Unformatted text preview: The Global Economy and World Politics
Professor Edward Weisband Lecture 9: Public Goods and Social Democracy First Cut Market Failures and the Efficiencies of Heteronomous Governance Market failures defeat the efficiencies of heteronomous governance Why? Because the pricing mechanism crucial to the determination of efficiency in exchange Cannot operate when individual choices "bottomup" Generate social costs That are not immediately priced into the exchange mechanisms of markets Market Failures and Government Interventions Market failures are created by inefficiencies in pricing The cost of producing and marketing certain goods and services By suppressing in the exchange price the costs To society as a whole Article: Tiny Car, Tough Questions Alternatively market failures are created When the costs in an exchange tend to be so high That consumers or users would refuse to pay for it Except as a government fiat in the form of taxes "Top-Down" Governance in the Face of Market Failures The consequence is that heteronomous governance Must seek remedy and solution "topdown" from governments or institutions That are hierarchically organized and charged with the responsibility to remedy market failures in a variety of ways On behalf of society as a whole Beyond the pricing mechanism of heteronomous markets "Space" For Governments:
Public Goods as Remedies for Market Failures Markets thus open up "space" for governments As a complementary mechanism for economic governance To provide public goods That counteract market failures Public health care systems Infrastructural systems (roads, bridges) Product regulation systems (food and drug safety, product recalls) Public educational systems Emergency Response Systems (police, fire) Public Defense and Security Systems Public Goods as Non-Excludable Remedies to Market Failures COLLECTIVE OR PUBLIC GOODS are government provisions That remedy market failures That are made available and accessible to ALL On a nonexcludable basis Public goods refers to those benefits provided by governments Like clean air, clean water, public roads, common defense, and social entitlements That markets left to their own devices Could not price efficiently And thus tend not to provide
Article: She Brakes for Ideology Two Ways of Looking at Public Goods There are two ways of looking at public goods: Conservatives tend to prefer "user pay" solutions In the form of choices and preferences Usually relying on private sector providers Ex: insurance companies Liberals tend to prefer government provisions To ensure equal access and nonexcludability Ex: universal healthcare Two Perspectives on the Role of Government in Governing Heteronomous Markets Liberal The focus is on government policy activism, public goods, and entitlements Conservative The focus is on government restraint To achieve social objectives Including Rather than on any set of social objectives Exception: supply and value of currency Levels of employment Equal opportunity Public welfare SupplySide Economics to regulate inflation The goal is to increase the purchasing power of lower income and middle class households Dedicated to creating added financial flows to enhance the capital inputs of business and thereby greater competitiveness in GDP outputs Second Cut Social Democracy Social democracy represents an approach to governance That seeks to balance market efficiency with equity By providing entitlements as public goods Different market economies strike this balance in different ways That reflect historical traditions, cultural values, and political structures The great examples have emerged in the course of European history But have been adopted throughout the developing world From Heteronomy to Social Democracy Heteronomous market societies seek to be social democracies when They attempt to resolve the tension between The generation of high levels of employment The elimination of relative poverty High levels of employment require macroeconomic efficiencies Relative to GDP growth and heteronomy Reductions in relative poverty require equity Or equality in income distributions Four Models of European Social Democracy European economies have attempted to resolve the tensions Between efficiency in terms of employment generation And equity in terms of poverty elimination In ways that fall into four different groupings The AngloSaxon Model Great Britain and Ireland The Nordic Model Norway, Sweden, Finland, Denmark, the Netherlands The Rhineland Model Germany, Austria, Luxembourg, Belgium The Mediterranean Model France, Greece, Italy, Portugal, Spain Resolving the Tensions Between Efficiency and Equity On achieving high levels of employment and efficiency The AngloSaxon and Nordic Models do well The Rhineland and the Mediterranean Models do poorly On achieving higher reductions of poverty and equitable distributions of income The Rhineland and the Nordic Models do well The AngloSaxon and the Mediterranean Models do poorly Efficient Equitable Inequitable Nordic Model AngloSaxon Model Inefficient Rhineland Model Mediterranean Model Four Models of European Social Democracy
Efficient Nordic Model Equitable High entitlement spending High entitlement spending Partially regulated labor markets Partially regulated labor markets with labor incentives and strong industrial relations Inefficient Rhineland Model Entitlements for unemployed Entitlements for unemployed and retired workers Highly regulated labor markets Highly regulated labor markets with corporatist industrial relations Inequitable AngloSaxon Model Entitlements as a last resort Entitlements as a last resort Minimally regulated labor Minimally regulated labor markets Mediterranean Model High entitlement spending High entitlement spending Intense regulation of labor Intense regulation of labor markets Early retirement benefits Early retirement benefits designed to reduce the employment pool Public Goods, Efficiency, and Equity Models of European Social Democracy and the U.S. Welfare State demonstrate that public goods can promote both efficiency and equity Economic efficiency is not necessarily diminished By entitlement spending on social programs such as: Support for Public Education and Vocational Training Universal Healthcare and Childcare Social Security Safety Nets and Social Protections Unemployment benefits Small business loans Entitlements can promote specialized human capital development in terms of employment And enlarge markets by enabling more individuals to participate as heteronomous decision makers in determining demand Where Conservatives and Liberals Meet: How Equity Promotes Efficiency
Entitlements as Public Goods Increased Employment Opportunities Increased Access to Income Increased Access to Markets Enhanced Ability to Express Choices and Preferences Increased Market Size and Sectoral Synergies Increased Efficiencies Across Markets Entitlements Support Economic Efficiencies Entitlements provide security against the risks that derive from variations in "life chances" Healthier workers are more productive Parents are more productive workers when they know that their children are in safe schools and child care facilities Children who do not have to provide for elderly parents can invest in their own productivity Counter Example: Poor farming families in developing countries must have many children Without safety nets, social security must come from children This extends the vectors of poverty, ill health, and illiteracy and maintains high opportunity costs This kind of inequity is a drag on economic efficiency Entitlements in the Service of Sound Economic Objectives Entitlements serve important social and economic goals and objectives They are not, in themselves, counter productive They do not, in themselves, create special interests and structural rigidities The problem with entitlements arises when, and only when, they lead to corruption, labor market rigidities, and special interests That reward nonproductive choices and behaviors Which represent another form of market failures Examples: longterm unemployment programs, structural marginalization, alienated youth, etc. ...
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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