PS 210 Political Economy

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PS 210Political Economy

• How politics and economics are related
• Shane Stevens

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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 rightswhat can I do with my property?
• Regulation States regulate and protect markets
  and property

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Components of Political Economy Public Goods

• Non-Rival and Non-Excludable
• Available to everyone
• These goods dont function well in market or in
  private hands
• Examples?
• Public goods used by society, not privately
  owned
• These vary widely from country to country

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Components of Political EconomySocial
Expenditures

• Welfare
• State provision of public benefits
• For example Education, healthcare,
  transportation
• Redistributive power placed in hands of state
• Often controversialwho benefits?

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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

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Money and Inflation

• 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 Hyperinflationinflation of more
  than 50 a month!

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Regulation

• Orders that set the boundaries of given procedure
• States manage markets and property through
  regulations
• Examples
• Monopoly (Microsoft)
• Cartel (OPEC)

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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

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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

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Matrix of Political Economic Systems
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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

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Liberal Policies

• Best state is a weak one
• Limited regulations
• Fewer public goods
• Lower taxes
• Free trade
• Laissez-faireallow economy to function as it
  wishes
• Greater tolerance for inequality and poverty

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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

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Social Democratic Policies

• More public goods than in liberalismless
  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)

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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(?)

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Communist Policies

• No private propertynationalized
• No marketsdirected by state
• No unemployment
• Trade restricted
• Wide range of public goods

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Mercantilism

• De-linked from any particular ideology
• Predates modern ideologiesassociate 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

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Mercantilist Policies

• Private property along with national ownership
• Active industrial policystate tries to direct
  production, parastatals
• Small welfare state
• Tariffs and other trade barriers
• Neither individual freedom or collective equality
  emphasizedrather, state power relative to other
  states

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Limitations of Each System

• Liberalism Inequality and monopolies
• Social Democracy Expense of welfare state,
  inefficiency
• Communism Authoritarianism, inefficiency
• Mercantilism Tends toward Authoritarianism?
  Distorts market

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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

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Gross Domestic Product
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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

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PPP
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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 measuredwho gets the
  wealth?

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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 countrys total wealth?
• Higher inequality in liberal countries than
  social democratic ones
• Higher inequality in poorer than richer countries

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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

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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

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Review

• The shift in political science toward seeking
  causality and using quantitative methods is known
  as the
• A.) mathematical revolution.
• B.) behavioral revolution.
• C.) statistical revolution.
• D.) analytical revolution.

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• 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.

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• A greater focus on collective equality is
  associated with
• A.)a smaller state.
• B)a larger state.
• C.)political violence.
• D.)civic responsibility.

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• 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.

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• Regimes are defined as
• 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.

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• The emergence of the modern state is closely tied
  to what specific event?
• the emergence of Globalization
• the collapse of the Roman Empire
• the expansion of European empires around the
  globe
• the end of World War Two

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• Which of the following does ONeil not list as a
  basic form of political legitimacy?
• traditional
• charismatic
• liberal
• rational-legal

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• 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.

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• In their political attitudes, Chinese radicals
  would have much in common with American
  _________.
• A.) radicals
• B.) conservatives
• C.) reactionaries
• D.) liberals

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• 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

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• Neocorporatism is an example of which political
  economic system?
• A.) social democracy
• B.) communism
• C.) mercantilism
• D.) liberalism