Unit 5 draws on Chapters 4 and 5 of Dickovick & Eastwood. Chapter 4 examines the political economy of advanced industrialized states — how politics and economics interrelate, how to measure economies, and why welfare states emerged. Chapter 5 turns to development in lower-income countries — how to define and measure it, and the competing theories that explain why some countries grow while others do not. Together, the two chapters set up the foundational market-vs.-state debate that recurs throughout comparative politics.

Connects to: Unit 2 - States and Nationalism (state capacity), Unit 3 - Democracy (modernization theory link), Unit 4 - Authoritarian and Non-Democratic States (regime type and economic performance).

Key Concepts

Political economy studies how politics and economics interact and affect one another
The discipline originated with Adam Smith and Karl Marx before “politics” and “economics” separated into distinct social sciences
Core economic measures: GDP, GNI, GDP per capita, PPP, Gini coefficient, inflation, employment
Official measures only capture the formal economy; grey and black markets constitute the shadow economy, which represents 15–40% of GDP across countries
Two major types of modern economy: market-led (neoliberal) vs. state-led (statist/interventionist)
Most scholars now accept that both markets and capable states are needed for economic success
Modern states perform at least three core economic functions: economic management, human capital investment, and welfare state provision
Three main theories of welfare state emergence: cultural change, industrial capitalism, mobilization and political action (plus international learning effects)
Development is multidimensional — GDP growth is the most common measure but poverty, HDI, gender equity, happiness, cultural autonomy, and sustainability all matter
Four categories of development theory: institutions (market-state), institutions (beyond market-state), culture, and systems/structures
The North Korea vs. South Korea comparison is the textbook’s key case for applying development theories
Marxism offers a third position in political economy: capitalism is not neutral but a system of exploitation driven by class conflict; the state serves the ruling class; welfare states co-opt rather than transform; connects to dependency and world-systems theory
Conservatism (Burkean tradition) and neoliberalism are related but distinct: conservatism prioritizes social order and tradition, neoliberalism prioritizes market freedom; the New Right (Thatcher, Reagan) fused both; key concepts: spontaneous order (Hayek), monetarism and public choice theory (Friedman, Buchanan), supply-side economics, austerity, TINA

Part 1: Political Economy (Chapter 4)

What Is Political Economy?

Political economy is the study of how politics and economics interact — how public institutions affect the economy and how economic change affects politics.¹

For thinkers like Adam Smith and Karl Marx, politics and economics were inseparable
Over the 19th–20th centuries the disciplines split, but political scientists have retained deep concern with economic questions
Chapter 4 focuses on advanced, industrialized countries (Western Europe, Japan, US, Canada, Australia)
Chapter 5 applies these ideas to developing countries

Concepts: Measuring the Economy

To understand political economy, scholars use a set of standard economic indicators.

Gross Domestic Product (GDP) and Gross National Income (GNI)

Measure	Definition
GDP	Total market value of all goods and services produced within a country’s borders in one year
GNI	Total income earned by a country’s producers regardless of where they operate
GDP per capita	GDP divided by population — average income per person

2025 estimated Canadian GDP = C $3.2 t r i ll i o n * *; G D Pp erc a p i t a = * * C$ 59,000
Wealthy countries: GDP/capita typically $30,000+ per year
Poorest countries: GDP/capita can be under $500 per year
Strong GDP growth in advanced economies ≈ 3–5%; in rapidly industrializing economies ≈ 7–10%
Negative GDP growth = recession
One key element in comparing GDP across countries is the cost of living — addressed by PPP (below)
A second key element is how the wealth is shared — addressed by inequality measures (below)

Purchasing Power Parity (PPP)

Because prices vary across countries, raw GDP/capita comparisons can mislead. Purchasing power parity (PPP) adjusts income measures for differences in the cost of living.

PPP Adjustment

A GDP/capita of ~ $400 ina l o w - in co m e A f r i c an co u n t ry ma ycorres p o n d t o a PPP - a d j u s t e df i gu reo f o v er$ 1,000 because everyday goods cost far less locally. Conversely, $50, 000 in J a p an or S c an d ina v ia — w h ere p r i ces a re v ery hi g h — ma y ha v e t h es am e p u rc ha s in g p o w er a s$ 40,000 in the United States.

Inequality and the Gini Coefficient

Inequality in political economy refers to the differential distribution of income and wealth across a population.

The Gini coefficient is the most common measure of income inequality
Scale: 0 = perfect equality (everyone earns the same) → 1 = maximum inequality (one person owns everything); also sometimes scored out of 100
The highest (worst) Gini scores are found in developing or poorer countries, including South Africa and Namibia
The lowest (best) scores are found in Scandinavian countries
The United States has a more unequal income distribution than Scandinavia
Brazil is frequently cited as a high-inequality case

Gini Coefficient

A number between 0 and 1 (or 0–100) measuring how much of a society’s wealth is held by what share of the population. 0 = total equality; 1 = maximal inequality.

Employment and Unemployment

Term	Definition
Employment	Ongoing, regular access to paid work
Unemployment	Lack of ongoing, regular access to paid work
Underemployment	Employed less than desired, or below one’s skill level

In developing countries, analysts distinguish formal vs. informal employment
Formal employment (with contracts, benefits, legal protections) is generally preferred

The Shadow Economy: Grey and Black Markets

Official economic statistics — GDP, employment, tax revenues — capture only formal economic activity. A substantial portion of economic life in virtually every country occurs outside these measurements.

Shadow Economy

The totality of economic activity that occurs outside official state regulation and is therefore not counted in official GDP figures. Includes both grey and black markets.

Grey markets and black markets are the two main components of the shadow economy:

	Grey Market	Black Market
Legality of product/service	Legal	Illegal (or heavily restricted)
Legality of transaction	Illegal or unregulated (evades taxes, licensing, etc.)	Illegal
Examples	Unlicensed street vendors, unreported cash work, counterfeit goods, parallel imports	Drug trade, arms trafficking, human trafficking, stolen goods
Enforcement risk	Lower	Higher
Moral/social status	Mixed — often tolerated	Generally condemned

Grey Market

Trade in goods or services that are legal but sold through unofficial, unregulated, or unlicensed channels — typically to evade taxes, tariffs, or licensing requirements.

Black Market

Trade in goods or services that are illegal, heavily restricted, or subject to official rationing — transactions that are prohibited by the state.

Why Shadow Economies Exist

Shadow economies emerge where the costs of operating formally exceed the benefits:

High taxes or complex regulatory compliance push informal work underground
Prohibitions on certain goods create incentives to supply them illegally (e.g., drug prohibition)
Weak state capacity means the formal sector is simply inaccessible to many people
Corruption may make official channels slower or more expensive than informal ones

Shadow Economy Scale

The IMF estimates informal/shadow economies represent 25–40% of GDP in many developing countries, and 15–20% even in advanced economies. In some Sub-Saharan African countries the shadow economy may exceed the formal economy.

