We saw in the Introduction, and in Chapter 1, that most accounts of politics in Britain picture it as some sort of democracy - even if fully democratic politics is only an aspiration, providing a standard against which we can evaluate the reality of governing Britain. But politics cannot be isolated from the wider society, and one feature of that wider society - the way the economy functions - is critical to understanding how Britain is governed. The economy of Britain is capitalist. Capitalism is a word often used polemically - either as a term of approval or disapproval. But here it is used descriptively. A capitalist economy has two distinguishing features. First, it allocates resources primarily through market forces: that is, through price mechanisms which signal demand, and generate supply, of goods and services. Second, the most important economic institutions - firms - are privately owned. Thus the twin institutions of market allocation and private property define a capitalist economy.
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