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Economic Regulation, Social Complexity and The Economic Viewpoint

Emmanuel Picavet
p. 257-266
Référence(s) :

Jean Tirole, Economie du bien commun, Paris: Presses Universitaires de France, 2016, 629 pages, ISBN 978-213072996-9. English translation by Steven Rendall, Economics for the Common Good, Princeton: Princeton University Press, 2017, 576 pages, ISBN 978-140088914-3

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Economics for the Common GoodAfficher l’image
Crédits : Princeton University Press

1Économie du bien communEconomics for the Common Good addresses, from an economic point of view, many problems which have a close connection with the common good. In the work of other major economists in the post-1945 era—Musgrave, Eucken, Arrow, Massé, Kolm and others—the economic approach has already proved useful in this respect. The important role of public economics in the development of economic theory makes it difficult for economic theorists to ignore the set of “common good” issues they share with philosophers, political scientists and legal scholars, even though a number of economic contributions have been noted for their deconstructionist treatment of classical views about the public interest, the common good, the social State or, indeed, society itself. This book is remarkable for the clarity of explanations, the defense and illustration of methodological individualism (even though the importance of social norms is recognized), the extensive discussion of inter-disciplinary ventures.

1. Making the Contribution of Economics Apparent

2The author’s determination to demonstrate the importance of an economic approach is most welcome and so is the willingness to make full use of an eminent personal involvement in economic science in order to provide a reflective treatment of economic contributions and political debates in recent years. This ambition is served by the author’s analytic developments about incomplete information, contracts and regulation, which are usefully summarized. Given the author’s concentration on English-language economic thought, the publication of a synthetic book in French is a useful inter-cultural exercise. The synthetic virtue of the book is such that it turns out to be an excellent starting point for a discussion of those topics in contemporary social and political thought, which suggest doubts about a predominantly economic approach.

3Starting from general remarks about the relationships between society in general and economic matters in the two chapters of the first part of the book, Jean Tirole deals with the moral limits of markets, commodification issues, social cohesiveness and inequalities. The second part of the book (three chapters) gives a detailed account of the social role of research in economics and the connection with practice—with intellectual developments and methodological choices which are endogenous to the discipline, by and large—and with other perspectives (drawing parallels with homo psychologicus, homo socialis, homo incitatus, homo juridicus, homo darwinus). The two chapters of the third part of the book deal with the institutional framework of modern economies, with a focus on “modernizing” the State and analyses of corporate governance. The fourth part (five chapters) concentrates on big challenges of our time, framed as macroeconomic issues: climate, underemployment, Europe, finance and the aftermath of the 2008 crisis. The last five chapters of the book provide analyses of the “industrial challenge” of the contemporary world, ramified in such various topics as the meaning of competition, the digital economy, innovation and intellectual property and sectoral economic governance or regulation.

  • 1 Hereafter, page numbers without additional information refer to the page numbering in the original (...)

4The book bears testimony to the author’s ability to face the adverse representations of the role of economic-related notions, practice, counseling and governance models in the contemporary world. The avant-propos opens with the apparent contrast between, on the one side, the predominance of market-based economic representations and government after the fall of communism in Europe and the reorientation of China, and on the other side, the widespread distrust of what an “economic” approach of the world does to man and society (“the world is not a commodity” is quoted as a familiar motto). A noted defender and practitioner of economics-based policy advices (on the direct route from welfare economics to policy advice, see 148)1, the author deals with the major factors which give prima facie plausibility to pessimistic theses about the fate of the common good and the implication of economics in the deteriorating processes. Such contextual elements include the crisis in finance, the growth of unemployment and inequalities, the inability of rulers to tackle the climatic change, the uncertainties which surround the political future of Europe, geopolitical instability and the growth of populism everywhere.

5In the following sections, I’ll make comments about three main topics which illustrate both the stimulus to be gained from this essential reading and a number of pending questions. First of all, Tirole relies on explicit assumptions about the methodology of dealing with human motives, giving his analyses a special interest from the point of view of substantial economic explanations, and raising inevitable concerns about the privileged motives associated with the typical economic agent. A second important topic is the nature of the “market” model; in this respect, the book showcases the interdependence between this model and the regulatory framing of public action. Finally, I’ll draw attention to the potential consequences of the theses in the book about the significance of economic theory and its connection with social life and its conventions.

2. Narrow and More Encompassing Human Motives

6As a matter of fact, economic approaches often raise criticism on account of their concentration on consumer-style preferences rather than, say, human needs, politically legitimate claims, socially understandable aspirations to recognition or morally grounded rule following. In Tirole’s book, the connection with the contractarian tradition starts from a veil-of-ignorance thought experiment which showcases our tendency to like or dislike “society”, absent the information about our personal situation. The possible discrepancy between personal interests and the common good, which is at the heart of the purpose of the book (in the vicinity of the author’s technical work on contract and delegation) is no indication that personal interests should be held reducible to material interest. The predictive value of narrowly conceived self-interest is obvious in many cases, and so is the necessity to supplement it by other motives, for example esthetic concerns (as argued by J.S. Mill in the fourth book of A System of Logic).

