Topic
Seven
Lectures
13&14
Oct.31-Nov.2 Political
Economy
Introduction.
The study
of political economy shows:
1. The
nature of states and economies in industrial countries, particularly through
the form of the welfare state.
2. Modern
reforms of the state resulting from the impact of neo-liberalism.
3. The
relationship between, state, and the new economy, particularly the impact
of technology.
4. The
continued importance of social democratic thinking on modern states.
The role
of the state in the economy takes on two main forms: the social state (the
welfare role) and the economic state (the reproduction role). In the first,
controversies exist over the role of the state as provider and in the second,
its role as manager.
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Description.
The state
in industrial countries evolved from the aristocratic state to the capitalist
state under the challenge of liberalism seeking political rights and the supremacy
of parliament over the monarchy. This struggle was mainly concentrated in
the period from the 1680's (the Glorious revolution) to the 1850's. The state
further evolved into the welfare state under the challenge of workers= movements from the 1870's seeking the right to vote but importantly,
social and economic rights under capitalism.
The welfare
state is one that adopts a philosophy of social responsibility on the part
of society, acting through the state, for the care or welfare of those members,
who by circumstances, are unable to provide a standard of care for themselves
that meets the minimal standards of a civilized society. Ideologically, it
represents a struggle between the capitalist ideal of profitability and the
socialist ideal of justice for the less fortunate and those whose circumstances
result from capitalist exploitation of society. Politically, the welfare state
represents the impact of trade unions, labour and socialist parties, and working
class voters and those of the more disadvantaged socio-economic classes of
society during the high point of their politically influence from the 1870's
to the Second World War, and even after.
Schemes
were developed to provide state welfare, mainly for occupational injuries,
old age, sickness and unemployment. These are forms of social insurance and
together, made up the social security programmes of welfare states. Some welfare
states have gone further to provide free or subsidised education for certain
age groups, family allowances for children and health care in the public sector.
Some countries like Germany and Sweden are among the top of those that provide
more or less comprehensive welfare services, while others, like Britain and
the United States have been at the lower end. A country like Japan, having
a different culture and social institutional character than western countries,
has been able to provide welfare through cohesive and strong family units
and through companies which have a stronger bond with workers, than it does
through the state.
The welfare
state in the industrial countries emerged between 1880 and 1950. Since the
1980s, the neo-liberal impact of the Reagan and Thatcher governments on welfare
states as bureaucratic, inefficient and costly have led to reforms of welfare
states but not their abolition. The major change has been to shift the provision
of welfare away from the state alone to other providers in society such as
the market, civil society and the family. It is to create a welfare society
in which the state continues to play an important role. An OECD report puts
this in perspective: ANew relationships between action by the state
and private action must be thought; new agents for welfare and well-being
developed; the responsibilities of individuals for themselves and others reinforced.
It is in this sense that the emergence of the Welfare Society is both inevitable
and desirable.@ (Kuhnle, 2000: 9).
The changes
in the idea of the welfare state represent a major ideological shift and a
pragmatic adjustment to economic realities, that the state=s strong role in providing welfare
is not a good role and that voluntary organisations and market competition
might provide better quality and more efficient service delivery.
The welfare
state has also been criticized as undermining individual initiative and economic
prosperity by creating a culture or syndrome of dependency on the state.
Theories
of state crisis.
The 1970's
and 1980's saw a number of theories trying to explain a crisis of the state
in industrial countries. A number of countries were experiencing higher unemployment,
higher inflation and slower economic growth. At different times in the 1970's,
1980's and early 1990's, capitalist industrial economies experienced economic
recessions. The economic boom of post-war economic recovery had lasted from
1945 to 1968.
The radical,
leftist criticism argued that societal demands on the state were so great
that states suffered from an >overload= of demands (crisis of governability)
relative to their fiscal capacity to meet those demands (fiscal crisis) leading
to popular dissatisfaction (crisis of legitimacy). One problem at the heart
of this was the politics of adversarialism (crisis of liberal democracy) caused
by electoral and party competition which continuously raised public expectations
as parties went after votes but demand overload and fiscal limits on spending
meant that these expectations could never be satisfied. These crises were
symptomatic of the underlying contradiction in capitalism - the need for popular
social legitimacy which was costly and the need for profitability and the
accumulation of wealth, which the cost of the state welfare undermined.
