In the 1980s America won the Cold War. In 1989 the Berlin Wall fell. The decade that followed proved one of the most extraordinary periods in economic history. The American business model – the unrestrained pursuit of self-interest, market fundamentalism, the minimal state and low taxation – offered its followers the same certainties that Marxism had given its own adherents over the previous century. There was a New Economy.
But it was all to end in a frenzy of speculation, followed by recrimination and self-doubt. Corporations that had never earned a cent of profit, and never would, were sold to investors for billions of dollars. Corporate executives would fill their pockets and invent revenues and profits to support their accounts of their own genius. And every international economic meeting would be besieged by demonstrators.
In this ambitious and wide-ranging book, John Kay unravels the truth about markets. He explains why market economies outperform socialist or centrally directed ones, but also why the imposition of market institutions often fails. Kay’s search for the truth about markets takes him from the shores of Lake Zürich to the streets of Mumbai, through evolutionary psychology and moral philosophy, to the flower market at San Remo and Christies’ saleroom in New York. Through this range of material he shows that market economies function because they are embedded in a social, political and cultural context, and cannot work otherwise.
The Truth about Markets examines the big questions of economics – why some countries and peoples are rich, and others poor; why businesses succeed and fail; the scope of markets and their limits. Witty yet profound, immersed in the most recent economic thinking yet completely accessible, it is both a tract for our times and a text for a new political economy.
John Kay is a Fellow of St. John’s College, Oxford, and a Visiting Professor of Economics at the London School of Economics. He has been Professor of Economics at the London Business School and Professor of Management at the University of Oxford. He has been director of an independent think tank, set up and sold a highly successful economic consultancy business and has been a director of several public companies. He now writes a fortnightly column for the Financial Times.