7Nevertheless, the value of an economic approach of the common good is made apparent by the drawbacks of political visions which are developed in the ignorance of the predictable side of incentive-driven human behavior, or without paying enough attention to the involved material interests. A veil-of-ignorance perspective, Jean Tirole shows, is able to bring back the language of rights in the spectrum of rational investigation, as rights can be framed in terms of insurance or guarantees in various domains. Although the author is committed to the avoidance of an all-too-narrow vision of human behavior, most of the explanations he provides are rooted in either material and financial self-interest, or the interest people take in their social image (185, 255).

8This is best understood in the light of methodological remarks about the trade-off between the fine-grained description of behavioral factors and the tractability of models for analytical purposes under aptly general hypotheses (118), and about the prima facie value of interest-based predictions (122). These remarks raise questions about the concomitant delineation of an economic sphere in which interest-based prediction and understanding are given priority. Although the book offers no such general attempt at a delineation of the properly understood economic sphere, it must be stressed that Tirole makes clear statements about problems which he holds to be beyond the reach of economic analysis.

9Ethical benchmarks are seriously discussed in connection with institutional guidelines and organization (in the ethics of research, for example). Motivations from outside the sphere of self-interest are occasionally mentioned (e.g. the expressive value of voting (173) and that of the choice of rules (200)) but only in the margins. Trust and altruism are paid due attention, with useful reminders about experimental evidence, still a greater amount of attention is given to hypocrisy in the appeal to moral value and social commitments, in a number of far-reaching developments about the delusions in moral and political discourse. The same inspiration is notable in the discarding of those explanations of involvement in the cooperative economy which rely on the conjecture that people want to be part of a well-oriented process (see p. 590 about the development of free software).

10Generally speaking, Tirole’s methodological outlook is characterized by a great openness to the diversity of motivations and social forms. In numerous in-depth developments, however, typically self-interested motives, financial incentives and the market organization appear to play the role of default approaches. For example, the possibility of intrinsic motivations to be crowded out by extrinsic incentives is duly acknowledged (193) but the reader is more impressed by the general defense of the overall value of strong incentives (monetary and other), provided they avoid a number of technical drawbacks as evidenced by the problems of short-sightedness (e.g. in the ill-conceived monetary bonuses of the financial sector).

3. The Market Economy and the Rationale for Regulation

11The “regulatory State” which is the focus of conceptual and methodological research (598), equipped with its contract-based policies, is market-oriented by and large, and it is claimed that competition and the public service are no antagonistic notions (626). Given the difficulties of prospective and project selection, the general vision of the industrial State is pessimistic (129, 484, 492). Symmetrically, with the aid of a very useful synthesized typology of the major kinds of market failures (210 sq.), Tirole identifies major problems in the markets, as well as unsatisfactory prospects (for jobs creation in an increasingly robotic economy, 555) and problematic uncertainties for market-oriented political developments such as the EU.

12His awareness to the social recognition associated with jobs is great indeed (559) and his discussion of the moral limits of markets is extremely serious, although it is clearly sympathetic to markets (viewed as mirrors of our moral tensions or contradictions more than a source of evil in themselves, 77). Given the impressive and relevant evidence of market failures, moral divisions, morally relevant inequalities, inefficiencies and collective short-sightedness in the examples and cases studies in this substantial book, it is not necessarily to be expected that the reader, at the end of reading, will be as enthusiastic as the author himself about the “virtues” of the market as an economic principle and a vehicle of progress and modernity. Indeed, the fragility of social progress and the worrying rise of poverty, deprivation and social unrest in a number of countries which have benefited from the decisive Welfare-State advances in the 20th century—and which have then experienced reform in connection with market-driven ideologies—might well provide evidence for the darker side of Tirole’s analyses, in opposition to his reassuring statements about the “virtues” of the market.

13Tirole is very clear about the risks of futile, artificial competition-creation (478) and misleading views of market efficiency (as in finance, 403). Still, and more importantly for his purpose, the author is committed to the “maximizing” logic of promoting competition to avoid the sub-optimal use of resources and financial drawbacks for the consumers. Such a logic is at work throughout in the developments about competition (470, 474-475) or the market regulation of jobs (311), in the warnings about the futility of a concentration on existing jobs and employed persons in contexts which call for the encouragement of new employment opportunities (318) or in the criticism of the misleading “good intentions” in the housing sector, especially the introduction of legal limits to housing costs (43). The analysis of fine-grained psychological mechanisms, such as the identifiable-person bias, mainly serves the advocacy of a sound understanding of well-conceived market regulation.

