A Model of Pluralistic Economy
Based on Polanyi's Ideas	  Jung, Tae In
Karl Polanyi Social Economy Institute, Seoul	  不不敢請固所願	  (I don’t dare to say that, but that's what I really want)	  "We are now focusing on diverse movements seeking“a pluralistic economy”. . .
Each of us will encourage the study of development model includin
g the public policies which promote the harmony of social economy, market economy and public economy."(“Seoul Declaration”)"pluralistic economy"? 	  "They [the forms of integration, reciprocity, redistribution, exchange]
occur side by side on different levels and in different sectors of the economy,
it may often be impossible to select one of them as dominant...
Yet by differentiating between sectors and levels of the economy
those forms offers a means of describing the economic process
in comparatively simple terms, thereby introducing a measure of order
into its endless variations"(Trade and Market, p250)

01	  PluralisticEconomy?	  From behavioral economics and experimental economics,
esp. ultimatum game, public goods game... (Fehr, Bowles&Gintis....) 	  (strong) reciprocity is...
1) other regarding preference2) if not fair, punish despite material cost
"So whatever you wish that others would do to you,do also to them, for this is the Law and the Prophets."(Matthew, ch7, v12)
“己所不欲 勿施於人”(Don't do what you don't want)(the Analects of Confucius, ch12)... reciprocity is the source of cooperation

Solving social Dilemmas 	  (prisoner's dilemma, public goods dilemma, commons dilemma etc)	  institutionsocial norm
networktrust
social capital* Nowak, 2006, Five rules for the evolution of cooperation, SCIENCEmeaning of the Hamilton’s Law b/c > 1/r?
	  r can be interpreted as the intensity of reciprocity
if r is minimized, then the market exchange,
so anonymous and distant trade possible

human nature

Interaction
mechanism

value

Marketselfishness

competition(Pareto)economy(Homo Economicus)(exchange)

efficiency

Publicpublicity

economy(Homo publicus)

Socialreciprocity

economy(Homo reciprocan)

Ecological?

economy(Homo symbious)

redistribution

cooperation

shortcomings
inequality,
ecological problem,"market mentality"

Equality

leviathan,(fairness)

Bureaucratization

Solidarity

patriarchy,
exclusivenessPossibility ofcoexistence?

Sustainability

intergenerational
Justice

if one logic penetrates all spheres? "demolition"(ex. market society, state socialism)	  plurality or singularity?
reinterpretation of embeddedness (disembeddedness)

ICA 7 principles of cooperatives

Ostrom's 8 principles

Nowak's 5 rules

for managing a common

for evolution of cooperation

1.Voluntary and Open Membership1. define boundaries

1. kin selection

2.Democratic Member Control

2. match rules to local needs and

2. direct reciprocity

3. economic participation
4. autonomy and independence
5. education, training and information

conditions (principle of proportionality)
3. ensure members to participate inmodifying rules

6. cooperation among coopertives

4. respected by outside authorities

7. concern for community

5. monitor and sanction violators

3. indirect reciprocity
4. network reciprocity
5. group selection

6. graduated sanctions
7. dispute resolution8. polycentric approach* added micro variables
1. communication* results of behavioral/
experimental economics study

2. reputation

1. democratic communication

3. increasing marginal benefit

2. group identity

4. easy entering and exit

3. internalization of social norm

5. long perspective

these principles may be effective in all economies,
but especially so in social economy 	  from principles to policy making...
in Seoul 5 year plan for social economy ("Great leap from below") 	  rules of cooperationcommon property anddemocratic decision making,participation

policy direction- social economy means the production and use of common property
resource- fair distribution of benefit and cost (proportionality)- solving social dilemma by participation- local community is the place where kin selection,
recursive transaction, reputation mechanism work

local community and- formation and enhancing group identity

network, group identity- enhancing cooperation within group by competition between groups- open learning system for innovation- polycentric approach (between city and districts)

autonomy

institution and norm- co-construction and co-production of policy- accountability for the performance, esp. for finance- material incentives can undermine social norms

