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Political Science 271


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Definition of Political Economy
Relationship between the economy and the state
Examples of Political Economy
Building Codes
licensing requirements
Public Education
Liberalism - Central Arguments
- Economic progress best when people pursue their own interests
- Competition is key
- Minimum government interference
Goal of Liberalism
Maximum economic progress
Mercantilists - Central Arguements
Protect and enhance the power and prosperity of the nation

1.) Wealth is essential for getting or maintaining power
2.) Protect the wealth with power (military, economic, diplomatic)
- Markets tend to concentrate wealth and to establish power relationships between the states, thus it is a zero-sum game where one country’s gain is another country’s loss
- Concerned about exploitation and in justice

- Promotes equality
Liberal Economic Policy
* Keep the state out of the market*

ii. Let buyers, sellers, and investors trade/invest with minimal government intervention regardless of location

iii. Allow trade and investment across international borders with minimal government intervention

iv. Maximum overall wealth with little emphasis on distribution

v. Interdependence not Independence
Mercantilist Economic Policy
- Win in economic competition with other countries
- use subsidies, trade barriers, or any means available
ii. Seek self sufficiency
iii. Maximum relative wealth for your own country (even if it means less total wealth for the country)
iv. Independence not interdependence
Structuralist Policy
State should seek to reduce economic inequality between individuals and country
Adam Smith & laissez faire
Advocated laissez faire (to leave alone)

- The government should play as minimal role as possible in the economy

- Positive-sum game, not zero-sum game
Marxist Critique of Capitalism
a. A structure based on economic classes
i. Economic classes are defined based on people relationship to the means of production (your job)
ii. The bourgeoisie (owners) and the proletariat (workers)
b. Capitalism is driven by the bourgeoisie who strive for profit, get wealthier and compete with one another in the competitive market economy
c. Proletariat is victimized and relatively powerless
d. Exploitation  Mass misery  Revolution
i. In the Revolution, the proletariat overthrows the rule of the bourgeoisie and installs a government that controls the market
1. Command economy: prices and wages are set by the government
2. Economic resources are evenly distributed
3. Social harmony due to equality
Normative perspective of Liberalism
Liberals: Maximum overall wealth w/ little emphasis on distribution
Normative perspective of Mercantilism
Mercantilists: Maximum relative wealth for your own country, even if it means less total wealth for the country
Normative perspective of Structuralism
Structuralists: Concerned about inequality
Structure of Dependency Theory
i. Core – Wealth, More Developed Countries [MDC’s]

ii. A periphery [LDC’s]

iii. Core development has occurred on the back of the periphery underdevelopment

1. Northern countries (MDCs) have exploited Southern (LDC) labor and resources from colonialism

2. Multinational corporations and international investment have hurt, not helped the LDCs

d. LDC’s locked into a pattern of underdevelopment because the structure of global economics favors the richer countries
Save $ > Left over $ allows you to consume more > More consumption = higher standard of living

Trade = higher standard of living at a given time than no trade
Free Trade
Freer Trade > More Efficiency > More Economic Growth
Opportunity Cost
Opportunity cost: The value of what you give up when you choose one activity over another
Restricts trade with the intention of benefiting domestic producers

i. Tariffs: taxes on imports

ii. Subsidies: government payments to producers

iii. Import quotas: limit quantity of an imported item

iv. Non-tariff barriers: health and safety standards, labeling
Liberal Critique of Protectionsim
It keeps inefficient businesses alive
IMF Tools
1. Fiscal austerity (government taxes more, spends less)
2. Tariff liberalization
3. Attracting foreign investment
4. Selling off state-owned enterprises
Debt Crisis
High oil prices > petrodollars > banks > loose lending policies > poor countries borrow
= unsustainable debt burden
NAFTA Conditions
Eliminate almost all tariffs between US, Canada, and Mexico

i. For many items produced in those countries

ii. Many tariffs reduced immediately

iii. Others phased out over 5, 10, 15 year periods

Treat foreign and domestic investors the same

i. Foreign companies face the same rules as domestic companies

e. Protectionist safeguards
i.“Snap-back” provisions allow for temporary tariffs to protect industries that are hurt by import surges

ii. Some protections for certain industry
1. Example oil in Mexico, shipping in US
a. A very deep level of economic integrations
i. No trade barriers between countries
ii. Common tariffs towards outside countries
iii. Common agricultural subsidy system (called CAP)
b. Import Substitution Industrialization (ISI)
c. Produce goods at home that you would normally import from the developed world
i. Tariffs and or quotas to protect new industries
ii. Attracting foreign investor with incentives
iii. Produce low tech goods first then more up the ladder
1. From non- durable consumer goods (Textiles, shoes, soap) to industrial goods (called deepening)
iv. Eventually you get relative autonomy
Four Little Tigers
i. Singapore
ii. Hong Kong
iii. South Korea
iv. Taiwan

v. Similar success: Malaysia, Thailand, and Indonesia

vi. Success
1. Economic growth tied to exports
a. Free market competition
b. Much larger market
c. More productive industries

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