POSC 1000(056) Introduction to Politics Russell Alan Williams Part One: Introduction Politics and the Economy Required Reading: Mintz, Chapter 3, pp. 52 74. Unit Objectives: To explore the relationship between politics & economics To examine how economic systems impact politics Outline: 1. 2. 3. 4. 5. Introduction Types of Economic Systems Why do modern governments intervene in the economy? Economic sources of political conflict For next time 1) Introduction: i) Politics and economics? Politics = struggle over public policies Authoritative allocation of resources . . . Similar definition to economics Economics focuses on how markets work Separation of economics from politics? Ignores degree to which politics supersedes markets??? Political impacts on economy: Theoretical: Markets cannot exist without political order E.g. private property Practical: Governments are major players in the economy • E.g. Taxes, spending and employment ii) Economic systems generate “inequality”: Countries with highest inequality Gini index Poorest 20% Wealthiest 20% 1. Sierra Leone 62.9 1.1% 63.4% 2. Central African Republic 61.3 2.0 65.0 3. Swaziland 60.9 2.7 64.4 4. Brazil 60.7 2.2 64.1 5. Nicaragua 60.3 2.3 63.6 6. South Africa 59.3 2.9 64.8 7. Paraguay 57.7 1.9 60.7 8. Colombia 57.1 3.0 60.9 9. Chile 56.7 3.3 61.0 10. Honduras 56.3 2.2 59.4 Countries with lowest inequality Gini Index Poorest 20% Wealthiest 20% 1. Slovakia 19.5 11.9% 31.4% 2. Belarus 21.7 11.4 33.3 3. Hungary 24.4 10.0 34.4 4. Denmark 24.7 9.6 34.5 5. Japan 24.9 10.6 35.7 6. Sweden 25.0 9.6 34.5 7. Czech Republic 25.4 10.3 35.9 8. Finland 25.6 10.0 35.8 9. Norway 25.8 9.7 35.8 22. Pakistan 31.2 9.5 41.1 23. Canada 31.5 7.5 39.3 Political struggles often about public policy impacts on equality Inequality rising . . . . Question: Should governments redistribute wealth? E.g. Provide basic services regardless of ability to pay? 2) Types of Economic Systems: i) Pre modern market economies: Free exchange of goods Most production for personal consumption =Low inequality =Inefficiency ii) “Mercantilist Policies”/Economics: States organize economy to achieve “national interests” Development and industrialization • • • Protectionism Monopolies Exploitation of colonies =increased scale of production =increased power of dominant states Problems? -Inefficiency -Little international trade iii) “Free-Market Capitalist System”: Based on: • • • Private ownership of production – decisions made to profit investors, not national interest Economic activity organized through voluntary markets Little role for state in economy – politics is residual Efficient! • Links production to what consumers want • Incentives for innovation – new technology – E.g. Competition Problems? a) High Inequality: Political challenge? b) Concentration: Development of monopolies E.g. Rogers - Suggests need for government intervention/regulation c) Concentration and politics: Produces an economic elite who may be able to dominate politics – risky • Can abuse political system to undermine market iv) “Socialist Economic Systems”: Based on: “Public” ownership of businesses and economy State “central planning” of production replaces markets – E.g. State officials make decisions about what should be produced Examples? =Lower levels of inequality =Central planning can stimulate industrialization Problems: Inefficiency -poor goods; or not available Corruption v) “Mixed Economy”: Mixture of socialism and free market capitalism Much production organized by private investors Large state involvement (public ownership) in some areas of economy Examples? Benefits? Open to debate . . . Controversy: Large state involvement in economy corresponds to higher equality Lower state involvement corresponds to better economic growth E.g. globalisation – economies with low state involvement “rewarded” Important modern debate – what kind of mixed economy do we want? Very ideological . . . 3) Why do gov’s intervene in the economy? Practical reasons: i) Protect environment Intervention = regulation of pollution ii) Protect consumers Markets do not always protect health and safety of consumers • Intervention = product safety standards Markets too concentrated • Intervention = Ownership restrictions or state ownership iii) Protecting citizens E.g. High level of inequality • Intervention = “Welfare state”: Policies to ensure minimum standard of living – EI and social assistance – Health care, housing and education • Right of citizens regardless of market outcomes Question: Status of the welfare state in Canada???? iv) Protect the economy Capitalism = volatility in economy – “boom and bust” • Intervention = Government macroeconomic policies =“Keynesianism”: Gov’t increases spending or cuts taxes to stimulate economy during recession =“Monetarism”: Gov’t intervenes in markets to control supply of money – promote stability – Keep inflation low – Keep currency stable Bottom Line: Political interventions are common Debates over whether interventions are in the “common good” or not Modern “neo-liberal” economists think most interventions economically bad Yet, intervention still common . . . . 4) Economic sources of political conflict: All economies generate conflicting economic interests Manifested in “political cleavages” i) “Social Class”: Group of people who have similar position (or interests) in economy • E.g. “Merchant class” Political importance depends on existence of “class consciousness” • Group has to see them selves as class with shared interests • Do classes exist in Canada . . . ? ii) Geographic divisions Economic development is uneven • Urban centres “better off” than rural areas • Manufacturing based economies better of than natural resource based economies Can cause geographic cleavages • Rural residents demand special status E.g. Increased electoral representation • Irony: Rural residents tend to be less supportive of state intervention in economy iii) Gender and Race: Economic benefits uneven based on social groups E.g. Aboriginal Canadian Unemployment • Leads to demands for “Affirmative Action” E.g. Women's “income gap” • Leads to demands for “Pay Equity” Close link between these cleavages and new forms of “identity politics” Conclusions: 1) Politics often involves debates over how, or whether to intervene in economy to redistribute resources 2) Economics and politics are interactive Politics sets ground rules for economy Economic system creates political cleavages Political Science Mixer Friday, 18 September 2009 UC 2001 – Council Chambers 5pm – 8 pm All political science faculty and students are welcome to attend! 6) For next time: Unit Three: Politics and Ideology (September 23) Required Reading: Mintz, Chapters 4, 5 & 6, pp. 75 -148.