Foreword [ xi ]
ation and perhaps the dominance of the Russian Mafia. We recognize
that the IMF's elimination of food subsidies in Indonesia, just as wages
were plummeting and unemployment rates were soaring, led to pre-
dictable (and predicted) political and social turmoil, a possibility that
should have been especially apparent given the country's history. In
each of these cases, not only did economic policies contribute to a
breakdown in long-standing (albeit in some cases, fragile) social rela-
tions: the breakdown in social relations itself had very adverse eco-
nomic effects. Investors were wary about putting their money into
countries where social tensions seemed so high, and many within
those countries took their money out, thereby creating a negative
dynamic.
Most societies have evolved ways of caring for their poor, for their
disadvantaged. The industrial age made it increasingly difficult for in-
dividuals to take full responsibility for themselves. To be sure, a farmer
might lose his crop, and a subsistence farmer has a hard time putting
aside money for a rainy day (or more accurately a drought season). But
he never lacks for gainful employment. In the modern industrial age,
individuals are buffeted by forces beyond their control. If unemploy-
ment is high, as it was in the Great Depression, and as it is today in
many developing countries, there is little individuals can do. They
may or may not buy into lectures from free marketeers about the
importance of wage flexibility (code words for accepting being laid
off without compensation, or accepting with alacrity a lowering of
wages), but they themselves can do little to promote such reforms,
even if they had the desired promised effects of full employment. And
it is simply not the case that individuals could, by offering to work for
a lower wage, immediately obtain employment. Efficiency wage theo-
ries, insider-outsider theories, and a host of other theories have pro-
vided cogent explanations of why labor markets do not work in the
manner that advocates of the self-regulating market suggested. But
whatever the explanation, the fact of the matter is that unemployment
is not a phantasm, modern societies need ways of dealing with it, and
the self-regulating market economy has not done so, at least in ways
that are socially acceptable. (There are even explanations for this, but
this would draw me too far away from my main themes.) Rapid trans-
formation destroys old coping mechanisms, old safety nets, while it
creates a new set of demands,
before new coping mechanisms are devel-
oped. This lesson from the nineteenth century has, unfortunately, all