Albert O. Hirschman

The economist cannot fail to note the similarity of the situation with the model of perfect competition. For this model contains the same basic paradox: society as a whole produces a comfortable and perhaps steadily increasing surplus, but every individual firm considered in isolation is barely getting by, so that a single false step will be its undoing. As a result, everyone is constantly made to perform at the top of his form and society as a whole is operating on its—forever expanding—“production frontier,” with economically useful resources fully occupied. This image of a relentlessly taut economy has held a privileged place in economic analysis, even when perfect competition was recognized as a purely theoretical construct with little reality-content.

Leibenstein’s emphasis is on the uncertainties surrounding the production function and on the nonmarketability of managerial and other skills.

In the first place, there are the well-known, large realms of monopoly, oligopoly, and monopolistic competition: deterioration in performance of firms operating in that part of the economy could result in more or less permanent pockets of inefficiency and neglect; it must obviously be viewed with an alarm approaching that of the political scientist who sees his polity’s integrity being threatened by strife, corruption, or boredom.