The conflict of incentives and information is increasingly leading to a diffusion of responsibility for medical decisions. The simple picture of the … - Kenneth Arrow

The Soviet Union and its satellite Socialist countries in Eastern Europe have typically avoided unemployment and business cycles, except as they are induced through their trade with the Western World. But on the other hand they are clearly inefficient and wasteful, at least relative to the West. As repeated statements by the socialist economists themselves make clear, the excessive concentration of economic decision-making is a prime cause of the inefficiency. There are recurring demands for "liberalization," even by the highest authorities (Yuri Andropov, the effective head of the Soviet Union, being the latest example), but they are responded to only mildly or not at all. Clearly, a really major step toward decentralization of economic power, to the plant managers or the workers themselves, is perceived as a threat to the system.

General competitive equilibrium above all teaches the extent to which a social allocation of resources can be achieved by independent private decisions coordinated through the market. We are assured indeed that not only can an allocation be achieved, but the result will be Pareto efficient. But, as has been stressed, there is nothing in the process which guarantees that the distribution be just. Indeed, the theory teaches us that the final allocation will depend on the distribution of initial supplies and of ownership of firms. If we want to rely on the virtues of the market but also to achieve a more just distribution, the theory suggests the strategy of changing the initial distribution rather than interfering with the allocation process at some later stage.

We find that capitalism, like any very complex system, contains within itself contradictory tendencies, but there is no reason to suppose they are fatal, at least in the foreseeable future. We do find implied in these contradictions some social tasks: the completion of the tasks involved in the achievement of macroeconomic stability, the redistribution of income and power to improve the sense of justice in the arrangements of society, by which I mean the inseparable elements of the liberty and equality of individuals, and, perhaps hardest, the increase in the sense of individual and local control over one's destiny in the workplace and the small society. These aims are mutually reinforcing, not competitive.