Political Economy and Public Policy
• Macroeconomics
• Bureaucracy
• Public Policy
Politics and Markets
• Role of the state in liberal democracies: to induce
economic performance
• Pluralist Approach
• Class Approach
Needs of the state
Economic Systems
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Laissez-faire capitalism
Socialism
Market socialism
Soziale Marktwirtschaft
State-led capitalism
Mixed economy
Macroeconomics
• Scarcity
• Exchange
• Money
Schools of Macroeconomics
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Mercantilist (nationalist)
Classical (liberal)
Keynesianism
Monetarism
Supply-side
Resources Called into Government Service
Fiscal Policy
• What
• Who
• How: The Multiplier
Monetary Policy
• Who
• What
• How: Money Supply
Central Bank Independence
Bureaucracy
A bureaucracy is the name given to a large
organization that is structured
hierarchically to carry out specific
functions. Generally, most bureaucracies
are characterized by an organization chart.
The units of the organization are divided
according to the specialization and
expertise of the employees.
Names for Exec. Bureaucracies
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Whitehall (UK)
Quai d’Orsay (France)
Wilhemstraße (Germany)
Sublime Porte (Turkey)
Choosing the Civil Service
• Birth (“who you are”)
• Political allies (“who you know”)
• Competitive exams (“what you know”)
• Generalist vs. Specialist
Corruption
Corruption likely when
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Adverse government structures
Information deficits
Opportunities and incentives
Social conditions
Deficits of law
Imperfect electoral processes
Corruption: Good and Bad
• Least corrupt: Australia*, Austria*, Denmark*,
Finland*, Iceland*, New Zealand*, Norway*,
Singapore*, Sweden*, and Switzerland*
• Most corrupt: Angola, Bangladesh*, Chad, Côte
d'Ivoire, Equatorial Guinea*, Haiti*, Myanmar,
Nigeria*, and Turkmenistan
• * = Democracies
Types of Corruption
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Cronyism
Bribery
Nepotism
Rent-seeking
Influence peddling
Kleptocracy
Kleptocracy
• “Rule by thieves”
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The ten most self-enriching leaders of recent times:
1. former Indonesian President Suharto ($15 billion – $35 billion)
2. former Philippine President Ferdinand Marcos ($5 billion – $10 billion)
3. former Zairian President Mobutu Sese Seko ($5 billion)
4. former Nigerian President Sani Abacha ($2 billion – $5 billion)
5. former Yugoslav President Slobodan Milošević ($1 billion)
6. former Haitian President Jean-Claude Duvalier ($300 million – $800 million)
7. former Peruvian President Alberto Fujimori ($600 million)
8. former Ukrainian Prime Minister Pavlo Lazarenko ($114 million – $200
million)
9. former Nicaraguan President Arnoldo Alemán ($100 million)
10. former Philippine President Joseph Estrada ($78 million – $80 million)
Five Function of Bureaucrats
• Implement the law
• Provide expertise
• Provide research and information to the
executive officials
• Provide research and information to
legislatures
• Quasi-judicial powers and responsibilities
Weberian Model of Bureaucracy
Bureaucracies as rational, hierarchical organizations
in which power flows from the top downward
• Decisions are based on logical reasoning and data
analysis.
• Division of labor
• Chain of command
• Formal rules
• Apolitical (neutral decision making)
• Advancement based upon merit
• Bureaucrats are salaried by superior institutions
Democracy and Bureaucracy
Issues in Politicization of the Bureaucracy
Policymaking
Some issues:
•Management of the economy
•Health care
•Old age pensions
•Inflation
•Unemployment
•Distribution issues
•Crime
•Globalization
•Human rights
•Migration
Human Development Index
Development Strategies
• Import-Substitution Industrialization
• Export-Oriented Industrialization
Should government stay out of
the economy?
• Yes: markets choose better than states
• No: the East Asian miracle
– Positive aspects
– Illiberal aspects
Income Inequality
Income Inequality (Over Time)
Income Inequality – Selected States
Sweden
Russia
India
France
Britain
United States
South Africa
Brazil
Namibia
Gini coefficient
Richest 10%:Poorest 10%
.250
.310
.325
.327
.360
.466
.578
.593
.707
6.2
7.1
7.3
9.1
13.8
15.9
33.1
68
128.8
Dealing with inequality
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Subsidies
Transfer payments
Progressive taxation
Land reform
Whom to aid: cities vs. country-side