62 SOCIAL SCIENTIST t
i I could be actually unfeasible. Now the advocates of liberalisation could turn
ground and point out that 'attempts at liberalisation are precisely to break 'monopoly elements, which lead to inefficiency. However, this would essentially be an idealistic conception of the working of the economic process, since it is precisely free competition which leads to monopoly. It is this organic relationship between free competition and monopoly which is often overlooked in nostalgic conceptions of the golden era of laisser-faire.
Thirdly, even in the world of free competition, the presence of externalities in production and consumption could lead to misallocation of resources and deviation from optimality. Again, as pointed out by Dobb, with the existence of interdependencies in production, the occurrence of change at any one point will depend upon the expectation of changes occurring elsewhere. If there is little ground for such an expectation under a system of free markets, no one of an inter-related set of changes may even take place. Also, the assumptions most suitable, even essential for handling by accepted marginal techniques are such as to make the number of possible positions between which choice has to be made indefinitely large. However, real life situations are characterised by indivisibilities and fixed technical coefficients*1
Our critique of simplistic notions of Pareto optimality so far has been within the framework of 'marginalise neo-classical economics and the welfare propositions derived therefrom—a framework which is at least forty years old, but which obviously retains its influence even today. The modern (Arrow-Debreu) theory of neo-classical competitive equilibrium, however, makes no claim about the social optimality of the equilibrium state. It brings out the very stringent assumptions necessary for the existence and stability of such states—conditions which cannot conceivably be fulfilled in the real world. According to Frank Hahn, a leading exponent of such theorising, its major function is a negative one, that of showing that most of the claims made on behalf of the market mechanism are invalid.2
That is, in short, there seems to be no theoretical reason to suggest (hat a free market mechanism always and necessarily leads to a more efficient solution than a system with controls. However, we are not suggesting dial (lie kinds of controls which exist in India necessarily imply an ideal or optimum state which should be disturbed under no circumstances. All that we* are trying to point outis that there is no a priori theoretical basis to suggest (hat (lie removal of controls necessarily leads to an efficient or ideal situation.
Allocative efficiency as a theoretical justification for liberalisation is just one strand of the arguments which could be given for (lie current economic policies. It is however possible for some people to argue that the current economic policy is guided not so much by the criterion o( edu iency, but by the criterion of growth which would arise from a freer play of the market forces.
This particular perspective on the relationship between liberalisation and growth is rooted in a Schumpetarian understanding ol (lie economic