Political-Economic Systems and Wealth Measures — Quick Notes

Mercantilism

  • Core: State-centric, focused on national economic power; high state capacity; private property exists but strategic sectors are state-directed/owned (parastatals).

  • Policies: Low welfare/taxes for public investment; uses industrial policy (subsidies/investments), state ownership, and trade barriers.

  • Benefits: Promotes targeted development and international competitiveness.

  • Drawbacks: Risks inefficiency, corruption; historically linked to non-democracies, though can coexist with democracy (e.g., postwar Japan, South Korea).

  • Current Relevance: Growing interest globally amid recent challenges.

Role of the State in the Economy: Four Political-Economic Systems (summary)

  • Liberalism: Minimal state, market-dominant, individual freedom, lower state capacity.

  • Social Democracy: Large welfare state, market with strong redistribution/public services, high equality, moderate state capacity.

  • Communism: Extensive state ownership, centralized planning, high equality, least market influence.

  • Mercantilism: State is paramount; economy serves as a power tool; active state direction (high capacity), low welfare, markets operate under state control.

Measuring Wealth and Development: Key Indicators

  • GDP: Total production within a country.

  • PPP (Purchasing Power Parity): GDP adjusted for cost of living, allows comparison of actual living standards across countries.

  • Gini Index: Measures inequality; 0=perfect equality0 = \text{perfect equality}, 100=complete inequality100 = \text{complete inequality} (higher Gini indicates greater inequality).

  • HDI (Human Development Index): Composite of income, health (life expectancy), and education; correlates with GDP, but composition matters.

Wealth, Inequality, and Poverty: Global Trends

  • Poverty: Extreme poverty globally declined: from >40%40\% in 1981 to ~13%13\% in 2012 (less than 2perday2 per day).

  • Inequality: Within-country inequality rose, while between-country inequality fell. Global inequality remains high (around a Gini of ~7070).

  • Happiness (Easterlin paradox): After ~10,000−15,00010,000-15,000 PPP GDP, happiness gains plateau; relative income and other factors are crucial. GDP/HDI do not fully capture well-being.

Economic Growth, Happiness, and Policy Implications

  • Wealth and development alone do not guarantee happiness; influenced by inequality, social support, and perceived freedom.

  • System evaluation requires multiple indicators: GDP/PPP (wealth), Gini (distribution), HDI (living standards), and happiness (well-being).

  • Policy choices (state involvement, redistribution, openness) affect both growth and equality; mercantilist strategies may yield