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Comparative Political Economy

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Title: Comparative Political Economy


1
Comparative Political Economy
  • Western Industrialized Democracies

2
I. The Classical View of Macroeconomics
  • Long-run growth determined by population (labor
    supply), technology, and wealth (supply of
    capital)
  • Market self-corrects for deviations from long-run
    growth rate (no politics, hence no political
    economy)
  • Key Assumptions Flexible Wages, Flexible Prices
  • Implications
  • No one loses a job when demand is low (wages
    fall, or they get another job with lower wages)
  • No unsold inventories (suppliers simply lower
    prices as needed)

3
E. Problem Ever-larger economic shocks
4
II. Keynesian Macroeconomics A Simplified
Explanation
  • Keynes In the long run we are all dead. ?
    Focus on managing short-run fluctuations
  • Key Variables
  • Dependent variables
  • Output Real Gross Domestic Product (GDP)
  • Inflation Rate of increase in prices
  • Unemployment People looking for work but unable
    to find it

5
2. Independent Variables
  • Consumption Function (70 of US GDP)
  • Primarily determined by disposable income Income
    Net Taxes
  • Net Taxes Taxes - Transfers

6
Consumption and Disposable Income
Consumption function C c0 C1YD
Consumption, c
Slope c1
Disposable Income,YD
7
b. Investment (10 of US GDP)
8
c. Government spending (20 of US GDP after
transfers)
9
B. Economic growth in the short run Supply and
Demand
  • Aggregate Demand
  • Definition How much stuff everyone in society
    buys at a given price level
  • Demand Consumption Investment Government
    Spending Exports Imports

10
Aggregate demand curve
Higher prices
Lower prices
Aggregate demand
Less output demanded
More output demanded
11
2. Aggregate Supply
  1. Definition How much stuff firms choose to
    produce and sell at each price level
  2. Supply curve determined by income (ability to
    produce at a given price level)

12
Aggregate Supply Curve
Higher prices
Aggregate supply
More output supplied
13
3. Equilibrium Where supply meets demand
  1. Best single predictor of economic output.

14
b. Equilibrium effects of increases in aggregate
demand on output
Price level
AD1
O
Y2
Y1
Y3
Y4
YP
National output
15
c. What shifts aggregate demand?
  • Remember the equation Demand Consumption
    Investment Government Spending Exports
    Imports
  • So changes in any one of these independent
    variables can shift aggregate demand at a given
    price level (policy levers ? political economy)

16
4. Disequilibrium
  1. Definition Actual price level is higher or lower
    than equilibrium point
  2. Equilibrium may be unstable Example of Great
    Depression

17
Macro Disequilibrium Oversupply and Low Demand
Aggregate supply
P1
PE
Aggregate demand
QE
S1
18
c. Equilibrium may be Undesired Excessive
Unemployment
Aggregate demand
Aggregate supply
E
PE
F
P
Equilibrium output
Full employment
QE
QF
19
C. Keynesian Policy Recommendations
  1. Focus on demand side by manipulating
    independent variables such as government spending
    and taxes
  2. If people demand a product, producers will supply
    it ? get money into peoples hands and production
    will rise
  3. Spending increases more effective than tax cuts
    All of spending is consumption but some of tax
    cuts will be saved by taxpayers instead of being
    used for consumption

20
D. The Success of Keynesian Policies
Countercyclical Management
21
III. Alternatives to Keynesian Macroeconomics
  • Problem Emergence of stagflation in 1970s
  • Cause External force shifted supply curve (firms
    less willing to supply at a given price)
  • Leading suspect Oil price shocks increased costs
    of production so much that even large increases
    in price didnt stimulate more production
    (simultaneous inflation and unemployment ?
    recession)
  • Effect Negated the Philips Curve

22
Unemployment and inflation The Philips Curve
(US, 1960s)
23
BUT High inflation can create expectations of
future inflation
24
3. Why not increase government spending?
  • Increased spending increased inflation even
    further (usually not a problem, since inflation
    is low during recessions)
  • Very large deficits limited governments ability
    to spend (in US Vietnam expenses and increased
    social spending)

