AP Comparative Government and Politics Political Economy

Political Economy Defining the Political Economy What is an Economy? ● The economy is a separate entity from politics, but they can influence each other. ● The economy involves multiple consumers and producers who act on their benefits. ● Microeconomics is related to people or a small group of individuals. ● Macroeconomics is often related to the public sector. What is a Political Economy? ● The government and regime of a state can influence state involvement in the economy. ● A market is the “place” where supply and demand interact with each other. ● In markets, different prices are determined. Generally, this is done without much interference. However, taxes and subsidies (a sum of money intended to help a certain product/industry from the government) can play a role in influencing politics as well. ● Banning certain sectors often doesn’t end well. Black markets, which are markets that host illegal trades, have been a persistent part of human history, whether we’d like to admit it or not. ● Property is the ownership of goods and services. ● Private property can be protected. The degree of this differs with the state’s capabilities, though. Oftentimes, in Less Developed Countries (abbrev. LDC), states are not able to fully execute this function. ● Public goods are goods provided by the state to the citizens. Sometimes, these are free; they could be heavily subsidized as well. ○ The military and law enforcement are examples of essential public goods. ● Social expenditures are goods and services provided to people who are in need. ● A related term is welfare state, which means that the state is taking care of its (weakest) people. ○ Pensions and low-income assistance, and certain fee waivers could be social expenditures. The difference between public goods and social expenditures is that: 1. Public goods are provided to all people. 2. Social expenditures are provided to certain people. ● Taxation is a sum of money that must go to state revenue. Depending on the government and what it prioritizes, different tax policies can help or harm certain industries and people. Taxes can be collected and used in a number of different ways. ● The left generally prefers that people with more income pay more tax, resulting in income distribution. ● The right generally prefers that people pay equal rates of tax. ● Money is an interesting term, but what is most important to understand is that it’s essentially a social construct. It is an item (or a concept) that society regards to have value. Money facilitates the exchange of goods and services without the need for direct trade. ● Money is a currency, which is a system of money within a certain country (or, in cases like the European Union, different countries). ● Currencies are printed in a central bank, which essentially decides how much value should circulate in the economy. ● Inflation means that goods and services are worth more money, thus devaluing currency. It occurs when prices increase, and, sometimes, when demand (the willingness to pay) increases. ● During a recession, central banks will often print more money than usual. However, this can lead to inflation, so it’s important to be careful. ● Regulations control people’s and firm’s activity in the market. They generally contribute to a more efficient or safer environment. ● Sometimes, regulations are costly to implement, and they can increase the cost of production when applied to different firms. ● Trade is the exchange of goods and services. However, used in a more local meaning, it can refer to the exchange between different nations. ● The left prefers protectionism, because they believe the government has an obligation to protect local workers, firms, and individuals. ● The right prefers free trade, giving more freedom to corporations. ● Tariffs are taxes on imports from other countries. ● Quotas are a standard on how much of one good can be imported. ● Free trade and protectionism have their respective costs and benefits. Therefore, there have been instances of conflict caused by these policies. ○ Dependency theory states that money and resources go from the periphery to the core. It said that colonies were dependent on their colonizers, and was a prominent debate in the late 1900s. Economic “Left” and Economic “Right” Economic Freedom ● Economic freedom measures how Economic Equality ● Economic equality measures how much individual choice is guaranteed equally for each consumer and producer. distributed among different people. ● The state’s role is to set up a stage for political activity. ● High economic freedom incentivizes economic values are ● The state is actively involved in distributing resources. ● Different policies may help to productivity and creating valuable increase goods and services. Alternatively, all production could be ● However, it is likely to end up with economic disparity and stratification of social class. economic equality. collectivized and state-owned. ● More economic equality means letting go of certain freedoms to get rid of inequality. Different Political Economies System Liberalism Freedom(Yellow) or Equality(Red) Freedom ● The state should have minimal control over economic policies. ● There is less tax, and a majority of it goes to ensuring economic rights. ● Property is private owned, not state owned. ● Liberalism has been growing increasingly popular recently. Social Democracy Balance ● They believe in similar things as liberalism, but also concede that economic inequality needs to be resolved. Communism Equality ● Communism is largely influenced by The Communist Manifesto by Karl Marx. ● All property should be owned by the proletariat (working class), who generate surplus value. ● Liberalism benefits the bourgeoisie (business owners), though they do not add very much value. ● Democratic centralism centralizes politics into a very small group of elites in order to distribute resources. ● Properties and industries are state owned, and economic activity is controlled. Mercantilism Neither ● Mercantilism rose with absolute monarchies. Nowadays it is minimally present in its true form, but it has influenced the shape of many economies. ● Some large, state-owned (or protected) industries strengthen the power of the state, which is mercantilism’s main goal. ● Parastatal companies (like the ones in Mexico) serve this purpose. ○ Russia takes property from private oligarchs to siloviki (military-related people, related to Putin) *However, Russia is primarily a Communist state. The Measure of a Nation’s Economy ● The Gross Domestic Product (GDP) measures how much goods and services have been produced in a year. ● Its drawback is that it can’t capture some finer details like living standard or polarization, as it is only the sum of the whole. (Think about skewed averages.) ● GDP per Capita divides a country’s GDP by the population of the country. This shows a standard of living or average income for the people, making cross-national comparison a little bit easier. However, it still retains GDP’s drawbacks. ● The Gini Index measures income distribution. A value closer to 1 would represent higher inequality, whereas a 0 would represent perfect equality. ● Extreme Poverty Rate measures exactly what it sounds like; in this case, extreme poverty means living with less than 2 dollars a day. ● Stages of development looks at the distribution and stage of industries. ● Generally, subsistence agriculture (farming to produce food for the family, not necessarily to sell) develops into industrial production.