Comparative Politics 2300 Week 14 Notes
Comparative Politics 2300 Week 14 Notes POLC2300-06
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This 5 page Class Notes was uploaded by Jillian Marks on Thursday April 14, 2016. The Class Notes belongs to POLC2300-06 at Tulane University taught by Oliveros, Virginia in Spring 2016. Since its upload, it has received 9 views. For similar materials see Comparative Politics in Political Science at Tulane University.
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Date Created: 04/14/16
Comparative Politics: Economic Development 1. How do states promote economic development? 2. Why is there so much variation in economic development? I. Variation in Economic Development A. Taxation 1. All states intervene in economy because need taxes to survive 2. Tax collection is a massive collective action problem In individuals’ best interest to not pay taxes but in group’s best interest for everyone else to pay taxes One reason we have states is to solve this problem 3. Countries with higher taxes because provide more services, welfare state Ex. Sweden, Denmark, France U.S. has lower taxes B. Protection against market failures 1. Market failure – failure of an economic market to produce or distribute needed or wanted goods/services 2. Sometimes states intervene in “normal” market failures, also to deal with a crisis 3. Market failures Underproduction of public goods - Public goods – a good that no one can be excluded from consuming Ex. Clean air, water, defense No incentive to produce Consequences of increasing returns to scale - Average cost per unit decreases as a firm produces more and more can result in a monopoly States intervene to prevent monopolies and maintain competition Monopoly - Single firm controls production, distribution, sale of a particular product, which forces others out of business and prevents competitors from entering Impact of externalities - Externality – an action that affects the welfare of others, whether on purpose or not Ex. Pollution, oil spill C. Degrees of state intervention 1. State intervention – ability to influence or control individuals’ and groups’ economic decisions 2. State can control all economic decisions (difficult to have with a democracy) Ex. North Korea, Soviet Union 3. Individuals/groups can acquire capital, invest, buy/sell with minimal government interference Ex. Ireland, U.S, Singapore (democracies and non- democracies) D. Case for less intervention 1. Economic liberalism – favors minimal state intervention for economic growth Laissez-faire economic policies to protect private property and encourage investment - Low taxes, less expenditures, lower regulations, no barriers for imports 2. Even in liberal states, government regulates market and establishes legal procedures for investment/production E. Case for more intervention 1. Command economies – highly interventionist states in which government controls all economic activity Goal: equality of outcomes State intervention necessary for economic growth and to reduce inequalities Ex. North Korea, past: China, Cuba, Soviet Union Policy: state owns companies, import barriers F. Middle Ground 1. Social democracy – tries to balance capitalist markets/private property with greater degree of state intervention in economy than liberalism in order to reduce inequalities Policy: healthcare, education, pensions high taxes Ex. Germany 2. State-led development – strategy to promote economic growth, including government coordination of private investment, encourage savings, preferential treatment of certain industries regarded as essential for national economic development Goal: growth States trying to join richer countries need to protect their industries Ex. South Korea II. Regime Type and Economic Growth 1. Do democratic governments promote higher levels of economic development? 2. Three arguments 1. Property rights 2. Incentives to consume vs. invest 3. Autonomy of dictators vs. accountability A. Democracy and protection of property rights 1. Democracy supposed to respect property rights Have rule of law which is linked to stable property rights Secure property rights give people incentives to invest Investment is needed for growth B. Democracy and threat to property rights 1. In all countries income distribution is skewed to the rich and the “poor” are the majority 2. If poor allowed to vote, they will win, raise taxes, and redistribute wealth to themselves, which would hurt investment 3. Empirically this doesn’t happen: Poor have weak capacity to solve their collective action problem and seize the state - Lower rates of political participation Rich and poor may share common non-material interests/values - Ex. Social values, religion Structural dependence of state on capital - Capitalists may have veto power over certain policies if their failure to invest will create major problems for the government - If rich have mobile assets they can leave with them so poor will be less likely to raise taxes less redistribution C. Incentives to consume vs. invest 1. Economic growth depends on public and private investment 2. In democracies: Voters may prefer current consumption to potential, future consumption support policies that redistribute assets to consumption at the cost of investment (growth) Even if public isn’t short-sighted, politicians running for re- election may be 3. In dictatorships: Dictators can ignore public opinion and postpone consumption in favor of savings/investment Why would dictators care about future/long-term economic growth? D. Autonomy of dictators good for growth 1. Dictators aren’t subject to as many pressures from special interests/groups as democratic leaders 2. Don’t need to spend money in inefficient way to satisfy interests, can focus on efficient provision of public goods, investment, growth 3. Again, why would a dictator care about providing public goods and growth? E. Autonomy bad for growth 1. Dictators not subject to as many pressures 2. Dictator can do whatever he wants, including making inefficient economic decisions to benefit friends or himself (corruption) 3. Don’t need to worry about next election no incentive to respond to needs of citizens F. Is democracy better for growth? 1. Arguments in both directions Empirical evidence is inconclusive There is a strong, positive correlation between democracies and development, but it is correlational not causal 2. Low income democracies, on average, grow just as rapidly as low- income autocracies 3. Democracies perform better on all indicators of citizen well-being than non-democracies Lower infant mortality rate, better at avoiding economic/humanitarian crises, armed conflict G. Colonial legacies 1. States that emerged first in history tend to be wealthier than those formed later Wealth that many European powers accumulated came partly from colonization 2. Many of the world’s weakest states are post-colonial states 3. Settlement colonies – established primarily as a place for people from Europe to settle Ex. US, Canada, Australia, New Zealand 4. Extraction colonies – established to extract natural resources Bolivia, Brazil, Congo More likely to be impoverished and weak than settlement colonies - Extractive institutions weren’t built for people to live, weren’t created to govern H. Colonization and Institutions 1. Countries with better institutions have more secure property rights and will invest more growth 2. Why some countries have better institutions than others? Different types of colonization policies created different sets of institutions Colonization strategy influenced by feasibility of settlements - Europeans didn’t survive in warmer areas so didn’t establish settlement colonies there The colonial state and institutions “persisted” even after independence I. Conclusion 1. No evidence exists of a tradeoff between democracy and development (in terms of growth) - But, citizens in democracies do live better 2. Optimal degree of state intervention – not too weak or too strong 3. Colonial legacies can impact a country’s long-term economic development through the types of institutions that were established