14The market framework itself is not under attack. This could certainly be reconsidered from other perspectives, given the obvious and massive problems associated with the major trends of so-called “market” economies nowadays (such as rocketing inequalities, irreversible environmental damages and the threats of financial instability), no matter how conscious and theoretically informed the attempts at minute regulation. Beyond the legitimate ideological divisions, it must be said that the author’s commitment to the market economy as a general principle has strong connections with the purposes of the book, which stands out by and large as a notable effort to synthesize and explain the economic underpinnings of privatization, competition and regulation, in a global framework which pays much attention to consumer preferences in the search for normative orientation.

15Another common source of everyday criticism of the economic approach is the concentration of economic analyses on markets as described in economic theory. First of all, “markets” thus construed are theoretical tools and their connection with real-world structures of production and exchange is, in itself, an object of inquiry. For this reason, the economic approach to the “common good” can be questioned if it takes for granted the existence and attributes of “markets” the way economic theory portrays them (as stylized resource-allocation mechanisms).

16In the book, the market economy is considered an imperfect tool, not an end in itself, under the shadow of a general warning about the tendency of institutions to become ends in themselves (18). However, Tirole holds that the privatization of some goods is a necessary part of the collective ways to secure the common good. In this respect, the interpretation of current market-oriented arrangements about goods which are highly relevant to the common interest (such as water or broadcast frequencies) can be described as charitable: it suggests that there is an underlying logic, that of the quest of the common good through privatization. In other words, the arrangements aren’t the sheer outcome of power relationships and lobbying. Similarly, the attempts at financial regulation, including the Basel III guidelines, are charitably put in the light of a number of convergent insights from economic theory, rather than plainly criticized for the pitiful political weakness they reflect, with respect to the political authority’s responsibility to secure a predictable and safe environment for investment, jobs, housing and environmental preservation. In the defense and illustration of a regulation-oriented perspective on State action and responsibilities, Tirole’s inspiration appears to rely on a particular philosophy of progress and State, which is by no means consensual.

4. Economics, Interdisciplinary Dialogue and Social Conventions

17The economic understanding of “markets” is usually connected with rather definite ontological and anthropological choices, which make sense from the perspective of causal and predictive explanation in positive economics. Should these choices be viewed as assets or drawbacks when it comes to answering the normative queries about the ends of government, the proper regulation of economic activity or the intermingling of private and public issues? This is a fertile ground for controversies. In particular, it can be asked whether the specifically economic understanding of economic systems provides an adequate grounding for action-oriented counseling about both the management and the adaptation of existing economic systems.

18On the one hand, economists frequently look for interdisciplinary perspectives in order to complement the economic approach. Relying on contributions from a variety of disciplines (from philosophy to sociology, with much attention paid to developments in the psychology of choice), Tirole is familiar with this strategy. On the other hand, the traditional analytical tools of economics shed light on at least a number of important features of modern economics, if only because economic theory has been instrumental in the institution of the current economic order in many respects, as evidenced by the illuminating European examples in the book.

19In Tirole’s analyses, economic analysis is often used to shed light on the “complexity” of social mechanisms, value conflicts and policy choices. Part of this complexity stems from those factors of human motivation which are irreducible to the pursuit of self-interest in a narrow sense. In the face of this complexity, the typical intellectual achievement in the book is twofold. The author is able to explain how economic analysis sheds light on the inner contradictions in individual and social life, and in the language of values. In addition, economic analysis is shown to find relevance in the fight against grossly ill-conceived policies and the poorly anticipated adverse consequences in complex settings, especially when the standards of evaluation are fairly consensual.

20Economic theory—as Tirole is practicing it—is occasionally aided by other disciplines which address the complexity of interactions and their circumstances, but this hardly amounts to a warning about the difficulties to tackle complex issues. Adequately equipped with ideas which originate in other disciplines, traditional neoclassical economics is used to give advice from an economic perspective. The enrichments from other disciplines typically reinforce the empirical relevance of economic theory and do not compromise the primacy of a maximizing logic which is ultimately rooted in subjective preferences. This kind of ambition is perfectly consistent and it makes sense. However, it raises questions about our treatment of social and axiological complexity.