The conservative,
rightist critique of the state was that it had become inefficient, undermined
individual initiative, provided costly and poor quality services and that
the welfare state=s aim of equality and justice, would be better
provided through the market and non-state institutions.
A third
critique was a structural one - that globalization required each state and
economy (because the cost of the state had to be paid for out of the economy)
to be more competitive by reducing costs and increasing efficiency as the
bases for greater international competitiveness.
Despite
these criticisms and expectations of a drastic decline in the welfare state,
the 1980s and 1990s have seen that, Aalthough there have been cuts and adjustments
of benefits in many social security schemes in European countries, the overall
governmental expenditure effort has increased in absolute terms.@ (Kuhnle and Alestalo, p.10). The
reason, as postulated by Kuhnle and Alestalo, (pp.10-11) is that as societies
become richer and markets become more diverse, states and individuals have
more resources to provide more welfare but also people have more choice as
clients to go to market or family providers of welfare rather than relying
on the state. So there is more welfare, not less.
But there
are other reasons why the welfare state has been so resilient and able to
resist neo-liberal retrenchment.
- as the
populations of industrial countries age and birth rates decline through lower
fertility, more demands are put on state and society for health, pensions
and social care for the aged.
- as family
structures change from nuclear families to more single-parent households,
including the rising incidence of young, unwed mothers, families rely more
on other agents of society for care, such as child allowances and government
support for education of both parent and child;
- as the
second industrial revolution changes the job market demanding more skills
in technology and as companies >downsize= for more efficiency, losses of jobs
and retraining needs require support for those affected by unemployment, even
if its is temporary.
- in democratic
societies, state elites run electoral risks by removing social supports to
which members of society have become attached, neither do they want to be
seen as uncaring and insensitive.
For such
reasons, modified welfare states have remained despite neo-liberal movements
aimed at privatisation, deregulation,
reduced public expenditure on welfare and attacks on trade unions, social
policies, and social democracy.
Welfare
states in Europe.
Welfare
states are strongest in the Scandinavian social democracies, like Sweden,
Norway, Denmark, Finland and Iceland. In the 1990's social expenditure per
capita actually increased by between 15 and 20 percent. They have universal
child allowance schemes, maternity benefits, leave for parents of new borns,
sickness and unemployment insurance, universal pension schemes.
Their
high levels of welfare owes to the fact that there has remained a widespread
political consensus on the part of the electorates and political elites on
state welfare, including the conservative and social democratic parties, supported
by new left movements and parties such as women=s movements and green parties. For
example, because of economic problems the long-ruling Social Democratic Party
of Sweden was replaced by a conservative government between 1991 and 1994.
But despite the fact that Sweden=s SDP maintained one of the highest income tax
systems in the world, it was voted back into power to maintain but reform
the welfare state.
The welfare
state remains stronger in Europe than the US and Britain because the impact
of new left movements like Green parties and the continued influence of more
traditional leftist parties like reformed socialist and communist parties
has been greater. It is only in the 2000 campaign that a Green party presidential
candidate has emerged for the first time in the US and there are no such parties
in the UK.
Furthermore,
conservative Christian parties in Europe are more sympathetic to welfarism
than those in the US and Britain. In Europe, these parties are often Catholic
while in the US and Britain Christian movements are Protestant ( and not strong
in Britain). Protestant movements stress individualism ( as a reaction to
the traditional domination of the Catholic dogma over people=s lives), while Catholic movements
stress the interests of the community of believers. So, the Christian People=s Party in Norway, for example, is
concerned about care for the elderly, increased minimum pensions and allowances
for families with children.
In all
of the Nordic countries, there have been strong social democratic parties.
But the societies and parties have come around to the position that families
and markets must take more responsibility for welfare through individual initiatives
to work. This position is stronger among the conservative parties. The major
issues of the parties have been how to maintain a high and acceptable level
of welfare while keeping inflation down, keeping taxation to manageable levels,
keeping a productive balance between social expenditure and investments in
markets, maintaining individual incentives while providing welfare supports.
The
welfare system in America.
American
welfare came later than that of Europe and came after the widespread poverty
caused by the Great Depression of the 1930's. Up to that time there was a
fairly well supported socialist party whose candidate would compete in presidential
elections. That party has claimed that many of its programmes were quietly
incorporated into that of the Democratic party, after which the party went
into decline.
