Political Economy and Public Policy

• Macroeconomics

• Bureaucracy

• Public Policy

Politics and Markets

• Role of the state in liberal democracies: to induce economic performance

• Pluralist Approach

• Class Approach

Needs of the state

Economic Systems

• Laissez-faire capitalism

• Socialism

• Market socialism

• Soziale Marktwirtschaft

• State-led capitalism

• Mixed economy

Macroeconomics

• Scarcity

• Exchange

• Money

Schools of Macroeconomics

• Mercantilist (nationalist)

• Classical (liberal)

• Keynesianism

• Monetarism

• Supply-side

Resources Called into Government Service

Fiscal Policy

• What

• Who

• How: The Multiplier

Monetary Policy• Who

• What

• How: Money Supply

Central Bank Independence

Bureaucracy

A bureaucracy is the name given to a large organization that is structured hierarchically to carry out specific functions. Generally, most bureaucracies are characterized by an organization chart. The units of the organization are divided according to the specialization and expertise of the employees.

Names for Exec. Bureaucracies

• Whitehall (UK)

• Quai d’Orsay (France)

• Wilhemstraße (Germany)

• Sublime Porte (Turkey)

Choosing the Civil Service

• Birth (“who you are”)

• Political allies (“who you know”)

• Competitive exams (“what you know”)

• Generalist vs. Specialist

Corruption

Corruption likely when

• Adverse government structures

• Information deficits

• Opportunities and incentives

• Social conditions

• Deficits of law

• Imperfect electoral processes

Corruption: Good and Bad

• Least corrupt: Australia*, Austria*, Denmark*, Finland*, Iceland*, New Zealand*, Norway*, Singapore*, Sweden*, and Switzerland*

• Most corrupt: Angola, Bangladesh*, Chad, Côte d'Ivoire, Equatorial Guinea*, Haiti*, Myanmar, Nigeria*, and Turkmenistan

• * = Democracies

Types of Corruption

• Cronyism

• Bribery

• Nepotism

• Rent-seeking

• Influence peddling

• Kleptocracy

Kleptocracy

• “Rule by thieves”• The ten most self-enriching leaders of recent times: 1. former Indonesian President Suharto ($15 billion – $35 billion) 2. former Philippine President Ferdinand Marcos ($5 billion – $10 billion) 3. former Zairian President Mobutu Sese Seko ($5 billion) 4. former Nigerian President Sani Abacha ($2 billion – $5 billion) 5. former Yugoslav President Slobodan Milošević ($1 billion) 6. former Haitian President Jean-Claude Duvalier ($300 million – $800 million) 7. former Peruvian President Alberto Fujimori ($600 million) 8. former Ukrainian Prime Minister Pavlo Lazarenko ($114 million – $200

million) 9. former Nicaraguan President Arnoldo Alemán ($100 million) 10. former Philippine President Joseph Estrada ($78 million – $80 million)

Five Function of Bureaucrats

• Implement the law

• Provide expertise

• Provide research and information to the executive officials

• Provide research and information to legislatures

• Quasi-judicial powers and responsibilities

Weberian Model of Bureaucracy

Bureaucracies as rational, hierarchical organizations in which power flows from the top downward

• Decisions are based on logical reasoning and data analysis.

• Division of labor• Chain of command• Formal rules• Apolitical (neutral decision making)• Advancement based upon merit• Bureaucrats are salaried by superior institutions

Democracy and Bureaucracy

Issues in Politicization of the Bureaucracy

Policymaking

Some issues:

•Management of the economy

•Health care

•Old age pensions

•Inflation

•Unemployment

•Distribution issues

•Crime

•Globalization

•Human rights

•Migration

Human Development Index

Development Strategies

• Import-Substitution Industrialization

• Export-Oriented Industrialization

Should government stay out of the economy?

• Yes: markets choose better than states

• No: the East Asian miracle– Positive aspects– Illiberal aspects

Income Inequality

Income Inequality (Over Time)

Income Inequality – Selected StatesGini coefficient Richest 10%:Poorest 10%

Sweden .250 6.2

Russia .310 7.1

India .325 7.3

France .327 9.1

Britain .360 13.8

United States .466 15.9

South Africa .578 33.1

Brazil .593 68

Namibia .707 128.8

Dealing with inequality

• Subsidies

• Transfer payments

• Progressive taxation

• Land reform

• Whom to aid: cities vs. country-side