Who should hold decision-making power?
(Introduction to Economics, Lesson 8)
Any society has to have ways of making important decisions about scarce resources. Who will these scarce resources be allocated to? What will they be used to create or provide? What shall be produced and who shall it be produced for? Each society must decide who gets to make these important economic decisions.
There is, of course, more than one fundamental way to run an economy and, over the centuries, different societies have used different systems for making the important decisions about how scarce resources are allocated.
In some societies, a lot of economic power rests in the hands of individuals. People are allowed a lot of freedom to decide how they will try to make a living and what they will do with their lives. In this sort of society, a lot of decisions are decided by ‘market forces’ — in other words, decisions come about as a result of individuals freely interacting and bargaining with each other.
In some societies, large businesses have a lot of economic power. In some societies, religious organisations make a lot of key economic decisions. And, in many societies, the government and the state have enormous economic power. They might control a large part of the economy directly and may impose strict rules and regulations about how individuals and businesses can behave. In each society, the boundaries between the various spheres of control and spheres of influence will be drawn in different places.
This balance of power between individuals, businesses and the state is a very important concern of Economics. It is fundamental to a lot of economic matters and has a huge impact on people’s general wellbeing.
Clearly, some people or organisations may be better at making decisions than others. Some people have a better understanding of the way certain things work and are better at predicting the ramifications of their decisions. So, it may make sense to put the economic decision-making power in the hands of people who are good at it. Putting decisions in the hands of educated, skilled and competent decision-makers might produce decisions that are more likely to benefit society in general.
Unfortunately, there is often a tendency for people or organisations to allocate resources according to their own selfish interests, instead of according to what is good for others or for society in general. When a government, for example, allocates resources, are they acting for the good of the nation, or are they allocating resources in such a way as to try to get themselves re-elected? Are they looking after themselves and their own supporters at the expense of everyone else? Are government ministers trying to help the nation, or are they just looking after their own careers?
It may seem OK to have a village chief making economic decisions on behalf of the entire tribe, if he happens to be very good at it and doesn’t behave in a selfish way. Unfortunately, it’s usually the incompetent, selfish leaders who are best at lying and cheating their way into positions of power in the first place.
But there’s something else that’s very important here — something perhaps even more fundamental; something to do with freedom. The thing is that your welfare is greatly affected by how much freedom you have. To be human, to feel alive, it’s important that you have some sort of freedom to make decisions about your own life. If all the decisions about your life are made by other people, they may be extremely good at making decisions and they may make lots of decisions that make you better off, but something would be missing; your fundamental freedom to make decisions for yourself, even if those decisions aren’t always very good ones.
Our welfare as human beings, depends not just on such things as what material goods and services we have available to us — and such things do depend on good decisions as to how we use our scarce resources — but also on such things as how much freedom we have. Without freedom, we’re all a lot poorer. We can be immensely rich in terms of material goods, but still be desperately poor.
