Capitalism is often defined as an economic system where private actors are allowed to own and control the use of property according to their own interests, and where the invisible hand of the pricing mechanism coordinates supply and demand in markets in a way that is automatically in the best interests of society. Government, in this perspective, is often described as responsible for peace, justice, and tolerable taxes. Bruce Scott argues in this chapter that for a capitalist system to evolve in an effective developmental sense through time, it must have two hands, not one: an invisible hand that is implicit in the pricing mechanism, and a visible hand that is explicitly managed by government through a legislature and a bureaucracy. Inevitably the actions of the visible hand imply a strategy, no matter how implicit, shortsighted, or incoherent that strategy may be. Key concepts include:
Government has two quite different roles to play in a capitalist economy, as an administrator of an ongoing system and as an innovator.
Political leaders have prime responsibility for mobilizing the power to promote changes to the system.
Capitalism has two hands, first the familiar if invisible hand of price mechanisms that coordinate economic actors within current frameworks, and second the visible hand of government, where it is both an administrator and an innovator.
The visible hand of the state must be able to intervene in order to modernize market frameworks in a timely way, while at the same time administering and enforcing existing rights and responsibilities as a complement to the invisible hand.
Capitalism is often defined as an economic system where private actors are allowed to own and control the use of property according to their own interests, and where the invisible hand of the pricing mechanism coordinates supply and demand in markets in a way that is automatically in the best interests of society. Government, in this perspective, is often described as responsible for peace, justice, and tolerable taxes. Bruce Scott argues in this chapter that for a capitalist system to evolve in an effective developmental sense through time, it must have two hands, not one: an invisible hand that is implicit in the pricing mechanism, and a visible hand that is explicitly managed by government through a legislature and a bureaucracy. Inevitably the actions of the visible hand imply a strategy, no matter how implicit, shortsighted, or incoherent that strategy may be
This working paper is a draft of Chapter 2 of a manuscript titled Capitalism, Democracy and Development. You can download from http://hbswk.hbs.edu/item/5593.html
Paper Information
HBS Working Paper Number: 07-037
Working Paper Publication Date: December 2006
