Assoc. Prof. Murat Somer, CASE 153

E-mail: musomer@ku.edu.tr

Fall 2015 Office Hours:

Tuesdays, 3:00-5:00pm

Chapter 2:Economic Class, Development, Systems and Globalization Learning Objectives

Define key terms such as class, economic development, and globalization.

Describe the social and cultural changes that accompany economic development.

Discuss globalization, its role in economic development, and whether it helps or hurts the poor around the world.

Learning Objectives (cont’d)

Understand resource curse, its political implications, and how it can be defeated.

Describe the class structures, level of economic development, role of the government in the economy, and degree of globalization in the Topic in Countries cases.

Explain the arguments that globalization (1) strengthens states, (2) weakens states, or (3) has mixed effects.

• Class – many definitions □ İndividuals’ wealth and/or income □ occupations, status, and property ownerships

create broadly similar lifestyles and future life chances that a large group of individuals with comparable social and economic attributes share.

■Mode of Production ■Means of Production

Class and Class Structure

Mode of Production

The type of economic system based on methods of production, patterns of property ownership, and relations between workers and owners.

Means of Production

The individual businesses, factories, and other entities that produce goods, as well as the machines and other inputs used to produce them.

• Class □ Working class □ Bourgeoisie (Marxist terminology) □ Proletariat (Marxist terminology) □ Middle class □ Old Middle Class □ New Middle Class □ Upper class □ Underclass

■Measuring Class and Poverty

■Class Structure

Class and Class Structure

Class and Class Structure

Class Consciousness and Its Decline

Individuals become aware of their location in a particular class,

Develop a sense of solidarity, and

Deem important the relationship between their class and other classes.

Class vs. class society

Class consciousness

Mobility

Social, cultural and spatial seggregation

Is Turkey a class society? In Turkey, to what extent is a person’s class determined at birth by the class of the family? To what extent is class the result of effort?

Economic Development Economic Growth and Prosperity

GDP, GDP per capita, and Purchasing Power Parity (PPP)

Human Development Index (HDI)

Prosperity: The overall wealth and standard of living of a country.

Informal Economy: The portion of a country’s economic activity that is either illegal and/or unreported.

Types of Countries Based on Economic Development

Economically developed countries (EDCs)

Lesser developed countries (LDCs)

Least developed of the lesser developed countries (LLDCs)

Newly industrialized countries (NICs)

CITS and Emerging Markets

Countries in Transition (CITs)

The post-Communist states

Some see them as justifying their own development category

Emerging markets

The LDCs and CITs most desirable to foreign investors

Include the “Topic in Country” cases of Brazil, Russia, India, China and South Africa (BRICS)

MINT: Mexico, Indonesia, Nigeria and Turkey

Economic Development The “Resource Curse”

The tendency for developing countries to focus on extracting only certain valuable resources while ignoring broader economic and political development

Seen in many oil producing countries, and those with huge diamond reserves.

Ex: Saudi Arabia, Kuwait, United Arab Emirates (UAE), Qatar (Gulf Countries) and Nigeria

The “Resource Curse: ecomomic consequences”

Low-skilled or foreign workers are employed

Thus, the economy cannot develop a vibrant middle class

The economy does not need to diversify and develop human capital and technological abilities in multiple sectors.

The “Resource Curse: political consequences” Governments don’t need taxation. They are

not responsive to their citizens.

Bourgeoisie dependent on the state. They cannot check the government. No independent civil society.

The wealth generated from the resource feeds government corruption

Democratic government unlikely to develop

Question: How can a country overcome resource curse?

The Economic System: Government Involvement in the Economy

Free Market Capitalism

Capitalism - based on private ownership of property with business and economic activity taking place within the market

Free-market capitalism - minimal government regulation of the economy and little social welfare spending

The Economic System: Government Involvement in the Economy

Socialism

Opposite of free market capitalism

Government ownership of means of production

Government control of economic decisions:Workers are employed by the state itself. Central Planning

Ex: The Soviet Union (USSR)

The Economic System: Government Involvement in the Economy

Mixed Systems

Labor-led capitalism

Welfare state

State-led capitalism

Private ownership and individual decision making

Mercantilism

Economic Globalization

Foreign direct investment (FDI)

Globalization

■ Definition: The process of increasing connections in the areas of economics, communications, technology, and politics.

■ Some Results: ■ Increasing influence of forces of outside

world on internal decision-making of countries ■ People are ever more interconnected than

before ■ National governments are increasingly

influenced by international organizations (e.g. The EU, NATO, the UN, IMF etc.)

■ National governments are also affected by nonstate economic actors (e.g. Microsoft, Google, McDonald’s etc.)

In your opinion, which countries benefit more from the globalization process both economically and politically? Developed or developing (or underdeveloped) countries? In case of Turkey, do you think everyone benefits from globalization? Do you think that Turkey as a country benefits from G?

Do states become more or less important with globalization?

■ G weakens states:

□ States try to attract MNCs + borders become porous

□ Less state ability to tax, spend and regulate

□ Race to the bottom” (lower taxes, less gıovernment protection of working conditions, lower wages, weaker environmental standards)

■ G strentgthens states: □ More international competition for capital and exports

□ Need for a skilled labor force

□ Need for rule of law to attract foreign businesses

□ Need for strong governments in education, law, health and regulation

G strentgthens states:

□ Globalization leads to greater domestic fear of economic displacement.

