Power and economic power paradigm

The history of the development of any discipline is characterized by the continuous alternation of various paradigms. In the history of Western Economics, from the late 19th century to the early 20th century, the classical economics paradigm experienced a serious crisis and transitioned from classical economics to the paradigm of neoclassical economics. The new paradigm offered a broader space for the development of neoclassical economics and, after World War II, facilitated the remarkable era modern economics. The school of institutional economics developed rapidly in the late 20th century. Unlike neoclassical economics, a unified and perfect scientific system for institutional economics was not established, but a basic analytical paradigm emerged.

The characteristics of this new paradigm are embodied in the following two aspects. First, experts hold different views on aspects such as the formation of institutions and the specific impacts of institutions on economic behavior. Nevertheless, the role and status of institutions with respect to economic performance are recognized and accepted by a growing number of economists. Second, Coase (1995) was the first to achieve a breakthrough in classical economic thought and coined the term “transaction costs” which laid down a fundamental concept that became the basis of new institutional economics. The concept of transaction costs has become a basic tool in new institutional economics. The economic paradigms that existed in a certain historical period had substantial significance for the stable development of economic theory and facilitated economic practice. The transition of paradigms represents not only an objective requirement of social practice for the development of economic theory, but also an inevitable result of the development of economic theory itself.

It is widely accepted that power is a common and significant phenomenon in society and exists in the fields of politics and economics. Although power relationships are a critical phenomenon in economic activity, neither the mainstream school of economics in the West nor Chinese academia in economic fields pays enough attention to power dynamics. However, practice has proven that the market itself cannot achieve Pareto optimality and free competition automatically while monopolies, price signal distortions, the production failure of public goods, the existence of externality, and information asymmetry have become normal states. Because there is power, or “an invisible force,” behind market mechanisms, power is always at work.

 
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