Governments and the Macro‐Organization of Economic Activity: A Historical and Spatial Perspective

Abstract

Abstract This chapter has two main tasks. The first is to trace the lineage of academic writings since the time of Adam Smith on the respective roles of markets, hierarchies, inter‐firm alliances, and governments as modes of organizing economic activity in a capitalist economy, and also to analyse why, and in what ways, economists, political scientists, and organizational theorists have differed in their interpretation of the optimal role of governments. The second is to examine the implications of the internationalization, and more recently, the globalization of economic activity for the governance of resource creation and deployment, and the extent to which national administrations and supra‐national regimes need to modify their agendas and policy prescriptions in the light of the growing mobility of many tangible and intangible assets. The chapter further argues that changing patterns of demand and technological advances—especially as they have impacted on the coordinating and transaction costs of value‐added activity, and on the institutions and cultural infrastructure underpinning such activity —have critically affected the merits of alternative modes of economic organization, and that, over the years, the optimal combination of these modes has undergone a marked change. The four main sections of the chapter examine the main historical thrust of thinking about the economic legitimacy of democratically elected governments over the past 200 years; analyse some of the main justifications for government intervention set out in the literature, and then evaluate these justifications; and lastly, analyse the implications of the spatial widening of value‐added activity, suggesting that such widening, and, in particular, the emergence of the globalizing economy is significantly affecting ’best‐practice’ organizational arrangements for both the creation and the deployment of domestic resources.