1. The Economy and Society
Lecture 7

2. Relationships between politics, economy and society
Politics intertwinted with economy and society
Two main economic philosophies: capitalism and socialism
Party programmes and voting behaviour shaped by social divisions
Economy often decides about election results
Marxist view – politics a reflection of the class system
Base (economy) conditions politics („superstructure”)
However, politics understandable only within and economic and social context

3. Central issues to be examined
How, and to what extent , does the economy condition politics?
What are the major economic systems in the world today?
What are their strengths and weaknesses?
How far can, and should government control the economy?
What are the key economic and social cleavages in modern societies?
To what extent do class, race and gender structure political life?

4. Economic systems
An economic system – a form of organization – goods and services are produced, distributed and exchanged
Capitalist economy features
Commodity (good or service) production for exchange – it has a market value
Productive wealth (the „means of production”) in private hands
Economic life organized according to market principles (demand and supply)
Material self-interest and profit maximization provide the motivation for enterprise and hard work (through competition)

5. Market
Market – a system of commercial exchange that brings buyers into contact with sellers (it is an impersonal mechanism regulated by price fluctuations reflecting the balance of supply and demand – market forces)
Money – a convenient means of exchange rather than barter
Advantages of market
Promotes efficiency through the discipline of profit motive
Encourages innovation – new products and better production processes

6. Market – advantages
Promotes efficiency through the discipline of profit motive
Encourages innovation – new products and better production processes
Producers and consumers – pursue their own interests and enjoy freedom of choice
Equilibrium through the coordination of individual preferences and decisions

7. Market - disadvantages
It generates insecurity – through forces people cannot control -
It widens material inequality and generates poverty
It increaces the level of grees and selfishness and neglects the broader needs of society
It promotes instability – periodic booms and slupms
However – there is no uniform model of market capitalism
Countries construct their models of capitalism – different economic and political circumstances and historical, cultural heritage

8. Socialist economy - principles
System of production geared (at least in theory) to the satisfaction of human needs
Predominantly public or common ownership of productive wealth
Economic organization based on planning
Rational process of resource allocation
Work based on cooperative effort – for general well-being
State socialism (Soviet bloc) – collapsed in
It undermined the belief an ideal socialist system exists
State socialism – the state controls and directs economic life „in the interes of the people” (in fact in the interest of party and bureaucracy)

9. Enterprise capitalism
Many capitalisms in the world
Feudalism – agrarian-based production; fixed social hierarchies and a rigid pattern of obligations and duties
Capitalism relied on the market mechanism – technological innovation and greater productive capacity
Enterprise capitalism – a pure capitalism (the Anglo-American world) – based on the ideas of Adam Smith, David Ricardo, Milton Friedman and Friedrich von Hayek
Market – self-regulating mechanism (an „invisible hand”)
Adam Smith: „It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner but from their regard to their own interest”
Profit orientated – high productivity, labour flexibility low welfare benefits
USA – economic super-power due to enterprise capitalism principles
Disadvantages – huge material inequalities, social fragmentation, social tensions

10. Social capitalism „Social market economy” – born in Germany
Market economy but supplemented by welfare system and effective public services – a means of generating wealth for social needs
Economy supports social cohesion and solidarity
Regional banks invest in business corporations – long term profits
Social partnership, cooperation and subsidiarity – businesses, trade unions and politicians
Comprehensive and well-funded welfare provisions – protect workers
Germany – „economic miracle” after WWII – the leading economy in Europe – but quite inflexible and costly – „Social capitalism” contradiction?

11. Collective capitalism
The model based on the example Japan after 1945
Followed by other East Asian tigers (South Korea, Taiwan, Singapore, China)
Cooperative long-term relationships
Economy to be directed by „relational markets”
40% of capital of the Tokyo stock exchange owned by industrial groups (sister firms); 30% - networks of cross-shareholdings binding industrial concerns with thier subcontractors – stability and abundance of capital - long-term investment
Workers – life-time employment, pensions, social protection
Teamwork and collective identity – crucial
State – guides investment, research and trading decisions – plans ahead
But workers are exploited; work long hours; work dominant; authoritarian atmosphere

12. The state and the market
Keynesianism – economic strategy invented by John M. Keynes
Rejected lassez-faire principles (the principle o nonintervention of government in economic affaires)
Inctroduced the policy of demand management realized by most Western governments after WWII by tax and spending policies
Monetarism – emerged in reaction to „stagflation” (unemployment and inflation of the 1970-ies) and constant „printing money”
Promoted „sound money” through controlled inflation
Left economic growth, employment and productivity to the self-regulating market
The UK and USA in the 1980-ies followed this path with success but monetarism is nowadays combined with active economic policies of governments realizing also social capital is needed (in the form of trust).

13. Varieties of socialism
„Humanizing” capitalism by Keynesian or social-market ideas
Socialism as an alternative to capitalism - created as a totally different economic system
State socialism – created in Russia after the Bolshevik Revolution (Lenin’s War Communism and New Economic Policy; then Stalin’s second revolution of the 1930-ies)
Collectivization, nationalization, centralization – state control of ownership and economic processes – total inefficiency and bankrupcy
Market socialism – socialism united with market competition (also failed)
Its self-management was not efficient – lacked market discipline
Economic „third way” – e. g. Sweden – left-wing version of social capitalism
Environmental theorists – critical of both socialism and capitalism – rejected economic growth „obsession”
Propose focusing on sustainability of the natural environment – ownership and organization of wealth of secondary importance – ecology before economics and morality before materialism („buddhist economics” – E. F. Schumacher)

14. Society and social divisions
Society not only the context but rather the stuff substance of politics – all political life takes place within society; it influences politics considerably
Society – groups with a social structure, awarness and cooperation
Social class – people of the same economic and social status
Marxist view – the possesing class and exploited class
In XXIth century – irrelevant – the end of class politics (middle class and underclass – „the excluded”, „dependant”, „deprived”).
Racial, ethnic divisions – blacks, Jews, Arabs discriminated – their struggle in 2nd half of XXth c.
Radical feminists find gender divisions the most important social cleavages – traditional societies „patriarchal”-dominated by men – „sexual revolution” needed to transform cultural relationships and socio-political structures

15. Recapitulation Economics influences politics at almost every level.
Capitalism focused on general commodity production, profit maximization, private ownership of wealth and the market organization of economic life.
Socialism – public or common ownership; economic planning; satisfaction of human needs
Both systems have never been „pure” or „classical” in practice
Economic systems may be regulated or left untouched (pros and cons)
Society and its structures influence politics
Class, race and gender divisions most politically significant of the social divisions in modern society; race and gender more important than class