Lecture II: Country Factors

Political Systems: Collectivism

• Collectivisim: refers to a political system that stresses the primacy of collective goals over individual goals.o Socialism: State owns means of production so that it can fully

compensate workers for their labor

• Communists vs. Social Democratso Communists: socialism can be achieved only through violent revolution

and totalitarian dictatorshipo Social democrats: socialism can be achieved by democratic means

Political Systems: Individualism

Individualism: Philosophy that an individual should have freedom in his or her economic and political pursuits

• Tenets of individualism:o Guaranteed individual freedom and self-expressiono Welfare of society is best served by letting people pursue their own

economic self interest

Democracy and Totalitarianism

Democracy: a political system in which government is by the people, exercised either directly or through elected representatives

Totalitarianism: form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties

Elements of Representative Democracy

Representative Democracy’s elements:1. An individual’s right to freedom of expression, opinion and

organization• A free media• Regular elections in which all citizens are allowed to vote• Universal adult suffrage• Limited terms for elected representatives• A fair court system that is independent from the political system• A nonpolitical bureaucracy• A nonpolitical police force and armed service• Relatively free access to state informatioin

4 forms of Totalitarianism

1.Communist Totalitarianism2.Theocratic Totalitarianism3.Tribal Totalitarianism4.Right-wing Totalitarianism

Economic Systems Comparison: Market, Command, Mixed

Market Economy: • All productive activities are privately owned, as opposed to

being owned by the state. • Goods and services produced by the country are not

planned by anyone• Production is determined by the interaction of supply and

demand

Economic Systems Comparison: Market, Command, Mixed

Command Economy: • The goods and services, their quantity and prices are all

planned by the government• Objective of the command economy: to allocate resources

for ‘the good of society’.

Economic Systems Comparison: Market, Command, Mixed

Mixed Economy: • Certain sectors of the economy are left to private

ownership and free market mechanisms while other sectors have significant state ownership

• Countries with mixed economies often take up ownership of industries that are troubled. Example: France taking over Renault as it felt social costs of large unemployment undesirable

Legal Systems: Property Rights

Legal System: refers to the rules, or laws, that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained

Different Legal Systems

Common Law: Based on tradition (legal history), precedent (prior cases), and custom (ways in which laws are applied in specific situations)

Civil Law: based on very detailed set of laws organized into codes. Theocratic Law: Law based on religious teachings

Country Focus: 40 Years of Corruption in Nigeria

• Despite tremendous oil reserves, people are poor. o 300 billion in 30 years from oil

$30 billion debtLife expectancy 50 years

Contract law

• Contract law: body of law that governs contract enforcements

• Property rights: refer to the bundle of legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource

Lecture II: Determinants of Economic Development

Differences in Economic Development

• GNP vs. PPP (Purchasing power parity)o GNP: measures total annual income received by

residents in a countryo PPP: allows for a more direct comparison in

living standards between countries depending on whether the cost of living is lower or higher as compared to the USA

Broader Conceptions of Development

Noble Prize winner Amartya Sen argues that development should be assessed less by material output measures like GNP or PPP and more by capabilities and opportunities people enjoy• HDI is used –

1.Life Expectancy (function of health care)• Educational attainment (adult literacy, levels of

education)• If average incomes sufficient to meet basic

requirements

Political Economy and Economic Progress

1.Innovation and Entrepreneurship are engines of growth

2.Innovation and entrepreneurship require a market economy

3.I and E require strong property rights4.Stable Political system

States in Transition

• Spread of democracy

Evolution of Commercial Institutions

• Evolution of societies – • Why are individual groups better at

business than others?• The gender gap• Property rights• Evolution of religions• Evolution of economic groups

The New World Order

• Huntington’s thesis vs. Fukayama’s ideas

Nature of Economic Transformation

• Deregulation: involves removing of legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate

• Privatization: transfers the ownership of state property into the hands of private individuals frequently by sale of state assets through auctions.

Article Review

Return of Economic Nationalism:

1. What is economic nationalism?• How does trade benefit? (see next slide)• What fear does the article raise?• Why would raising tariffs result in greater chaos?• Why does the article say that “Buy American” label be

erased?• What are the three principles it suggests Obama should

follow?

Spread of Market-Based Systems

Why is trade a good thing? • Trade encourages specialisation, which brings

prosperity; • global

capital markets, for all their problems, allocate money moreefficiently than local ones; 

• economic co-operation encouragesconfidence and enhances security.

Article Review

Anatomy of an Idea:

1. What does the word ‘liberal’ mean in Europe?• What does it mean in America?