BOOK REVIEW: “ECONOMICS FOR THE COMMON GOOD” BY JEAN TIROLE

Economics has often been called the “dismal science”. It’s viewed as inaccessible, negative, boring and of little relevance or support to the daily lives of ordinary people. Many in the modern world have concluded that the western “free market” economic system, is controlled by elites and large corporations and is stacked against them, hence the rise of populism over the last ten years.

Responding to this reality and with a view to offering a prescription for reshaping our societies in the interests of all citizens, not just the fortunate few, Jean Tirole, a French academic economist and Nobel Prize winner, wrote “Economics for the Common Good”. Tirole’s underlying position is that we’ve lost sight of the “common good”. He sets the scene this way:

“Since the resounding failure of the planned economies….the market economy has become the dominant, not to say exclusive, model for our societies….even so, the market economy has achieved only a partial victory, because it has won neither hearts nor minds. For many, the pursuit of the common good, the guiding principle behind significant public intervention, has been sacrificed on the altar of this new economic order. Around the world, the supremacy of the market is regarded with widespread mistrust, sometimes accepted only with an outrage laced with fatalism….critics warn us of the disintegration of the social contract and the loss of human dignity, the decline of politics and public service and the environmental unsustainability of the present economic model. These issues resonate…marked by the financial crisis, increased unemployment and inequality, the ineptitude of leaders in coping with climate change…geopolitical instability and the migrant crisis resulting from it and the rise of populism around the world”.

Tirole acknowledges that defining the common good (which he calls our “collective aspiration for society”) requires controversial value judgements, at least to some extent. However, he skillfully seeks to minimise the role of value judgments by challenging readers to engage in a thought experiment in which they assume they haven’t been born and therefore do not yet know what place they’ll have in society. He then asks readers (from that position) to consider what kind of society they would like to live in, irrespective of whether they are born man or woman, rich or poor, with good or bad health, with or without education, being atheist or religious or living in an urban or a rural area.

Importantly, Tirole makes it clear that he is not suggesting a return to failed 20th century totalitarian forms of society. Rather, he is promoting the idea that whatever role people have in society, they will react to incentives which define their behaviour and that sometimes their behaviour may not be in the general (or public) interest. Therefore, the quest for the common good involves constructing institutions and policies to reconcile, as far as possible, the interests of the individual with the general interest. In this context, Tirole maintains that the market economy must not be an end in itself. It is an imperfect instrument to be used when considering how to align common and private interests of individuals, social groups and nations.

Having set this foundation, what follows is a fascinating analysis of the role of economics in society and how it may be deployed constructively to achieve the common good in a multitude of policy areas. These include climate change, labor market reform, financial services industry reform, competition and industry policy, digitisation, ownership of data, intellectual property and sector regulation.

This book is not technically complicated and you don’t need qualifications in economics appreciate it. But it does require commitment and concentration that will be rewarded – whether you agree with Tirole or not – with a much improved understanding of the central role of economics in facilitating change and reforms in the public interest.