Introduction to Political Economy - Essay Example

Introduction to Political Economy Introduction to Political Economy Section Definition and importance of labor market flexibility Definition and importance of labor market flexibility Labor market flexibility is the degree at which an organization is capable of adjusting economic fluctuations and changes in consumer’s demand for goods and services. A company does modifications on its workforce to maximize productivity. The flexibility of an organization depends on various factors including cross-training, working hours, company’s location, wages, and adaptability of the workforce (Caroleo, 2006). Greater flexibility can be achieved by a company if it has fewer governance of its workforce. If a company increases or decreases the variability of productive hours, the number of employees and wages, therefore, it is said to have labor market flexibility. External controls are the constraints of the company’s labor market such as governing laws of firing or hiring an employee, minimum wage requirements, and fixed working hours of an employee (Clift, 2014). Therefore, the degree of the labor market flexibility of a company is inversely correlated with the flexibility of external labor controls. For example, business organizations located in the countries with strict external labor laws can have decreased labor market flexibility. Labor deregulation proponents recommend that if the labor market, flexibility is high then levels of unemployment will decrease, and the company experiences long-term productivity. Definition and role of developmental state A developmental state concerns in guiding economic growth and development and proper use of country’s resources to meet the citizens’ needs. It tries to stabilize social development and economic growth. A developmental state exploits all county’s resources and uses national influence to eradicate poverty and create economic opportunities. A developmental state is effective to all countries because it shapes the economic structures and outputs of the countries (Clift, 2014). Different nations use various policies and instruments in states including the regulations of commerce and trade, the use of monetary and fiscal policies, the redistribution of possessions and incomes and direct ownership of key companies’ state (Low, 2004). For example, in South Africa, they have committed to build a developmental state that will guide the economic development efficiently through mobilizing society’s resources and directing them in attaining their common goals. The country provides health care, education, social safety and housing to the needy poor people. The developmental state also builds a strong community service, supports the development of small businesses, creates a friendly environment for investors and uses state-owned projects effectively (Clift, 2014). The state should keep the economy of every country’s economy competitive and being the best in the international development of technology and agriculture. Definition and importance of co-determination Co-determination involves practices where the workers have a role in managing a company. Co-determination is translated from the word Mitbestimmung which is a Germany word. Co-determinations rights vary according to different legal environments of different countries. There are some countries which give their employees some roles in management, for example, Germany. Other countries like USA, does not give their workers any role to play in management. West Germany was the first country to enact co-determination laws where the employees were allowed to participate in management in the steel and coal industries. In 1976, a law was approved mandating that every company that has employed more than 500 workers should have an employee holding a representative seat for workers in the management (Clift, 2014). The workers should be involved in the in grouping goals and be responsible in finding ways of achieving them. In other words, the concept of participation refers to as sharing the power of decision-making to all the representatives of the company and at all management levels. Workers should participate in the exchange of information, negotiations, consultations and making decisions by being included in the supervisory boards as practiced in Yugoslavia (Nutzinger & Backhaus, 2005). Definition and significance of collective bargaining Collective bargaining involves negotiation between groups of employees and their employers over working conditions, pay or benefits. If a group of workers collaborates they gain higher bargaining power of convincing an employer about a burning issue than an individual worker. Collective bargaining is based on the collaboration of employees thereby it follows a democratic process of selecting the subjects to be bargained over and votes for a contract agreement (Hayter, 2011). If the collective bargaining agreement is negotiated about other issues other than compensation, then the employer can rate the performance rate fairly; give job flexibility and advance on mentoring and training workers among others. Through collective bargaining, workers can benefit from compensations, increased salary payments, and favorable working conditions. The employer can properly hold the accountability of the employee and create career advancement opportunities. Collective bargaining is considered as an essential human right by various countries, but United States considers it as a legal right that gives professionals and other employees the