American
welfare consists of a social security system for the aged and disabled, fairly
similar to that of Europe; Medicare, or medical care for the aged; unemployment
insurance; poverty programmes, mainly for female-headed households with dependent
children.
The American
system is different from the Scandinavian system in two respects. First, the
Scandinavian system is universal, that is, social programmes cover the entire
population regardless of their income levels or ability to pay. The American
system is selective. It provides for those who make contributions to these
schemes. For instance, some 40 million Americans have no health insurance
at all and the Clinton Administration has tried, unsuccessfully, to introduce
a universal health care system in the US.
The second
difference is that because of the federal nature of the American system and
the greater influence of corporate lobbies, the welfare system is fragmented.
This has opened the system to the influence of wealthy doctors in the American
Medical Association to block attempts at >socialised medicine= in favour of private practice, racist
interests in Southern states wanting to block welfare supports to Blacks,
and conservatives wishing to end support for single-parent families which,
they say, encourages sex outside of marriage and undermines family values.
In effect, whereas the Scandinavian system is uniform, the American system
is fragmented with each state having special rules about who qualifies for
welfare.
The result
is that there is greater poverty in the United States. The US has the highest
rate of poverty among the aged population of all the industrial countries.
Less of the unemployed receive support. Only 1 percent of the federal budget
goes towards allowances for children. (Castles, 107-108). In the mid-1980's, 54 percent of single-parent
families lived in severe poverty in the US compared to 6 percent in the Netherlands
and 7 percent in Sweden. At present,
two-thirds of women over 55 years (female aged) live in poverty in
the US. To the extent that poverty is related to crime, the US has over half
the prison population of the industrial countries and 14 times greater than
the average for the Scandinavian countries. (Rothstein, 218).
The
reformed welfare state.
Industrial
states have incorporated market means of service provision into their systems
in order to >marketize the state.= This is the ultimate impact of neo-liberal
thinking and the main concession made to that thinking. For example, in health
care the Dutch have reformed their system so that while the payment of health
insurance by employees, employers and the state is still mandatory, the state
is no longer the sole provider of doctor=s and hospital care. Private insurance
companies offer plans for medical care that is partly provided by the private
medical system.
One of
the lasting legacies of Thatcherite and Reaganist neo-liberalism is how it
has changed the attitude towards the state. The political and ideological
debate about the value of welfare, individual responsibility and the obligations
of the state to the disadvantaged has changed. It is now accepted that the
state can rely and should rely more on market principles rather than purely
administrative designs in its offering of services. Out of this a market model
of the state has emerged.
The
economic state.
Industrial
states went through the 1980's conscious of concerns about the state arising
from a new economic realism. One aspect was the concern with high tax and
spending policies to support the welfare state. Another was globalization
which required greater economic competitiveness and less expensive state systems
along with the growth of the European Union and its liberalizing effects on
national state policies. A third was technology and then need for the state
to build a new kind of economy with the new computer and other technologies
available.
This has
given rise to a new market model of the state. Ideally, the goal is to make
government work better for less, that is, to do everything smarter, better,
faster and cheaper. It would do so by (1) seeking market, rather than administrative
solutions, and (2) making increasing use of information systems technology
to expedite operations ( e-mail, video conferencing, database management,
imaging, geographic information systems). In these ways, governments could
improve productivity and save personnel time.
Using
health care and education as examples, the market model of the state:
(1) should
be applied to service providers (health care through competitive hospital
costs, school costs and performance) not through policy agencies (ministries)
or regulatory agencies (medical associations).
(2) should
feature, wherever possible, competition between public and private sectors
(public and private hospitals, schools), competition among private firms vying
for public contracts (construction, catering, equipment, furnishing), competition
among public agencies (public hospitals and schools themselves), and competition
among governmental units to provide services to internal customers (government
departments for roads, electricity, professionals).
(3) should
provide managed or regulated markets (rather than pure markets) by which government
retains the (democratic) authority and responsibility to make the rules and
formulate the policies so that state administration and market principles
work in conjunction.
(4) where
market-oriented governmental programmes become decentralised, competitive
and responsive to changing conditions; empower customers to make choices between
state and private providers; link resources directly to results; and allow
governments to use incentives strategically.
But the
other element of the new thrust is to apply information technology in the
service of the state and economy. After a 25 year period of on and off recession, the economies of the industrial
countries have become stronger since the second half of the 1990's. There
has been stronger and more sustained growth, lower inflation and higher employment.
