Wednesday, January 03, 2007


Bruce J. Scott of Harvard Business School has written an extensive paper which deals with the relative connection between political authority and economic markets on a larger basis. We often hear confused reactions to political engagement in economic markets, particulary in Central and Eastern Europe where economies are still facing the process of long-term convergence to market economy. Institutional misstepping is the core which disables the net economic progress in the region. There is also a lack of economic education because people who are less aware of the nature of economic problems and methods how to solve them, are mostly in favor of marching on the streets against globalization, economic change, structural reforms and future prosperity. It would be improper if we said that capitalism is definitely not a political system. It is a mixture of economic and political system. Markets cannot exist without institutional foundation whose mission is to protect property rights efficiently. In fact, it's the government who imposes laws that guide trade and production. In general, government has two modes of state intervention, direct and indirect. The direct mode is essential for the operation of capitalist system while indirect mode is mostly seen through the ownership of public utilities and other public enterprises. Good and bad governments are usually marked according to its roles, wheater if be administrative or innovative. Both options are inevitable though capitalism doesn't need too much administrative pressure from the government. Why? Because markets will suffer and economic potentials will be damaged. Therefore, the capitalism itself has two hands - one hand is an invisible hand of price mechanism which coordinates economic actors in a spaceful framework. And the second hand can thankfully be reduced. It's hand of the government, administrative and innovative. Market frameworks definitely need to be modernized to let the progress through the economy grow. But it would be highly inappropriate for the government to intervene markets, directly or indirectly. The surest way for progressive path in the future is to intervene the legislation and thus let individuals and free enterprise system to do its job.

I recommend this paper to anyone who wants to study economics as well as to those who want to understand line between economic markets and political authority. Of course, you cannot learn the capitalism but you have to understand how it works if you want to be fully aware of the importance of structural reforms and economic change. We have never before met greater need for being aware of how important structural change, economic reforms and higher economic growth are.

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