ability of creating changes and finding solutions with their boss (Clift, 2014). Collective bargaining benefits the economy of a country and the whole community because it empowers the citizens through promoting an ownership society. Definition and importance of disintermediation Disintermediation is the act of giving a consumer or the user direct information about accessing certain products that can involve a mediator such as a lawyer, a salesperson or a librarian. The people who access World Wide Web and Internet have greater chances of getting first-hand information about certain thing they are searching, for example, the causes and symptoms of certain diseases, the uses of certain products, the trends in global economic change among others (Clift, 2014). The users can also look comparative product data, legal information, medical or travel directly from the internet without using a doctor, a salesperson or a lawyer in between the service or product provider and the consumer or the user. The intermediaries usually incur benefits or profits after buying a product or getting a service at a cheaper price and selling the same product or providing the same service at a higher price hence making profits (Clift, 2014). The value added by the intermediaries is eliminated relying on disintermediation where necessary. It is an advantage to those go and buy goods or services directly to the producers without involving the intermediaries because they buy them cheap and enjoy favorable profits after selling to the final consumers. Section 2 Question 1 The developmental state is the act of transforming to a modern state where bureaucratic and political elites become independent from social-political forces in the community that they use for economic growth and development. A developmental state is featured by political, developmental objectives, institutional structures and political purpose (Singh & Bourgouin, 2013). DS clearly define leadership, vision and bring a sense of national significance. Political forces that create organizations and interests towards economy and society are the main constitutes of the developmental state. Political forces are classified into two; democratic and non-democratic. For example, China is non-democratic, and Botswana is democratic but both of them are the developmental state. There are six main characteristics of the developmental state including performance-based legitimacy, cloistered and competent bureaucracy, a weak civil society, determined developmental elite, managing the interests of the non-states and bureaucratic power (Clift, 2014). The political destruction of the existing social customs, interests, institutions and forces that hinder development in a State should be undertaken for as a successful developmental state. Politics is the central for the developmental state because they shape the state’s structure, fashions developmental aims and give the remarkable state’s outcomes. There should be articulate and highly capable state and economic bureaucracies for the emergence of the developmental state. The developmental state creates an environment that encourages industrial, educational, infrastructural investments as well as the investment in development and research sectors. Private participation and a market mechanism are also established, therefore, creating a competitive free market that is essential in the political economy of a developmental state (Clift, 2014). Political developmental can only occur if every state whether autocratic or democratic places certain framework including strong bureaucracy, nationalism, and relative autonomy. Therefore, the leaders should be nationalistic, development-oriented and have great visions of the state. There should be trade privatization or liberalization, and powerful meritocratic bureaucracy (Clift, 2014). National vision and nationalism are the keys for a developmental state. National leaders are supposed to set visions that will bring development in their loyal countries. For example, Sir Seretse Khama, who was the first President of Botswana, came up with a national slogan stating ditirotsa ditlhabololo that meant work for development, indicated that he laid a basis for political and economic growth of the country (Singh & Bourgouin, 2013). The slogan was used by the Ministry of Developmental Planning to develop the country. Considering Botswana as a developmental state, it had visionary elites who were committed and willing to develop their country as well as articulating the objectives of social justice, rapid economic growth, sustainable development, and economic independence. Botswana had their first National Development Plan that focused on raising the living standards of Botswana’s citizens. Meritocratic bureaucracy is another aspect that approves the political economy of a State in which the state institution hires people on merit rather than government officials recommending them. Leaders should be disciplined and has a dominant class for a developmental state. For example, in Botswana developmental state is positioned in a professional bureaucracy for effective and efficient policy-making (Singh & Bourgouin, 2013). Botswana is able to distribute public such as schools, clinics, roads and water facilities on a non-regional and non-tribal basis. The post-war economic growth in America started to rise after the World War II in 1950. It was during the Cold War period. United States invested heavily in automobile industry between 1946 and 1955.During that time, many Americans considered