The Resolution of Economic Conflicts: Beyond the Economic System

Economic conflict resolution historically has been seen, by the main schools of economic thought, as the distribution of given, scarce resources. The neoclassical school argued that the distribution was efficiently solved by the price system, and the Marxist school argued that a revolution to distribute wealth and income in favor of the less privileged was required. Both have been wrong. Modern economic theory in information economics, game theory and institutional economics has shown that: the solution to any economic conflict has to be evaluated in a dynamic setting, and requires an adequate institutional arrangement that provides information to the economic agents and develops trust amongst them. Free efficient markets and proper distribution policies are still required. Institutions cannot replace markets, the price system is very efficient, and it is required for an appropriate conflict resolution – but markets only work well if the institutional arrangement is favorable. And income distribution policies have to be designed within a strong integrative system with a proper economic growth program, so that whatever is distributed is socially agreed, and economic growth leaves everybody better off. The main lesson learnt in this manuscript is that: the analysis of economic conflict does not have a solution within the economic system itself, the solution requires an institutional arrangement of trust that necessarily involves the integrative system. The institutional arrangement required for economic progress, full employment and adequate income distribution goes well beyond the economic system. Economic conflict resolution does not occur only within the economic system, the power system is involved because peace is required, and the integrative system is involved because trust is needed.