25
B. Demand-side alternative Monetarism
  1. Interest rates and money supply affect peoples
    willingness to buy at a given price
  2. Shift demand curve by manipulating interest rates
    or money supply (Interest rates actually easier
    to manipulate! We dont know what money is
    anymore.)
  3. Increase interest rates (reduce money supply) to
    cut inflation at expense of increasing
    unemployment (induce a recession to prevent
    stagflation). Key is to alter expectations of
    future inflation.
  4. Cut interest rates to lower unemployment at
    expense of increasing inflation (economic
    stimulus)

26
5. Example The US Monetary System
  1. The Federal Reserve Board Created in 1913 to act
    as a central bank (mixes public appointees with
    private banks)

27
b. Functions of the Federal Reserve
  1. Conduct Monetary Policy
  2. Formal mandate Low inflation and Low
    Unemployment
  3. Actual policy emphasizes low inflation over full
    employment or economic growth
  4. Serve as a lender of last resort to commercial
    banks within the District
  5. Issue Currency In God we Trust
  6. Provide Banking Services to the U.S. Government
  7. Supervise and regulate financial institutions

28
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29
c. The FRB Toolkit
  • Buying/selling government securities
  • Stimulation Fed purchases U.S. Government
    Securities in the bond market (U.S. Treasury
    Notes) Raises bond prices reduces interest
    rates
  • Cash flows from the Fed to sellers of bonds
    sellers deposit cash in their banks, thereby
    increasing the nations deposits and the excess
    reserves of the banking industry
  • Restraint Fed sells U.S. Government Securities
    in the bond market (U.S. Treasury Notes) Lowers
    bond prices increases interest rates
  • Cash flows from the banks to buyers of bonds and
    ultimately to the Fed, thereby reducing the
    deposit accounts and restricting the ability of
    commercial banks to loan money

30
ii. Alter the Fed Funds or Discount Rates
  • Fed Funds Rate the interest rate commercial
    banks must charge one another to lend or borrow
    on an overnight basis for reserve management
    purposes
  • Discount Rate the interest rate commercial banks
    must pay the Fed to borrow directly from the Fed
    for reserve management purposes

31
iii. The reserve rate The Feds ultimate weapon
  • Amount of cash banks have to keep on hand to
    cover withdrawals
  • Use of this tool would be perceived as a reaction
    to extraordinary events
  • Fed will be very cautious and publicize its
    intentions well in advance
  • Last time required reserves changed 1980
    resulted in a credit crunch that plunged the
    economy into the worst recession since the Great
    Depression

32
6. The role of Banks in Monetary Policy
  • a. Banks Create Money Banks can be viewed as
    counterfeit operations authorized by the
    government, and are an essential tool in
    affecting monetary policy
  • Banks lend money that they dont have -- so they
    are essentially minting their own currency!
  • Reserve requirements set by the government
    determine the extent to which banks can
    counterfeit

33
b. Banks depend on confidence
  • Customers could bankrupt a bank simply by asking
    for all of their reserves back, which they can do
    at any time.
  • Customers dont ask for their money back when
    counterfeiting is profitable and they earn a
    part of the returns (interest)
  • Customers will tolerate the behavior only as long
    as they believe that the bank is reputable in
    this activity

34
c. Money creation through fractional reserves
The money creation process Making one loan
creates the opportunity to make another loan, a
process which continues in perpetuity. Step 1
Bank issues a promissory note for which there is
no direct reserve. (ie. the bank makes a loan
and gives the borrower a receipt against that
banks reserves) Step 2 This receipt (loan) is
traded for a good or service (promissory note is
passed on to a new holder) Step 3 The
promissory note is deposited back into a bank by
the new holder, creating a new deposit (bank
liability). Step 4 The promissory note is
available once again to be loaned.
35
Money Creation Example
  • A bank receives 100 Million in deposits, keeps
    20 million in reserve.
  • But the 80M in loans returns to the banking
    system somewhere else -- the second generation
    bank

