8.5: Student Resources

Key Terms

• Bourgeoisie refers to the upper middle classes, who often own most of a society’s wealth and means of production.
• Capitalism, also referred to as "free market capitalism," is a political-economic system in which individuals and private entities are able to own land and capital needed to produce goods and services.
• Command and control is an approach to the economy in which the government owns most, if not all, means of production; it does not rely on the free market, and the state instead makes all economic decisions. 
• Communism is where the state, usually dominated by one party, is in complete control of the political economic system, including all property.
• Comparative advantage refers to the goods, services, or activities that one state can produce or provide more cheaply or easily than other states.
• Comparative political economy (CPE) is the comparison across and between countries of the ways in which politics and economics interact.
• Competition occurs when industries, economic firms, and individuals vie to obtain goods, products, and services at the lowest prices.
• Deregulation involves the removal of government power in a particular industry or economic area.
• Economic growth is the process by which a state's wealth increases over time.
• Economic liberalism relies on a set of policies to promote free market capitalism, namely through deregulation, privatization, and liberalization.
• Economic nationalism is attempts by a state to protect or bolster its economy for nationalist goals.
• Economic structuralism describes a set of policies that aims to protect the working class from exploitation of the capital-owning class due to economic structures--domestically and internationally--such as inequality, uneven development, property rights and ownership, specialization, and trade.
• Economies of scale is the ability to "produce goods at a lower average cost."
• Fiscal policy collectively refers to a state's system of taxation, spending, and regulation.
• Hyperinflation is a severe form of inflation (often defined as rates exceeding 50 percent per month).
• Import-substitution industrialization (ISI) refer to state policies that attempt to reduce the state's dependence on foreign companies through increased domestic production.
• Inflation is a general increase in prices, usually within a given period of time.
• Interest rate is the percentage of a loan amount charged by a lender.
• International political economy (IPE) is the study of political economy from a global perspective that focuses on topics like trade, finance, and international financial and monetary institutions. 
• International trade is the exchange of goods, services, and activities between states.
• Laissez-faire is an approach in which the government chooses not to interfere in its economy (or to interfere only minimally); it instead relies on free market forces.
• Liberalization is the loosening of government controls (allowing for more free market-oriented policies).
• Market is the exchange of goods and services within a given territory.
• Marxism is a philosophy in which the means of production are collectively owned by workers, not privately owned by individuals.
• Mercantilism is a political economic system that seeks to maximize a state's wealth through increasing exports and limiting imports.
• Monetary policy includes all actions taken by a state’s central bank to affect the money supply.
• Non-tariff regulatory barriers are restrictions on trade not involving a tariff or a quota, such as offering tax breaks or providing government subsidies for specific domestic industries.
• Political economic system describes the relationship between political and economic institutions within a given state.
• Private goods are economic resources that are acquired or owned exclusively by a person or group.
• Privatization is the selling of government-owned assets.
• Property is a resource or commodity that a person or group legally owns.
• Property rights are the legal authority to dictate how property, whether tangible or intangible, is used or managed.
• Protectionism is a set of policies aimed at protecting a state's domestic industry through subsidies, favorable tax treatment, or by imposing tariffs on foreign competitors.
• Public goods are goods and services provided by the state that are available for everyone in society.
• Quotas are limits on the number of foreign goods coming into a country.
• Recession is two consecutive quarters of declining economic activity.
• Regulations are rules imposed by a government on society.
• Self-interest is the means through which individuals can act on their own behalf to make choices that benefit themselves.
• Social democracy is a political and economic system that favors heavy market regulation to achieve a more equal society.
• Socialism is where property and the means of production are collectively owned, but some individual ownership is allowed (e.g., one's house).
• Tariffs are taxes imposed on imported foreign products with the purpose of making those products more expensive.
• Taxation is the process of a government collecting money from its citizens, corporations, and other entities.
• Wealth distribution is how a state's goods, investments, properties, and resources--collectively known as "wealth"--are divided amongst its population.
• Zero-sum game is a situation in which one person, or entity, gains at the equal cost of another.

Summary

Section 8.1: What is Political Economy?

Political economy is a subfield of political science that considers various economic theories (e.g., capitalism, socialism, communism, fascism), practices, and outcomes either within a country, or among and between countries in the global system. In its simplest form, political economy is the study of the relationship between the market and powerful actors like a state's government. The foundations of political economy can be traced back to the works of Plato and Aristotle, though the most modern initiation of the discussion stems from Adam Smith's work in The Wealth of Nations. States can affect the market through a variety of measures, such as regulations, taxation, fiscal policy, and monetary policy.

