Task 3 - POLITICAL ECONOMY

No distinction btw politics and economy Political factors are essential in determining economic outcomes and viceversa

Pol econ examines how different econ systems affect institutional and political arrangements

• State-centric political economy • Classical/neoclassical political economy • Marxist political economy

Developed out of mercantilism: Econ markets not natural, but exist within a social context shaped by exercise of state power • Build up state’s wealth, power and prestige • Development of a favorable trading balance (low imports- high exports) • Protectionism

Derived from Adam Smith’s writings • Key econ agents: Individuals • Unregulated econ tends to lead to long-run equilibrium • Invisible hand • Self-managing market • Policy of lasseiz-faire • No state intervention • Conditions for perfect competition

Capitalism as class exploitation system: Capitalist quest for profit only satisfied through surplus value from its workers (paying them less) • Econ actors: Social classes • Standing in relation to ownership of productive wealth • Burgeoisie - proletariat

• Enterprise capitalism • Social capitalism • State capitalism

Classical economists - Faith in self-regulating markets - Public ownership at minimum - Welfare provision as more than a safety net - Profit-driven business - High productivity - Labour flexibility - Weak trade unions - Wide material inequalitites - Social fragmentation - Vulnerable to market changes

Much of central and western Europe - Flexible and pragmatic ideas - Econ importance of politics - State intervention to protect infant industries - Link btw financial and insutrial capital Close relationship btw business corps and regional banks Long-term investments (high and stable) Social partnership - Central theme: Social market MARRYING DISCIPLINES OF MARKET COMPETITION AND NEED FOR SOCIAL COHESION AND SOLIDARITY

• Encourages inflexibility • Difficult for businesses to adapt to market conditions • High levels of social expenditure Pushed-up taxes Burden employers and employees

–> Capitalist economies in which the state plays a crucial directive role. Often non-iberal - Collective capitalism: Cooperation and long-term relationships - Relational markets (btw industry and finance) - Long-term investments - Firms provide core of life Male workers get benefits for being ‘members’ Stress placed on team-work Narrow income differentials (worker - manager) - Taxation and public spending low - Gov plays vital role in ‘guiding’ investment

JAPAN - Unresponsiveness to changing global market conditions - Tendency for individualism and entrepreneuralism - Values: Duties and hierarchy CHINA - Burgeoning capitalism and Stalinistical pol control - Success in econ growth - Huge supply of cheap labour - Massive investment on econ infrastructure RUSSIA - 90’s shock treatment - Wrest power back from oligarchs - Failure to diversify economy - Authoritarianism may generate resentment for pol freedom

• Keynsianism • Neoliberalism

–> Rejection of self-regulating markets - Results in instability and unemployment - State intervension promotes stability and safety nets - Neoclassical pol econ - If unemployment rises, the gov reflates the economy by increasing public spending or cutting taxes

–> “Tax and spend” policies: Sapped enterprise and initiative - Undermined growth - Permanent high inflation Stagflation in 70s

–> Econ priorities towards free market - Natural dynamism of the market - Form of market fundamentalism –> Self-regulating markets - Monetarism - Supply-side policies (encouragement to produce) - Deregulation - Tax cuts

–> Complex of processes sometimes overlapping - ‘Borderless’ world: National borders become permeable - Divisions btw people prev separated by time and space less significant - Multidimensional interconnections - Top-down processes -> Single global system (Homogenization) - Localization, regionalization and multiculturalism - Nation-state not able to organize econ and pol life correctly Nationalism based on nation fades

• Economic globalization • Cultural globalization • Political globalization

–> all economies have been absorbed into an interlocking global economy - Production is internationalized - Financial flows freely and instantly - Lower trade barriers - End to exchange controls - Freer movements of investment capital Helped widen gap econ gap btw East and West

–> Process whereby information, commodities and images enter a global flow that tends to ‘flatten’ out cultural differences • Driven by growth of transnational companies and the emergence of global commodities • Culture serves and constraints the forces of glob • ‘Information revolution’

–> Evident in growing importance of international organizations - Exercise of jurisdiction not within a single state (international area) - Intergovernmentalism: Provide mechanism for states to take concerted action w/o sacrificing national sovereignty UN, NATO, EEC, EU, EC, WB, IMF…

–> Glob has developed w Neoliberalism, both are though of as a same larger phenomenon Core of growth: Financial markets and process of ‘financialization’ • Capitalism turned into turbo-capitalism

• Intensified international competition • Deregulation and reducement of tax levels (attraction of FDIs, preventing TNC’s from relocation)

• Downward pressure of public spending Association with inequality and social breakdown • Considerable growth of public and private debt • Rooted in major contradictions Democratic deficit through the internationalization of the state Growing pressure to protect environm from glob Surrender of state authority to corporate financial and econ interests • Naomi klein - Implications with - Shocks - States of emergency - Crises