Political and Economic Change

1. Political and Economic Change Political Change Command Economy Economic Liberalism Market Economy Mixed Economy Privatization

2. Introduction • Profound political and economic changes have characterized 20th and 21st centuries • Political and economic changes typically occur together, or at least influence one another • One can happen without the other, but tensions are created with consequences • There is no clear-cut relationship between democratization and marketization • Does one cause the other or are they separate in nature and scope? (no definitive answer) • Mexico has moved towards marketization in 1980- democratization has followed • China has moved towards capitalism since late 1970s w/ no signs of democratization

3. Political & Economic Liberalism • Idea of liberalism has its roots in 19th century Europe • Proponents supported political and economic freedoms • Most liberals were bourgeoisie: middle class professionals or businessmen • They didn’t want their businesses or political representation hampered by gov’t • They advocated free trade, low or no tarrifs and the right to private property • Opponents argued that liberals tolerated too much inequality in society

4. Types of Political Change • Reform: • Does not advocate the overthrow of basic institutions but a change • Reformers may want to change business practices/regulations to safeguard competition • Groups may want gov’t to be more proactive in environmental issues • Revolution: • Contains either major revision or overthrow of existing institutions • Impacts more than one area of life • French and American Revolutions were directed at politics but changed economic and societal practices around the world • Coup d’ etats: • “Blow to the state”- leadership in the country is replaced by new leaders • Coups typically occur in countries where government institutions are weak; and carried out by force

5. Democratization • Democracy takes many different forms but broad themes exist in Liberal Democracies: • Competitive Elections: regular, free and fair • Civil Liberties: freedom of belief, speech, assembly • Rule of Law: laws provides equal treatment of citizens and due process • Neutrality of the judiciary: checks on abuse of power • Open civil society: citizens are allowed to lead private lives and mass media can operate free from gov’t control • Countries that have free elections but lack the other characteristics are known as Illiberal democracies

6. Command Economies • 19th century radicals advocated equality over liberty • In order to achieve equality, command economy was necessary • Gov’t owns almost all of the industries enterprises and retail sales outlets • Economies are managed by a single-party planning committee • Command economy produced blueprints for economic production and distribution (often called 5-year plans) • Central planning supported the economic growth in many communist countries (USSR as the greatest example) • By 1980s most command economies lacked the growth to compete globally • No support for creativity, entrepreneurship • No support for scientific discovery unless dictated by the State • No support for personal growth; therefore, no worker motivation • No major trade outside of the command economic blocs (ex: USSR and Eastern Bloc) • Standard of living does not improve, even if economic growth in industry happens

7. Market Economy • The old command economies are fading from existence • Most societies are drifting towards market economy • Private ownership • Privatization: transfer of state-owned property to private ownership • Little interference from gov’t regulation • The issue today is: what type of market economy will be successful: • One that allows for significant control from central gov’t – a mixed economy • or one that doesn’t- a pure market economy • Modern Germany has a “social market economy”: cooperation between management and organized labor • United States’ economy tends to be more individualistic and anti-gov’t control

8. Movement towards Market Economy • Belief that gov’t is too big • Command Economies require an active, centralized gov’t • Anti-big gov’t movements began in the 1980s • Economies became stagnated in the 1970s and inefficient • Thatcher and Reagan rode wave of support in 1980s to limit gov’t controls of economic systems

9. Movement towards Market Economy • Command economies lacked success to be a viable model for others to emulate • The USSR’s failure magnifies the collapse of command economy • After 1991 countries in Eastern Europe moved away from command economies towards market economies • China has slowly infused market economic principles into its economic system

10. Marketization • Property, labor, goods, and services can all function in a competitive environment: the market determines value • Free-market disadvantage: cycles of prosperity and scarcity are commonplace • Recessions, small market downturns, depressions happen in market economies • The depressions have forced many countries to choose ‘mixed economies’ as best alternative • Gov’t plays an active role and creates more controls, but much less than in command economy

11. In Conclusion… • Liberal democracies are also called substantive democracies (citizens have access to multiple sources of information) • Some scholars do not consider illiberal democracies to be democracies at all • All markets fall on the continuum between market and command systems • US is a market economy but competition and profit still regulated by the gov’t • Countries move along the continuum over time: China is perfect example of this More Centralized Less Centralized Command Economy: No private property; Industry is owned by the State; competition & profit prohibited Mixed Economy: Elements of command and market economies are present Market Economy: Right to own property is guaranteed; most industry is owned by private individuals; competition is not controlled by gov’t