Assets Liabilities
Reserve 16 M Dep. of loan from 1st bank 80 M
Loans from new deposit 64 M
The third generation bank receives 64 million of
new loan deposits, allowing another 51.2 million
in loans
Assets Liabilities
Reserve 12.8 M Dep. Of loan from 2nd bank 64 M
Loans from new deposit 51.2 M
36
New Deposits New loans/ Investments Cash reserve balances
Original Bank 100 M 80 M 20 M
2nd generation bank 80 64 16
3rd generation bank 64 51.2 12.8
4th generation bank 51.2 41.0 10.2
5th generation bank 40.9 32.8 8.2
6th generation bank 32.8 26.2 6.5
7th generation bank 26.2 21.0 5.2
8th generation bank 21.0 16.8 4.2
9th generation bank 16.8 13.4 3.4
10th generation bank 13.4 10.7 2.7
Sum of first 10 banks 446 M 357 M 89 M
Sum of remaining banks 54 M 43 M 11 M
Total for banking system 500 M 400 M 100 M
37
7. Is Monetary Policy Effective?
  • Easy to curb inflation (excess money) -- at cost
    of lower growth / recession and increased
    unemployment
  • Harder to stimulate growth
  • Example Fed can lower interest rates, increase
    the banks deposits BUT
  • It cannot force a broke person (business) to
    borrow
  • Good risks in prosperous times become poor risks
    in recessionary times
  • Central banks ability to stimulate often
    compared to problem of trying to push a string
    no matter how much effort you give it, it just
    doesnt move much

38
C. Supply-side economics
  1. Adverse shift in supply curve means BOTH higher
    prices (inflation) AND lower output (recession
    and unemployment)
  2. Demand-side shifts cannot simultaneously boost
    production and lower inflation
  3. Solution Shift supply curve by altering ability
    and willingness of firms to produce at a given
    price point
  4. Policy levers Corporate tax cuts, deregulation,
    increased labor supply (immigration), lower
    tariffs on raw materials, education and training
    (increases in per-worker productivity) etc.

39
D. Comparison Keynes, Monetarists, and
Supply-Siders
40
1. Responding to Recession
Theory Recommendations
Keynesian Increase spending and cut taxes to stimulate demand
Monetarism Wait it out, since stimulus would increase inflation
Supply-Side De-regulate, cut taxes on business, increase incentives to produce
41
2. Responding to Inflation
Theory Recommendations
Keynesian Cut spending and increase taxes to reduce demand
Monetarism Tighten money supply and convince public it will remain tight
Supply-Side De-regulate, cut taxes on business, increase incentives to produce and save (inflation too much money, not enough goods)
42
E. Conclusions
  1. Economics has become political Few classical
    economists around anymore, and they dont get to
    stay in office!
  2. Political choices (fiscal policy, monetary
    policy, trade policy, immigration policy, etc)
    affect economic outcomes
  3. Political Business Cycle Desire to stimulate
    economy before election at expense of
    slowdown/recession after election

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4. Summary The Macro Political Economy
DETERMINANTS
OUTCOMES
MACRO ECONOMY
45
V. Characteristics of Monetary Policy
  • The Choices
  • Central Bank dependence vs independence

46
The Time Inconsistency Problem
  • Policymakers have incentives to promise low
    inflation (economic stability, prevent more
    inflation)
  • Policymakers have incentives to renege on
    promises of low inflation to increase
    growth/employment (political business cycle)
  • Problem Private actors know these incentives and
    therefore anticipate high inflation by raising
    wages and prices, so short-term stimulus fails to
    do anything except further increase inflation
  • Solution Central bank independence makes
    low-inflation promises credible, prevents
    political manipulation

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49
I. Characteristics of Monetary Policy
  • The Choices
  • Central Bank dependence vs independence
  • Exchange rate regimes fixed vs. floating

50
Exchange Rates Fixed vs. Floating
  • Floating Government has more autonomy because
    has no duty to pay specific amount for own
    currency (not backed with gold or other reserves)
  • Fixed Government promises to exchange specific
    amount of gold/reserves for currency. Government
    cannot release too much money or speculators may
    try to cash in and break the bank

