Political Economy

Political economy – definition: the study of how the political decisions made within a country affect economic development, the distribution of wealth, and the nature of the economic system.

Economic Development – definition and attributes: economic growth that improves the living standards such as: increases in income, improvements in access to and quality of: food, health care, housing, education, and technology.

Liberal Economic Models – general principles (Adam Smith)-Domestic economy- “Laissez Faire” attitude, the state should not intervene in the economy, free markets will lead to optimal economic development, foreign economic development-no barriers to investment

Statist Economic Models – general principles-state should play a key role in managing economy, state intervention is needed to safeguard the interests of workers and the poor, state should use tariffs, quotas, and other protective measures to promote growth of its domestic economy. Ex’s:

-          Marxism-liberalism (capitalism) exploits workers, the state must intervene to ensure that assets are divided evenly, state owns all productive enterprises (factories, businesses, farms)—centrally planned economy ex.

Russia

,

Cuba

, and

Vietnam

Economic stagnation set in due to inefficiencies of central planning, equal pay so there was little incentive to work hard, forced collectivization of private farms caused massive declines in production (mass starvation), and Marxist economies fell behind the West in technology-model fell dramatically behind liberal economies in the 80s, and was abandoned by the Soviet Union and China

-          Import Substitution Industrialization (ISI)-popular in

Latin America

in 60s-70s, urged national self-sufficiency. Countries should produce manufactured goods instead of purchasing them from the industrialized North. Heavy tariffs on imported goods to protect newly-built domestic industries.

Poor performance of model: debt-states absorb heavy debts to construct industries; poor quality-tariffs insulate domestic industries from foreign competition, allows a firm to produce products of inferior quality, spikes in inflation, inefficiency and corruption in state owned industries

Export Oriented Economic Model (EOM) –disillusionment with ISI grew also due to comparison with “Asian Tigers”

-          “Asian Tigers”-many Asian countries experienced rapid growth over the same period—1^st gen: from 60s, S. Korea,

Taiwan

, Hong Kong, and

Singapore

—2^nd gen: from 80s,

Malaysia

,

Indonesia

,

Thailand

. Countries all followed EOM

-          Attributes of model.-emphasis on developing industries which make products for Export

-          Statist, Liberal or Hybrid?

The Export Oriented Model shares elements of both Statism and Liberalism and is thus considered a hybrid of the two. The elements of Statism that are shared with the EOM are:
a) Protective tariffs remain for Strategic Industries and Items
b) State Assistance to Export Industries
c) The Government plays a huge part of the model
d) The State develops human capital, such as education
The elements of the EOM that are shared with Liberalism are not as numerous, but the countries pursued trade liberalization, capital liberalization, and free markets without state intervention. The countries also significantly liberalized their foreign investment policies.

Neoliberalism/Washington Consensus—liberal development paradigm, the WC is the consensus opinion of the major economic actors in

Washington

: US Treasury, World Bank, IMF

-          Policies:

o       Deregulation, reduce barriers to trade and investment, and privatize state business, fiscal austerity.

Critics of Neoliberalism—critics charge that the WC policies do not contribute to development, the plight of the poor deteriorates. Protests in

Bolivia

and

Nigeria

Effects of the neoliberal policies: Hardships on the poor-fiscal austerity guts social welfare programs, elimination of price controls on commodities (prices increase: food, cooking and heating fuel, transportation), decline in access to health care, food, and housing. Instability-open investment markets expose countries to devastating economic instability (the Asian Economic Crisis of 1997)

Political Culture and Economic Development

-          Weber: Traditional and Modern Cultures

Traditional: little specialization, arbitrary rules, conservatism: resistance to change, religion or superstition substitutes for scientific rationality

Modern: complex specialization, universally applicable rules (due process), dynamism: receptive to change, scientific logic, not supernatural explanation prevails-modern cultures prosper

-          Confucian culture-emphasis: education, respect for authority, collective action and collaboration, combines the best traits of modern and traditional cultures

However, some blamed

Japan

’s recession in the 90s on rigidity of its culture-US economic boom in 90s attributed by some to

America

’s individualist, dynamic culture

Oil and Economic Growth

-          What is the relationship and why?—Vast oil reserves have been viewed as a blessing by many oil rich countries, but oil can inhibit development: complacency, state ignores other priorities; currency becomes overvalued and exports suffer; state dominates the economy and inhibits entrepreneurial activity

Oil and Democracy

-          What is the relationship and why?—Oil wealth inhibits democracy; state funds itself, provides jobs and welfare payments; oil states do not feel pressured to democratize or provide liberty

*Oil wealth emboldens authoritarian regimes

Governance—many development experts assert that development is as much about Politics as economics, but current focus is on governance. Conditions for quality governance: democracy, integrity (low levels of corruption)

*Information courtesy of notes and PowerPoint lectures from Comparative Politics class; taught by Dr. Collins,

Kennesaw

State

University