Basics of Economics & Political Economy ais/banana/sitemap.htm

What is the difference? Economics addresses the functioning of systems of production & consumption, specifically through markets, such as those for bananas. Political economy addresses the role of power, rules and relationships in organizing the economy, such as how global banana markets came to be organized as they are.

The global economy is a capitalist one Economic liberalism –Individual preferences –“Free” market –Bargaining & exchange –Money as value Capitalism –Produce low, sell high –Division of labor –Comparative advantage –Profit incentive –Tendency to monopoly

A few other points about capitalism The price of goods is not often determined by supply & demand Those who lack money cannot access markets Capitalism tends to enrich the wealthy Strong regulation is required to modify these tendencies Such regulation is provided by the state

Bananas are an international commodity Produced in vast quantity, on large plantations, with low- cost labor Shipped in vast quantities to temperate zone countries Supply vs. demand notionally set the prices of bananas Companies make a profit & invest in more plantations How many bananas can the world consume? 80 million tons per year or 350 billion bananas 50-75¢/lb =$ billion/yr.)

Marijuana is also an international commodity High quality product can be grown virtually anywhere High prices generate competitive production Barriers to entry for large-scale production (land, secrecy) The “border” acts as a regulator of international trade Markets are segmented by quality & location Price is determined by local supply & demand ( ( Important part of many local economies

Banana companies compete to increase market share—& raise prices & profits Increase production to make bananas cheaper Reduce production costs Undercut or buy out other companies Use advertising to make product more attractive Lobby for trade rules favoring specific producer Corner the market and establish monopoly prices Evolution or world production and international trade in bananas in thousands of tons ( )

Marijuana “companies” tend to compete over turf and territory Mexican cartels follow corporate model Seek territorial monopolies over gateway cities This leads to literal warfare In California, organization of production less clear Distribution more along network lines Fragmentation makes it difficult to increase price Legalization could well lead to falling prices… Marijuana_Market

Comparative advantage & international division of labor Bananas only grow in tropical climates Labor is low cost there Some countries specialize Shipping bananas is cheap Rich buyers pay high prices Rich countries provide capital & technology Producing countries must buy technology from rich They pay with “hard currency” earned from exporting bananas

Marijuana is subject to a different “division of labor” & comparative advantage logic California production costs are $5-25 per oz. Distribution costs are minimal (middlemen?) Profit is up to $300/oz. Mexican costs are probably lower: $1-5/oz. Shipping: estimate $10/oz No taxes, licenses, etc. Distribution: est. $50/oz Profit is up to $340/oz California: $350/oz Mexican on E. Coast: > $400/oz Grower Miscellaneous Prod. cost Cartel Shipping Producer Distribution

What is “globalization?” Is globalization “real?” –Yes –No –Depends on definition How is it defined? –Growing global integration –Global Americanization –Flows of capital, people, technology –Near-instant communication –Penetration of capitalist morés throughout world