Customer Reviews

The Concept of Capitalism

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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!?

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

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.

This book is perfect for all of us who are exhausted of having social irresponsibility excused by a flip reply that "the Market is always right". It isn't, and in 75 pages you'll discover why the free-market worship of the last thirty years has been so morally empty. The Concept of Capitalism bridges the gap between the dismal science and political science, and it provides a clear intellectual case that Leadership matters. If you care about how our world really works, I can't imagine a better use of a couple hours than reading this!

I just finished reading The Concept of Capitalism by prof. Bruce Scott and passed the book as a "must read" to my immediate family that includes two MBAs and a professional engineer. I simply cannot imagine a better time to read this book than now, i.e. after having witnessed the horrors of a fiscal near-collapse in the U.S. in the fall 2009 and its consequences.

When in the past I thought about the causes of all this, it certainly crossed my mind the problems were directly attributable to a lack of proper governance due to nonsensical "libertarian" fiscal policies of Alan Greenspan. These FRB policies, based on ridicuously low interest rates, enabled, together with a lack of proper and adequate banking regulations, access to easy credit which resulted in unprecedented levels of personal debt and a false sense of affluence in individuals and the whole country. And the consequences will be felt for years to come.

What a delight then to read this gem of a book that explains the situation in economic terms so well and suggests a remedy to prevent similar "bubbles" in the future. And that remedy is called proper governance by fiscally responsible government(s). Right on, professor Scott - and congratulation to a job well done!

Alena Kohout,

Alena Kohout Consulting Services,

Toronto, ON, Canada

Just finished "The Concept of Capitalism" and found Bruce Scott's framework for understanding markets and politics tremendously insightful and useful from many perspectives. Quite apart from his scope, but what I think would be interestig for an appendix, is discussion of the real world of regime change at the extreme, and the many more common efforts by one nation to influence politics and markets in other nations. Scott's framework could provide a lurid illustration of the economic hit men and the consulting efforts of state-sponsored development contracts. His framework is a breakthrough in depicting influence and the role of governance within a single country - the cross-border complexity is just begging to be layered on.