Social Justice And Economic Efficiency

Economic analysis of law is an interesting and challenging attempt to employ the concepts and reasoning methods of modern economic theory so as to gain a deeper understanding of legal problems. According to Richard A. Posner it is the role of the law to encourage market competition and, where the market fails because transaction costs are too high, to simulate the result of competitive markets. This would maximize economic efficiency and social wealth. In this work, the lawyer and economist Klaus Mathis critically appraises Posner’s normative justification of the efficiency paradigm from the perspective of the philosophy of law. Posner acknowledges the influences of Adam Smith and Jeremy Bentham, whom he views as the founders of normative economics. He subscribes to Smith’s faith in the market as an ideal allocation model, and to Bentham’s ethical consequentialism. Finally, aligning himself with John Rawls’s contract theory, he seeks to legitimize his concept of wealth maximization with a consensus theory approach. In his interdisciplinary study, the author points out the possibilities as well as the limits of economic analysis of law. It provides a method of analysing the law which, while very helpful, is also rather specific. The efficiency arguments therefore need to be incorporated into a process for resolving value conflicts. In a democracy this must take place within the political decision-making process. In this clearly written work, Klaus Mathis succeeds in making even non-economists more aware of the economic aspects of the law.

Latin American market-oriented reforms along the lines of the Washington Consensus need to be supplemented by a number of social policies to achieve a more equitable society. While there has been considerable progress in enhancing the efficiency, much less has been made with regard to improving the social situation. Germany has a long and successful tradition of a social market economy. However, developments in recent years have shown various pitfalls in the current economic and social security systems and the need for appropriate adjustments. Therefore, Germany as well as most Latin American countries have to look for new solutions to combine social justice with economic efficiency. This volume addresses some of the most pertinent problems in this respect.

This work questions how governments should balance the aims of justice and economic efficiency when intervening in the economy. It covers the main advances of fairness theory and reviews the experimental work of economists as well as the more standard approaches of moral philosophers.

Contemporary American society has the look of a split-level structure. Its political and social institutions distribute rights and privileges universally and proclaim the equality of all citizens. Yet economic institutions, with efficiency as their guiding principle, create disparities among citizens in living standards and material welfare. This mixture of equal rights and unequal economic status breeds tensions between the political principles of democracy and the economic principles of capitalism. Whenever the wealthy try for extra helpings of supposedly equal rights, and whenever the workings of the market deny anyone a minimum standard of living, "dollars transgress on rights"—in the author's phrase. In this revised and expanded version of the Godkin Lectures presented at the John F. Kennedy School at Harvard University in April 1974, Arthur M. Okun explores the conflicts that arise when society's desire to reduce inequality would impair economic efficiency, confronting policymakers with "the big tradeoff." Other economic systems have attempted to solve this problem; but the best of socialist experiments have achieved a greater degree of equality than our mixed capitalist democracy only at heavy costs in efficiency, and dictatorial governments have reached heights of efficiency only by rigidly repressing their citizenry. In contrast, our basic system emerges as a viable, if uneasy, compromise in which the market has its place and democratic institutions keep it in check. But within the existing system there are ways to gain more of one good thing at a lower cost in terms of the other. In Okun's view, society's concern for human dignity can be directed at reducing the economic deprivation that stains the record of American democracy—through progressive taxation, transfer payments, job programs, broadening equality of opportunity, eliminating racial and sexual discrimination, and lowering barriers to access to capital.

First published in 1978, this book was written at a time when belief was high in Western-guided economic development of the emerging countries. The success of Marshall Plan in war-torn Europe generated a US-led optimism that, with generous inflows of aid and technical assistance, the Third World could be won over in the Cold War. The author’s direct experience as a young academic economist in Cyprus, Malaysia, Uganda and Liberia led him to question this general optimism: the reality on the ground in the developing world did not seem to match Western optimism. Theories and blueprints, made in the West, did not fit the requirements of developing countries. Higher production and better income distribution were inseparable twin objectives of developing nations. That meant, production of a higher national output must at the same time promote social justice. Investment must create adequate jobs so that new entrants into rapidly expanding labor force could be gainfully employed. Yet, the dominant (Western) theories of development at the time, in particular the Trickle Down Theory of Growth, prescribed "Growth First, Distribution Later" strategy. Similarly, Import Substitution Industrialization theories were emphasized at the expense of export-led growth. Dualistic Growth theories preached urban-biased, anti-rural development. This book was written as a rebuttal of such faulty theorizing and misguided professional technical assistance and the book’s message is no less valid today than in the 1970’s.