themselves as the middle-class people. The major companies in America grew during that time where even some developed market overseas. Some companies merged while other bought other businesses to uplift their financial befits thereby uplifting the economy of America (Singh & Bourgouin, 2013). Many workers started to provide services more than producing goods where most of them were working in white-collar jobs as teachers, office employees, salespersons and corporate managers. Agricultural faced a lot of challenges particularly the small scale farmers as some people started large-scale farming where some farmers left their land and got employed by big corporations and firms. The inner cities turned to be suburbs because of high rural-urban migration. According to the stated post-war economic development in America, it shows that the nation used the developmental state for growth and development (Singh & Bourgouin, 2013). The State focused on human and economic development by exploiting and using their resources. Creating, developing and establishing new businesses and industries for economic and financial purpose is one of the key factors of a developmental state in which American leaders reinforced after the World War II. Roads were developed, water was supplied to many homes, creation of public utilities and facilities, and rural electrification was done which participated much in economic growth (Clift, 2014). Question 2 The welfare state is a group of interventions that are organized by a certain state guaranteed by providing a low level of services to the public by using a social protection system. The welfare state became popular after the Second World War. There are four main features of a welfare state. Provision of free and compulsory primary education and giving subsidiaries to high-level institutions is the first feature of a welfare state. The second feature is creating free and universal health treatments in hospitals such as fixing certain collectives that depend on citizen’s contributions. Providing social security and giving pensions to workers is the third characteristics, which depend on different variations of workers’ payments. The state should also create insurance schemes that will cover several different situations like windows, orphans, and sickness among others. The fourth feature concerns social services which include various types of aids meant to cover the requirements of the less preferential collectives (Clift, 2014). According to Esping-Andersen (2013), there are three types of the welfare state; social-democratic welfare state, corporatist or conservative welfare state and the liberal welfare state. Liberal welfare state focused on usage of market-driven benefits and private sectors. The total spending on social protection is considered to be at a lower level while inequality is considered to be at a high level. Liberal welfare state usually caters for a group of low-waged employees. In general, the state suggests for the markets to behave like co-providers of benefits by partly providing public services at a lower level since the benefits carry a negative public stigma and has poor quality. The welfare recipients who opt for other systems should seek for a market solution to get stigma-free, and high quality that makes the pension benefits and health care to be more expensive. Tax shelters and tax credits are supports the personal savings and insurance schemes where the liberal welfare state puts policies that frequently support them. The liberal welfare state has two major troubles in that the majority of voters are excluded from enjoying the welfare benefits leading to the political unpopularity of its programs. In the long-run, the liberal welfare state becomes unsustainable because of distributing poor services to the poor people. The second problem is that it divides the population into two; the populace that depend on poor public facilities and the middle-class populace who enjoy better services offered in the market. For example, Canada, U.S, and Switzerland opt for the liberal welfare state for most of their citizens enjoy benefits offered in the market (Esping-Andersen, 2013). The social democratic welfare state is the second type of the welfare states where it encompasses all living standards of people. In this regime, people fully realize about their social rights because all benefits and services are enjoyed according an individual’s performance in the market. It is where the elders are cared and is also characterized by the home help and day care, which even caters middle-class people. Enjoyment on the market depends on individual’s income where private are banned out for the advancement of public services. Sweden, Norway, and Denmark are the three countries where social democratic welfare regime is mostly practiced. The social democratic state is the coalition between small-scale holders and the industrial employees and employers. The countries depend on payroll taxes and value-added taxes from low-skilled sectors for their economic growth and development. High taxes and orientation of strong government are some of its demerits (Clift, 2014). The third welfare regime is the corporatist welfare regime. It was developed by the Catholic Church conservatives. Chancellor Otto von Bismarck is a good example of German welfare model. The main concerns of the conservative welfare regime were to maintain status and order which could only be achieved if social insurance funds such as unemployment, health, accident insurance and pensions for the old