This has led to what some call, the Anew economy.@ It is argued that over the past
decade, the economy has been fundamentally altered by the spread of computers,
digital technology and globalisation. New developments in technology since
the 1980's especially, have created a new round of productivity and growth
domestically and internationally, and at the heart of this is technology,
specifically the computer revolution and what the Americans call, the information
superhighway.
The credit
has been given to the computerization of business and society that is leading
to a fundamentally new economy driven by information, research, knowledge
and technology. Data shows that in 1977, 40 per cent of American businesses
invested in computers. But by 1998, more than 80 per cent did. (Madrick, 1998:
43-44). Twice the number of workers use computers today than they did ten
years ago. Computerized information technology makes an unprecedentedly large
amount of information inexpensively and instantaneously accessible and this
dramatically increases productivity.
The phenomenon
is being compared to similar economic revolutions in history - the agricultural
revolution that led to the development of settled populations and cities (the
first wave), the industrial revolution that has led to modernisation (the
second wave), and now the technological revolution in information (the third
wave) or the second industrial revolution. The information revolution is being
likened to the revolutionary impact that the harnessing of electrical power
had a hundred years ago.
The information
superhighway will allow business to relocate to some of the low cost geographic
areas; the availability of inexpensive information will give more people with
entrepreneurial ideas access to commercial markets; the Internet will become
a vast commercial market that is more efficient than the old-fashioned shopping
mall.
Information
technology compresses space and time or distance and speed, and makes gobalisation
possible. Globalisation is distinguished by information technology - fax,
PCS, satellite, internet - along with the growth of human capital in this
technology.
The state
in the new economy.
The idea
of >reinventing government= means making government structures
more efficient and cost-effective. But is also means reinventing a role for
government that is congruent with the new economy. Lester Thurow finds that
a change is occurring among the governments of the industrial countries. He
says, ALeaving behind the role of regulator or the function of controlling their
national economies, governments are becoming platform builders that invest
in infrastructure, education and research and development to allow their citizens
to have the opportunity to earn world-class standards of living.@ (Annals, 2000, p.19).
This knowledge-based
economy is transforming the role of the state in fundamental ways. The state
as platform builder has to create a more educated workforce, more infrastructure
to include an electronics infrastructure, the stability and economic framework
to attract those companies with the technology and markets that can allow
a country to compete globally.
The importance
of technology was recognised by 1988 in the report of the Council of Academies
of Engineering and Technological Sciences: AThe world is in the throes of a technological
revolution that differs from the periodic waves of technical change that have
marked the progress of industrial society since its origins 200 years ago.@ (Annals, 9). It affirms that the key technologies are the microelectronics-information
technologies complex, the bio-technologies and the new materials science (like
synthetics).
But in
this new economy, mechanical technologies are not enough. Human resources
-education, skills, innovative, imagination- are critical. Governments need
to continue to develop technology (they are credited with developing the computer),
apply it in government and business, use it to share more information, and
develop an educated population able to use it.
The new
economy therefore is:
1. A knowledge-based
economy where research and development are crucial.
2. A computerized
economy that uses speed and mass data about consumers and markets to increase
productivity.
3. A globalised
economy where rules of exchange of services and products are liberalised.
4. A transnational-dominant
economy where transnational corporations control global markets, technology,
research and expertise.
5. An
economy with more flexible labour markets, that is, labour contracts where
performance is linked to productivity rather than to fixed wages, time, and
benefits.
6. A new
governance, where government does things cheaper, faster, better, and smarter
and so is less of a burden on the economy.
7. A new
social system in which welfare is shared between state, market, family and
non-profit organisations.
The Americans
are crediting their present economic situation to the new economy.
- the
economy is in the midst of probably the greatest expansion in 40 years.
- investments
in high-tech industries is leading the way in capital investments.
- new
jobs make unemployment stand at its lowest level in decades.
- inflation
is low because of cheaper imports from abroad.
- the
stock market is growing, especially in the newer electronic and computer industries.
Another
indication of the importance of this new technology is that, whereas Henry
Ford was the richest man in the world at the start of the century ( who invented
the mass assembly system of production for Ford automobiles), at the end of
the century, the richest man in the world is Bill Gates. Ownership of such
natural resources as oil, gold and land, is relatively less important than
controlling the computer market and, hence, the knowledge process. Gates is
a symbol of this knowledge-based economy.
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