Political and Development Implications

Shadow economies matter enormously for political economy and development:

GDP underestimation: because informal activity isn’t measured, official GDP statistics understate actual economic activity — particularly in developing countries
Tax base erosion: governments cannot tax what they cannot see; informal economies reduce state revenue and capacity to fund public goods and welfare
Regulatory avoidance: workers in informal sectors typically lack labor protections, health insurance, pensions, or recourse against exploitation
State legitimacy: widespread informal activity may signal low trust in state institutions — people “exit” the formal economy when they see its rules as unfair or its enforcement as predatory
Measurement problems: informal workers aren’t captured in official unemployment figures, distorting policy responses

Exam Alert

Grey/black markets are directly relevant to several Unit 5 themes: they affect the accuracy of GDP and development measures, complicate the market-state debate (informal economies can be seen as either market self-organization or state failure), and are evidence of weak state capacity — a key variable in institutional theories of development.

Informality and Poverty

De Soto’s The Mystery of Capital argued that the poor in developing countries hold enormous informal assets (homes, businesses) but lack legal title — so they cannot use these assets as collateral for loans or formally invest. Formalizing property rights for the poor was his prescription for converting “dead capital” into productive investment, linking shadow economies directly to institutional theories of development.

Grey vs. Black Markets: A Spectrum

In practice, the boundary between grey and black markets is fluid:

Parallel imports (legally produced goods sold outside official distribution channels, e.g., cheaper drugs from abroad) are grey market in many jurisdictions
Counterfeit goods blur the line — the product type may be legal (clothing, electronics) but the specific item is fraudulent
Prohibition regimes can convert entire grey markets into black ones (e.g., alcohol under US Prohibition, 1920–33)
Decriminalization can convert black markets to grey (e.g., cannabis in many jurisdictions)

This fluidity is itself politically significant: state policy defines the boundary, making criminalization and legalization fundamentally political decisions with major economic consequences.

Common Mistake

“Informal economy” ≠ “criminal economy.” Most informal economic activity (unreported babysitting, unlicensed street food, unregistered small businesses) involves legal goods and services — it is grey, not black. Conflating informal with criminal overstates the moral and legal severity of the shadow economy.

Inflation and Deflation

Term	Definition
Inflation	Increase in the general price level of goods and services
Deflation	Decline in the general price level — associated with depressions
Hyperinflation	Exceedingly high inflation (prices may rise thousands of percent per year), dramatically eroding the value of money

High inflation has historically caused regime collapse
Central banks often face a trade-off between keeping unemployment low and keeping inflation low

Fiscal Measures

Fiscal measures refer to assessments of a government’s revenues and expenditures, including its total indebtedness.

Excessive debt can threaten future economic performance
But excessive focus on fiscal conservatism can prevent governments from stimulating growth during downturns

Types: Markets and States in Modern Economies

State-Controlled Systems

A state-controlled system is one where the government controls decisions about what is produced, sold, and at what price. These systems feature limited or no private ownership.

Found in totalitarian states (e.g., North Korea) and one-party Communist systems (e.g., USSR/Russia)
Even state-controlled systems frequently have some private enterprise within the economy — sometimes officially sanctioned
The rights of individuals or enterprises to operate in the economy are often tenuously protected — the state can revoke them at any time
See Unit 4 - Authoritarian and Non-Democratic States for the political structures that sustain these systems

Capitalist Systems

Capitalist systems are primarily based on private companies and individuals as consumers.

Free market exchange determines the demand, price, and supply of goods
It is argued that this market-based system is efficient — prices coordinate information and incentives across millions of actors
A capitalist system does not mean the government plays no role in the economy — governments intervene in numerous ways that impact economic functioning

State Intervention in Capitalist Systems

Even within capitalist systems, governments intervene in the economy through a variety of mechanisms:

Form of Intervention	Description
Public goods	Goods available to all (national defence, infrastructure)
Fiscal policy	Tax and spending decisions
Monetary policy	Setting interest rates and controlling the currency
Regulations	Health and safety standards, environmental rules
Nationalization	State-owned industries
Subsidies	Financial support to companies
Welfare state	Healthcare, pensions, social safety nets
Human capital	Public education and training
Tariffs	Taxes on imported goods to protect domestic industries

The Market-State Debate

The central debate in political economy concerns the relative roles of free markets and the state in guiding economic performance.

	Neoliberal / Market-Led View	Statist / State-Led View
Does policy matter?	Yes	Yes
Cause of economic success	Free markets	Strong, capable state intervention
Cause of poor performance	Too much state involvement	Weak or low-quality state; poor interventions
Best evidence	United Kingdom, United States (?)	South Korea, United States (?)
Why has China succeeded?	Opening to markets after 1979	Strong state remained active in managing economy even after 1979
Policy recommendation	Reduce size and role of state	Build state capacity to intervene well

Exam Alert

The market-state debate is the central controversy in political economy. Neither pure neoliberalism nor pure statism is universally accepted — most scholars argue both markets and quality state intervention contribute to economic success.

The Neoliberal Argument

Neoliberalism is the dominant economic ideology of the late 20th century, holding that free markets, private property, and minimal state intervention produce the most efficient and prosperous outcomes. For a full treatment of conservatism and neoliberalism as political ideologies see Conservatism and the New Right below.

Intellectual Foundations

Adam Smith (Wealth of Nations, 1776): the “invisible hand” — individuals pursuing self-interest in competitive markets inadvertently promote collective welfare more effectively than any central planner
Friedrich Hayek (The Road to Serfdom, 1944): central planning cannot work because knowledge is dispersed across millions of individuals and cannot be aggregated; free markets are a “spontaneous order” that processes this information through prices; planning leads inevitably to coercion and tyranny
Milton Friedman (Capitalism and Freedom, 1962): economic freedom is a prerequisite for political freedom; central banks should target money supply growth (monetarism) rather than use discretionary fiscal stimulus

Core Neoliberal Positions

Principle	Content
Minimal state	Government’s proper role: enforce property rights, contracts, and rule of law — nothing more
Free markets	Prices efficiently allocate resources; intervention distorts incentives and information
Privatization	Transfer public enterprises to private ownership; private firms are more efficient
Deregulation	Reduce rules impeding market competition
Free trade	Comparative advantage: countries benefit from specializing in what they produce best
Low taxation	High taxes reduce incentives to work, invest, and innovate
Sound money	Low inflation is paramount; central banks should prioritize price stability over employment

Key Theoretical Concepts

Supply-side economics (“Reaganomics”): cutting taxes on business and high earners stimulates investment and growth, eventually benefiting everyone — sometimes called “trickle-down economics”
The Laffer Curve: at very high tax rates, cutting rates can increase revenue because higher after-tax returns spur economic activity; used to justify Reagan-era tax cuts
Monetarism: inflation is caused by excessive money supply growth; the cure is disciplined monetary policy, not fiscal stimulus; governments should not try to fine-tune the business cycle

Friedrich Hayek — The Road to Serfdom (1944)

Hayek argued that central economic planning — even well-intentioned — leads inevitably to totalitarianism, because planners must coerce anyone who refuses to follow the plan. Only decentralized price signals coordinate complex economic activity efficiently. His concept of spontaneous order holds that markets, language, and common law emerge not from deliberate design but from voluntary interactions, and work better than planned alternatives. A foundational text of neoliberal and libertarian thought.

