General Motivating Questions
1. What are the four primary economic ideal-types? How do these ideal-types present themselves in the “real world”? a) Feudalism - unequal and inefficient. Elites owned land, control the lives of the serfs who worked it. System of protection. Worker of the land were not able to move up in this system (mid-1500’s) b) Mercantilism - unequal and inefficient. State directs economy for own interest. Trade gives a state security; a nation/state needed to expand their empires → Colonization to Monopolized trade. Colonies could not trade on their own. c) Economic Liberalism(Capitalism) - efficient but unequal. Individuals direct economic activities. Everything is in the market, everyone must be competitive. d) Marxism - inefficient but equal. Gov’t directs economy for the benefit of populous with a goal of economic equality
2. Which form of government best fosters economic growth? Does democracy help or hinder economic growth? Why are authoritarian regimes thought to induce economic growth? What are the dangers of following the modernization theory? a) Could say that both governments foster economic growth though, b) Both grow at the same rate, but for diff reasons: Rich dictatorships repress labor/grow through capital investment. Rich democracies pay labor more/grow through innovation. c) Authoritarian regimes are thought to induce economic growth because the leader of the state focuses more on economics and less on being re-elected. d) Democracy helps economic growth because the leaders allow free team picking, which promotes innovation which has a correlation to economic growth, but the leaders tend to focus on re-elections *Demo - Encourages investment by fostering property rights. Encourages efficient allocation of resources through free flow of ideas/information. Leads to endogenous growth (which is important for rich countries) by fostering the development of ideas through open intellectual debate. Endogenous growth → Innovation Governments choose better policies because voters make their govt’s more aware of their needs & hold them accountable for poor performance. More transparent so investors are confident Democracy ←--> Development/ Higher Income,
^WE DON’T LIKE ENDOGENITY(?) WHEN TESTING VARIABLE!
Positive correlation due to the idea that once a country has higher incomes, they can afford to adopt democracy, not that democracies cause higher incomes! Positive relationship between democracy and GDP per capita supports the claim that there is a correlation, but it is an endogenous relationship *Authoritarian - Bring order & discipline to the masses. Leaders accountable to the masses would not make the hard choices needed to develop. They would divert $ to consumption instead of investment to stay elected. Poor countries cannot afford Democracy - Democracy was a luxury for the rich countries: Political participation should be held down temporarily to foster economic development. Ex: Good: Singapore, Bad: Ethiopia Dictatorship → Economic development → Democratization ← (important) Temporary dictatorship could lead to development, which would lead to democracy 3. What are examples of economic and governmental combinations? (see chart below) SingaporeU.S.
Ideal-Type Economic Systems - Help us classify different social phenomenons-ideal doesn’t necessarily mean best type
o Feudalism - Hierarchy. Landowners/Elites own land, control the lives of serfs who were tied to the land they worked. Serfs are tied to the land and the lords have legitimate rule of the land given to him by the king. Lords have an obligation to protect serfs.
- Unequal and Inefficient
o Mercantilism - Colonial Times.
- The state directed the economy for its own interest not the interest of business. - Gov’t controlled the economy and individuals were required to...