it is possible to understand the relative character of economic categories, such as efficiency, those that textbooks give unequivocal meaning. The cultural conditioning of ethics leads to a relativisation of efficiency. The implementation of the neowalrasian concept of efficiency has led to a noticeable increase in unemployment rates in the developed countries. Sooner or later, this threat to social welfare will oblige us to reconsider the meaning of efficiency. The intertemporal models have laid the absurd process of competition on the table, which leads to more production for more consumption, increasing waste and threatening the ecological balance.

Returning to the question of Hayek, the relation between economics, ethics and politics competes with economics as science. The work of Professor Revéiz advances in this direction. It lays boundaries to the spheres of ethics and morals. It considers ethics (ethos) as a "....discipline joined to philosophy, it is the theory of habits and customs" (Revéiz, 1996, p. 7). For its part, morals (moris) "...are founded in religious principles and are implemented through norms" (Revéiz 1996, p. 7).

The differences between development models are not comprehensible outside the realm of ethics and morals.

Valuing individual initiative, Puritanism strengthened capitalism, valuing collective discipline. Asian religions made Japanese business triumph, valuing the ethics of coopatation and discretional concession. Colombia achieved great political stability in the post-war period but revived and inflamed political and social conflicts at a high social and human cost. Our ethics have proposed co-opted accumulation, led to violence, monopoly consolidation, concentration of wealth, and above all, have impeded the development of a competitive market.

"The Colombian model of co-opted accumulation (1958-1986) enabled the consolidation of monopolic and oligarchic groups which, instead of launching beneficient competition to increase global productivity, freed up non-economic competition, searching to assure privileges of the State..." (Revéiz 1989, p. 13).

In Colombia "market economics" does not exist because it has been impeded by cooptation and privileges. Instead of economic competition, what has developed is political competition, possible thanks to the existence of mesocontratos, which have favored specific groups through ad hoc rules.

"The growing discoordination of the mesocontracts and their rigid hierarchy are a 'propogating' source of violence, similarly as the reluctance of such groups to lose part of the nominal economic income, their capacity to fix the prices of goods and services in coalition with the government, and the right of 'ad-hoc' precedence which they attribute to their respective contract over others" (Revéiz 1989, p. 2).

From an economic perspective, the co-opted society is characterized because it benefits from revenue privileges and has a high degree of concentration with the State, in such a way that finally uses the State to its interest. The boundary between the co-opted society and the illegal one is very fragile. The mesocontracts are the foundation of power and privatize state intervention; in other words, they spread corruption and distort the rules of the game.

Modern game theory has incorporated concepts such as balance from Nash. These models recognize the importance of imperfect markets where trade unions, monopolies, assymetric information and expectations cohabit, given that the rules of the game are not altered. None of the players may change the rules at their discretion. Without this prerequisite, the game is impossible.

Our disgrace is that before the impassible view of civilian society, some players feel that they have the right to change the rules of the game. Five years have not yet gone by and the 1991 Constitution is already in jeopardy. In order to overcome the country's political crisis, Professor Revéiz notes that we must advance towards governability, towards the creation of a consensus.
"Governability can be understood as creating consensus. Fewer social tensions. In this case one can have economic governability and political democracy; that is, it is a system where democratic values are maintained, where there is free competition, where markets can function, where there is no clientelism, etc." (Revéiz 1996, p. 5).

This focus runs counter to the pretentions of the large ecnomic groups who now express their intention to continue financing the war. The decadence of the federations has been compensated by the boom in power of the economic groups. This change in the relations of power, notes Professor Revéiz, has much to do with the apertura, or economic opening of the country.

"In contrast to the form of the Japanese government (governing by morals and controlling by ritual), or that of Korea (governing by nationalism and controlling by force), Colombia regulated its ethical-political model and economics by "governing by ritual and controlling by force" (Revéiz 1989,p. 85).

While the war continues in the southeast of the country, Colombian society refuses to reevaluate itself. Let us not accept that neither the privilege nor the inequality of the initial endowments go against consensus, but rather feed the war. The economic groups which have patroned the State propose to consolidate the war. In the final analysis, for them the violence is less costly than to give up the mesocontracts. The solution must be integrated, and for that reason the financial-economic, antinarcotrafficking, and human rights certifications must be analyzed together, because they are constituents to the same reality.

Political and economic democratization is a vital problem. Without economic and political democracy our society does not survive. For that reason, now that the war in the southeast reminds us that we are a profoundly violent country, the title of Professor Revéiz' book, "Democratize to Survive," reaches prophetic dimensions.

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