□ Such fear generates demand for protection policies of government (e.g. Unemployment compensation, worker training, insurance benefits) against the consequences of economic upheavals.

■ Modernization Theory

□ Modernization theory contends that economic development follows stages, LDCs can use EDCs as a model, and economic development has social and political consequences.

□ Theory is supported by development in the NICs in recent decades

Dependency theory: the theory that developing countries become economically, socially and politically dependent on developed countries through participation in international capitalism.

Rejects modernization theory

Multiple modernities theories:

Modernizing countries with different cultures such as China, India and Muslim-majority countries can modernize differently than western advanced democracies such as the US and western Europe.

Country Summary 2-1a p58

Country Summary 2-1b p58

Country Summary 2-1c p59

Country Summary 2-1d p59

■ The United Kingdom □ Class Structure: Visible class differences, more

identify as working class than in the United States

□ Economic Structure: Largely capitalist with significant social welfare protections

□ Economic Development: Economically developed, most prosperous TIC case

□ Globalization: Less global trade Less economic globalization BUT high political globalization

■ Germany □ Class Structure: Large middle class, different class structures

between its east and west

□ Economic Structure: Social market economy (SME) – capitalist with a conservative corporatist welfare state

□ Economic Development: Economically developed, comparatively late and rapid industrialization; impressive post-WWII growth

□ Globalization: Like UK, trade is limited economic globalization is even less than the UK. Political globalization is high. (Participation in international organizations like the UN and the EU.)

■ India □ Class Structure: Large lower class underclass; significant

inequality; middle class small compared to those of EDCs but continuing to grow

□ Economic Structure: Privatization is controversial, special economic zones spawn debate. Government is still active in managing the economic field.

□ Economic Development: Variable growth since independent, but recent growth rates are impressive

□ Globalization: Low levels of economic globalization, but command of English among many in the population makes increased globalization likely but there are political constraints

■ Mexico □ Class Structure: Visible middle class; sharp divisions

between the wealthiest and the poorest □ Economic Structure: Emerging market; success tied

to oil prices; north more prosperous than south □ Economic Development: Economy has a moderate

level of government involvement. Drug violence in country limits growth.

□ Globalization: Economic interconnectedness is more regional than global. Levels of globalization have improved since NAFTA, with which trade barriers

got down. Low economic globalization.

■ Brazil □ Class Structure: Emerging middle class, but severe economic

inequality

□ Economic Structure: Like Mexico, rapid economic growth post-WWII, then downturn; debt crisis in the 1980s. Massive public debt ties Brazil to the IMF and its policies; widespread corruption exists

□ Economic Development: Economic growth is prefered over equality. Limited state involvement in economy.

□ Globalization: Significant trade barriers limit economic globalization.

■ Nigeria

□ Class Structure: Vast majority of population lives in extreme poverty, very small middle class (less than 5%), most people fall into the working class and underclass.

□ Economic Structure: Economy is free-market, but far from ideal. Since 1980s, government spending decreased, vulnerable to oil price fluctuations.

□ Economic Development: Despite impressive growth in its overall GDP in last 15 years, still one of the poorest countries. Economically underdeveloped, a case of resource curse.

□ Globalization: Economically globalized because of oil-related FDI, but political instability impacts its economy

■ Nigeria and Dependency Theory

□ Dependency theory is a challenge to modernization theory

□ It contends that LDCs are kept poor by EDCs through LDCs’ dependence on EDCs

□ Predicts continuation of poverty, corruption, and fragile democracy (at best) in LDCs

■Appears to work well in explaining the case of Nigeria

■ Russia □ Class Structure: Small middle class; small but visible upper

class (“new Russians”) since 1990s

□ Economic Structure: Economic collapse in late Soviet and early post-Soviet periods, dependent on high price of oil for GDP growth, economy is fragile and dependant on oil profits. In 1990s the economic system was oligarchic capitalism but since with Putin, state capitalism replaced it..

□ Economic Development: Capitalism operates along with state power, political shakedowns are common

□ Globalization: Limited globalization; inefficient industry hindered by corruption and weak “rule of law”

■ China □ Class Structure: Like Russia, and India noticeable economic

inequality after pro-market reforms; urban areas much wealthier than rural; small but growing middle class

□ Economic Structure: Retains state intervention in the economy

□ Economic Development: Until recently slow economic growth ,but significant economic growth since 1970s (average eco.growth around 9.5% per year) ; per capita statistics well behind those of EDCs

□ Globalization: Relatively high levels of economic globalization; has yet to encourage “political globalization”

■ Iran

□ Class Structure: Middle class, particularly in urban areas; large and class-conscious working class and underclass

□ Economic Structure: Government is reducing its role in regulation, but economic reform is slow, investment in the energy sector is needed

□ Economic Development: High birthrate not matched by economic development; struggles due to Iran-Iraq War in 1980s

□ Globalization: Scored lowest in globalization of the 72 countries ranked by A.T. Kearney