The Optimal Economic Order: the simplest model

textabstractIn the last five years humanity has become faced with the problem of the optimal socioeconomic order more clearly than ever. After the confrontation of capitalism and socialism, which was the core of the Marxist thesis, the fact transpired that capitalism was not the optimal order. It was eliminated in two different ways. In Western economies capitalism was reformed stepwise by pulling its sharpest teeth, while maintaining the stimulating forces in the markets. As to communist economies - the Soviet Union changed capitalism via the 1917 October revolution and China followed. In 1986, Mikhail Gorbachev's view that the communist system did not work was accepted by the Soviet Union communist party congress. Now, in 1992, the world is discussing, more urgently than ever, what the best ('optimal') socio-economic order is; how much reintroduction of capitalism is necessary to attain the best order? This essay discusses the simplest possible model that can contribute to the discussion. The advantage of building the simplest possible model is twofold. Firstly, such a model can state the nature or essence of an optimal order. Secondly, it can indicate the order of magnitude of the main characteristic of an optimal order. The main characteristic - the question that separated socialists from other politicians - is the redistribution of income. Within a single nation, redistribution is achieved by taxes and social security contributions. In the world economy, redistribution is accomplished by development assistance and trade policy. In this essay the language used is that of the industrial economy, in which the two groups considered are labour and capital. The model can be translated into another in which the two groups are the developed and underdeveloped countries. It may even be translated into a security model of two powers, in which redistribution is obtained by security assistance (see J. Tinbergen, World Security and Equity, Aldershot, 1990), or a colonial system. In the last version not the common welfare will be maximized, but the welfare of the colonial powers, which leads to negative redistribution (the exploitation of the colonies)