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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

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

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
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)


Typical Japanese

Typical U.S.

Self image

Belong to a group. Okay to show feelings and


Individual. Macho. Hide feelings and


Nationalism and image of


Strong sense of nationalism based on a single superior


Strong sense of nationalism, but many

racial conflicts.


Rigorous system through high school.

Relatively weak system through

high school.

Social cooperation and

willingness to work

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.



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

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

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


A clean work-place and environment is

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


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.