51
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52
I. Characteristics of Monetary Policy
  • The Choices
  • Central Bank dependence vs independence
  • Exchange rate regimes fixed vs. floating
  • Wage-setting institutions centralized vs
    decentralized

53
Wage Coordination Problem
  • Even where workers wish to avoid wage-price
    spiral, incentives to free-ride on other workers
    restraint
  • So each union assumes that other settlements will
    be inflationary and compensates by raising its
    own demands
  • Coordinated bargaining reduces ability to
    free-ride by imposing same agreement on all
    workers allows incomes policy

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55
4. Comparison Economic Institutions in Five
Industrialized Democracies
UK France, US Germany Japan
Central Bank Indep Medium High (US) High (Fr) High Medium
Wage-Setting Decent. Strong, fragmented unions Decent. Weak, fragmented unions Centralized by industry Shunto (Pattern-setting industries)
Increased from Low in last 20 years
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IV. Economic Learning by Leaders, 1973-2000
  • Cross-national differences are not static
    Countries seem to learn and change in response
    to crises
  • Three types of change
  • Alter the usual variables (incrementalism)
  • Try a different variable (innovation)
  • Rethink how all settings work together and alter
    many at once (paradigm shift)

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61
A. Japan
  • Initial system Large, interlocking alliances
    with government sponsorship (keiretsu)
  • Dangers of inflation High growth rates combined
    with fear of social instability from unemployment
  • National labor talks produce 30 wage increases
  • 1973 Oil Shock Policy inconsistency
  • Japan received 82 of oil from Middle East
  • Initial price shock causes inflation fears
  • Workers demand raises to compensate
  • Increased wages lower profits ? lower investment
    and recession (worst one in any industrialized
    nation in terms)
  • Attempts to tighten money to fight inflation
    deepen recession
  • Crisis ends when price shock stabilizes, prices
    allowed to rise, full employment resumes

62
3. 1979 Oil Shock Consistency
  1. Response Immediate tightening of money supply ?
    only mild reduction in profits/investment
  2. Fine-tuning prevented wage-price spiral

63
4. The 1980s Export-led growth
  1. Huge trade surplus bolsters demand throughout
    1980s
  2. However, non-export sectors begin to encounter
    problems (low productivity increases, unable to
    lay off workers)
  3. Banks tied to failing enterprises prop them up
    with profits from successful ones (no problem as
    long as exports continue to surge)
  4. Profits from exports lead to easy money for
    banks ? speculation in stocks and real estate
  5. 1986-1990 The Bubble Stocks and real estate bid
    up by bankers and investors ? choicest parcels
    bid up to 93,000 per square foot

64
5. Early 1990s The Bubble Bursts
65
5. Early 1990s The Bubble Bursts
  1. Late 1989 Central Bank raises interest rates in
    effort to deflate bubble --gt reduces investment
    in stock market, popping a bubble in stocks ?
    Crash

66
The Stock Market Crashes
67
5. Early 1990s The Bubble Bursts
  1. Late 1989 Central Bank raises interest rates in
    effort to deflate bubble --gt reduces investment
    in stock market, popping a bubble in stocks ?
    Crash
  2. Failing domestic enterprises lead banks to slow
    investment, call in some loans ? discover many
    loans are unrepayable
  3. Result is credit crunch as businesses and banks
    (tied together) try to reduce own debt load
    instead of expanding production

68
A Credit Crunch Emerges
69
6. The Lost Decade A Failure of Governance?
  1. 1988 law reduces workweek from 44 to 40 hours by
    1992 (? lower per-worker productivity)
  2. Government maintains tight money supply, leading
    to deflation (money sucked out of economy leads
    to expectations of lower prices, leading to
    saving instead of consumption, leading to price
    cuts, etc)
  3. Government tries to loosen money supply by
    cutting interest rates, but even ZERO interest
    fails to spark investment (business cartels are
    trying to reduce debt load and banks are skittish
    about lending)
  4. By 2004, prime "A" property in Tokyo's financial
    districts had slumped to less than 1 percent of
    its peak

