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Political economy

Traditionally, the study of the causes of the wealth


of nations.
Policies that government follow in search of
increased affluence for the countries they rule

Philosophical background
Smith, Keynes, Friedman
Economy as a factor of politics and policy

Adam Smith
Rely on the markets invisible hand to allocate
resources to the areas where they will secure the
highest return

If markets are competitive, producers


and consumers pursuing their own
self interest allocates funds to
projects earning the highest return

John Maynard Keynes


When demand is deficient, counter unemployment
by boosting public spending

Multiplier effect the injection of


resources will circulate through the
economy gradually rebuilding
confidence, demand, investment and
employment

Milton Friedman
To bring inflation under control restrict
the money supply

Delegating execution of monetary manipulation to


appointed officials reduces the risk of manipulation
by politicians concerned with economic short runs.

Varieties of capitalism
Liberal market economies
Contractual market relationships are
business norm
Competing firms operate in flexible
labor market
Government and markets serve only as
umpire

Examples: United States, Australia, Britain, New Zealand

Shareholder capitalism
Owners of company seeks to maximize the
return on investment and are willing to replace
managers who fail to achieve this goal

Varieties of capitalism
Coordinated market economies
Market relationships are long term and
more familial
Private sector is arena subject to control
by political and social forces
Coordination not state-led but
powerful economic interests and
leading parties
Examples: Germany, Austria, Belgium, Denmark, Finland,
Netherlands, Sweden

Stakeholder capitalism
Companies incorporate or acknowledge a wide range
of interests including, employees, trade unions, the
local economy, and government

Varieties of capitalism
Developmental state
State leads society to rapid
industrialization
Powerful bureaucracies that formulates
national economic targets
Partnership with corporations and
private ownerships of productions

Examples: Japan, Korea

Convergence thesis
All development economies are adopting a
common format.
Globalization forcing a liberal, pro-market
response from each national economy

Cultures of Capitalism
capitalism is not a choice for or against but a range of
behaviours made up of a multiplicity of choices.
Turner and Trompenaars (1993)

Characteristic

Typical Japanese

Typical U.S.

Self image

Belong to a group. Okay to show feelings and


weaknesses.

Individual. Macho. Hide feelings and


weaknesses.

Nationalism and image of


Race.

Strong sense of nationalism based on a single superior


race.

Strong sense of nationalism, but many


racial conflicts.

Education.

Rigorous system through high school.

Relatively weak system through


high school.

Social cooperation and


willingness to work
together.

Team players. No stars allowed. The individual is not


important. Uniformed teams are self regulating.

Competitive. Engage in political


power plays to become stars.
Few team players.

Respect for authority.

Substantial.

Minimal.

Attitude toward work.

Live to work. Self sacrifice. Highly self disciplined.


What can I do for the Company? High tolerance
for personal discomfort. Decline vacations and
sick days. One family service day per week
acceptable.

Work to live. Self gratification. Little


self discipline. What can the
company do for me? Low
tolerance for personal
discomfort. Take all vacation and
sick days allowed. Family
demands require weekends plus.

Attitude toward work-place,


property and
environment.

Everyone's job to keep it clean. Respect property of


others.

A clean work-place and environment is


someone else's job. Less respect
for property of others.

Loyalty.

Loyal to Company. Company first. Individual and


family second. Belong, to or married to, a
company for a lifetime.

Loyal to Self. Individual and family


first. Company second. Work for
a company to gain experience to
obtain a better job elsewhere.