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CHAPTER EIGHT: POLITICAL ECONOMY

8.1 Political economy: the area where politics meets economics, with a particular focus on economic policy (p. 143).

8.2 Classic contributions : Adam Smith’s invisible hand, Maynard Keynes’s demand-side management, Milton Friedman’s emphasis on the money supply (pp. 143-6).

8.3 Liberal market economies (e.g. USA): competing firms operating in a flexible labour market seek to enhance prof­itability in order to satisfy the demands of their shareholders for a return. The government and the judiciary umpire rather than play. Shareholder capitalism (pp. 146-9).

8.4 Coordinated economy (e.g. Germany): individual firms belong to influential industry-wide associations; companies hold shares in each other; managers derive authority from their professional standing; more capital comes through long-term funding from banks; the employment relationship is conceived as long-term. The state helps with coordination and the courts are prepared to intervene to ensure eco­nomic actors abide by broadly accepted standards. Stakeholder capitalism (pp. 146-9).

8.5 The developmental state leads a society to rapid industrialization by combining a powerful bureaucracy, which formulates national economic targets, with private ownership of the means of production. Examples: East Asian states such as Japan and Korea in the post-war decades (pp. 149-50).

8.6 The idea of convergence: global pressures leading to a convergence on a liberal market economy. But still speculative; contrasts may be declining rather than disappearing (pp. 150-2).

8.7 In a communist command economy the national government set quotas for state-owned production units and allocated resources to them. The bureaucracy then implemented the plan. This method could mobilize resources for industrialization but the absence of a price mechanism limited productivity and quality (pp. 152-5).

8.8 In the surviving ‘communist’ states ( China, Vietnam), party contacts still determine access to economic opportunities. The system delivers growth from a low base but is corrupt and economically inefficient (pp. 152-5).

8.9 In most non-communist authoritarian regimes, patronage is a key political resource, working against coherent economic policy. The public sector is bloated and corrupt and a firm’s prospects depend on its political contacts. Economics and politics form single rather than distinct arenas (pp. 155-7).

8.10 Some authoritarian regimes are afflicted by the resource curse: low economic growth in countries with an abundance of natural commodities. A rentier state obtains the bulk of its revenues from exporting such resources, discouraging the development of human capital and a balanced economy (pp. 155-57).

8.11 In illiberal democracies, rulers seek market-led economic growth for electoral reasons but remain willing to intervene in the economy in politically sensitive sectors, e.g. oil. The examples of Russia and Venezuela (pp. 157-60).