Equality and Efficiency: The Big Tradeoff – Book by Arthur M. Okun

An Analysis and Review

Article written by: Dominic Patete

I often hear people talking about how the system is broken. They say we need to scrap the structure of our government, economy and society and start over from scratch. Otherwise, they argue, there is no chance of fixing the broken capitalist society we live in. Author and previous chairman of the U.S. Council of Economic Advisers, Arthur M. Okun, explores the problems created by capitalism and disparities in economic status. In his book Equality and Efficiency: The Big Trade Off, Okun believes we need to let the current system evolve and grow. After all, America is a relatively young country, and we have a capitalist society that is proving to be more functional and efficient than most other societies throughout history.

Okun emphasizes that a move towards a more socialist society is not a bad thing as long as it is not so drastic as to sacrifice efficiency unreasonably; More public goods should be welcomed as we learn to balance accountability and flexibility within bureaucracy. Okun believes we need to preserve and strengthen our current system in order for it to reform to be more perfect over time. I never thought about capitalism in this light; capitalism is not the most ethical illustration, but it is efficient. I can’t practically envision people ever being compatible with a fundamentally ethical society. Therefore, I think Okun is correct that capitalism holds a strong case for efficiency, and we should work to improve the best system we have been able to come up with.

“In a country where the sole employer is the State, opposition means death by slow starvation. The old principle, who does not work shall not eat, has been replaced by the new one: who does not obey shall not eat.”

Okun, 2015, p. 38

This quote stood out to me because of the discontent it portrays. The first part of the quote, “who does not work shall not eat”, seems at least somewhat reasonable because people are not forced to work. Working is a choice, for the most part, because people have the right to choose any job they please and negotiate a fair salary. Working does not come with a sense of being forced into submission. Work is a trade of labor for wage and is transferable in the market to some extent based upon the individuals’ interests, credentials and abilities. The second part of the quote, “who does not obey shall not eat”, seems terrifying and totalitarian. The use of the word obey seems to imply coercion, intimidation, oppressiveness, inferiority and fear amongst the people. To obey is to submit, and I believe Okun was implying the transgression of rights and liberty by an overpowered government. The power of the government is corrupt when it is used to force its people to submit beyond freewill. “The government is supposed to represent the interests of the people; the people are not to be slaves to the government.” This quote demonstrates the importance of rights and liberty. The people are the backbone of the country, and democracy is their tool for justice and fairness. Yet, Okun provides examples where the people do not get the final say. One example is milk prices when 200,000 farmers were able to represent their interest over the interests of 200 million milk consumers. I think this quote is powerful because it draws attention to the power that the people have but rarely use.

In his book, Arthur Okun describes and compares the degree of efficiency, equality and freedom provided by current mixed capitalism to that of socialism. Although written over three decades ago, many of the lessons and examples provided by Okun are current and relevant today. Okun describes the ownership of property in a collectivized economy where the State owned all producing assets to maximize efficiency. Currently, people maintain property rights; property is owned by people and can be bought, sold, or used to produce. Socialism would not allow property to be owned by anyone other than the state (or at least most producing assets). Okun talks about the transforming of the current economy from capitalism to socialism. In his description, he points out that the State could buy the property from the owner for fair market value and still realize a net benefit. This transformation to socialism would not be drastic or forced unfairly because it is assumed there is at least a fair tradeoff between efficiency and equality. If the State paid the owner significantly less than fair market value for the property, the State could gain more efficiency but at a higher expense of limited rights (equality). If the State confiscated the property without any compensation to the owners, the State could maximize efficiency but at a great (unreasonable) loss to equality. Ideally, socialism would provide equal pay to all people, but this is problematic because not everyone puts in equal effort. Okun’s example of property rights is relevant in today’s society. The capitalist system in the U.S. is built on the fundamental principle of property rights. People need to know what they own in order to sell it. Property is defined as an extension of the body (or person). The free labor market also is fundamentally rooted in property rights. People can sell their labor (property) for an agreed upon wage. People maintain the right to sell their labor to the highest bidder. This is a relatively free labor market, but efficiency and output are sacrificed.

It is quite incredible that the points Okun describes are still very relevant in today’s society given the book was originally published in 1975. I think most people would agree that not every single person can be equal in an economy because there are too many variables and infinite circumstances with indefinitely increasing complexity. Capitalism gets plenty of criticism, but it is the best model we have been able to come up with. I am surprised that Okun is a fan of capitalism, although, he believes the system needs more time to evolve and become more equal. I agree with Okun that the best way to do this is to regulate and reform rather than scrapping the whole system and starting from scratch. Our system is far from perfect, but we must always strive to be more perfect. It is important to maintain rights like freedom of speech in order to discuss ways to improve. Keeping discussion productive and constructive is a challenge, but mediums such as this article and its discussion forum (stemming from my academia) are great ways to promote such discussions. Courts have been strong supporters of academic freedom throughout jurisprudence (Ross, 2013). I think this is a fundamental principle that will allow the development and evolution of our society to move towards greater equality without sacrificing efficiency or individual rights and without sinking the whole ship.

Article written by: Dominic Patete

References:

Okun, A. M. (2015). Equality and efficiency: The big tradeoff. Washington, DC: The Brookings Institute.

Nygren, M., Roback, K., Öhrn, A., Rutberg, H., Rahmqvist, M., & Nilsen, P. (2013). Factors influencing patient safety in sweden: Perceptions of patient safety officers in the county councils. BMC Health Services Research, 13, 52.

Ross, L. K. (2013). Pursuing academic freedom after garcetti v. ceballos*. Texas Law Review, 91(5), 1253-1281.

Stock, G. N., & McFadden, K. L. (2017). Improving service operations: Linking safety culture to hospital performance. Journal of Service Management, 28(1), 57-84.

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