Transcript States, Markets, and the Good Society

States, Markets, and the Good
Society
 State
(central planning by
government)
 Market (free market)
 What
balance between states and
markets most enhances people’s
capability, the good society?
Market systems
Market system = production for profit
intended for, coordinated through private
exchanges (buyers and sellers)
 More extensive (more international
transactions) and more intensive (more
social transactions)
 States determine how extensive and
intensive markets are

States and Markets
Lindblom: “...market system…method of
controlling and coordinating people’s
behavior.”
 Market systems require states (cannot
exist without them)


Political economy = balance between
political and market forces
Advantages of Market Systems
 Dynamic
 Productive
 Enhance
prospects for democracy
and political rights
 Separate economic from political power
 Planned economies combine economic and
political power in state
Dark Side of Markets
 Volatile
 Socially
destructive
 Inequality
 Harmful spillover effects
(externalized costs)
Shifting Balance
Market systems require rules enforced by
state to work
 States steer economies toward certain
goals, intervene
 Degree of intervention source of conflict

◦ 1970s, rise of market advocates (Reagan,
Thatcher) -- spending, taxes, regulation
 work ethic, entrepreneurialism, taxes divert income,
public enterprises unproductive, inefficient
Globalization


Globalization = increasing flow of money
(investment), people, skills, ideas, and goods
(trade) across borders (market extension)
“Washington consensus” (neoliberalism,
“market fundamentalism”)
◦ Balance budgets, cut spending, open markets to
foreign trade/investments, privatize industries
◦ Supported by large MNCs, US, and World
Bank/IMF
 Economic assistance dependent on adoption of
neoliberal policies (Structural Adjustment Policies)
Neoliberalism


Markets = efficiency, productivity, growth,
rising incomes
Critics
 Inequality between and within countries
 Promotes corporations and powerful individuals at
expense of poor people and disadvantaged states
 Crises, environmental destruction

Empirical record uneven
 Widespread adoption of SAPs; little growth,
development
 Strong-state successes (e.g., India, China, S. Korea,
Taiwan)
Effects of Globalization

Developing countries
◦ Greater integration = more job opportunities for
workers at all levels of development; workers in less
developed countries at highest levels of economic
development benefit most
◦ Workers in less developed countries = effect
conditioned by level of economic development and
economic/political institutions

Developed countries
 Function of different institutions and governing
coalitions
 States differ in government spending, union density, welfare
 Some take advantage of globalization, others fail to
 Some ameliorate its effects, others fail to
State Intervention

Fiscal policy – budgets; overall revenues and expenditures
◦ Deficits/surplus; tax and spending
 States that tax more have more influence over how national income is used and
distributed

Monetary policy – interest rates, cost of borrowing money
◦ Inflation/recession
◦ Central banks/foreign exchange
 States vary in influence/control over central bank (some insulated
from political influence, e.g., U.S.; some state controlled (e.g., China, S.
Korea 1970s)

Regulatory policy – rules that firms must follow
◦ Manage competition, industry standards, certain business practices

Nationalization – state-owned and controlled public enterprises
◦ States control strategic assets, social criteria; vary in degree
States and Markets

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Japan = state promoted mergers, cooperation to create
firms large, efficient enough to compete internationally
Germany = state brokered agreements among union
and employer organizations
State-market balance product of political struggle
◦ Market systems
 States do not redirect as much income, exert influence on central banks; state
regulations are not intrusive, public enterprises small
◦ State systems
 States redirect more income through taxes and spending, exert greater
influence over central banks; state regulations pervasive and directive, public
enterprises control strategic industries
Markets and Democracy
Liberal democracies have higher degrees
of economic freedom
 Market systems do not guarantee liberal
democracy
 No liberal democracies without market
systems
 More markets do not necessarily mean
more political freedom
 Lack of strong market system seems to
preclude it

Markets and Literacy

Literacy rates not strongly associated
with market economies
◦ High literacy rates among East European
countries
◦ Low rates among poor and wealthy countries
(e.g., African states and Arab states)

Appear to reflect cultural and religious
values
Markets and Safety
Political economy totally unrelated to
likelihood of war
 Little correlation between political
economy and homicide rates
 Type of economy has little influence on
safety

◦ Citizens no safer in market-based countries
than state-led economies
Markets and Physical WellBeing

Strong association between life
expectancy and market economies
◦ Countries with market systems are more
likely to live longer, with glaring exceptions
 Cuba and U.S. have same life-expectancy
 Zambians (with a market-based system) can expect
to live half as long as Israelis with strong state-led
economy
Markets and Capability

Market systems may improve capabilities a bit, but not
consistently
◦
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Democracy not necessarily strong among market systems
Not necessarily most literate
No safer
Longer life expectancy (with significant exceptions)
Markets not a panacea; must be supplemented to
increase capabilities
◦ Challenge: to develop a balance between states and markets that
promotes best qualities of markets (innovation, productivity),
while avoiding worst effects (instability, inequality)