The literature concerned with the state’s productive role in the economy is compromised by links to an economic orthodoxy that uses a free market, competitive outcome as a default setting in both predictive and normative terms, and to conceptions of capitalism as a species of spontaneous order, so that state intervention is invariably perceived as an exceptional event (‘market failure’) in the context of an otherwise autonomously functioning economy. Historically, the state has played a foundational role in economic activity through government exaction and confiscation of resources, the expanding and constricting market extent, by responses to the pervasive externalities present in commercial activity and in the development of human capital, and has had to cope with the complementarities between educational development and the absence of material deprivation. Further contemporary issues of public policy are first, the recent emergence (or, indeed, re-emergence) of China as a great economic power and second, the invariant presence of state intervention in the transition from agriculture to industry. A last issue is the political economy of the state: how do alternative political arrangements shape the real economy and, contrarily, how do differing outcomes in the real economy shape political structures and decisions?
Keywords: socialism; production externalities; political processes; human capital; industrial policy
JEL classification: B51 D62 D72 J24 L52
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