Section 8.2: Political Economic Systems

A political economic system describes the relationship between political and economic institutions within a given state. A major variable determining this system is the role the state plays in its economy. At one extreme, a government can take a laissez-faire ("let it be") approach. A laissez-faire approach is one in which the government chooses not to interfere in its economy (or to interfere only minimally); it instead relies on free market forces. At the other extreme, a government can take near complete control of its economy. A command and control approach to the economy is one in which the government owns most, if not all, means of production; it does not rely on the free market, and instead the state (or some agent representing the state, such as a political party) makes all economic decisions. Almost all contemporary political economic systems fall somewhere between these two extremes. There are four main political economic systems: mercantilism, capitalism, Marxism (socialism and communism), and social democracy.

Section 8.3: Comparative Case Study - Germany and China

Germany and China have different economic systems, but both play prominent roles in the global community as major exporters. When countries are large exporters, they can experience similar problems despite their very different economic systems. Both China and Germany's political leaders need to constantly and carefully balance the domestic concerns of their economies alongside their global customers who depend on their exports. If the global customer base fails, or switches trade partnerships, the Chinese and German economies will be unable to thrive. Beyond this, relying on exports leaves states vulnerable to the economic conditions of those they trade with; if a state is no longer able to afford the product or buy the good, the exporter will struggle.

Review Questions

1. What is the field of political economy concerned with?
   1. international organizations like the World Bank and the International Monetary Fund
   2. the relationship between political and economic policies
   3. international monetary policies and domestic fiscal policies
   4. comparative advance and the balance of trade
2. Which theory in this chapter credits capitalism, globalization, and international trade with contributing to poverty in developing countries?
   1. economic liberalism
   2. economic realism
   3. economic nationalism
   4. economic structuralism
3. Which option below best describes the concept of comparative advantage?
   1. countries compete by trying to produce all items and products within their own country, working to decrease reliance on imports
   2. countries compete by trying to outsource all production, working to increase reliance on imports
   3. countries cooperate economically, encouraging countries to produce what they are most efficiently and cheaply able to produce relative to other countries
   4. none of the above
4. Which theory described in this chapter argues that once economic inequalities are apparent, they have a tendency to become self-perpetuating?
   1. feminism
   2. economic liberalism
   3. mercantilism
   4. economic structuralism
5. What is autarky?
   1. a situation where countries trade freely with each other
   2. a situation where a country does not trade with other countries
   3. a situation where a country is only able to trade with a few countries
   4. a situation where countries work to destabilize other economies

Answers: 1.b, 2.d, 3.c, 4.d, 5.b

Critical Thinking Questions

1. What contributed to the rise of political economy as a field of academic study? Describe the factors involved and discuss implications for future research and study.
2. What lessons can we learn from the responses to the COVID-19 pandemic about the importance of political economy?
3. There are a number of different belief systems about the appropriate role of government in economic affairs. How do these beliefs manifest in practical terms? Consider the application of these different belief systems in the context of energy and environment policies.
4. The effects of changes in climate and the environment can impact countries in uneven and, arguably, unfair/inequitable ways. To what extent do various economic systems respond or react to these inequalities/inequities? Are some economic systems more able to handle environmental and climate shifts? If so, how?

Suggestions for Further Study

Websites

• Gini Index, World Bank
• Global Economic Indicators
• Our World in Data
• The World Bank, World Development Indicators

Journal Articles

• Acemoglu, D., S. Johnson, and J. Robinson. (2001). “The Colonial Origins of Comparative Development: An Empirical Investigation” American Economic Review, 91, 1369-1401.
• Rodrik, D. (1997). “Sense and Nonsense in the Globalization Debate.” Foreign Policy 107: 19-37.
• Valenzuela, J.S. and A. Valenzuela. (1978). “Modernization and Dependency: Alternative Perspectives in the Study of Latin American Underdevelopment.” Comparative Politics 10:4 (July), pp. 535-557.

Books

• Piketty, T. (2017). Capital in the Twenty-First Century. The Belknap Press of Harvard University Press.
• Spero, J. E. (1990). The Politics of International Economic Relations. St. Martin’s Press, Inc.
• Stilwell, F. (2011). Political Economy, the Contest of Economic Ideas. Oxford University Press; 3rd Edition.