age were to be set up as a reward of status and work recital. Such civic insurance funds were organized and controlled either by the government or labor associations like in Australia and Germany (Esping-Andersen, 2013). Such associations operate independently from the government where they enjoy populace status through their compulsory contributions deducted from their payrolls. The levels of benefits depend on the status of work whether blue collar, civil servant or white collars. However, the corporatist state has difficulties in reinforcing and maintaining social cleavages, and the people who work on part-time jobs tends to be penalized. Question three National financial systems are the procedures and processes that are used by the organization’s management in trying to account and control the nation’s finances (Scherf, 2014). There are various transactions that occur in various banks such as depositing money, withdrawing and transferring cash, securing important records such as titles of lands or plots and many more services. Banks aims at making profits like any other business. Every country constitutes different types of banks that create competitions where the government has to create some rules and regulations for all banks in order to control risks such as inflations that affect the economy of the country. A good financial system should have the five main features. The features include having many operating banks, stable monetary arrangements, a central bank that stabilizes the domestic finances, the capability of managing public debts and sound funds, and security markets that are well-functioning. Sound public fund as the first characteristic involves certain roles such as raising revenues for efficient funding and controlling and organizing public spending priorities. Stable money is important in storing the value, medium of exchange and can be used as deferred payments. Central banks prevent or alleviate problems that may arise from banks. Every country has a central bank which main role is to control other banks. Central banks can lender money to the banks or withdraw some cash from the circulation (Scherf, 2014). Securities markets have the roles of issuing private and private debt securities. There are financial policies that are made for the banks to follow where their main agenda depends on policy makers. The policy makers get involved in financial in finding solutions to a crisis that may arise. Most policy-makers of public finance are the politicians and leaders. The financial policies that they make are aimed at maximizing the economic growth of a country. The financial institutions have interests in making financial system policies alone, but the government has to be involved to regulate and supervise. The private interests argue that the policy makers participate in the financial system for their own interests and not to consider the public welfare. Government-owned banks usually help to conquer market failures where domestic savings are funneled to important public projects (Hanson, Honohan & Majnoni, 2003). Government-ownership has a limitation of inefficiently allocating scarce resources. The government-managed and owned bank are interfered by the political elites where they capture for their interests hindering from expanding. Firms that have political connections can easily access larger loans from state banks in which they can fail to pay. In general, governmental-ownership of financial institutions and firms can lead to lower rates and levels of economic growth and financial development respectively. Government intervenes and regulates national financial system through five main approaches including private or public interests, leviathan, ideology, and institutions. There are comparisons between four major national financial systems including US, UK, Japan, and Germany. Political economists generalize that Japan and Germany have bank-dominated or bank-oriented, and US and UK have market-oriented financial systems (Hanson, Honohan & Majnoni, 2003). In both Japan and Germany, many banks externally financed many non-financial firms thereby exerting the high degree of controlling the borrowers. In Britain, the banks preferred to maintain market-oriented relationships with their borrowers and not to attempt to own equity stakes in the banks in Germany and Japan. Some banks in UK and US lend money to its internal firms, but many firms make good deals with their external donors through bond and stock issues directly from the market and capital markets. Such differences emerged because, for example, in Japan there was Zaibatsu system which controlled everything in the country. During the post-war period, Japan developed a financial system where major banks lend finances to many external businesses. Japanese banks possessed three major features; they were major global lenders, main banks were the members of clients’ management, and they owned many shares of their clients’ equity. Many businesses in Japan and Germany got loans from universal banks who arranged securities marketplaces for them. In Germany, banks were considered as the primary decision makers whereas in Japan they were viewed as broader decision makers (Hanson, Honohan & Majnoni, 2003). In all the four countries, the governments were not much involved in the banking system because it is difficult for them to attain effective regulations in the financial sector. Question 4 Capitalism is defined as an economic system where many production sectors are privately owned and profit-oriented in competitive