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GDP Growth Rates (Compare to US 2.5 for 1990s)
72
B. United Kingdom
  • Initial system Internal and external goals
  • Internal Commitment to full employment, to be
    achieved by wage restraint (politically unstable
    combination) ? general tool of incomes policy.
    Inflation fought by measures to increase
    production ( lower unit prices, in theory, but
    failed).
  • External Maintain value of the pound to sustain
    Commonwealth stability/trade (removed certain
    monetary options like devaluing currency or
    inflation)

73
2. The 1973 Crisis Political Instability and
Paradigm Shift
  • Conservatives lose power
  • The Social Contract Informal agreement between
    Labour and labor
  • Labour converts to monetarism! Exchanges promise
    of no price rises for voluntary wage restraint.
    Allows pound to fall.
  • Bargain fails subsidies and sales tax cuts to
    hold down prices lead to huge deficits ?
    inflation through government spending monetary
    instruments fail to control money supply until
    mid-1980s government consistently overestimates
    future productivity growth
  • Wage-price spiral follows, along with recession

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3. The 1979 Crisis Thatcherism
  1. Winter of Discontent Labor turns on Labour
  2. 1979 Thatcher elected on promises to cut
    spending, cut taxes, curb inflation, deregulate
    (supply-side stimulation and monetarist
    deflation). Unable to effectively control money
    supply (lack of adequate measures remember the
    Feds solution)
  3. Government soon abandons attempts to cut
    spending/taxes ? both rise
  4. 1980 North Sea oil begins to increase revenues
    BUT leads to overpricing of British goods (Dutch
    disease exchange rate distortions) and decline
    in domestic manufacturing

76
4. The 1980s Monetarism abandoned
  • Problem Monetary control without proper exchange
    rate controls killed inflation but also much of
    the UK manufacturing base
  • Government gradually seeks integration with
    European monetary policy to control both
    inflation and exchange rates
  • Integration fails Europe unable to stabilize
    pound (well see why when we get to Germany)

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5. The 1990s Return to stability
  • Anti-inflation policies finally pay off
    Government began targeting real interest rates
    instead of nominal rates or money supply
  • Pound allowed to sink
  • 1997 Central bank independence increased

79
C. France
  • Before the crises Dirigisme
  • Government owns energy, infrastructure, defense,
    communications industries
  • Unions are weak (no exclusivity or closed shops),
    so workers look to government to set wages and
    working conditions

80
2. 1973 Government tries to cushion shock
  • Efforts to increase social spending and stimulate
    economy lead to high rates of inflation
  • 1976 New P-M focuses on deflation. Allows
    unemployment to rise in order to hold down
    inflation. Balanced budgets become norm.
  • No effort to deal with unions by Conservative
    governments

81
3. 1979 Socialism Fails
  1. Voters elect Socialists
  2. Socialists nationalize more industries to prevent
    them from failing and achieve strategic control
    of economic development
  3. Socialists raise wages (also increase benefits,
    lower hours per week) and make it harder to fire
    union leaders and other workers (thus increasing
    unemployment), also stimulate economy through
    spending, hoping to increase productivity enough
    to offset inflation (complete failure)

82
Unemployment in France
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4. The 1980s Malaise
  1. Recession avoided in France BUT cost was
    continued high unemployment and inflation
  2. Socialists retreat from economic stimulus,
    lowering inflation and tying the Franc to the DM
    -- BUT are blamed for previous failures and lose
    power in 1986

85
5. The 1990s Still More Malaise
  • The plan Competitive disinflation argued that
    keeping inflation lower than neighbors (UK and
    Germany) would make France more competitive and
    increase unemployment
  • Central Bank independence dramatically increased
    to fight inflation
  • Problem Huge gains in competitiveness
    unacceptable to French trading partners

86
D. (West) Germany
  1. Prior to crisis Strong, independent central bank
    (with price stabilization mandate) combined with
    national-level labor-industry wage bargaining.
    High job security, with government tasked with
    full employment and unions free to pursue max
    of economy as wages.
  2. The 1973 Shock Government implements
    counter-cyclical Keynesian policies, but has
    little effect on unemployment (manages to
    increase deficit/debt, however). Hiring freeze
    on foreign workers has some effect, causing some
    migration.

