Lecture II: Country Factors

Political Systems: Collectivism

 Collectivisim: refers to a political system that stresses the

primacy of collective goals over individual goals.
 Socialism: State owns means of production so that it can fully
compensate workers for their labor

 Communists vs. Social Democrats

 Communists: socialism can be achieved only through violent revolution
and totalitarian dictatorship
 Social democrats: socialism can be achieved by democratic means
 Political Systems: Individualism

Individualism: Philosophy that an individual should have

freedom in his or her economic and political pursuits

 Tenets of individualism:
 Guaranteed individual freedom and self-expression
 Welfare of society is best served by letting people pursue their own
economic self interest
 Democracy and Totalitarianism

Democracy: a political system in which government is by

the people, exercised either directly or through elected
representatives

Totalitarianism: form of government in which one person

or political party exercises absolute control over all
spheres of human life and prohibits opposing political
parties
 Elements of Representative Democracy

Representative Democracy’s elements:

2. An individual’s right to freedom of expression, opinion and
organization
3. A free media
4. Regular elections in which all citizens are allowed to vote
5. Universal adult suffrage
6. Limited terms for elected representatives
7. A fair court system that is independent from the political system
8. A nonpolitical bureaucracy
9. A nonpolitical police force and armed service
10.Relatively free access to state informatioin
 4 forms of Totalitarianism

1. Communist Totalitarianism
2. Theocratic Totalitarianism
3. Tribal Totalitarianism
4. Right-wing Totalitarianism
 Economic Systems Comparison:
Market, Command, Mixed

Market Economy:
 All productive activities are privately owned, as opposed
to being owned by the state.
 Goods and services produced by the country are not
planned by anyone
 Production is determined by the interaction of supply and
demand
 Economic Systems Comparison:
Market, Command, Mixed

Command Economy:
 The goods and services, their quantity and prices are all
planned by the government
 Objective of the command economy: to allocate resources
for ‘the good of society’.
 Economic Systems Comparison:
Market, Command, Mixed

Mixed Economy:
 Certain sectors of the economy are left to private
ownership and free market mechanisms while other
sectors have significant state ownership
 Countries with mixed economies often take up ownership
of industries that are troubled. Example: France taking
over Renault as it felt social costs of large unemployment
undesirable
 Legal Systems: Property Rights

Legal System: refers to the rules, or

laws, that regulate behavior along
with the processes by which the laws
are enforced and through which
redress for grievances is obtained
 Different Legal Systems

Common Law: Based on tradition (legal history),

precedent (prior cases), and custom (ways in which
laws are applied in specific situations)

Civil Law: based on very detailed set of laws organized I

Theocratic Law: Law based on religious teachings

Country Focus: 40 Years of Corruption in Nigeria

Despite tremendous oil reserves,

people are poor.
 300 billion in 30 years from oil
$30 billion debt
Life expectancy 50 years
 Contract law

Contract law: body of law that governs

contract enforcements

Property rights: refer to the bundle of

legal rights over the use to which a resource
is put and over the use made of any income
that may be derived from that resource
Lecture II: Determinants of
Economic Development
 Differences in Economic Development

GNP vs. PPP (Purchasing power

parity)
 GNP: measures total annual income received by
residents in a country
 PPP: allows for a more direct comparison in
living standards between countries depending
on whether the cost of living is lower or higher
as compared to the USA
 Broader Conceptions of Development

Noble Prize winner Amartya Sen argues that

development should be assessed less by material
output measures like GNP or PPP and more by
capabilities and opportunities people enjoy
HDI is used –
1. Life Expectancy (function of health care)
2. Educational attainment (adult literacy, levels of
education)
3. If average incomes sufficient to meet basic
requirements
 Political Economy and Economic Progress

A. Innovation and Entrepreneurship are

engines of growth
B. Innovation and entrepreneurship require
a market economy
C. I and E require strong property rights
D. Stable Political system
 States in Transition

Spread of democracy
 Evolution of Commercial Institutions

 Evolution of societies –
Why are individual groups better
at business than others?
The gender gap
Property rights
Evolution of religions
Evolution of economic groups
 The New World Order

Huntington’s thesis vs.

Fukayama’s ideas
 Nature of Economic Transformation

 Deregulation: involves removing of legal restrictions to

the free play of markets, the establishment of private
enterprises, and the manner in which private enterprises
operate
 Privatization: transfers the ownership of state property
into the hands of private individuals frequently by sale of
state assets through auctions.
 Article Review

Return of Economic Nationalism:

3. What is economic nationalism?

4. How does trade benefit? (see next slide)
5. What fear does the article raise?
6. Why would raising tariffs result in greater chaos?
7. Why does the article say that “Buy American” label be
erased?
8. What are the three principles it suggests Obama should
follow?
 Spread of Market-Based Systems

Why is trade a good thing?

Trade encourages specialisation, which brings
prosperity;
global
capital markets, for all their problems, allocate
money more
efficiently than local ones;
economic co-operation encourages
confidence and enhances security.
 Article Review

Anatomy of an Idea:

3. What does the word ‘liberal’ mean in Europe?

4. What does it mean in America?