American Political Economy

0Political economy = interaction between the economy and government

0Chapter 20 Impact corporations have on politics

0Chapter 30 History of American Political Economy

0Government’s role in sustaining capitalism0Sometimes tense, sometimes smooth relationship between

political end economic power

Capitalism and Democracy

0America’s democratic political system and capitalist economic system

0Capitalism = system in which capital (the capacity to produce goods and services) is privately owned and controlled0 Business decisions driven by profits (achieving greatest

return on investments)0Markets = decentralized and “self-regulating”

0 Never wholly free or self-regulating0 Requires rules, regulation by outside source, government

Dilemma of Markets

0 Markets highly innovative, efficient, dynamic, productive0 Byproducts of competition among firms to reduce costs,

prices, capture market share, increase profits0 Can often conflict with public interest

0 Externalities = costs firms can effectively avoid paying0 Example: mining industry (environmental degradation,

pollution, etc.)0 Unless government obligates companies to internalize

socially harmful costs, community forced to pay0 Well-crafted regulation can promote public interests

Dilemma of Markets, II

0 What is good for individual companies may not be good for the society0 Pharmaceutical companies whose priorities are shaped by what is most

profitable0 Mortgage companies extracting revenues from strapped homeowners

during housing crisis0 Capitalism requires constant expansion of commodity production and

consumption0 Collides with realities that world has finite resources and ecosystems are

fragile0 Capitalism is unstable and can cause significant social dislocation

(recessions, depressions, unemployment, inflation, etc.)0 Capitalism tends to produce booms and busts (cycles)0 Capitalism is an inherently undemocratic form of production

Dilemmas of Markets, III

0 Capitalism all these things0 Externalities (socializing cost; privatizing gain)0 Inherent contradiction possible between private interests and

community (public) interests0 Expansion/growth and ecological crisis0 Instability (recession, depression, unemployment, inflation)0 Boom and busts (cycles)0 Undemocratic

0 Capitalism uniquely qualified to promote efficiency and productivity

0 Politics of power = conflicts about how to reconcile capitalist production and democratic politics

Making Sense of Capitalism0 Key difference in political economies is extent of government regulation of markets and

provision of social programs0 U.S. = markets are more free and less regulated than most other democratic capitalist

countries0 Produces greater economic inequalities and imposes harsh social costs0 Emergence of corporations with massive amounts of capital and concentrations of

power0 Capitalism a form of private government

0 A system that resembles public government0 Its policies have fundamental impact on people’s lives and their communities

0 Government’s welfare heavily dependent on corporate prosperity0 Held-hostage by business0 One of first priorities = to promote business-friendly conditions

0 Corporations not all-powerful0 Engaged in competition with domestic and foreign producers0 Must contend with other groups with differing interests

The System of Corporate Capitalism

0 Suppose a small group controlled vast economic resources and political power0 Several thousand Americans – unrepresentative, not democratically

chosen – dominated the economy0 Determined whether to invest, where to invest, what to invest in, how

production is organized0 Enormous political influence

0 Campaign contributions, lobbyists, lawyers, media

0 Can a government (political system) and society be described as democratic if it tolerated, promoted the existence of a small group with immense wealth along with a far larger group with meager income?

0 Corporate capitalism = system in which a small group controls U.S. economy and possesses immense political power

Whether to Invest0 Investment decisions by industrial corporations and financial institutions (banks,

equity firms, etc.) determine level of goods and services produced driven by profit motive

0 Citizens tend to identify personal welfare with welfare of business0 What’s good for GM…0 Widespread support for capitalism fueled by pro-business propaganda (schools,

businesses, political parties, media)0 Rational basis: entire society depends on business firms to generate jobs and

prosperity0 At same time, readiness among workers and other citizens to challenge many features

of capitalist control0 Americans tend to support capitalist values, such as individualism and minimum state

interference, mostly in the abstract0 While at same time supporting specific government programs (e.g., assisting the poor)0 Non-elite Americans have shared powerful belief in community, collective action, and

government’s responsibility to remedy market defects

Where to Invest

0Decisions made on basis of which location will minimize production costs and maximize sales and profits

0States and local governments compete by offering tax incentives, loans, anti-union laws, and weak environmental regulations

0Shift of capital beyond U.S. borders (offshoring, outsourcing, and foreign direct investment) important elements of globalization

What to Invest In

0 Investment decisions determine kinds of goods available in society

0Based on what will be the most profitable0Not what would be the most beneficial or useful for

society0A good example are pharmaceutical companies devoting

resources to devising medications for relatively harmless ailments in affluent countries rather than investing in devising medication to treat and prevent tropical diseases among low-income groups in the south

How Production is Organized

0 Workplace rules are undemocratic0 Private managers decide:

0 Who will be hired, fired, and promoted0 What tasks employees will perform0 What kinds of technology will be utilized

0 Management seeks to fully control process of production because profits depend on how efficiently labor can be managed

0 Ongoing tension between workers who attempt to maximize their autonomy and managers who attempt to exert greater control

0 Workers have achieved gains through 0 Labor unions and collective bargaining agreements 0 As citizens pressuring government to enact legislation mandating improved

labor standards (e.g., minimum wage laws, overtime, safety regulations, etc.)

What Do You Think?

0 The Tense Relationship of Capitalism and Democracy (p. 36)0 At heart of American political economy is tension between

undemocratic organization of capitalism and democratic procedures that regulate the elected branches of government.

0 Think of two examples of how undemocratic capitalism and democratic politics conflict.

0 When such conflicts occur, how are they resolved?0 Could this tension be resolved so that the spheres are

organized along the same lines?0 Would such a pattern be preferable to the present pattern?

Why or why not?