21Given the versatility of its decision-theoretic tools, and the plurality of interpretations of such basic notions as institutions, preferences, rationality etc., economic theory isn’t automatically tied to benchmark models which give primacy to financial incentives, self-interest and concerns about the social image of the self. One might ask, then, whether “typical” economic models should be used as privileged instruments to harness social complexity. In addition, the persistent uncertainties about social systems, and about the functioning and effects of economic subsystems, cast doubts on the practical value of encompassing consequentialist judgments. This could lead us to give more weight to democratic dialogue and to the values of justice on their procedural side, as recommended by contemporary theories of deliberative democracy. We could also be led to pay more attention to the value of a meaningful and tolerably stable social order, perhaps in the continuity of Karl Popper’s rationalist re-evaluation of traditions. Presumably, this makes it inevitable to consider the substance of norms and values and the collective experiences which make social life meaningful and expressive of various commitments. My guess is that many pitfalls of economic counseling have to do with these patterns of social and axiological complexities, not just the normal fallibility of our general theories about stylized patterns of interaction.

22Given the pervasive influence of property rights, social standards and norms in modern economies, and the involvement of economic activity and economic dialogue in the social elaboration of such features of the economic framework, the incentive-based view of human behavior can hardly presuppose that interests and motivations are simply “given”, and close to narrow self-interest. Even though economic models usually deal with “given” preferences or motivations, the importance of dialogue and values, of mutual adjustment and shared commitments, cannot be overlooked when issues pertaining to the “common good” are at stake. Social progress and the public commitment to the advancement of justice, in particular, heavily rely on intentionally devised social norms and standards, hence on deliberation and, ideally, dialogue. Indeed, many examples in the book testify for the eminent value of economic models and theories as ingredients and benchmarks for dialogue. But there is no reason to presuppose that dialogue and shared experience will not result in value changes. The next question could be: how do the dialogical experiments with economic benchmark models impact social values and preferences in society? This impact is great in experiments within the framework of Corporate social responsibility (CSR), beyond the functional view of CSR (which is developed in chap. 7).

23The framing of “macro” issues in the book doesn’t really square with the specific tradition of macroeconomics, and this is perhaps not without incidence with respect to the policy challenges which are connected with the discussed “macro” issues. It might be the case that some of these challenges are aptly framed in “macro” terms because they involve the structure and historical development of society as such, as well as conventions about objects of collective interest and political relevance, beyond the acknowledgment of the “macro” nature of the correlated real-life objects (such as the atmosphere, the financial networks and so on).

24The urgency associated with climatic change is clearly documented, and so is the complexity of finding solutions in a context of strong demographical growth and widespread aspirations to adopt a Western-style way of life. Here, Tirole stresses the gap between the reality of a continuing dialogue, on the one hand, and the strength of the factors which account for the very unsatisfactory present situation: egoism with respect to future generations and the free rider problem in a world of sovereign States. A reasoned analysis of the limits of the Kyoto arrangements calls for a frankly global approach (271-273). In this part of the book, the economic analysis of the incentive schemes is very useful indeed and the analysis of the failures of the Emission Trading Scheme in the European Union reveals the shortcomings of a laissez-faire approach in a context of economic crisis.

25Tirole’s general claim is that there is no discrepancy between an economic approach (focused on prices, markets and taxes) and an ecological one. This is by no means consensual. The deep-rooted problems which are scrutinized in the book suggest that the endorsement of economic ideas of models by independent regulators and politicians falls short of securing major, well-oriented policy changes. Cultural models and the intercultural dialogue about various ways of life are important too. Moreover, the quest for uniformity in the implementation of competitive economic frameworks isn’t always supportive of those initiatives; indeed, it can pose threats to social experiments, to corporate and administrative dialogue, to democratic deliberation and to resolute State initiatives which promote ecological progress or viable ecological solutions. The economic discourses associated with laissez-faire, consumer sovereignty, the limitation of State prerogatives and the encouragement of economic competition are part of our problem with ecology, and so is the predominant ideas about the economic freedoms which follow from property rights, including the private property of natural resources and land.

26On these and many other issues, including broad perspectives on corporate governance, regulatory authorities and the future of Europe, the economic analyses in the book undoubtedly provide highly relevant resources for a reflective assessment of the ways of economics and the economy. All in all, the book isn’t as political in character as the title might suggest. From a philosophical perspective, it turns out that something is to be gained from paying attention to the apparent distance between the general concern for the common good and the detailed discussions about the framework of the economy and the nature and ends of regulatory activity in several sectors. The common good is deeply connected with economic processes but economic analyses do not substitute for the choice of conventions and problems which give a concrete existence to the political concern for the common good both within nations and at the level of international relations.

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1 Hereafter, page numbers without additional information refer to the page numbering in the original French edition

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Emmanuel Picavet, « Economic Regulation, Social Complexity and The Economic Viewpoint », Œconomia, 8-2 | 2018, 257-266.

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Emmanuel Picavet, « Economic Regulation, Social Complexity and The Economic Viewpoint », Œconomia [En ligne], 8-2 | 2018, mis en ligne le 01 juin 2018, consulté le 20 octobre 2018. URL :

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Emmanuel Picavet

Université Paris 1 Panthéon-Sorbonne.

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