markets. Private corporations or individuals participate most in the capitalism market system by heavily investing in the exchange, production and distribution of wealth (Hall & Soskice, 2001). Capitalism exists as a social system in most countries in the modern world. The various means of producing and allocating goods such transport system, land, technology and factories are owned by a minority group in the population. There are various types of capitalism such as turbo-capitalism, responsible capitalism, popular capitalism, state capitalism, advance capitalism and crony capitalism. The types of capitalism can be further classified into two groups based on their roles; command capitalism and market capitalism. Regulation theorists focus on five main types of capitalisms namely; turbo-capitalism, responsible capitalism, state capitalism, crony capitalism and popular capitalism. Turbo capitalism is characterized by privatization, low taxes to high-income earners and financial deregulation. In turbo-capitalism, there are no regulations on finance or banking system, therefore, encouraging financial institutions to take risks and incur profits without only depending on interests on lending and deposits. The capitalism also encourages the monopoly powers (Hall & Soskice, 2001). There are also lower capital gains and income taxes that favor the high-waged people. Labor markets are also unregulated making it easier in hiring and firing employees depending on the working conditions. For example in US and UK, wealthy people were heavily taxed, and there were much privatization and financial deregulation which led to unsustainable credit bubble and income inequality among people (Hall & Soskice, 2001). Turbo capitalism is also referred as the free market or unrestrained capitalism. Responsible capitalism is a free market economy full of government regulations responsible in preventing inequalities and excesses of the capitalism. Responsible capitalism involves extensive welfare regime aimed at protecting the people who earn low incomes and those unemployed. There is a continuous tax system where high-income earners pay a higher percentage of government expenditures. In responsible capitalism, the government mostly focuses on education, health care, and public transport sectors. Responsible capitalism as a social market economy regulates monopolies and secures the rights of employees. The third major type of capitalism is popular capitalism which is recently suggested by David Cameron, who is a Conservative leader. Popular capitalism aims at taking capitalism benefits but ensures there is economic growth that everybody benefits from (Baumol, Litan & Schramm, 2007). Popular capitalism is aimed at regulating finance sectors in order to hinder excess growing inequality and risk taking. Crony capitalism is the fourth type of capitalism where the successions of various businesses are influenced by politicians, government stakeholders, and civil servants. For example, in US the business owners and leaders used to buy politicians to gain popularity. Countries such as South Korea, Latin America, and China have crony capitalism. State capitalism as the final key type operates where a state has many industries that control the market economy. The government also gets involved in state capitalism through planning. It decides on how to invest in communication and transport. In the modern world, China leaders partly use state capitalism to run their country. There are many private industries, but the government gets involved in planning transport and energy. Exchange rate policy and monetary policy are influenced by the Chinese government (Baumol, Litan & Schramm, 2007). Lack of competitions and private enterprises is the main difference between state socialism and state capitalism. In general, capitalism has some several benefits towards a state or a country. In the period between 1000 and 1820 the world economy was estimated to be six-fold as compared to the period between 1820 and 1998 which grew to fifty-fold. Capitalism provides valuable services and goods to the customers are free to make different choices (Baumol, Litan & Schramm, 2007). Capitalism rewards hand work and punishes theft and laziness. The gap between the rich and common person is narrowed. Capitalism also builds on democracy where people the opportunity to realize their desires and dreams. However, there are some demerits on using capitalism because it creates inequality in a community, and there is an accumulation of wealth, has monopolistic tendency and human resource exploitation. Question 5 The main difference between liberal and coordinate market economies according to definitions is that liberal market economies models and arrangements in competitive market coordinate all the business activities, unlike coordinated market economies which coordinate all their activities without market relationships. For example, USA has a liberal market economy while Germany has a coordinated market economy (Liao, 2009). In a liberal market financial system, the big firms usually gain capital from bond and stock markets. The differences are classified according to the benefits acquired from special skills or incremental innovation. For example, in coordinated economies they benefit from long –term capital gained from wage moderation and specific skills, but the companies cannot benefit from the increased market share independently through competitive advantage and cost reduction. In liberal market economies, there are radical innovations unlike