Milton Friedman — Chicago School

The leading 20th-century academic proponent of free-market economics. Friedman’s Capitalism and Freedom argued economic and political freedom are indivisible. He influenced Reagan and Thatcher and trained economists (“Chicago Boys”) who implemented market-based reforms in Chile under Pinochet in the 1970s and in Eastern Europe after 1989.

Public Choice Theory Public choice theory (associated with James Buchanan) applies market logic to political behavior:

Politicians and bureaucrats are self-interested actors seeking votes and budgets, not servants optimizing for collective welfare
Government programs expand beyond socially optimal levels because of bureaucratic self-interest, concentrated benefits, and diffuse costs
Rent-seeking: groups lobby the state for special privileges — subsidies, tariffs, regulatory protection — imposing costs on the broader public while enriching themselves
Implication: limit state power not just because markets work better, but because political processes are systematically biased toward inefficiency and corruption

Exam Alert

Public choice theory is a major intellectual foundation for neoliberal skepticism of all state intervention — not just bad intervention. It shifts the argument from “markets work well” to “politics works badly,” making the case for limited government even when markets have imperfections (market failure does not automatically justify intervention if government failure is worse).

Neoliberal Critique of the Welfare State

Moral hazard: welfare benefits reduce incentives to work, save, and avoid risk — creating a “dependency culture”
Crowding out: government spending displaces private investment; public debt drives up interest rates
Disincentive effects: high marginal tax rates reduce labour supply and entrepreneurial risk-taking
Government failure: state provision is typically less efficient and more costly than market provision due to lack of competition and price signals

Applied Neoliberalism: The Washington Consensus (1980s–90s) The IMF and World Bank conditioned loans on structural adjustment programs requiring fiscal austerity, trade liberalization, privatization, financial deregulation, and currency reform. Results were mixed — some growth, but also rising inequality, unemployment, and financial crises (Latin America, Sub-Saharan Africa). Critics argue the Washington Consensus was applied dogmatically without regard to local conditions.

Critique of Neoliberalism

Post-2008 financial crisis, neoliberalism faced serious intellectual challenges: deregulated financial markets produced a catastrophic crash requiring massive state bailouts. Inequality has grown sharply in advanced economies since the Reagan-Thatcher era. Piketty (Capital in the 21st Century) showed that returns to capital consistently outpace growth, producing compounding inequality. Stiglitz argued that information asymmetries, externalities, and monopoly power mean markets systematically fail without robust state correction.

The Statist Argument

States can coordinate economic actors, stimulate investment, and promote advanced industrial production
Infant industry protection: shielding new domestic industries from foreign competition in early development stages
Direct state investment in key industries (steel, manufacturing)
Currency management to make exports cheaper
Historical growth of state role: Bismarck’s social insurance programs in Germany (1880s); New Deal in the US (1930s); post-WWII reconstruction

Peter Evans — Embedded Autonomy

Evans compared South Korea, Brazil, and Zaire (DRC). South Korea’s state successfully collaborated with industry while remaining independent of special interests — firms meeting export targets received support, those that did not were cut off. Brazil was intermediate. Zaire’s state was dominated by self-interest. Evans concluded that the quality and structure of the state determines whether intervention promotes or hinders development.

The Synthesis

After the Cold War, most agree economies should be built on private property and markets for most price and resource allocation
But states are also needed to: provide public goods, correct market failures, protect the vulnerable, enforce contracts, and invest in human capital
The debate continues — the right balance varies by context

Political Ideology and the Economy

A political ideology is an organized set of ideas about politics. Ideologies are normative — they present views about the place of the individual in politics, the role of the state, and social values. They present pictures of the world as it is or as it ought to be, and can aspire to create the perfect world.

Ideologies are not fixed for all time — people generally have scope to change their ideological positions
Politicians can advocate for an ideology but not necessarily all components of that ideology
Several key ideologies shape how states approach the economy

Classical Liberalism and Laissez-Faire

Classical liberalism focuses on political freedoms — the rights that individuals should have protected from the state.

Proposes limited government involvement in the economy
Advocates laissez-faire government — economic decisions are made by the market and by individuals and businesses within that market
Still sees a role for government in some areas: provision of public goods such as law and order, defence, and to some extent public health
Over time, liberalism came to see a larger role for the state in the economy, evolving from classical liberalism toward modern or social liberalism

Socialism

Socialism grew out of the industrial revolution as a response to the conditions created by industrial capitalism.

Emphasis on economic equality and a significant role for the state in the running of the economy
Contrasts with classical liberalism’s preference for minimal government involvement
Ranges from moderate social democratic positions (welfare state within capitalism) to more radical positions calling for collective ownership of the means of production

The Marxist Critique

Karl Marx (1818–1883) agreed with Adam Smith that economics shapes society, but drew radically different conclusions. Where Smith saw capitalism as a natural order generating prosperity through voluntary exchange, and statists saw the state as capitalism’s necessary corrector, Marx saw capitalism as a historically specific system of exploitation — one that would eventually destroy itself through its own internal contradictions.

Historical Materialism and Base/Superstructure

Historical materialism is Marx’s theory that the material conditions of production — how people produce what they need to survive — determine the character of society’s political, legal, cultural, and ideological life.

Base: the economic foundation of society — comprising the forces of production (technology, tools, labor, resources) and the relations of production (property ownership, who controls what, how surplus is distributed)
Superstructure: the state, law, religion, ideology, and culture that rise up from and legitimize the economic base
Political implication: to understand why a state behaves as it does, look first at the underlying class structure — the state is not neutral but reflects the interests of those who control the base

Historical Materialism

Marx’s theory that the material/economic conditions of production — not ideas or culture — are the primary driver of historical change and shape a society’s political and ideological life.

