The Concept of Capitalism [Paperback]

Bruce R. Scott (Author)

Book Description

Publication Date: July 31, 2009 | ISBN-10: 3642031099 | ISBN-13: 978-3642031090 | Edition: 1

A single system of economic governance – capitalism – prevails in the world today, both in theory and in practice. Yet there is neither a standard definition of capitalism nor a theory of how it works. Moreover, the most common conception of capitalism is that of a one-level system governed by markets, i.e., supply and demand, where many socioeconomic externalities are ignored. The purpose of this book is to counter this conception, showing that capitalism is more than markets. In fact, capitalism shares many parallels with everyday organized sports, in that both are indirect, three-level systems of governance where "freedom" is conditional on "playing by the rules." In organized sports, games (level 1) are shaped by official rules and monitored by referees (level 2), which are in turn regulated and revised by a governing organization (level 3) that oversees the sport as a whole. In capitalism, markets (level 1) are shaped by institutions and regulations and monitored by independent officials (level 2), which are in turn selected and shaped by a political authority (level 3) that oversees the system as a whole.

As simple and obvious as this parallel with organized sports may seem, the underlying cause of much of the economic instability of the last 25 years, and specifically of the current crisis, has stemmed from not understanding capitalism in this way, i.e., as a three-level system of governance. Only by improving our understanding of capitalism can we create better institutions and implement better policymaking to not only fix the present crisis of our capitalist system but also avoid future ones.

"Scott’s analysis of capitalism and democracy is striking both for its originality and for its rich policy suggestiveness and sheds an entirely new light on recent economic history" Charles Morris, author of "The Trillion Dollar Meltdown"

"An excellent case for thinking of capitalism as a system embodying political authority as well as markets and, after reading it, one wonders how one could ever have thought otherwise" Prof. Peter A. Hall, Harvard University

Editorial Reviews

Review

"An excellent case for thinking of capitalism as a system embodying political authority as well as markets and, after reading it, one wonders how one could ever have thought otherwise" Prof. Peter A. Hall, Harvard University

"Scott’s analysis of capitalism and democracy is striking both for its originality and for its rich policy suggestiveness and sheds an entirely new light on recent economic history" Charles Morris, author of "The Trillion Dollar Meltdown"

From the Back Cover

A single system of economic governance â capitalism â prevails in the world today, both in theory and in practice. Yet there is neither a standard definition of capitalism nor a theory of how it works. Moreover, the most common conception of capitalism is that of a one-level system governed by markets, i.e., supply and demand, where many socioeconomic externalities are ignored. The purpose of this book is to counter this conception, showing that capitalism is more than markets. In fact, capitalism shares many parallels with everyday organized sports, in that both are indirect, three-level systems of governance where "freedom" is conditional on "playing by the rules." In organized sports, games (level 1) are shaped by official rules and monitored by referees (level 2), which are in turn regulated and revised by a governing organization (level 3) that oversees the sport as a whole. In capitalism, markets (level 1) are shaped by institutions and regulations and monitored by independent officials (level 2), which are in turn selected and shaped by a political authority (level 3) that oversees the system as a whole. As simple and obvious as this parallel with organized sports may seem, the underlying cause of much of the economic instability of the last 25 years, and specifically of the current crisis, has stemmed from not understanding capitalism in this way, i.e., as a three-level system of governance. Only by improving our understanding of capitalism can we create better institutions and implement better policymaking to not only fix the present crisis of our capitalist system but also avoid future ones. "Scott's analysis of capitalism and democracy is striking both for its originality and for its rich policy suggestiveness and sheds an entirely new light on recent economic history" Charles Morris, author of "The Trillion Dollar Meltdown" "An excellent case for thinking of capitalism as a system embodying political authority as well as markets and, after reading it, one wonders how one could ever have thought otherwise" Prof. Peter A. Hall, Harvard University

Product Details

• Paperback: 76 pages
• Publisher: Springer; 1 edition (July 31, 2009)
• Language: English
• ISBN-10: 3642031099
• ISBN-13: 978-3642031090
• Product Dimensions: 9.3 x 6.3 x 0.3 inches
• Shipping Weight: 5.6 ounces (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars  See all reviews (6 customer reviews)
• Amazon Best Sellers Rank: #313,916 in Books (See Top 100 in Books)

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14 of 14 people found the following review helpful:

5.0 out of 5 stars Finally, we talk about the bowl and the water -- not just the fish!, October 13, 2009

By 

John J. Sviokla (Newton, MA USA) - See all my reviews
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This review is from: The Concept of Capitalism (Paperback)

In the interests of full disclosure, Bruce Scott is a friend of mine. When I taught at Harvard Business School with him, there were many times I disagreed deeply with his point of view, but never his thoroughness, nor mental honesty.

In this short book, Bruce has for the first time anywhere, as far as I know, articulated the context of capitalism and markets. Many classical economists are insensitive to the institutional and political underpinnings of the most fundamental structures of markets -- such as property rights, corporate form and the regulations that keep peaceful exchange of goods and services on an even keel. History has amply shown that unfettered capitalism leads to a concentration of power and it is only the wise restraints on power that have kept the beautiful dance of the markets and personal drive vibrant and productive. Bruce's book puts forth a simple framework linking political markets, to bureaucratic oversight, to economic markets -- in a comprehensive manner.

One only need look at the most recent financial crisis to see his insights in action. It was the political and the bureaucratic market that came to the rescue of the financial system, and many of the firms within it. Bruce argues that when we think of capitalism we should recognize this intimate interplay explicitly, not implicitly. Our tendency is to only view them explicitly in periods of impending doom, as we did recently. My question is, What rational capitalist could want the very structures of markets to be done without forethought and fairness? Such a reasoned analysis can only happen when the political and bureaucratic realities are taken into account in the very concept of capitalism -- as supplied in this book.