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3. The 1979 Shock
  1. Shock is widely perceived as loss of
    competitiveness (real effect was largely on
    exchange rates)
  2. Business anticipates downturn and cuts
    investment, people then follow by cutting
    consumption
  3. Policy recommendations from Council of Economic
    Experts Dont stimulate demand-side at all,
    since this would cause inflation. Instead reduce
    regulations on investment. (Shared by Bundesbank
    and FRG)
  4. Policy recommendations from Trade Unions
    Stimulate demand to provide full employment
    (shared by SPD)
  5. Government coalition (SPD plus FDP) is divided
    FDP joins CDU to form conservative government in
    1982

89
4. The 1980s A Conservative Approach?
  1. Little deregulation subsidies not cut mild
    reductions in spending growth and taxes
  2. Firms do invest more but they invest in
    labor-substitution instead of new jobs!
  3. Inflation controlled by Bundesbank, unemployment
    continues through most of decade

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5. The 1990s Reunification
  1. Immediate problem East German industry cannot
    compete ? high unemployment
  2. West Germany promises to exchange DM for Ostmarks
    11 (essentially means printing lots of money)
  3. Massive wage increases for East German workers
    (benefit of West German labor contracts)
  4. Bundesbank restricts money supply to prevent
    massive inflation (? recession in 1993 and
    unemployment throughout decade)

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E. Conclusions National Political Differences
Drive Economic Differences
  • Democratic leaders learn When economic programs
    fail, leaders try new ideas ? policy
    inconsistency
  • Greater crises greater changes in economic
    management

94
The Economic Crisis, 1972-1983
95
E. Conclusions National Political Differences
Drive Economic Differences
  1. Democratic leaders learn When economic programs
    fail, leaders try new ideas ? policy
    inconsistency
  2. Greater crises greater changes in economic
    management
  3. Economic voting can be sophisticated French
    Socialists dont get credit for tight money and
    German Conservatives arent blamed for high
    unemployment

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E. Conclusions National Political Differences
Drive Economic Differences
  1. Democratic leaders learn When economic programs
    fail, leaders try new ideas ? policy
    inconsistency
  2. Greater crises greater changes in economic
    management
  3. Economic voting can be sophisticated French
    Socialists dont get credit for tight money and
    German Conservatives arent blamed for high
    unemployment
  4. Path dependence Previous choices can constrain
    current policy options
  5. Critical variables include central bank
    independence, exchange rates, wage-setting
    institutions, and job protection
  6. International trade critical to most non-US
    economies

98
V. Culture and Growth?
  • A. Communitarianism and Asian Values

99
1. Japanese Management less popular in Japan.
100
2. Personal Economic Values?
  • Dentsu survey (1997-1998) Japan, China, South
    Korea, Thailand, Singapore, Bombay (Asians),
    United Kingdom, France, Germany, Sweden, and the
    United States (New York City).
  • Respondents asked to evaluate the relative
    importance of nine attributes
  • "financial wealth NO SIGNIFICANT DIFFERENCE
  • "acquiring high-quality goods NO SIGNIFICANT
    DIFFERENCE
  • "family relationships Asians value more
  • "success in work NO SIGNIFICANT DIFFERENCE
  • "mental relaxation NO SIGNIFICANT DIFFERENCE
  • "leisure activity Westerners value more
  • "living for the present NO SIGNIFICANT
    DIFFERENCE
  • "striving to achieve personal goals NO
    SIGNIFICANT DIFFERENCE
  • "having good relationships with others." NO
    SIGNIFICANT DIFFERENCE

101
3. Politics?
  • 1994 Survey of 100 Asians, comparison to larger
    US group
  • Asians more likely to list orderly society as
    very important goal for government
  • Americans more likely to list protecting personal
    freedom
  • But.

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4. Market Capitalism and Culture
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105
B. Bowling Alone Civic Culture
  • Putnams experiment
  • Italy 15 identical regional governments
    situated in different economic and cultural
    contexts. Did they perform differently? If so,
    why?