Base and Superstructure

The base is the economic structure of society (forces + relations of production). The superstructure is everything built upon it — the state, law, religion, culture, ideology — which in turn reinforces and legitimizes the base.

Modes of Production and Class Struggle

History, for Marx, is not driven by great leaders or ideas but by the contradictions inherent in each mode of production — the tensions between classes that eventually force systemic transformation.

Modes of production: feudalism → capitalism → socialism → communism (each a distinct way of organizing production with its own class structure)
“The history of all hitherto existing society is the history of class struggles” (Communist Manifesto, 1848)
Each mode contains contradictions that generate class conflict until a new mode of production supersedes it

Under capitalism, the two fundamental classes are:

Class	Position	Role
Bourgeoisie	Own the means of production — factories, land, capital	Control production; appropriate surplus value as profit
Proletariat	Own only their labor power	Sell labor for wages; produce more value than they receive

Surplus Value, Exploitation, and Alienation

Surplus value: workers produce more value in a working day than they receive as wages; the gap between the value workers create and what they are paid is appropriated by the capitalist as profit
Exploitation is therefore structural — built into the wage relationship itself, not simply the result of bad employers
Alienation: under capitalism, workers are estranged from (1) their labor (they do not control it), (2) the products they make (owned by the capitalist), (3) fellow workers (competition divides them), and (4) their own human potential (reduced to a commodity)
Immiseration: as capitalism develops, workers face increasing deprivation — real wages trend toward subsistence while wealth concentrates; periodic crises (overproduction, falling profits) intensify exploitation

Surplus Value

The difference between the value a worker produces and the wages they receive. The capitalist appropriates this gap as profit — the fundamental mechanism of exploitation under capitalism.

Alienation

The estrangement of workers from their labor, from the products they create, from other workers, and from their own human nature, produced by the wage-labor relationship under capitalism.

The State as Instrument of Class Rule

In Marxist theory, the state is not a neutral referee — it is primarily an instrument of the ruling class (the bourgeoisie)
State apparatuses — courts, police, military, property law — exist to enforce and protect capitalist property relations and suppress class resistance
Ideology and false consciousness: the ruling class propagates ideas that make exploitation appear natural (“freedom of contract,” “meritocracy,” “private property is sacred”) — workers may accept their own exploitation because dominant ideas make it seem inevitable
Liberal democracy, from a Marxist perspective, grants formal political equality while concealing substantive class domination: the bourgeoisie controls the state through wealth, media ownership, lobbying, and structural dependence of the state on investment and taxation

Gramsci — Cultural Hegemony

Antonio Gramsci argued the ruling class maintains power not only through force but through cultural hegemony — shaping the beliefs, values, and “common sense” of the population so that subordinate groups actively consent to dominant norms. This explains why capitalism has survived despite exploitation: workers must be won over culturally and ideologically, not just defeated militarily. Gramsci’s insight shifted Marxism toward questions of culture, education, and civil society.

Contradictions of Capitalism and Historical Change

Tendency of the rate of profit to fall: as capitalists substitute machinery for labor, and since only labor creates surplus value, the average rate of profit declines over time — driving crises
Overproduction crises: wages are kept low to maximize profit, but this means workers cannot afford to buy the goods they produce → unsold goods accumulate → recession, unemployment, depression
These crises intensify class conflict → eventually trigger revolution → socialist state (transitional) → communism (classless, stateless society)

Exam Alert

Marxism occupies a distinctive position in political economy: unlike neoliberalism and statism, which debate how much state involvement is optimal within capitalism, Marxism challenges the capitalist system itself. Key exam points: (1) base/superstructure — economic structure determines political life; (2) surplus value and structural exploitation; (3) class struggle as the engine of historical change; (4) the state as an instrument of the ruling class, not a neutral arbiter; (5) welfare states as co-optation; (6) the theoretical lineage from Marx → dependency theory → Wallerstein’s world-system.

Common Mistake

Marx ≠ communist regimes (USSR, Maoist China, North Korea). Marx analyzed capitalism as a theorist and predicted its eventual transformation — he did not provide a governance blueprint for 20th-century states. “Actually existing socialism” diverged dramatically from his theoretical framework in almost every respect. Evaluating Marxism requires separating Marx’s critique of capitalism from the regimes that invoked his name.

Welfare States as Co-optation

See the Theory 2: Industrial Capitalism section below — Marx’s view is that welfare programs represent a co-optation of the working class, granting reforms just sufficient to prevent revolution and thereby stabilizing the capitalist system rather than transforming it. For orthodox Marxists, welfare states delay but do not resolve capitalism’s fundamental contradictions.

Marxism and Development Theory

Marx’s framework directly informs dependency theory and world-systems theory (see Category 4: Systems and Structures — Domestic and International in Part 2):

The “core-periphery” structure of global capitalism mirrors the bourgeoisie-proletariat relation at the domestic level — wealthy core nations extract surplus value from peripheral nations just as capitalists extract it from workers
Development for peripheral countries requires overcoming structural disadvantages built into the international capitalist order, not simply adopting the right institutions or policies

Conservatism and the New Right

Conservatism and neoliberalism are related but distinct traditions. Traditional conservatism is a political philosophy emphasizing social order, tradition, and gradual change; neoliberalism is an economic doctrine favoring free markets and minimal government. The New Right of the 1980s fused these two traditions — neoliberal economics with social conservative values — into the dominant right-wing political project of the late 20th century.

Traditional Conservatism (Burkean)

Edmund Burke (1729–1797), responding to the French Revolution, is the founding theorist of modern conservatism:

Society is an organic, inherited order — not a contract between individuals but a partnership between the living, the dead, and those yet to be born
Tradition and custom embody the accumulated wisdom of generations; radical change risks destroying institutions that work for reasons we do not fully understand
Skepticism of abstract reason: Enlightenment rationalism applied to politics (as in the French Revolution) produces violence and disorder; human knowledge is limited and fallible
Hierarchy and order: unequal social arrangements are natural and serve important functions — stability, continuity, deference to proven authority
Reform is acceptable — even desirable — but it must be gradual, incremental, and bottom-up, not revolutionary

Conservatism (Burkean)

A political philosophy holding that society is an organic, inherited order embodying the accumulated wisdom of generations. Radical change risks destroying functional institutions; tradition, hierarchy, and social continuity are values to be protected.

Burke vs. Paine

Burke’s Reflections on the Revolution in France (1790) attacked the French Revolution’s attempt to rebuild society from abstract first principles. Thomas Paine’s Rights of Man (1791) defended natural rights and revolutionary change. This exchange defines the original conservative-liberal fault line in Western political thought.

