Chapter 4 Economics and International Development Introduction Economics

Chapter 4 Economics and International Development

Introduction • Economics – Social science based on the study of resources • Oikos meaning “household or basic social unit” • Nomos meaning “a customary way of doing things” • Contemporary definition of economics: – Wants are unlimited (human nature), but only limited resource to satisfy wants • Many economic paradigms that do not necessarily recognize human nature assumptions

Liberal Economics • First detailed in Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations in 1776. – Focused on the division of labor and use of resources • Political liberalism – Liberty, political equality, and individual freedom • Liberal economic theory – Very similar to political liberalism – Assumption: individuals more rational with resources – Little government interaction

Markets in Liberal Economics • People seek to gain the highest possible utility at the least possible cost • Humans have unlimited demands – Scarcity due to limited resources • Opportunity costs account for the value of demands that are not met • Marginal utility – The goal of businesses to increase point at which consumer satisfaction is gained • Supply and Demand – Demand curve for prices at which people are willing to pay for a good – Supply curve for prices at which goods are produced – Equilibrium is the price at which supply and demand curves intersect

Economic Nationalism • Mercantilism and Economic Nationalism – Opposing viewpoint to liberal economics – Well-being of a nation depends on its control of capital – Economy is not independent of a country’s social and political system • Accomplishing mercantilist goals – Enforce protectionist policies such as tariffs, subsidies, and import quotas • Economic nationalism tends to rise when there is concentration of wealth in the hands of increasingly few people

Marxism • Karl Marx and Frederick Engels – Historical materialism analyzes the cause of change in society – Contradictions would lead to class struggle and eventually communism • The owners of businesses own all – Capital and means of production – Working class never receives its true value of labor • Relations between social class seen as relations of production • Modern forms can be separated into two movements: – Social democracy – Marxism-Leninism

Microeconomics and Macroeconomics • Microeconomics – Specific market systems on a small scale – Assumes a host of buyers and sellers, none of which can control the market price • Macroeconomics – Combined performance of all markets in a defined market system – Gross Domestic Product (GDP) is a useful performance indicator in macroeconomics

Development Economics • Concerned with the growth strategies in lessdeveloped countries • Trends toward economic growth through development of economic structures • Many unexpected local consequences with development

Globalization • Globalization refers to: – Expansion of global communication and market connections – Growing social and political interdependence – Development of a planetary awareness

Neoliberalism • An adaption of liberal economic theory applied to a world economy • Goals of neoliberalism: – Ease restrictions on trade between countries – Free the movement of goods and services – Maximize economic efficiency and profits – Open trade and privatize government positions

Globalization • Thomas Friedman – Globalization as integration, driven by technological advancement • World Trade Organization (WTO) – Praised and criticized for its part in globalization – Created in 1995 to lower tariffs on trade after the cold war – Some see it is a corporate-inspired agenda to rid protectionist policies

Non-Western Economics • Marshall Sahlin Stone Age Economics – Economics is a category of culture – Multiple forms of rationality exist • Different type of economics present in small non-Western countries – Western Happiness = wants, wealth – Non-Western Happiness = leisure, family, community

Sustainability • Meet present needs without jeopardizing future needs – Awareness has come to the forefront in the past 50 years • Carrying capacity – Limited resources on human economic growth

The Global Economic Crisis • Sharp global economic downturn beginning in the U. S. in 2008 – Worst downturn since the Great Depression – Due largely in part to the decline of banking liquidity and housing bubble burst in 2007 • The crisis effected the entire world, and fast! – Decrease in American spending meant decrease in production around the world

Eurozone and the Debt Crisis • Sovereign debt increased in Europe due to bank bailouts in Greece, Ireland, and Portugal • Greece received a bailout that failed to solve the problem – Problems resurfaced a year later with the refinancing of public debts in Greece

How Did Other Countries Fare? • Iceland – Suffered the worst with an international banking collapse and led to the fall of the government • Latin America – Due to economic reform after their debt crisis in the 1980’s and 1990’s they were much more resilient to the recession • China and other Asian economies – Poorer countries suffered badly, but China, South Korea and India did not slip into recession • Middle East – Generally did not suffer much due to oil holdings • Africa – Suffering a full blown development crisis due to the recession