Gridlock Economy

Excerpt: Preface

Fixing gridlock is a key challenge for our time. Some solutions are entrepreneurial; for example, people can profit from finding creative ways to bundle ownership. Philanthropists can assemble patents for disease cures. Political advocacy will also be necessary. But the first and most important step to solving gridlock is to name it and make it visible. With the right language, anyone can spot links among gridlock puzzles, and all can come together to fix them.

I first glimpsed the paradox of too many owners with my forehead frozen to a Moscow shop window and my mind desperately casting about for something halfway intelligent to report to Igor Gaidar, Russia’s deputy prime minister for economic reform.

Back when the Soviet Union was crumbling, I flew to Moscow for the World Bank. Standing on a podium before billowing red bunting and an oversized statue of Lenin, I addressed Moscow’s Supreme Soviet on how to create markets in land and housing. Destroying private property was simple; re-creating it from scratch, much trickier. As the joke went, anyone can turn an aquarium into fish soup, the challenge is turning soup back into an aquarium. First you define private ownership, then create owners, then. . . .

The transition from Marx to markets went quickly but not always well. At one point, Gaidar posed a puzzle to my team. A year after his government had privatized storefronts, shelves still remained bare. By contrast, on the freezing sidewalks, thousands of flimsy metal kiosks offered everything imaginable. Gaidar asked, “Why don’t the merchants come in from the cold?”

Moscow was cold that winter: it reached minus forty degrees, the only temperature at which the Fahrenheit and Celsius scales converge. Still, Muscovites lined up at kiosks for bread and flowers while I peered into empty stores and talked with merchants. I learned it was easy to set up a kiosk. Just bribe a few officials and pay a Mafia gang for protection. In contrast, opening a store was far more difficult. When Russia privatized com­mercial enterprises, it split ownership among too many parties, any one of whom could block use—and did. One new owner was given the right to sell the store; a second, the right to lease the same store; a third, the right to occupy it. Looking into those empty stores was my first glimpse, quite literally, of a gridlock economy.

In the years since I discovered this market dynamic, a thousand scholars have tested, verified, and extended the concept. The gridlock paradox is a simple idea that explains a lot. Empty Moscow stores may seem far away, but missing drugs, slow wireless, air travel delays, and a near-infinity of everyday puzzles share this common cause—one whose solutions could jump-start innovation, release trillions in productivity, and help revive our slumping economy.

For example, as this book goes to press in the spring of 2008, the sub-prime mortgage crisis is in the news. The big investment bank Bear Stearns has collapsed. Falling real estate prices may tip the economy into recession. The gridlock angle hasn’t been reported.

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