It was axiomatic that perfect competition led to the most efficient allocation of resources. However, perfect competition was an ideal situation, far removed from reality in most cases. Therefore the next best alternative was to strive for a position which was closest to the perfect competition model. The closer the market prices were to the ideal shadow or efficiency prices, the more efficient would be the allocation of resources. having been steeped in the neo-classical tradition one accepted these sermons as the gospel truth. That was until recently, when I made my first acquaintance with the theory of the `second best'.

The `second best' theory tells us that a perfectly competitive market is certainly more efficient than animperfect one, but it can not be unequivocally argued that out of two imperfect markets the one which has a greater degree of free play of market forces is the more efficient one. In other words, no `second best' position exists and all other markets, which do not meet the stringent conditions of the perfect competition model will have to be evaluated on case to case basis before grading them on the efficiency scale. Thus, there is no theoretical justification for advocating greater free play of market forces in all economies at all times. Moreover Lipsey and Lancaster had before the `second best' theorem to the notice of the world in 1956. That was four years before my birth. But I plead guilty to the charge of being innocent of these radical results, till recently. No wonder that when I bumped into them, they knocked me out cold.

And it also got me thinking. Has there been a concerted effort to keep these results under wraps lest they sweep the dominant neo-classical paradigm of consumer sovereignty andperfect competition off the ground? The implications of the second best theory are significant. The basic premise on which the IMF and the World Bank base their advocacy of reducing government interventions and allowing greater free-play of market forces in the developing economies does not appear right any more. No longer should these multilateral institutions insist upon all and sundry to pursue greater free market policies as an article of faith. Each proposal to hike the degree of competition in an economy should be treated on its merits. Each policy should be examined carefully and judged empirically. Mathematical economic theorists, in a way Imperial Guard of the neo-classical citadel, are themselves questioning the blind faith in the supremacy of the market forces in all situations.

There is a strong case for proper publicity to be given to the `second best' theorem to set things in perspective. Policy-makers and people who matter still seem to be unaware of the importance and implications of theseresults. The hardsell adopted by market friendly enthusiasts has blurred the problems associated with the free market mechanism. It needs to be pointed out that there are as many cases of market failure as of state planning. The danger of ideology masquerading as economic theory needs to be guarded against. The boundary between the positive (what is) and normative (what should be) is fairly open in economics and must be kept in mind while evaluating any paradigm of development.

Here at this point I would like to get away from `second best' and move on to the bigger arena of the relevance of economic orthodoxy.

People are getting increasingly disenchanted and indeed find the sanitised neo-classical model of economics too unrealistic to help them come to grips with the real world - warts, moles et al. Neo-classical economics appears to specialise in churning out mathematical formulae leading the student from more or less plausible but at times entirely arbitrary assumptions to precisely stated butirrelevant conclusions. The pre-occupation of textbooks on micro-economics with perfect competition and monopoly, both market structures far removed from reality, is a case in point. It is no wonder that macro economic modelling, which is built on such shaky micro foundations perform unsatisfactorily when confronted with reality. Economic forecasters failed to predict the Japanese recession, the strength of the American recovery and the East Asian crisis. I wouldn't be surprised if their favourite sport was `pumping iron'; they need to go home and bend iron bars to get over their frustration.

These days it sure is heartening to see more and more economists willing to soil their hands and economic models by incorporating empirical data and institutions into their analyses. The growth of institutional economics as a critique of mainstream neo-classical economics and as an alternative to it is a response to the crisis facing traditional economics. Institutions, with their baggage of culture and practices areimportant in any economy and we must accept this fact and use it to society's advantage. The temptation to take recourse to ostrich-like behaviour of burying our heads in the sand of model-building using props like simplifying assumptions, abstractions from reality and what have you, ought to be avoided. It is time economists stood up and faced reality eyeball to eyeball.

Economists for long have been conceptualising the world as a machine, whose workings could be understood by putting together carefully and meticulously its component parts. They have tried to predict the behaviour of the system as a whole from a simple aggregation of the component. A lever pulled in a certain section of the machine with a certain force would have regular and predictable outcomes elsewhere in the machine. They appeared to have been influenced by the then prevalent world view of Newtonian physics. Times have changed. The world is now increasingly seen as a living organism. Prodding the system in a certain way in a certainplace may sometimes cause it to jump in one direction and sometimes in another and there may be times when it doesn't move at all. Economic behaviour is far too complex to be captured by a mechanistic approach. Remember uncertainty has crept into mainstream physics in a big way too.

It is now generally agreed that the world is complex and what works in development depends on circumstances. It is perhaps true that only valid generalisation in economic policy is that no generalisation is possible. The `rational economic man' has far too long been the main building block of economics. It is about time he was replaced by the `real common man' as central focus of study. The writing is on the wall. The reign of traditional economics may be over. It is time that the queen of social sciences (economics) stepped down from her pedestal and mingled with her relations like sociology, history etc, a more holistic approach is the need of the hour.