I recommend this book to all my friends who read such texts, economist and non-economist alike. Those who act as if the markets are sui generis, and ignore the vital role of politics and regulation are either naive opportunists floundering around in a system whose true mechanisms they don't understand, or disingenuous scoundrels who only invoke external power when it is to their advantage: heads I win, tails you lose.

Most importantly, it is vital for leaders of financial services firms, political institutions, and members of the economic academy who have such a profound effect on real actions by decision makers to understand Bruce's framework and point of view.

In addition, it's a fast, well written, and easy read. How many essays on economics can claim that!?

9 of 9 people found the following review helpful:

5.0 out of 5 stars Understanding the Essence of Capitalism. No Maths Required. No Jargon in Sight!, October 13, 2009

By 

Alain Paul Martin (New York) - See all my reviews
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This review is from: The Concept of Capitalism (Paperback)

I read this thought-provoking book on the essence of capitalism in three hours and went for an encore! This coherent and solid research is packed in 75 pages on the most pressing, polarizing and challenging issues of our times. Thanks to powerful analogies from the governance of organized sports, anyone can now understand capitalism. I particularly found the practical examples from the worlds of professional baseball, football and soccer helpful to examine how capitalism can serve or impede democracy. Capitalism, like organized sport, must be regulated to secure sustainable and impartial competition. Milton Friedman and other neoclassical economists thought one level self-regulation system should do it. Friedman relied heavily on the purely private means of the price mechanism and trust between the players, be they individuals or corporations. He stated that "most of the general conditions of [capitalism] are the unintended outcome of custom, accepted unthinkingly"; thus, ignoring the unequal distribution of power among firms and actors that can cultivate oligarchy and even corrupt authority. His one-level free-market ideology inspired Alan Greenspan, who was at the helm of the Federal Reserve for 16 years, among countless policy makers from Washington to as far as Reykjavík and Buenos Aires. That flawed theory partly accounts for the underlying and neglected causes that left unregulated merchant banks, derivatives, hyper-leverage and abuse of economic power by a few. The resulting policies unintentionally led to alarming bubbles and to a worldwide trail of economic-value destruction and disasters that have impoverishing billions of human beings, as collateral damage.

Rather than using mathematical arabesques, Bruce Scott makes his point by cautiously borrowing from organized sport, where an indirect three-level governance is visible and vigilant through a governing organization (NBA, NFL, MLB, FIFA) at the apex of the system. This political authority has "the power to decide on the rules, e.g. who is eligible to compete, the time and location of the games, and technologies that may be used." Furthermore, to limit severe income disparities between teams, some governing organizations, have the power to redistribute revenue (e.g. TV revenues in the case of the National Football League). The second level of the governance system serves to "organize and legitimate the competition and ensure that it is carried out on a level playing field, with no fair advantage permitted". More specifically, institutions, regulations and referees "demarcate and indeed maintain the field, specify the rules of play and the scoring system, and monitor the play." "The players, coaches and other team personnel comprise the [lowest] level of the system."

In a parallel context, Bruce Scott defines capitalism as an "indirect, three level system of governance for economic relationships". At the apex of this system, the government, represented by the executive and legislative branches, crafts policy and "oversees and shapes the operations" and corridor of navigation of the next two levels. On the second level, regulators, judges and other agents of the state enforce the rules including safety (environment, transportation, food, drugs and workplace) and the integrity of the securities market (investor protection), among others. On the lowest level, "firms compete to secure their labor and capital as well as to serve their customers". Unlike the neoclassical myopic theory of "the market of pure economics", Scott's ground-breaking definition of capitalism reflects the reality in most advanced countries and recognizes the important role played not only by economics, but also sociology, political science and the law, in shaping the future of capitalism and strengthening democracy.

This accessible and timely gem is an essential reading for presidents, law makers and policy strategists worldwide, both in government and business. Its content is simple, concise and systematic. No technical jargon in sight and no maths required! Once you read the book, you will think about sound capitalism anytime you watch your favorite sport.

Alain Paul Martin

Author, Harnessing the Power of Intelligence

Chief Architect, Harvard University Global System

12 of 13 people found the following review helpful:

5.0 out of 5 stars Placing back economics at the political choice level, October 12, 2009

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Joao Ferro Rodrigues "Joćo" (Lisbon) - See all my reviews
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This review is from: The Concept of Capitalism (Paperback)

Bruce R. Scott recent book on the concept of capitalism is an intellectual triumph and it should (and will) become a seminal book in Political Sciences and Economics courses around the world for the next generations.

This carefully crafted small book on capitalism can be read in one day yet it delivers a decisive intellectual contribute to place back Economic Politics (and not sciences) to the multi-level/dimension approach - back where it belongs. Capitalism is not "only" markets; it is also about the institutions that supervise them, and about political authorities defining these institutions. This multi level approach explains why standard "Washington consensus" politics were doomed to fail: they mainly focused at the market level, not taking in consideration that markets will always deliver different results when supervised by different institutions and political authorities.

Te Concept of Capitalism is not only written for experts in Economics or Political Science: everyone will be able to understand, trough the examples of organized sport, where the author believes that Milton Friedman failed on his definition of Capitalism. Reading it one feels that the authors view is obvious and yet in the last 30 years it was NOT the predominant view on Economics.

So this is a message for all you "Chicago school" survivors: you may be able to start loving again (and better understanding) Economics with the help of Professor Bruce R. Scott and his masterful book on Capitalism.