Transcript Political Economy

PS 210
Political Economy
How politics and economics are
related
Shane Stevens
Components of Political Economy:
Markets and Property
• Markets: Interaction between forces of supply
and demand. Creates value for goods and
services. Decentralized
• Property: Ownership of goods and services.
• Property rights—what can I do with my
property?
• Regulation: States regulate and protect
markets and property
Components of Political Economy:
Public Goods
• Non-Rival and Non-Excludable
• Available to everyone
• These goods don’t function well in market or in
private hands
• Examples?
• Public goods: used by society, not privately owned
• These vary widely from country to country
Components of Political Economy:
Social Expenditures
• “Welfare”
• State provision of public benefits
• For example: Education, healthcare,
transportation
• Redistributive power placed in hands of state
• Often controversial—who benefits?
Taxation
• Who pays for public goods and social
expenditures?
• Taxation varies in who is taxed (income tax,
workers, employees)
• Taxation varies in how much is taxed
Money and Inflation
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Money is a medium of exchange
A form of IOU
Legitimacy backed by the state
Central banks control its supply, typically
through interest rates
• Oversupply can lead to inflation
• Extreme cases: Hyperinflation—inflation of
more than 50% a month!
Regulation
• Orders that set the boundaries of given
procedure
• States manage markets and property through
regulations
• Examples:
– Monopoly (Microsoft)
– Cartel (OPEC)
Trade
• States manage sale of goods and services
between themselves and other countries
• How open or closed should this be?
• Tools of trade regulation:
– Tariffs
– Quota
– Non-tariff barriers
Political Economic Systems
Discussed various institutions that link politics
and economics
How do these differ across countries?
Political economic systems: actual relationship
between political and economic institutions in
a particular country, and the outcomes they
create
Matrix of Political Economic Systems
Liberalism
• Related to ideology of the same name
• High priority on individual political and
economic freedom, less on equality
• Pro-capitalism
• Democracy requires a free market
• US and other former British colonies
Liberal Policies
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Best state is a weak one
Limited regulations
Fewer public goods
Lower taxes
Free trade
Laissez-faire—allow economy to function as it
wishes
• Greater tolerance for inequality and poverty
Social Democracy
• Attempts to balance individual freedom and
collective equality
• Accepts private property and markets, but
seeks to regulate
• Many European countries fall into this
category
Social Democratic Policies
• More public goods than in liberalism—less
tolerance for inequality, poverty
• Trade and competition under state
management
• Outright ownership of some industries by state
seen as acceptable or necessary
• Neo-corporatism: state, labor and business set
policy in concert, not through conflict (like
strikes)
Communism
• Attempt to realize communist theory of Marx
• Emphasis on collective equality over
individual freedom
• Property, markets viewed as instruments of
exploitation
• Soviet Union and much of Eastern Europe
until 1989-91. Cuba, North Korea, China(?)
Communist Policies
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No private property—nationalized
No markets—directed by state
No unemployment
Trade restricted
Wide range of public goods
Mercantilism
• De-linked from any particular ideology
• Predates modern ideologies—associate with earlier
empires
• Modern mercantilism associated with fascism
• Can be found today in non-democratic and
democratic settings
• State views market as tool of international power
• Japan, South Korea, India and other developing
countries
Mercantilist Policies
• Private property along with national ownership
• Active industrial policy—state tries to direct
production, parastatals
• Small welfare state
• Tariffs and other trade barriers
• Neither individual freedom or collective
equality emphasized—rather, state power
relative to other states
Limitations of Each System
Liberalism: Inequality and monopolies
Social Democracy: Expense of welfare state,
inefficiency
Communism: Authoritarianism, inefficiency
Mercantilism: Tends toward Authoritarianism?
Distorts market
Political Economic Systems:
Comparing Outcomes
• How can we compare and measure successes
or limitations of each?
• Gross Domestic Product (GDP)
• Purchasing Power Parity (PPP)
• Gini Index
• Human Development Index
Gross Domestic Product
Purchasing Power Parity
• Limits of GDP in that it does not take into
account costs of living in different countries
• PPP looks at GDP in terms of buying power
• In countries where costs are low, GDP is
increased when adjusted for PPP
• In countries where costs are high, GDP is
lowered when adjusted for PPP
PPP
Limits of GDP and PPP
• Captures all economic transactions, including
bad ones!
• For example, disasters, expenditures based on
crime prevention
• Costs of economic growth not factored in, such
as pollution
• Economic distribution not measured—who
gets the wealth?
Gini Index
• Mathematical formula that measures inequality
(not poverty) in countries
• Perfect equality = 0 Perfect inequality = 100
• What percent of the population owns what
percent of the country’s total wealth?
• Higher inequality in liberal countries than
social democratic ones
• Higher inequality in poorer than richer
countries
Human Development Index
• Emphasis on poverty/development over
inequality
• Not focused on wealth, but rather outcome of
that wealth
• What is the quality of life?
– Literacy and education
– Life expectancy and health
• Strong correlation between GDP and HDI
Future of Political Economy?
• World has become more liberal over time
• Neo-liberalism: return/resurgence of liberal
policies and institutions
• Decline of communism, roll-back of social
democratic institutions and policies
Review
• The shift in political science toward seeking
causality and using quantitative methods is
known as the
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A.) mathematical revolution.
B.) behavioral revolution.
C.) statistical revolution.
D.) analytical revolution.
• Modernization theory can be defined as the
view that
• A.)few countries will ever modernize and embrace democracy.
• B.)as societies develop they will become capitalist democracies.
• C.)each country and region will modernize in a different way, each with a
different result.
• D.)significant change is possible only through revolution.
• A greater focus on collective equality is
associated with
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A.)a smaller state.
B)a larger state.
C.)political violence.
D.)civic responsibility.
• Sovereignty is defined as the ability of
• A.) individuals to vote freely in elections.
• B.) individuals to depend on laws and regulations.
• C.) states to carry out actions or policy independent of outside actors or
rivals.
• D.) states to function without the need of an army or other coercive
apparatus.
• Regimes are defined as
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A.) legitimate political systems.
B.) the elected officials of a country.
C.) an organization that maintains a monopoly of violence over a territory.
D.) the basic rules and norms of politics.
• The emergence of the modern state is
closely tied to what specific event?
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the emergence of Globalization
the collapse of the Roman Empire
the expansion of European empires around the globe
the end of World War Two
• Which of the following does O’Neil not list
as a basic form of political legitimacy?
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traditional
charismatic
liberal
rational-legal
• Ethnic identity can be defined as
A.) specific attributes that make one group of people culturally different.
B.) biological elements that separate people by race.
C.) linguistic differences between otherwise similar peoples.
D.) economic differences interconnected with cultural values.
• In their political attitudes, Chinese radicals
would have much in common with
American _________.
A.) radicals
B.) conservatives
C.) reactionaries
D.) liberals
• Mercantilism is best associated with which
of the following policies?
A.) free trade
B.) tariff barriers
C.) elimination of all private property
D.) social expenditures
• Neocorporatism is an example of which
political economic system?
A.) social democracy
B.) communism
C.) mercantilism
D.) liberalism