Social conservatism emphasizes traditional institutions — family, religion, community — as the foundations of a stable society:

The nuclear family as the primary site of child-rearing, moral formation, and social reproduction
Religion as a source of moral order, community cohesion, and meaning — underpinning a stable civil society
National identity: a shared cultural heritage binds a political community; mass immigration or multiculturalism may threaten social cohesion
Law and order: firm enforcement of criminal law; strong police and military
Social conservatives may be skeptical of free-market economics where it destroys traditional communities (e.g., deindustrialisation hollowing out small towns)

Fiscal Conservatism

Fiscal conservatism holds that:

Balanced budgets and low taxes are essential; government debt mortgages future generations
Programs should be limited in scope; individuals, families, and communities should take responsibility before the state
Decentralization: power should be as close to local level as possible
Distinct from neoliberalism: fiscal conservatism is concerned with government size and debt, not necessarily market efficiency

Neoliberalism vs. Traditional Conservatism

	Traditional Conservatism	Neoliberalism
Founding thinker	Edmund Burke	Adam Smith, Friedrich Hayek
Core value	Order, tradition, continuity	Freedom, efficiency, markets
View of markets	Markets useful but must be embedded in social order	Markets are the natural and optimal system
View of the state	State upholds tradition and order; some intervention acceptable	State should be minimal; intervention almost always harmful
View of inequality	Some inequality natural and stabilizing	Inequality reflects merit; redistribution distorts incentives
View of change	Gradual reform only; revolution dangerous	Rapid market liberalization (“shock therapy”) acceptable
Social policy	Support for traditional institutions (family, church) even if costly	Welfare as harmful dependency; privatize social services

Exam Alert

The conservatism/neoliberalism distinction matters for comparative politics: Bismarck (a conservative) built the first welfare state specifically to preserve social order — not despite his conservatism, but because of it. Many conservatives (Disraeli’s “One Nation” Toryism) actively supported social provision. Neoliberalism opposes welfare on principled market grounds. The two traditions only merged in the New Right of the 1980s.

In the 1970s–80s, the New Right merged neoliberal economics with social conservative values:

Economic programme: cut taxes (especially on business and high earners), privatize state enterprises, deregulate financial markets, attack trade union power, reduce welfare
Social programme: strengthen law and order, promote traditional family values, assert national identity
Ideological synthesis: economic freedom and social order are seen as mutually reinforcing — free markets produce prosperity; moral discipline and traditional institutions sustain the conditions for free markets

Thatcher and Reagan — The New Right in Power

Thatcher (UK, 1979–1990) and Reagan (US, 1981–1989) are the paradigm New Right governments:

Economic: tax cuts, privatization (Thatcher sold British Telecom, British Gas, British Airways), union-busting (Thatcher vs. miners’ strike 1984–85; Reagan fired PATCO air-traffic controllers 1981), financial deregulation

Social: law and order, national pride, traditional family rhetoric

Thatcher’s “There Is No Alternative” (TINA) framed free-market capitalism as the only viable economic system, delegitimizing social democratic alternatives — itself a form of cultural hegemony in Gramsci’s sense.

Austerity

Austerity refers to government policies reducing public spending and/or raising taxes to cut deficits, typically after economic crises. Associated with neoliberal fiscal conservatism. Proponents argue it restores market confidence and long-run sustainability; Keynesians argue it deepens recessions by withdrawing demand precisely when private spending has collapsed. Post-2008 European austerity (Greece, UK, Ireland) are key case studies of contested results.

The Populist Turn Away from Neoliberalism

In recent years there is evidence of a move away from neoliberalism, particularly evident in populist leaders and parties. This shift includes skepticism of free trade, opposition to immigration-driven labor competition, support for protectionist tariffs, and a willingness to expand state spending — positions that break with the neoliberal consensus of the 1990s–2000s.

Conservatism, Neoliberalism, and Development

In development contexts, conservative/neoliberal prescriptions emphasize:

Property rights and rule of law as foundations of investment and growth (connects to Acemoglu & Robinson, Category 2)
Anti-corruption: predictable, impartial institutions reduce transaction costs — paradoxically requiring capable state-building even for the neoliberal agenda
Washington Consensus: the applied neoliberal development prescription (see The Neoliberal Argument above), now largely discredited in its original form

Common Mistake

“Conservative” and “neoliberal” are often used interchangeably but are historically distinct. Bismarck (conservative) built the first welfare state. Many conservatives supported social provision to preserve social order. Neoliberalism is an economically liberal (in the classical sense) doctrine that traditional conservatism often opposed before the New Right fusion of the 1980s.

Types: Economic Functions of Modern States

Even relatively minimal states perform significant economic roles. Three main categories:

1. Economic Management

States try to influence the business cycle — fostering growth and mitigating downturns.

Fiscal Policy

Fiscal policy involves taxing and spending to shape economic performance.

Fiscal stimulus / countercyclical spending: increasing government spending (or cutting taxes) during downturns to boost demand
Also involves managing the state’s debt — excessive debt threatens economic stability and regime legitimacy
Key Keynesian-vs.-conservative debate: should governments spend freely to promote growth, or prioritize balanced budgets?

Monetary Policy

Monetary policy involves shaping the money supply and the value of the currency, usually through a central bank.

States may devalue currency to boost exports
Or strengthen currency to control inflation
Rising prices (inflation) and falling prices (deflation) are both frequent concerns

Common Mistake

Fiscal policy = taxing and spending. Monetary policy = money supply and currency value. These are distinct tools managed by different institutions (legislature/finance ministry vs. central bank).

Other economic management activities:

Regulating the banking system (rules on capital accumulation and investment)
Setting labor rules (strikes, collective bargaining, minimum wages, safety protections)
Regulating commercial products (advertising standards, toxic material bans, pollution controls)

2. Investment in Human Capital: Education and Health

Public education has existed for only ~200 years; states use it to create citizens and enhance long-run economic competitiveness
States heavily subsidize higher education as both workforce development and a source of technological innovation
Public health: vaccination, food safety, infectious disease management, health care provision
Healthier, more educated populations are more productive labor forces
Even basic nutrition investments (children’s diet) produce measurable long-term economic gains

3. Welfare State Functions

Public goods are goods or services provided by government for the benefit of all members of society, where one person’s use does not reduce another’s (e.g., national defense, basic infrastructure, clean environment).

The welfare state refers to state provision of social well-being — pensions, unemployment insurance, disability benefits, health care, social assistance, and similar programs.

Causes and Effects: Why Do Welfare States Emerge?

