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Unformatted text preview: The Global Economy and World Politics
Professor Edward Weisband Lecture 3 First Cut The Indispensability of Economic Governance The study of political economy concentrates on the indispensability of economic governance Economic governance in political economy is never a given It remains fragile, subject to instability & crisis, and elusive Especially on account of the overlapping scapes of economic activity and jurisdictions of economic coordination But without economic governance Wealth could not be created or distributed--WHY? This represents the primary issue in the study of political economy Specialization and Sacrifice The "ization" processes that help define the study of political economy demonstrate the dynamics of specialization--WHY? Wealth is a function of specialized economic activity From individuals to households (oeconomica) to organizations/institutions to national economies and beyond Specialization and Time Specialization defines economic activity Based on sacrifice of generalized activity, knowledge, or output In favor of narrow concentration Specialization is timeefficient since it allows for focused activity that ultimately leads to greater productivity BUT there is a catch... Specialization and Interdependence To specialize is to become dependent on other agents who must fulfill the expectations of their own specializations Specialized economic activity must be expressed across economies in relation to multiple sets of specializations each of which becomes beholden to all of the others Wherever specialization arises Dependency, mutual dependence, and interdependence become necessary and unavoidable The efficiency standards upon which wealth depends require acceptance of interdependence as the sine qua non (without which nothing) of economic activity Risk as Existential Consequence The mutual dependencies and interdependence essential to wealth and its creation involve RISK Risk is existential--no one chooses it and everyone wishes that it would go away BUT there is no financial gain without RISK Because risk is a consequence of the interdependence That stems from specialization Without which wealth cannot be created WHY Economic Governance? Herein lies the answer to the key question--WHY is economic governance essential to the study of political economy? Economic governance is indispensable as a way of confronting the risks That accompany the interdependence That attaches to specialization In all forms of economic activity aimed at wealth creation THEREFORE by means of economic governance the dimension of trust is introduced as a vehicle for countering existential risk The Logic Stream of Political Economy Specialization/Divisions of Labor Interdependence Risk Trust The Need for Economic Governance We tend to think of economic governance in terms of governments, institutions, and organizations and thus in terms of hierarchy and bureaucracy But other mechanisms of economic governance play out in political economy including markets, firms, and Second Cut Putting "Capital" Back in "Capitalism" Capitalism is the economic system that rewards specialization oriented to wealth (profit) creation over time The language of capitalism features fiduciary trust over time Examples: bonds, securities, and trusts The term used to define and characterize specialization in capitalist systems of economic activity is capital Capital refers to specialized forms of economic input oriented to future promises of profit or reward grounded in risks generated by interdependence To understand capitalism it is essential that we first understand the nature of specialized capital inputs The Five Forms of Capital: Specialized Inputs in the Creation of Economic Outputs Natural Capital The planetary, environmental, ecological basis for all economic resource inputs Human Capital Capacities of persons as economic agents to contribute knowledge and specialized skills as inputs into economic productivity Social Capital The economic values generated by and through collaborative relationships based on trust as inputs into economic dynamics Manufactured/Technological Capital "Downstream" fixed assets including brick and mortar, infrastructure, technology, and intermediate goods used as inputs to produce "upstream" production or service delivery outputs Financial Capital Investment and savings as inputs into future productivity Third Cut Scarcity and Specialized Capital Inputs Forms and amounts of capital used as specialized inputs in production depend on choices, incentives, and availability What is available tends to be a function of surplus or, more likely, scarcity The relationship between Specialized capital inputs And economic outputs Involves choices and decisions That require sacrifice in the name of efficiency Production Possibilities Economies confront surpluses and scarcities in terms of specialized capital inputs whenever they seek to produce Economists identify these dynamics in terms of production possibilities of outputs Production possibilities measure The goods and services An economy is able to produce as outputs Given the availability of specialized capital inputs Choice in The Conversion of Specialized Capital Inputs The basic proposition in comparative political economy is that: Efficient economies must choose How to convert most efficiently and apply specialized capital inputs By sacrificing one set of production possibilities for another The technical term is opportunity cost of inputs Opportunity Costs, Sacrifice, and Economic Choices Opportunity Cost Defined: The value of the best set of specialized inputs That is sacrificed in the conversion of economic outputs Opportunity costs allow us to assess the relationship of choices Relative to what is sacrificed In terms of those alternatives not selected Example: The opportunity cost of a college education is four years of minimum wage employment The Linkage Between Opportunity Costs and Production Possibilities Opportunity costs represent choices Measured by sacrificed values In the name of greater efficiency In terms of production possibilities The key is the conversion process From one set of specialized capital inputs To more efficient specialized capital inputs Which will yield higher outputs and greater wealth ...
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This note was uploaded on 03/30/2008 for the course PSCI 2064 taught by Professor Eweisband during the Spring '08 term at Virginia Tech.
- Spring '08
- Political Economy