In the second of a series of essays to mark the 21st anniversary of the Social Market Foundation, John Kay looks back at the triumph of the market economy since the fall of the Berlin Wall. Kay attributes this triumph to the role of the price mechanism, ‘markets as a process of discovery’, and the diffusion of political and economic power with which markets are associated.
Kay argues that too much emphasis has been placed on the first of these elements with the result that both supporters and critics of the market economy have often confused policies that are pro-business with policies that are pro-market. That confusion has both undermined the social and political legitimacy of the market economy, and led to serious policy errors that follow from a mistaken and incomplete understanding of how a market economy works.