The Economy and Society Chapter 9 INR102 Introduction to Political Science 1.

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The Economy and SocietyChapter 9

INR102 Introduction to Political Science

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• What is politics? • What is economics?• Do we need rules to regulate the economy or not? • What is the general principle that governs the

economy?• Market? Competition• Government? Rules, legislation• Individual greed? Desire to have more • Social capital? Trust among the members of society

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• What is an economic system?– A form of organisation through which goods and

services are produced, distributed and exchanged.• What is market?– Is a system of commercial exchange where buyers

and sellers come together to exchange goods and services.

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Market in the Middle Ages

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Market Advantages Disadvantages

Efficiency through competition and profit -maximization

Insecure

Innovation Generates poverty

Freedom of choice Ignores broader needs of society

Equilibrium between supply and demand in the long term

Instable, prone to crisis and open to manipulation

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Clash between two economic systems

• Centuries-old rivalry between capitalism and socialism– Generalized commodity production for the market

(Commodification/Metalaştırmak)– Means of production (natural resources, land, capital)

are held in private-hands. (Private property)– The economic life is organized by the dynamics of supply

and demand (supply-demand equilibrium, Markets tend towards equilibrium)

– Material self-interest and profit-maximization is the main motive for individuals. (Competition)

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Supply-Demand Curve

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Socialism

• An economic system based on individual needs

• Public or common ownership rather than private ownership

• Planned and regulated economic system• Desire to work hard and produce more is

related to general well-being. (Optimization)

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Varieties of Capitalism

• Early capitalist economic forms emerged in 16th and 17th century Europe. WHY? – Geographical explorations– Agricultural revolution (Enclosure of land)– Industrial revolution (Technological innovation)

• What was the economic system in Europe before capitalism was established? – Feudalism to capitalism – Agrarian-based production

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• Three types of capitalism:– Enterprise capitalism– Social capitalism– Collective capitalism

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Enterprise Capitalism

• Based on Adam Smith and David Ricardo’s ideas • Give an example of enterprise capitalism!• Its central principle is the dynamics of market competition. • According to Adam Smith, the invisible hand of the market

will regulate the economy. And market functions through self-interested and profit-driven motives of each individuals. (Principle of free market)

• Individual freedom, entrepreneurship and free market are essential.

• Laissez-faire: “let them to do”, non-intervention of the state in economic affairs.

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Disadvantages of Enterprise Capitalism

• Tendency towards material inequality• Tendency towards monopolistic or oligopolistic

behaviour (accumulation of means of production in the hands of one producer or a small group of producers)

• Tendency towards social fragmentation (absolute poverty)

• Trade or labour unions are loathed as they are considered factors that distorts the functioning of market

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Social Capitalism

• Give an example of social capitalism!• Based on the ideas of Friedrich List. In theory

market competition is good but state intervention is inevitable in order to maintain social cohesion and solidarity.

• Close cooperation between business corporations and financial sector as well as business and trade unions.

• Stakeholder v. shareholder capitalism

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• Social capitalism aims to achieve long-term development rather than short-term profit-maximization.

• Supports a comprehensive nation-wide welfare system. • Productivity and social cohesion are vital.• State intervention in the form of social welfare system.• Inflexible to adapt to the new circumstances• Welfare payments can become burden on the

economy.

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Collective Capitalism

• Give an example!• Lifetime employment, pension and social protection for

workers in return for their hard work and commitment to the firm.

• Creating and spreading a culture of hard work and cooperation and obligation to the community.

• Income inequality between managers and workers are less than in enterprise and social capitalism. (See next slide)

• The state plays a vital role in investment, research and trading decisions. (Sort of planning)

• Tendency towards an authoritarianism.

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Top Canadian CEOs earn annual worker’s salary by lunchtime

• The average compensation among Canada's top 100 CEOs was $7.96 million in 2012. That compared with the average annual worker's salary of $46,634.

• Read more:http://www.ctvnews.ca/business/top-canadian-ceos-earn-annual-worker-s-salary-by-lunchtime-on-jan-2-1.1614645

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Keynesianism v. Monetarist• Keynes rejects the idea of free market and laissez-faire. For

him, especially during times of economic crisis, capitalist system deepens depression as the demand for goods and services decreases abruptly as a result of unemployment and cuts in wages.

• Keynes suggests that government should increase spending in order to boost the economy and trigger economic growth.

• He stresses that a change in aggregate demand increases national production and income. (Demand side policies)

• For Keynes, the main motive is to reduce unemployment and poverty while stipulating economic growth through increasing public spending.

• Why do you think Keynesianism failed in 1970s and 1980s?

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• Monetarists such as Hayek and Friedman object to Keynes ideas as they see them as inflationist.

• The role of the government should be fighting with inflation rather than unemployment.

• Economic growth is considered as the natural outcome of a free and unregulated market as long as inflation is under control.

• For Friedman, public spending causes inflation because it encourages governments to print money or to borrow. (Supply-side policies)

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Varieties of socialism

• Replacing the market mechanism by economic planning.

• Based on Marxist ideas:– Collective ownership rather than private ownership– Needs of society rather than individual desires– Society and politics (superstructure) is built upon the

economic base. And economic base is shaped by the social divisions and inequalities. And social divisions are rooted in the mode of production and in the ownership of means of production.

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State Socialism

• Based on state collectivisation: – Means of production are under the control of the

state. – Centralised and planned economy• Clearly defined economic targets• Rational allocation of resources• Coordination between economic agencies, institutions

towards achieving the goals• An enterprise stays open even if it is unprofitable to do

so.

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Advantages Disadvantages

Addresses human needs Inefficient

Decreases inequality and widens social benefits

Discouraging innovation and entrepreneurship

Less crisis-prone Tendency towards authoritarianism and state capitalism

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Market Socialism• The central feature of a socialist marker economy is to balance

self-management against market competition. • Self-managing enterprises: Firms are owned and controlled by

workers. • However, these worker-controlled firms compete in a market

environment for profit-maximization. • In this economic system, bureaucrats/politicians are not the sole

decision-makers about economic affairs. • This system is a functional, viable system of planned economy. • The main problem with market socialism is that it is too much

worker-oriented that renders it inflexible to adopt to the changing market conditions.

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Challenges to economic systems

• Globalisation• No ideal world • Complexity of economic affairs• Herd mentality• Social capital (Trust and social cohesion)• Sustainability

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Social structure and divisions

• Social class: A group of people who share a similar social and economic position within society.

• Do you think social classes are important to understand today’s society?

• What is society?– A group of people and their relations with other

members of the same group.

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• Class struggle– Between capitalist (bourgeoisie) and working

classes (Classical Marxism) – Neo-Marxists agree that societies are not only

divided by two groups. Neither capitalist nor working class is homogenous. There can be different groups within capitalist class.

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Decreasing importance of social classes

– Declining class solidarity: • Consciousness of social class replaced by individual interests

– Deradicalisation of the urban proletariat. • Middle-class, urban working class• Emerging new classes: students, ethnic minorities, religious

groups, women, people from different race, immigrants.

– Deindustrialisation• Declining heavy industries, labour-intensive industries such

as ship-building, coal and steel industries.• Shift from Fordism to Post-fordism

– Declining influence of labour unions