Theory 1: Cultural Changes

Welfare states emerge because values and norms shifted — governments started to be expected to solve social problems
Pre-modern welfare was provided by families, religious organizations, and mutual-aid associations
Post-Enlightenment: growing belief that social problems could be solved and that the state should solve them
T. H. Marshall’s theory of evolving citizenship rights is a key example within this tradition

Theory 2: Industrial Capitalism

Industrial capitalism disrupts traditional social institutions (family, church, community networks)
Creates a more complex division of labor, urbanization, and the breakdown of agrarian life
The state steps in to manage the complexity and protect those dislocated by economic change

Schumpeter — Capitalism, Socialism, and Democracy

Schumpeter agreed with Marx that capitalism would undermine itself, but for different reasons. His concept of “creative destruction” holds that entrepreneurial progress drives growth, but success breeds intellectuals and social actors who seek to reduce inequality through the welfare state — effectively imposing socialism gradually through democratic means.

Polanyi — The Great Transformation

Polanyi argued that economic relationships are always “embedded” in social life. Industrial capitalism tried to “disembed” the economy from ordinary social relations, but humans cannot live this way. The welfare state is one response to the dislocations of capitalism — rebuilding social bonds. Fascism was another (darker) response to the same dislocations.

Marx’s view: welfare states represent a co-optation of the working class, preventing the revolution that would otherwise result from capitalist exploitation and “immiseration.”

Right-wing critique: welfare states represent creeping socialism, the result of anti-capitalist actors working through democratic institutions.

Theory 3: Mobilization and Political Action

Welfare states emerge from negotiation and conflict between organized interest groups (labor unions, business associations) and the state
Business wants minimal redistribution; labor wants expanded rights, pay, and safety
When labor is well-organized and some political leaders champion labor interests, a welfare state compromise becomes possible
This theory best explains variation in welfare state types across countries

Esping-Andersen — Three Worlds of Welfare Capitalism

Esping-Andersen identified three welfare regime types that developed in the 20th century:

Liberal regimes (UK, US): modest benefits, market-oriented, significant private provision

Corporatist regimes (France, Germany): status-based benefits tied to employment history, with a role for the church and family

Social democratic regimes (Scandinavia): universal, comprehensive benefits; high “de-commodification”

Key concept: de-commodification — the degree to which the welfare state frees individuals from dependence on the labor market for their survival and well-being. Social democratic regimes score highest.

Explanation for variation: class coalitions (in Scandinavia, farmers allied with urban workers early on; in mature welfare states, middle-class inclusion is key) and path dependence (welfare states are structured to maintain the political coalitions that sustain them over time).

Theory 4: International Learning Effects

Countries observe and emulate one another’s welfare state models
Asian welfare states built in decades what Western countries took generations to construct
Conditional cash transfers (e.g., Brazil’s Bolsa Família) spread from Latin America to other regions
Countries adapt models to local realities rather than simply mimicking others (e.g., Japan’s welfare state gave greater weight to the family than European models)

Bolsa Família (Brazil)

A conditional cash transfer program providing cash payments to low-income Brazilians contingent on keeping children in school and maintaining up-to-date vaccinations. Evidence of poverty reduction and improved human capital. Inspired similar programs in Mexico and other countries worldwide.

Part 2: Development (Chapter 5)

What Is Development?

Development is a process by which a society changes or advances. It is most commonly measured in terms of economic growth, but can also be measured by quality of life, standard of living, access to freedoms and opportunities, or other indicators.

The Definitional Problem

Development is contested. Does Saudi Arabia’s rapid GDP growth constitute development if benefits go only to elites? Is China developing if poverty falls but environmental damage is severe? Scholars disagree sharply about which indicators matter most — and citizens of studied countries should increasingly have a voice in defining what development means for them.

The most straightforward indicator: economic growth — increases in a country’s overall economic activity, typically measured by GDP or GNI per capita (carried over from Chapter 4).

Types: Multiple Dimensions of Development

Poverty

Poverty is the state of being poor, measured by low income, deprivation, or limited economic opportunities.

Poverty line: a threshold below which individuals are judged to be in poverty
Absolute poverty: inability to purchase a certain set of basic goods or services
International threshold (World Bank): revised to approximately $1.90/day (2011 PPP dollars)
Approximately 1 billion people worldwide face absolute poverty (though the share has declined in relative terms)
Country-specific poverty lines vary (US 2015 single-person poverty line: $12,060/year)
Poverty depth matters — simply counting people below the line ignores how far below they are

Human capital refers to accumulated skills and investments people have made in their capacities (health, education).

Key health indicators:

Life expectancy: average age to which a person may expect to live
Infant mortality: percentage of children who do not survive to age one (per 1,000 births)
Infection and morbidity rates, accessibility of health care and insurance

Key education indicators:

Literacy rate: percentage of population who can read
School enrollment and completion rates (“educational attainment”)
Standardized test scores (math and science comparisons across countries)

Human Development Index (HDI)

A composite measure developed by the United Nations that combines income, life expectancy, and educational attainment (literacy + school enrollment) into a single annual index of development and well-being across countries.

The United Nations Development Program (UNDP) specifically measures access to health, empowerment (education and political participation), and labour market participation as dimensions of human development.

Exam Alert

The Kuznets curve relationship: inequality tends to increase as countries move from low-income to middle-income stages of development (as some gain wealth while others do not), before eventually declining at higher-income stages. The relationship between income growth and equality is non-linear.

Gender Relations and Racial/Ethnic Identities

Gender matters for development in two ways:

As a means: Empowering women advances other development goals — women invest scarce resources in family health, nutrition, and children’s education at higher rates than men on average
As an end: A society where women lack property rights, employment, or voice is not fully developed, regardless of GDP figures

Microcredit (small loans — sometimes as little as $25) to women in low-income countries demonstrably improved household outcomes
Racial and ethnic disparities (e.g., apartheid-era South Africa) show development can be deeply uneven even within countries with moderate aggregate incomes

Satisfaction and Happiness

Some scholars argue development is ultimately about subjective well-being.

Utility: the value people derive from resources available to them (economics concept) — measured by revealed preferences (choices)
But utility ≠ happiness — people sometimes choose things that decrease well-being (e.g., addiction)
Alternative: asking people to rate their own happiness, life satisfaction, and related concepts directly
Bhutan’s Gross National Happiness index is an early example of formal happiness measurement
China, Canada, France, and the UK have begun to measure happiness alongside GDP

Cultural Development

For many communities, development means preserving and deepening cultural identity — not necessarily economic growth.

Economic modernization can bring commercialization and cultural disintegration
Indigenous groups may define development as the right to self-determination and cultural autonomy
For some peoples, “development” is not a positive word but signifies outside pressure to abandon local practices
There is a prevalence of “western” bias in assessments of development — labelling non-western societies as “primitive cultures” that need to modernize
Criticisms that supposedly universal values are in fact the values of the west, imposed on other societies through development frameworks
Scholars increasingly argue that citizens of the countries studied should help define development goals

Environmental Sustainability

Environmental sustainability is compatibility with the long-term health of the environment.