02	  plurality of firms

theoretical resources 	  (theory of firm)	  - Marx, theory of production process- Coase, Williamson, transaction cost theory- Jensen & Meckling, agency theory- Hart, Grossman, incomplete contract theory- Bowles & Gintis, theory of democratic firm
- Freeman, E, Blair & Stout, stakeholder theory- Freeman, R et al., shared capitalism- behavioral/experimental economics

the natureof firm 	  § team production 	  • team production for maximizing surplus• technological/organizational purpose• importance of learning and innovation§ team production entails SD (free rider) problem	  • fairness of distribution -> efficiency of production• Solving SD1) neoclassical economics(NE) –perfect competition and CRS fcn(ex. Cobb Douglas fcn)
2) Marx - capitalist exploitation(<- industrial reserve army)3) modern theory of firm –effort of worker, relational investment(hold up),decision making problem

effort ofworker	  § Bowles & Gintis
worker's mutual monitoring is more efficient§ Ackerlof
gift exchange of generous wage rate for labor norm-> possibility of self-policing 	  § evidence from experiment (Carpenter et.al., 2009)* Carpenter et.al., 2009, p6

hold-upproblem	  Williamson's fundamental transformation and hold-u
p problem	  §relation specific investment -> underinvestment•

Aghion's example (Aghion et.al., 2011, Hart, 2008) = PD situation	  §seller	  buyer	  invest	  hold-up	  invest	  10, 10

7, 12

hold-up	  11, 6

8, 8

Hart & Grossman's solution is (invest, hold-up)	  §
•because surplus of(invest, hold-up) = 19(=7+12) > (hold-up, investment)=17(=11+6)§Williamson's vertical integration will choose(hold-up, investment)=17	  §cooperatives' solution will be (invest, invest)=20	  evidence
fromexperiment	  § possibility of cooperative's solution 	  * Fehr et.al, 2008, pp1270-1271§ joint ownership is chosen –fairness is good at implementing the implicit contract 	  § if there be norms of reciprocity, then joint ownership is effective. 	  decision
makingproblem	  § who makes the decision?	  •Marx – capitalist (shareholder, manager)•

agency theory - shareholders control the board of directors &financial market controls the executives(Efficient Market Hypothesis - quintessence of formal
economics in governance theory)•incomplete contract theory –delegation of decision right to subordinate organizations
for producing and circulating information§ stakeholder theory and theory of shared capitalism 	  •stakeholders have rights for firm, board of directors coordinat
es the interests of stakeholders(strategic stakeholder theory)•

firms which have the institutions of ESOP,profit sharing and participation in management have madegood performances(shared capitalism)

"why are cooperatives so rare?"	  § praise of Marx, Walras, Mill§ failure of Ward-Domar-Vanek critic§ then why so rare?	  1) large scale funding - social financing2) excellent workers - education and training institution3) difficulty of democracy 	  possibility of cooperativesby (very simple) ABM Model 	  §capitalist firm's strategy – all D or WSLS§

cooperative's strategy - all C or TFT	  § Cooperatives can survive then what institutions?

Welfare and Social Economy
in Seoul	  strategical projects
education training center

housing cooperatives
medical cooperativesdistrict projects	  caring cooperatives

enlarging markets

ecological house improvement

management support

manufacturing clusters	  (consulting)community-led bottom up
participatory planning("Great Leap from below")	  community asset
formation program	  03	  PluralisticPolicy"The crisis has caused income inequality and social exclusion which has tended tobring about socio-political challenges.
Ecological problems are also rising due to our fossil fuel-dependent system.
The problems, such as global warming, the destruction of biological diversity, and t(macro policies)	   he energy and food crisis are now threatening the survival of humanity.
In facing this crisis, we are now focusing on diverse movements seeking"a pluralistic economy"."(Seoul Declaration)"Undoubtedly labor, land and money are essential to a market economy.
But no society could stand the effect of such a system of crude fiction for the shorter stretch of time unless its human and natural substance as well as its business or
ganization was protected against the ravages of satanic mill"(Great Transformation, pp76-77)§double critical crises : inequality and ecological crisis§

fictitious commodities (nature, labor and now knowledge)
are production factors, so it's a problem of factor markets andso called production functions§double movement and policy	  inequality	  ­–	  	  Piketty,	  	  2014	  § exceptional period of 1945-1975§

golden age of capitalism, France's"30years of glory", German's “Miracle of Rhein”§defeating "Bawley's law", "Kuznets inverse U curve","marginal productivity distribution theory (Clark)"	  Piketty intrap 	  § why is r so persistently high(4-5%)?
§

