Docstoc

The Political Economy

Document Sample
The Political Economy Powered By Docstoc
					The Political Economy
“The Economy”
   It is not a monolithic institution – it is a
    collection of billions of individual choices
    based on people’s incentives
   The Political Economy – how politics and
    economics interact, and how they balance
    freedom and equality (conflicting values)
Components of Political Economy
   Every regime’s ideology determines the relationship
    the state will play in regulating the economy
     Markets – interaction between supply and
       demand that functions to allocate resources
        Freely allow individuals to buy, sell, and trade
           what they produce for what they will consume
        Sets values, or “prices” for these goods and
           services
          Markets arise spontaneously, and are difficult for the
           state to control
Components of Political Economy
   Property – ownership of goods and services
     State can choose to play a role in protecting
       property rights – the right to sell property freely,
       or to not have it taken away
        In LDCs, frequently property exists without a
           fundamental protection of property rights, due
           to the state’s inability to monitor instances of
           fraud
Components of Political Economy
   Public Goods – goods provided and/or secured by
    the state
     Examples (universal): Roads, lighthouses, the
       military
     Examples (in some cases)
        Health care in Britain, Canada

        Oil in Nigeria and Saudi Arabia

        Most businesses in Cuba
Components of Political Economy
   Social Expenditures
       Commonly called “The Welfare State” –
        redistribution of wealth through government
        taxing some, and paying others
       Typically provided to the elderly, the
        unemployed, the poor, and the disabled
       Often a subject of political battle, due to the
        question of who benefits from expenditures
Components of Political Economy
   Taxation
       Means to provide for public goods and social
        expenditures
       Subject of political battles, determined partially
        by ideology toward the role of the state
Tax Rates as % of GDP (2008)
   Sweden: 54.2 %              Russia: 36.9 %
   Denmark: 48.8 %             Canada: 35.8 %
   Finland: 46.9 %             Switzerland: 35.7 %
   Belgium: 45.6 %             New Zealand: 35.1 %
   France: 45.3 %              Australia: 31.5 %
   Austria: 43.7 %             Ireland: 31.1 %
   Italy: 42 %                 United States: 29.6 %
   Netherlands: 41.4 %         Japan: 27.1 %
   Norway: 40.3 %              China: 17%
   Germany: 37.9 %             Mexico: 9.7%
   United Kingdom: 37.4 %      Iran: 7.3%
                                Nigeria: 6.1%
Components of Political Economy
   Money, Inflation, and Unemployment
       States create and manage the money supply through a
        central bank
       Money is created by the rate at which banks make loans
           Low interest rates encourage more creation
           High interest rates discourage creation
       Creation of too much money in effort to stimulate the
        economy and reduce unemployment can cause inflation
       Slowing the growth of money to control inflation can
        slow economic growth and cause unemployment to rise
Components of Political Economy
   Regulation – rules or orders to set the
    boundaries of given procedures
       States can ban production or sale of goods, set
        safety requirements, outlaw monopoly control,
        etc.
   Trade – access to goods and services from
    foreign states
       States can allow open trade, or restrict it through
        tariffs, quotas, and other non-tariff barriers
Arguments for and Against Trade
   Why Regulate Trade?             Why Not?
       Generate state revenue          Promote competition
       Foster local industry           Keep the cost of goods
       Protect local jobs               and services low
       Keep wealth within the          Stimulate domestic
        country                          innovation in areas of
                                         comparative advantage
Political-Economic Systems
   Liberalism – rooted in capitalist ideology of
    private ownership, minimal state regulation
    and intervention beyond protection of
    property rights
       Emphasizes individual freedom
       Examples: U.S., Great Britain
       Laissez-Faire – philosophy claiming the economy
        should be left to do what it wishes
Political-Economic Systems
   Social Democracy – eliminate extremes of too
    much freedom, too much equality
       Accepts a role for both private property and
        public ownership, freedom and regulation
       Examples: Most European countries
Political-Economic Systems
   Communism – believes freedom only comes
    from total economic equality, uses the state to
    achieve that goal
       Rejects private ownership of property
       Nationalization – bringing private industries
        under state control
       Examples: China (though there is a massive
        transition ongoing), former Soviet Union
Political-Economic Systems
   Mercantilism – emphasizes needs of the state
    to grow wealthy and powerful above the
    needs of society
       Emphasizes neither freedom nor equality
       Parastatals – industries nationalized based on
        some perceived need for international
        competitiveness
       Examples: Japan, India, South Korea
Measurements of Economic
Performance
   GDP – Gross Domestic Product
       Total dollar value of all goods and services
       GDP per capita shows standard of living of the
        average person
   PPP – Purchasing Power Parity
       Adjusts GDP for relative buying power in each
        country, since cost of living differs from place to
        place
Measurements of Economic
Performance
   Gini Index
       Formula to measure economic inequality in
        society
       High Gini coefficient = more inequality, lower
        Gini coefficient = less inequality
   HDI – Human Development Index
       Attempts to measure well-being, in addition to
        wealth
GDP for the 6 Countries
   U.S. - $14.26 Trillion
   China - $4.4 Trillion
   United Kingdom - $2.67 Trillion
   Russia - $1.68 Trillion
   Mexico - $1.09 Trillion
   Iran - $0.34 Trillion
   Nigeria - $0.21 Trillion
GDP per capita (PPP) for the 6
Countries
   U.S. - $46,859
   China - $5,693
   United Kingdom - $36,523
   Russia - $15,922
   Mexico - $14,560
   Iran - $11,250
   Nigeria - $2,134
Gini Coefficient for the 6 Countries
   U.S. – 40.8
   China – 44.7
   United Kingdom – 36.0
   Russia – 31.0
   Mexico – 54.6
   Iran – 43.0
   Nigeria – 50.6
HDI Ranking for the 6 Countries
   U.S. – #8
   China – #94
   United Kingdom – #12
   Russia – #57
   Mexico – #53
   Iran – #101
   Nigeria – #151
Global Trends in Political Economy
   2 MAJOR movements
       Globalization – world is increasingly
        interconnected due to technology and trade
       Liberalization – free markets are more prevalent
        than ever before in history, and developing
        nations often see liberalization as the key to
        growing wealth

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:4
posted:5/7/2012
language:
pages:22