Sustainable development: development that conserves resources to respect the needs of future generations
GDP can rise even as natural resources are depleted (cutting trees, pollution-causing activities all increase GDP)
Critics propose replacing or supplementing GDP with measures that account for resource use
International challenge: collective action problem — each country has incentives to “freeride” on others’ conservation efforts, making global agreements difficult

Causes and Effects: Why Does Development Happen?

Scholars focus primarily on GDP growth per capita as the key outcome (because it correlates with other development indicators and is more comprehensive than most alternatives). Four major categories of theory:

Category 1: Institutions — The Market-State Debate, Revisited

Market-Led Development

Market-led development: the state minimizes control over economic behavior, allowing free markets to allocate resources efficiently.

Individual decisions of free agents → efficient resource allocation → prosperity
Neoliberal prescription applied to developing countries: open markets, reduce state role, privatize

State-Led Development

State-led development: the state plays a prominent role in coordinating economic actors and intervening in the economy.

Post-WWII: “big push” theory — massive state investment generates virtuous circles of growth
“Asian Tigers” (Japan, South Korea, Taiwan, Singapore): state-directed investment with high growth rates (8–10%/year)
IMF/World Bank structural adjustment programs in the 1980s–90s pushed market-led approaches; results were mixed, often associated with rising unemployment, inequality, and economic crises

The Washington Consensus (1980s–90s)

The IMF and World Bank conditioned loans to developing countries on economic liberalization — free trade, open capital flows, reduced government spending, and privatization. Critics argue these policies caused formal job losses, rising inequality, and economic crises in many recipient countries.

Atul Kohli — State-Directed Development

Kohli compared South Korea (success), Brazil (moderate), and Nigeria (failure). His metaphor: a chariot pulled by two horses — the state and private business. Where they pull in the same direction, development occurs. Where they pull against each other, the chariot stalls or topples. Both state capacity and its relationship with private enterprise are critical.

Current consensus: the quality of state involvement matters more than its quantity. High-quality state intervention (South Korea, Japan) can dramatically accelerate growth; low-quality intervention (Zaire/DRC) is worse than no intervention at all.

Category 2: Institutions — Beyond the Market-State Debate

Institutionalism: the approach that places emphasis on the power of institutions — formal and informal — to shape individual and group behavior.

Institution

A regularized or patterned activity that shapes behavior, including formal organizations (the state, political parties) and informal norms and values.

Two main variants:

Type	Focus
Rational institutionalism	Institutions shape individuals’ strategic choices; emphasizes economic logic and incentives
Historical institutionalism	Institutions shape behavior through time; timing, sequencing, and “critical junctures” matter

Property rights as a central example:

Secure property rights → incentives to invest → economic growth
Insecure rights (risk of government seizure or squatters taking land) → under-investment → stagnation

Path dependence: once a society goes down a certain institutional path, it becomes progressively harder to diverge from it. History is “sticky.”

Acemoglu, Johnson & Robinson — "Colonial Origins of Comparative Development"

Colonizers established different types of states depending on local conditions. Where mass settlement was possible (North America, parts of South America), stronger state structures promoting property rights were built. Where settlement was difficult (tropical Africa, disease-ridden regions), extractive institutions were created to funnel resources out with minimal investment. These colonial legacies persist today as path-dependent institutional arrangements.

New institutionalism: the broader turn toward institutional theory across economics, political science, and sociology over the past several decades.

Category 3: Culture and Development

Civil society: public space partially autonomous from the state where individuals engage in deliberation and association
Social capital: advantages held by individuals or groups by virtue of their social relationships
Trust: confidence in the reliability or good conduct of others

Two types of social capital:

Bonding capital: dense internal ties within a group → shared reputation, rapid information flow, cooperation
Bridging capital: networks extending outward to reach new people and places → access to new markets, contacts, and opportunities

Fukuyama — Trust

Fukuyama argues economic modernization is rooted in the cultivation of trust. High-trust societies move beyond small family-owned economic units to create large corporations capable of taking advantage of economies of scale. Low-trust societies remain trapped in small-scale economic organization. Development is ultimately traced to a fundamentally cultural value.

Tocqueville — Democracy in America

Tocqueville attributed American economic vibrancy partly to the rich associational life of Americans, noting they were “forever forming associations.” Civil society generates the values and complex organizational structures needed for a diversified, productive economy.

Religion and Development

Confucian values: initially hypothesized to hinder East Asian development (obedience limits entrepreneurship); after East Asia’s dramatic success, reinterpreted as facilitating growth (respect for order, education, and authority)
Islamic finance: the Quran’s restriction on interest-bearing lending may complicate large investments (though modern “Islamic bonds” have developed); Muslims show relatively high rates of opposition to globalization
The degree of religiosity may matter as much as the type — religious institutions can build trust and cooperation regardless of denomination
Key founding thinker: Max Weber (The Protestant Ethic and the Spirit of Capitalism, 1905) — Protestant values (thrift, work ethic, rational long-term planning) may have facilitated the rise of capitalism in Europe

Value Systems

Thrift / propensity to save: deferring gratification enables investment and wealth accumulation over time
Work ethic: may link to religious values but can have independent cultural roots
Individualism: allows wealth accumulators to reinvest rather than redistribute to social networks
Long-term orientation: ability to plan beyond the immediate present

Critique of Cultural Explanations

Cultural determinism can be misleading or even racist. Whether someone engages in long-term planning may reflect structural conditions (stress, poverty, insecurity) more than culture. The line between “cultural” and “structural” is often blurry.

Category 4: Systems and Structures — Domestic and International

Domestic Economic Structures and Class Interests

See The Marxist Critique in Part 1 for the full theoretical framework. Applied to development:

Karl Marx: the capitalist class uses the state to perpetuate exploitation; meaningful development ultimately requires structural transformation of class relations, not just policy reform
Marxist-influenced scholarship: powerful domestic groups (landlords, export elites, comprador bourgeoisies) may block development by perpetuating their own advantages at the expense of the wider population
Even in functioning democracies, lobbies and interest groups demand special treatment — tariffs, monopolies, regulatory capture — that prevents growth-promoting reforms
Mode of production matters: a feudal agricultural structure (large landlords, landless peasants) generates different development trajectories than an industrial capitalist one; transitions between modes are politically contested and often violent
Relative autonomy of the state: some neo-Marxist scholars (e.g., Poulantzas) argue the state has relative autonomy from the capitalist class — it can act against short-term class interests to secure the long-term reproduction of the system (e.g., passing welfare reforms, regulating monopolies)

International Economic Structures: Dependency and World Systems

Dependency theory: low-income countries cannot simply embrace free trade because this locks them into a structurally subordinate economic position — selling low-value primary goods while importing high-value manufactured goods.

