POLITICAL ECONOMY OF GROWTH SECS-P01, CFU 9 Finance and Development academic year 2016-17

1. POLITICAL ECONOMY OF GROWTHSECS-P01, CFU 9Finance and Developmentacademic year 2016-17 2. MAIN SCHOOLS OF THOUGHT Roberto Pasca di Magliano Fondazione Roma Sapienza-Cooperazione Internazionale roberto.pasca@uniroma1.it

2. Main Schools Classical School (1600/1700, until the second-half of the 1800s) Mainauthors : Abate Ferdinando Galiani, Adam Smith, Thomas Malthus, David Ricardo, Stuart Mill, Karl Marx Economicsis a social science thatstudiesquestionssuchas capital accumulation and incomedistribution Marginalistor Neo-classical School (since 1870 circa) Mainauthors : Jevons, Walras, Marshall, von Hajek, Friedman, Say, Solow Philips Economicsstudieshow to obtain the best result in the presence of a givenamount of resourcesavailable KeynesianSchool (since 1930 circa) Mainauthors: Keynes, Harrod, Domar Galbraith, Stiglitz, Dornbusch, Phelps Growthis no longerdriven by offer, butrathersustained by demand, even public Growth School and models Mainauthors: Harrod, Domar, Solow, Lucas, Romer Growthregardsonlyadvancedcountriesastheyreact to economicvariables Development economics(since 1950 circa) Mainauthors: Lewis, Kuznets, Bauer, Myint, Streeten, Sen, Yunus Developing concerne notonly with economicaspectsbutalso with institutional and social onesthathavegreaterimportance in developingcountries Roberto Pasca di Magliano

3. The State and the Market • In conjunction with major economiceventsthatraise the attention of the public opinion, the scientific and political community periodically interrogate themselves on the role of the free market • The discussionaimsatunderstanding theextentand the modalitiesof State intervention in the market mechanism: how to correctit in order to avoid social distorsion, how and whereitispossible to faster the growth in presence of lack of private investors • At the extremes of thisdebate, there are on the onehand the supporter of State intervention and on the other the maketorientedeconomists Roberto Pasca di Magliano

4. Current economic and political vision • Liberalism • monetarists • neo-classicalschool • State intervention • keynesianschool • neo-keynesianschool INTERMEDIATE VISION ARE MORE FREQUENT Roberto Pasca di Magliano

5. Comparing the two positions Market supporter arguesthat: • market is the mostefficientmechanism • market has an automaticcapacity to adjustitself by increasingwell-being • market improve moral qualities (i.e.: meritocracy) Supporter of State interventionsustainsthat: • outcome by market allocationsmaynot be sociallyacceptable • the market, ifleftunregulated and free to followitsownrules, can produce distortion • State intervention can support economy by doing public investmentwhen the private ones are failing Roberto Pasca di Magliano

6. Intermediate Positions (1) In reality, the contrast between market and State is played within the realm comprised between the two extreme positions, most radical in their nature. Hereafter are some major actors: • Milton Friedmanpure liberal and intellectually reprentative of the School of Chicago and most notable inspiratior, he trusts the free market as a source of economic and social progress and is able to adjust automatically for any temporary distortion • Jagdish Bagwaticonsiders economic integration as positive, provided that the distortions be corrected without introducing duties • Anthony Giddens considers that the growing liberalization creates problems that globalization may, instead, contribute to solve • Lawrence Summersconsiders that, within the market, the State must insure the reduction of inequalities through fiscal harmonization Roberto Pasca di Magliano

7. Intermediate Positions (2) • Amartya Sen & Peter Singer view risks but also positive opportunities in the market dynamics, underlining the necessity for regulation that bring businesses and individuals towards a virtuous path • Joseph Stiglitzargues in favour of the importance of the role, not only of the national State but also of the international institutions in regulating the market • Edward Luttwakunderline the risks that the global market, if it is not properly regulated, might impose upon the workers of the developed world (low salaries, unemployment) and upon the environment • John Graydoes not believe that the anglo-saxon model of economic liberalism can be applied to systems that are different from the western one historically speaking and advocates for national solutions • Paul Krugman (2008 Nobel Prize) underlines the need for global governance to make markets work, and that it be entrusted to the IMF Roberto Pasca di Magliano