Comparative Political Economy

Week 1:

  • Markets and Governments

  • An Intertwined Relationship

    • Logic of Markets: Channel Resources to the most competitive and profitable economic activities

    • Logic of Governments: Exercise authority on behalf of the interest of the public

    • Market Failures and Government Interventions

      • Provide public goods

      • Regulations to combat negative externalities

      • Providing information and standardizing reporting

      • Markets need laws, regulations, and standards

    • Government Failures

      • Not subjective to the same competitive pressures

      • limited bureaucratic consequences

      • exceeding project costs

      • Economic manipulation

    • Economy’s Impact on the Governments

      • State Capacity

        • Enable the translation of policies into binding public policies and remedy market failures

        • 1) Ability to collect taxes and 2) More generous welfare state

        • Slower growth rates = decreased state capacity

      • Economic Voting

        • Economy doing well → Better chance of re-election

        • Principal-Agent Problem → Holding Governments accountable

        • Governments may manipulate the economy as a result

  • Varieties of Capitalism

  • Key Features of CPE

    • Liberal Market Economies (LMEs)

      • Competitive market arrangements

      • Formal contracts and arm-length relations

      • Avoid long-term commitments

      • radical innovation - new products and services

      • Workforce with General Skills

  • Coordinated Market Economies (CMEs)

    • Coordinated efforts and strategic interactions

    • Network-based relationships

    • Trust and long term commitments

    • Increased innovations

    • Workforce with Job- and firm specific skills

  • Differences? - Result of Institutional Settings

  • Key Events in Shaping CPE

  • 1) Reshaping following WWII

    • International mangement of the world economy

    • Leading economies agreed to a shared set of rule

  • 2) End of Bretton Woods/Gold Standard

    • Scaling back US willingness to bear domestic costs of the international economic order

    • Floating currencies, crises, and increasing global production

  • 3) 2007-2008 Global Financial Crisis

    • Questioning of prevailing understandings - how economies work, state/market relations, and regulation of economies

  • 4) 2016 and Austerity (less government invovlement)

    • Response to migration, high debt, and economic openness

  • 5) Global Pandemic and COVID-19

    • What impact event do you think this event had on the populism, protectionist, and austerity preferences from 2016?

  • Domestic economies are not uniform and filtered within societal context

    • Differences are partly a result of institutions; partly ideas

    • Insitituions and economic ideas shape domestic