106
Political-Economic Performance in Italy
  • Performance has been quite varied. Government in
    the North good government in the South not
    so good.
  • Institutions are the same but performance varies.
    WHY?

107
Competing hypotheses regarding the difference
between North and South
  • Hypothesis 1 Economic development. The North is
    rich, the South is poor.
  • Hypothesis 2 Culture. Civic culture is high in
    the North, low in the South.

108
Explanations for the difference between the North
and the South?
  • Putnam Hypothesis 2 (Culture) better explains
    Italian history
  • Why? Because the cultural differences observed
    in Northern Italy emerged first, before the
    economic differences, and long before the
    political ones.

109
The historical argument . . .
  • Medieval Italy a time of great violence and
    anarchy. Insecurity was a constant fact of life.
  • In the South the solution was to strengthen the
    power of the king, who could then secure the
    area.
  • In the North the solution was self-governance
    and mutual aid and defense.

110
The historical argument . . .
  • These different solutions had a long-lasting
    impact on the cultural traditions of the areas.
    A rich associational life flourished in the
    North, atrophied in the South.
  • Furthermore, these cultural traditions emerged
    well before economic differences became
    entrenched.
  • Thus, culture preceded politics and economics.

111
2. Putnams Theory of Associational Effects on
Polticis and the Economy
  • Rich associational life (social capital) gt
    Solves collective action problems.
  • Rich associational life means people interact
    repeatedly with one another, which helps them
    identify and punish free-riders.
  • Rich associational life also promotes norms of
    reciprocity.

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3. Objections and Limitations
  • Cooperation might be good or bad for democracy.
    (Associational groupings contributed to Hitlers
    rise)
  • Olson fears distributional groups in place of
    encompassing groups
  • Growth ? inequality, which decreases trust
  • Liberalism good government is founded on
    distrust!
  • Institutions can produce/reduce trust difficult
    to apply theory to different systems
  • Measurement issues make social capital
    difficult to incorporate in predictions

114
Trust Produced by Institutions
115
C. Post-Materialism?
  • Ingleharts argument People in Western
    democracies have expanded their goals beyond
    material satisfaction to matters of value
    (environmentalism, social justice)

116
Inglehart
  • In a major part of the world, the disciplined,
    self-denying and achievement oriented norms of
    industrial society are giving way to the choices
    over lifestyle which characterize post-industrial
    economies.
  • This was written in the 70s has the rising tide
    of globalization changed this assertion by
    Inglehart?

117
1. The Basic Argument
  • Materialist Post-Materialists
  • Religion Sexual Morality
  • - Fixed rules flexible rules
  • - Political religious
  • - Order
    authority dismissed
  • - Security - self-expression
  • Other issues
  • - Elite sustaining - - Political
    parties - elite challenging
  • - single issue groups
  • More educated affluent a democracy the higher
    the proportion of post-materialists

118
1. The Post-Materialist Challenge
Issue Materialist Post-Materialist
Law and Order Fixed rules respect for government and church Flexible rules political and religious authority challenged
Social Stability Security most important Self-expression most important
Politics Political Parties Single-Issue Groups
Elite Authority Respected Challenged
119
2. Measuring Post-Materialism a. Tradition vs.
Secularism and Survival vs. Self-Expression
120
b. Regional value differences Recent
121
b. Regional value differences Changes
122
3. Is Culture an independent variable? a.
Nationality trumps religion
123
b. Simplest explanation for post-materialism
Income!
124
c. Income also increases secularism
125
D. Conclusions on Culture and Growth
  1. Asian Values do exist, but East-West gap is
    shrinking
  2. Political values have converged more rapidly than
    economic values
  3. Social trust is associated with growth, but both
    may be produced by institutions
  4. Post-materialism appears to be determined by
    economy (dependent) rather than cause of economic
    growth (independent)
  5. Culture had difficulty explaining change over
    time within countries (the national stories of
    the US, UK, France, Germany, and Japan) rates of
    change are different
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