1. How politics and economics are related Shane Stevens
PS 210 Political Economy
How politics and economics are related
Shane Stevens

2. 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

3. 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

4. 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?

5. 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

6. 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: Hyperinflation—inflation of more than 50% a month!

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

8. 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

9. 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

10. Matrix of Political Economic Systems

11. 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

12. Liberal Policies 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

13. 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

14. 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)

15. 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 Cuba, North Korea, China(?)

16. Communist Policies No private property—nationalized
No markets—directed by state
No unemployment
Trade restricted
Wide range of public goods

17. 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

18. 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

19. Limitations of Each System
Liberalism: Inequality and monopolies
Social Democracy: Expense of welfare state, inefficiency
Communism: Authoritarianism, inefficiency
Mercantilism: Tends toward Authoritarianism? Distorts market

20. 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

21. Gross Domestic Product

22. 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

23. PPP

24. 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?

25. 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

26. 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

27. 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

28. 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.

29. 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.

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

31. 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.

32. 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.

33. 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

34. Which of the following does O’Neil not list as a basic form of political legitimacy?
traditional
charismatic
liberal
rational-legal

35. 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.

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

37. 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

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