Political Economy and Public Policy

Macroeconomics Bureaucracy Public Policy

Politics and Markets Role of the state in liberal democracies: to induce economic performance Pluralist Approach Class Approach

Needs of the state

Economic Systems Laissez-faire capitalism Socialism Market socialism Soziale Marktwirtschaft State-led capitalism Mixed economy

Macroeconomics Scarcity Exchange Money

Schools of Macroeconomics Mercantilist (nationalist) Classical (liberal) Keynesianism Monetarism Supply-side

Resources Called into Government Service

Fiscal Policy What Who How: The Multiplier

Monetary Policy Who What How: Money Supply

Central Bank Independence

Bureaucracy A bureaucracy is the name given to a large organization that is structured hierarchically to carry out specific functions. Generally, most bureaucracies are characterized by an organization chart. The units of the organization are divided according to the specialization and expertise of the employees.

Names for Exec. Bureaucracies Whitehall (UK) Quai d’Orsay (France) Wilhemstraße (Germany) Sublime Porte (Turkey)

Choosing the Civil Service Birth (“who you are”) Political allies (“who you know”) Competitive exams (“what you know”) Generalist vs. Specialist

Corruption

Corruption likely when Adverse government structures Information deficits Opportunities and incentives Social conditions Deficits of law Imperfect electoral processes

Corruption: Good and Bad Least corrupt: Australia*, Austria*, Denmark*, Finland*, Iceland*, New Zealand*, Norway*, Singapore*, Sweden*, and Switzerland* Most corrupt: Angola, Bangladesh*, Chad, Côte d'Ivoire, Equatorial Guinea*, Haiti*, Myanmar, Nigeria*, and Turkmenistan * = Democracies

Types of Corruption Cronyism Bribery Nepotism Rent-seeking Influence peddling Kleptocracy

“Rule by thieves” The ten most self-enriching leaders of recent times: 1. former Indonesian President Suharto ($15 billion – $35 billion) 2. former Philippine President Ferdinand Marcos ($5 billion – $10 billion) 3. former Zairian President Mobutu Sese Seko ($5 billion) 4. former Nigerian President Sani Abacha ($2 billion – $5 billion) 5. former Yugoslav President Slobodan Milošević ($1 billion) 6. former Haitian President Jean-Claude Duvalier ($300 million – $800 million) 7. former Peruvian President Alberto Fujimori ($600 million) 8. former Ukrainian Prime Minister Pavlo Lazarenko ($114 million – $200 million) 9. former Nicaraguan President Arnoldo Alemán ($100 million) 10. former Philippine President Joseph Estrada ($78 million – $80 million)

Five Function of Bureaucrats Implement the law Provide expertise Provide research and information to the executive officials Provide research and information to legislatures Quasi-judicial powers and responsibilities

Weberian Model of Bureaucracy Bureaucracies as rational, hierarchical organizations in which power flows from the top downward Decisions are based on logical reasoning and data analysis. Division of labor Chain of command Formal rules Apolitical (neutral decision making) Advancement based upon merit Bureaucrats are salaried by superior institutions

Democracy and Bureaucracy

Issues in Politicization of the Bureaucracy

Policymaking Some issues: Management of the economy Health care Old age pensions Inflation Unemployment Distribution issues Crime Globalization Human rights Migration

Human Development Index

Development Strategies Import-Substitution Industrialization Export-Oriented Industrialization

Should government stay out of the economy? Yes: markets choose better than states No: the East Asian miracle –Positive aspects –Illiberal aspects

Income Inequality

Income Inequality (Over Time)

Income Inequality – Selected States Gini coefficientRichest 10%:Poorest 10% Sweden Russia India France Britain United States South Africa Brazil Namibia

Dealing with inequality Subsidies Transfer payments Progressive taxation Land reform Whom to aid: cities vs. country-side