The New Comparative Economics versus the Old: Less Is More but Is It Enough?

1. Introduction It is commonly believed that the field of comparative economics entered something of a terminal crisis with the collapse of communism and the socialist economy in the late 1980s. For example, Djankov et al. (2003) write: The traditional field of comparative economics dealt mostly with the comparison of socialism and capitalism.... Traditional comparative economics.... studied under what circumstances either the plan or the market delivers greater economic efficiency.... By the time socialism collapsed in Eastern Europe and the Soviet Union, this question had lost much of its appeal.... If capitalism is triumphant, is comparative economics dead? [pp. 595-6]. (3) Djankov et al. answer their rhetorical question somewhat ambiguously. The old comparative economics, as they define it is, indeed dead, they believe, but a new comparative economics, one that involves comparisons among capitalist systems and that places primary emphasis on the role of institutions is being born. They provide a brief manifesto for this new comparative economics: ... the key comparisons are those of alternative capitalist models prevailing in different countries. Each capitalist country has many public and private institutions.... These differences (in institutions) and their consequences for economic performance are the subject of the new comparative economics. [p. 596] It can hardly be argued that the communist economy has largely disappeared as a subject of economic research, with the notable exception of China, which the advocates of the new comparative economics seem to view as a capitalist economy with a somewhat above-average level of state ownership of firms. (4) But, as I shall argue in this paper, the verdict that the old comparative economics is dead confuses what was the major preoccupation of the field, the detailed study and comparison of capitalist and socialist economies, with its methodology or its broader and more general objectives. This confusion of the old comparative economics with the comparisons of capitalist and socialist economies should not come as a surprise, nor should it be attributed to the unfamiliarity of "outsiders" with our field. Indeed, as Frederic Pryor (2008) very aptly notes, The comparative study of economic systems should ask three basic questions: What is an economic system? How have economic systems evolved and where are they heading? And what impact does an economic system have on economic performance?.... Given its present trajectory, the comparative study of economic systems has no future. If you peruse the current journals devoted to comparative economics, you mostly find either country studies or comparative studies of particular institutions, policies, or performance results between countries, but not analyses of economic systems focusing on the three basic questions. This paper presents five theses, not all of which I develop to the same extent. The first thesis is that comparative economics was, and continues to be, a broader intellectual enterprise than the comparison of capitalist and socialist economic systems. Indeed, I argue that comparative economics as traditionally constituted is fundamental to the discipline of economics in toto. My second thesis is that the old comparative economics was based on concepts and methodologies that both a priori reasoning and experience show to be useful for the description of economic systems. However, and this is a critical caveat, the old comparative economics paradigm burdened itself with a fundamental flaw that prevented it, and prevents it to this day, from fulfilling the potential that is inherent in its descriptive and analytical apparatus. The third thesis is that the appeal of the new comparative economics has less to do with the disappearance of socialist economies or with the explanatory power of the concept of "institutions" that lie at the core of the new comparative economics and much more to do with the fact that that the new comparative economics has, perhaps unconsciously, managed to overcome the fatal weakness that plagued the old comparative economics. …