Transcript Chapter 4 Economics and International Development

Chapter 4
Economics and International
Development
Introduction
• Economics
– Social science based on the study of resources
• Oikos meaning “household or basic social unit”
• Nomos meaning “a customary way of doing
things”
• Contemporary definition of economics:
– Wants are unlimited (human nature), but only limited
resource to satisfy wants
• Many economic paradigms that do not
necessarily recognize human nature assumptions
Liberal Economics
• First detailed in Adam Smith’s Inquiry into the
Nature and Causes of the Wealth of Nations in
1776.
– Focused on the division of labor and use of resources
• Political liberalism
– Liberty, political equality, and individual freedom
• Liberal economic theory
– Very similar to political liberalism
– Assumption: individuals more rational with resources
– Little government interaction
Markets in Liberal Economics
• People seek to gain the highest possible utility at the least
possible cost
• Humans have unlimited demands
– Scarcity due to limited resources
• Opportunity costs account for the value of demands that are
not met
• Marginal utility
– The goal of businesses to increase point at which consumer
satisfaction is gained
• Supply and Demand
– Demand curve for prices at which people are willing to pay for a
good
– Supply curve for prices at which goods are produced
– Equilibrium is the price at which supply and demand curves
intersect
Economic Nationalism
• Mercantilism and Economic Nationalism
– Opposing viewpoint to liberal economics
– Well-being of a nation depends on its control of capital
– Economy is not independent of a country’s social and
political system
• Accomplishing mercantilist goals
– Enforce protectionist policies such as tariffs, subsidies,
and import quotas
• Economic nationalism tends to rise when there is
concentration of wealth in the hands of
increasingly few people
Marxism
• Karl Marx and Frederick Engels
– Historical materialism analyzes the cause of change in
society
– Contradictions would lead to class struggle and eventually
communism
• The owners of businesses own all
– Capital and means of production
– Working class never receives its true value of labor
• Relations between social class seen as relations of
production
• Modern forms can be separated into two movements:
– Social democracy
– Marxism-Leninism
Microeconomics and Macroeconomics
• Microeconomics
– Specific market systems on a small scale
– Assumes a host of buyers and sellers, none of
which can control the market price
• Macroeconomics
– Combined performance of all markets in a defined
market system
– Gross Domestic Product (GDP) is a useful
performance indicator in macroeconomics
Development Economics
• Concerned with the growth strategies in lessdeveloped countries
• Trends toward economic growth through
development of economic structures
• Many unexpected local consequences with
development
Globalization
• Globalization refers to:
– Expansion of global communication and market
connections
– Growing social and political interdependence
– Development of a planetary awareness
Neoliberalism
• An adaption of liberal economic theory
applied to a world economy
• Goals of neoliberalism:
– Ease restrictions on trade between countries
– Free the movement of goods and services
– Maximize economic efficiency and profits
– Open trade and privatize government positions
Globalization
• Thomas Friedman
– Globalization as integration, driven by
technological advancement
• World Trade Organization (WTO)
– Praised and criticized for its part in globalization
– Created in 1995 to lower tariffs on trade after the
cold war
– Some see it is a corporate-inspired agenda to rid
protectionist policies
Non-Western Economics
• Marshall Sahlin Stone Age Economics
– Economics is a category of culture
– Multiple forms of rationality exist
• Different type of economics present in small
non-Western countries
– Western Happiness = wants, wealth
– Non-Western Happiness = leisure, family,
community
Sustainability
• Meet present needs without jeopardizing
future needs
– Awareness has come to the forefront in the past
50 years
• Carrying capacity
– Limited resources on human economic growth
The Global Economic Crisis
• Sharp global economic downturn beginning in
the U.S. in 2008
– Worst downturn since the Great Depression
– Due largely in part to the decline of banking
liquidity and housing bubble burst in 2007
• The crisis effected the entire world, and fast!
– Decrease in American spending meant decrease in
production around the world
Eurozone and the Debt Crisis
• Sovereign debt increased in Europe due to
bank bailouts in Greece, Ireland, and Portugal
• Greece received a bailout that failed to solve
the problem
– Problems resurfaced a year later with the
refinancing of public debts in Greece
How Did Other Countries Fare?
• Iceland
– Suffered the worst with an international banking collapse and
led to the fall of the government
• Latin America
– Due to economic reform after their debt crisis in the 1980’s and
1990’s they were much more resilient to the recession
• China and other Asian economies
– Poorer countries suffered badly, but China, South Korea and
India did not slip into recession
• Middle East
– Generally did not suffer much due to oil holdings
• Africa
– Suffering a full blown development crisis due to the recession