1.10, 1.11, 1.12 - Capitalism, causation, and history's hockey stick

natural experiment

An empirical study that exploits a difference in the conditions affecting two populations (or two economies), that has occurred for external reasons: for example, differences in laws, policies, or weather. Comparing outcomes for the two populations gives us useful information about the effect of the conditions, provided that the difference in conditions was caused by a random event. But it would not help, for example, in the case of a difference in policy that occurred as a response to something else that might affect the outcome.

what did the technological revolution do to the fortunes of the british and indian textile industries?

it reversed their fortunes

what was happening in Britain’s economy prior to the industrial revolution?

period of booming sales of clothing made in india - a century and a half later, over half of the textiles purchased in india were made in Britain and India’s once world-dominant textile industry was in permanent decline - under british colonial rule, it remained a farm economy

how did british colonialism impact india’s economy?

the per capita output in colonial india declined and its economi take-off happened soon after independence in 1947

did british colonization of india reduce indian living standards?

to be able to fully answer this, we would have to know what would have happened if india had remained independent rather than becoming a british colony

2 actions that appear to have reduced Indian living standards

(1) railways for military use, not economic development

(2) entrenching local elites: British colonial rulers relied on local elites to collect taxes for them, giving them all the power —> they became more interested in collecting taxes than modernizing the economy

Permanent Settlement of 1793

local elites in india were given government powers by east india company, by giving them the right to collect taxes and basically making them state officials

was Indian GDP per capita declining or increasing before british intervention?

it was already declining before british colonialism

foreign intervention in china

britain, portugal, and other nations controlled a number of key ports and prevented chinese gov from acting independently in economic matters —> per capita income declined

how did the rise of europe and britain affect the world? (as military and economic powers)

altered geography of worldwide production - the west started producing way more and asian production declined then reversed after 2000

developmental state

a government that takes a leading role in promoting the processof economic development through its public investments, public policies, etc.

is every capitalist country a success story?

no

what is one reason why central planning was abandoned as an economic system?

its failure to deliver the improvements in living standards achieved by some capitalist economies but the transition to a new economic system in the former Soviet Union was very costly and there was actually an even bigger decline in GDP per capita than observed during WWII, 2008 recession, or COVID-19

is the existence of capitalist institutions enough to create a dynamic economy?

no, not by itself

dynamic econmy

economy that brings sustained growth in living standards

what two sets of conditions affect the dynamism of the capitalist economic system?

(1) economic
(2) political (how gov functions)

economic conditions

potential advantages of capitalism won’t be realized if:
- private property isn’t secure

- markets for firms’ outputs aren’t competitive - firms lack incentives to produce efficiently or innovate or expand

- firms are controlled by people who owe their connections to someone else - they didn’t become owners or managers bc they’re talented

**failures of the 3 institutions of capitalism can mean that individuals and groups gain more from lobbying and criminal activity to shift the distribution of income in their favor than from the direct creation of economic value

political conditions

a well-functioning legal system is required for markets to work well

political systems

determines how govs are selected, and how those govs make and implement decisions that affect the population

does capitalism require democracy?

no but in many countries capitalism and democracy coexist, each system influencing how the other works

what explains gov’s different roles in the capitalist economy?

the differences between political systems and even between democracies