in coordinated market economies they gradually improve. The relationship between coordinated and liberal market economies can be classified into five main components such as employee relations, inter-company relations, industrial relations, education and training and financial markets and corporate governance mainly focused in US and Germany. Industrial relations in Germany depend on collective bargaining on sector level whereas in US, the negations and coordination of industrial relations are only guaranteed at a company level (Liao, 2009). For instance, there exist many organizations and associations in industries located in Germany, which possess powers that influence any organization within an industry whereas in US there are no such organizations. Collective bargaining agreements formed by industrial associations address issues such as setting labor standards as well as setting optimal wages. Industrial strikes are common in Germany, but no industrial strikes in US because negotiations are made at the company level. United States is considered to have highly mobile and deregulated labor markets, whereas, in Germany, there are long-term employments with few employers. In US, there are personal contracts which last for a certain period of time where they can be renewed, but in Germany the workers’ contracts are unlimited. In liberal market economies, training and development projects aim at developing general skills while, in coordinated market economies, they offer specific-industrial training where the people acquire specific-demanded skills. For instance, in US many institutions offer courses that give general skills applicable in various industries across the world unlike in Germany the institutions offer specific-industrial skills that can serve an industry in long-term basis (Liao, 2009).Inter-company relations are based on the ideologies of free markets in liberal market economies while in coordinated market economies there is education, training and collective bargaining among industries which helps in setting working standards within an industry. For example in Germany, cooperation among competitors is at a high level that is executed through organizations and associations. In US, many things are based at a personal level where CEOs from different companies influence in making the companies’ rules and regulations (Liao, 2009). There is also a great difference in suppliers between liberal market economies and coordinated market economies. For instance, in Germany there are long-term relationships between the industries with their suppliers. On the other hand, in US, the choice of industrial suppliers varies according to immediate requirements. The final difference between the two economies is based on financial markets and corporate governance. Financial markets and corporate governance forms and features in any nation play a crucial role in making the decision for all business activities to be carried out (Clift, 2014). In liberal market economies such as US, the companies’ shareholders has the power of making decisions whereas in Germany, only the members appointed by the board of supervisors in the management, has the power of making decisions. Many shareholders in a company make decisions according to their preferences different from industrial management that focus on long-term development. In conclusion, according to the differences between the two market economies, I would prefer coordinated market economy because there is an existence of various organizations and associations among and within companies, long-term employments and has a better corporate governance. The liberal market economy is much influenced by leaders who make decisions according to their preferences unlike in coordinated market economy various industrial shareholders get involved in making a decision. Poor leadership qualities lead to poor political and market economy and vice versa hold. References Baumol, W. J., Litan, R. E., & Schramm, C. J. (2007). Good capitalism, bad capitalism, and the economics of growth and prosperity. New Haven: Yale University Press. Caroleo, F. E. (2006). The European labour market: Regional dimensions: with 53 tables. Heidelberg [u.a: Physica-Verl. Clift, B. (2014). Comparative Political Economy: States, Markets and Global Capitalism. New York: Palgrave Macmillan. Esping-Andersen, G. (2013). The Three Worlds of Welfare Capitalism. Hoboken: Wiley. Hall, P. A., & Soskice, D. W. (2001). Varieties of capitalism: The institutional foundations of comparative advantage. Oxford [England: Oxford University Press. Hanson, J. A., Honohan, P., & Majnoni, G. (2003). Globalization and national financial systems. Washington, DC: World Bank [u.a. Hayter, S. (2011). The Role of Collective Bargaining in the Global Economy: Negotiating for Social Justice. Cheltenham: Edward Elgar Pub. In Singh, J., & In Bourgouin, F. (2013). Resource governance and developmental states in the global South: Critical international political economy perspectives. Liao, C. (2009). The governance structures of chinese firms: Innovation, competitiveness, and growth in a dual economy. Dordrecht: Springer. Low, L. (2004). Developmental states: Relevancy, redundancy or reconfiguration?. New York: Nova Science. Nutzinger, H. G., & Backhaus, J. G. (1989). Codetermination: A discussion of different approaches. Berlin: Springer. Scherf, G. (2014). Financial stability policy in the Euro zone: The political economy of national banking regulation in an integrating monetary union. Wiesbaden: Springer Gabler. Read More