Piketty's answer - elasticity of input substitution is high (σ=1.
3~1.6)§

neoclassical economist's critique(Summers, Rong-li...)
They are right.. Piketty cannot answer in the framework ofneoclassical economics 	  ecologicaleconomic model & debate	  * Glucina & Maumi, 2010, p 24

§ future discount rate - 1.5% ~ 90%§ elasticity of substitution between capital and material or energy - weak sustainability vs strong sustainability:	  neoclassical	  economists	  maintain	  σ	  can	  be	  very	  large	  even	  ∞	  	  	  (cf.	  for	  Piketty	  they	  maintain	  σ<1)	  :	  not	  useless	  but	  tedious	  and	  never	  ending	  debate,	  	  	  	  so	  we	  are	  losing	  time.	  § What's σ?

§

revisiting "Cambridge Capital Controversy"

neoclassical pr§ neoclassical parable :oduction functi
existence of well-behaved production fcn & perfect competitionon - quintessence of-> marginal productivity distribution	  formal economics 	  §aggregation problem (two concepts of capital, capital malleability, technology switching...)1) only CRS, 2) even under CRS, the conditions for aggregation are verystringent, 3) even approximation require 1) & 2)

(Fisher, 2005, p490)

so there cannot be a well-behaved production fcn	  §estimation problem (Shaikh, Simon, Felipe&McCombie...)Piketty's first law is a national account identity Y≡ rK +wL, and it can beeasily rewritten through simple algebraic transformation into Y=A*F(K,L),
that is precisely CD or CES fcn(CD's α=rK/Y, that is capital share and β=labor share)	  "the appearance of a well-behaved aggregate production fcn tell one nothing at all about whether there really is one. Such an appearance stems from the acc
ounting identity that relates the value of outputs to the value of inputs - nothin
g more" (Fisher, 490)	  §So if we want to see a real society and to solve the real problems, we should discard aggregate production fcn -> substance economics§ For example we can save Piketty by post keynesian"wage-led growth theory"* Goda et.al, 2014, p20§Actually Piketty explained inequality by socio-political eventsand institutions (Imperialism, WWs, Great Depression, progre
ssive taxation), not by σ	  §We can save ecological models using CD, CES fcns
by simple energy IOs for example* Sorman & Giampietro, 2013, p85§ We should keep on the precautionary principle and polycentric approach 	  We need an operational substance economics :in spirit of Polanyi we may synthesize heterodox economics ie. post keyne
sian macromodel, institutional economics, evolutionary economics, ecolog
ical economics and feminist economics•

heterogeneous agents, agent based model•

IOs or Leontieff production fcn•

rejecting EMH, financial market as a complex adaptive system•

path dependency, history matters•uncertainty matters so much, so it cannot be an equilibrium model•pluralistic economies and their interaction 	  possible
polices
forcountermovement•

global property tax (Piketty), but heavy real estate tax (Georgy)•

progressive income tax (Piketty), but with inequality insurance (Shiller), indexed income tax (Ayres)•income-led growth policies - raising minimum wage, introducing ma
ximum wage, strengthening unions, ...

•promoting social economy(community asset formation program.... )•Tobin tax, macro-prudential regulations•

carbon tax (enough high for Jevons effect)•

cutting conspicuous consumption by advertisement tax•

ecological investment (renewable energy, smart grid...)•education and health investment•

work sharing•

new international governance esp. abolition or revision of FTAs,
ISD and Intellectual property clauses 	