Originated in critiques of Latin American stagnation in the mid-20th century
Deteriorating terms of trade: over time, the primary goods exported by developing countries become relatively less valuable than the industrial goods they import
Revised dependency: some countries can move from “periphery” to “semi-periphery,” acknowledging that development is possible, but the international structure still necessitates active state involvement

Wallerstein — The Modern World System

Wallerstein’s world systems theory divides the global economy into:

Core: economically and technologically dominant countries accumulating the preponderance of profits from global production

Periphery: poor locations supplying raw materials and cheap labor

Semi-periphery: middle-income countries with a partial industrialization role, kept in place to keep the global system functioning

Development for peripheral countries requires overcoming structural disadvantages built into the international capitalist order.

Export-Led vs. Import-Substitution Growth

Export-led growth (South Korea): selling manufactured goods or resources in foreign markets; drove South Korean industrialization successfully. Import-substitution industrialization (ISI) (Brazil): protecting domestic industries from foreign competition to build them up; worked for a time in Latin America, then encountered limits including debt crises.

Geography

The resources available to a state may be a cause of economic development — or a hindrance
Access to the sea: landlocked countries face higher trade costs and dependence on neighbors for trade access
Natural harbors: facilitate trade and serve as natural defensive barriers
Tropical location: historically associated with lower development (disease burden, ecological constraints on agriculture)
Resource curse: paradoxically, abundant natural resources can hinder development — states become over-reliant on a single resource, leading to economic volatility, corruption, and neglect of other sectors
- Latin America has experienced several booms and busts due to reliance on oil — when oil prices collapse, so do government revenues and economic stability

Jared Diamond — Guns, Germs, and Steel

Diamond traces global wealth disparities to geography and ecology. Africa’s large animals (zebras, rhinos) could not be domesticated, hindering agriculture and cavalry development. Eurasia’s east-west axis allowed migration and population expansion. Europe’s domesticable animals (horses) enabled agricultural and military advances that Africa’s north-south axis and climate could not. Geographic and climatic forces shaped which societies would eventually colonize and dominate others.

Thinking Comparatively: North Korea vs. South Korea

The Korea comparison is a Most-Similar-Systems (MSS) design — the two countries share culture, geography, and pre-division historical heritage, but diverge dramatically on development outcomes.

	South Korea	North Korea
Culture	Korean heritage (minority Christian population)	Korean heritage (small Christian population)
Geography	Korean peninsula	Korean peninsula
Natural resources	Limited; coal and mining	Coal and mining
Economic system	Mixed state/market → capitalist orientation	Command economy; communist
External influences	Japan (colonial legacy), United States	Soviet Union, China
Economic strategy	Export-led growth	Inward-looking; almost no use of markets
Political system	Democracy (in recent decades)	One-party authoritarian
Outcome	High development; advanced economy	Low development; major poverty; periodic famines
GDP/capita (c. 2015–16)	~$37,700	~$1,700 (estimate)

Per capita GDP is almost 16 times higher in South Korea than North Korea — an astonishing divergence given a shared starting point only 70 years earlier.

Applying the Theories

Theory	Hypothesis	Assessment	Next Step
Institutions (market)	South: strong property rights enforcement; North: weak	Promising	Bring in additional cases; account for South Korea’s use of state-led development
Institutions (state quality)	South: high-quality state with robust industrial policy; North: low-quality	Promising	Must account for why North Korea’s statist strategy failed while South Korea’s succeeded
Culture	Different cultural backgrounds	Not promising — countries share a common Korean heritage	Adapt to examine how political cultures diverged after division
World-System	South: US/Japanese influence; North: Soviet/Chinese influence	Somewhat promising but incomplete	External positioning likely mattered through its effects on institutions

Exam Alert

The Korea case demonstrates MSS design and hypothesis testing in practice. The leading theoretical explanation is institutional — especially the quality and type of economic and political institutions. Acemoglu & Robinson’s Why Nations Fail uses this comparison explicitly. Cultural arguments struggle because the countries share a common background, though political cultures have diverged substantially over decades of separation.

South Korea’s development model:

Adopted a pro-business strategy with conditional state support: companies receiving state assistance had to meet production and export targets, or support would be cut off
Followed Japan’s model of export-led growth (Japan being both South Korea’s former colonial power and its developmental exemplar)
State actively intervened but in ways that emulated market rules: rewarding performance, penalizing failure
Survived the East Asian financial crisis (1997) and 2008 global crisis with long-term achievements intact
Has since served as a model for other Asian economies, including elements of China’s approach after 1979

Chapter Summaries

Chapter 4: Political Economy

Key concepts and measures: GDP, GNI, GDP per capita, PPP, Gini coefficient, employment, unemployment, underemployment, inflation, deflation, hyperinflation, fiscal measures
Two major types: market-led vs. state-led economies; most scholars accept that both markets and capable states are needed
Economic functions of modern states: economic management (fiscal and monetary policy), human capital investment (education and health), welfare state provision (public goods, social safety nets)
Theories of welfare state emergence: (1) cultural change, (2) industrial capitalism (Schumpeter, Polanyi, Marx), (3) mobilization and political action (Esping-Andersen’s three worlds), (4) international learning effects (e.g., conditional cash transfers)
Marxism as a third ideological position: capitalism is a historically specific system of exploitation built on surplus value extraction; the state is an instrument of the ruling class; liberal democracy masks class domination; welfare states co-opt rather than transform; crises are structural and inevitable (base/superstructure, class struggle, historical materialism)
Conservatism and the New Right: traditional conservatism (Burke) emphasizes order and tradition; neoliberalism (Hayek, Friedman) emphasizes market freedom; the New Right (Thatcher, Reagan) fused them — cutting taxes, privatizing, deregulating, and promoting traditional social values simultaneously; key concepts: spontaneous order, monetarism, supply-side economics, public choice theory, austerity, TINA

Chapter 5: Development

Development is multidimensional: GDP/capita, poverty, HDI, gender equity, happiness, cultural autonomy, environmental sustainability
Four categories of development theory: (1) market-state institutions, (2) broader institutionalism (property rights, path dependence, colonialism), (3) culture (social capital, trust, religion, value systems), (4) structures (Marxist class analysis, dependency/world-systems theory, geography)
The North-South Korea comparison illustrates MSS design and hypothesis testing; institutional explanations are the most promising but world-system factors and evolving political cultures add complexity

Definitions

Term	Definition
Political economy	The interaction or interrelationship between politics and the economy in a given country or internationally; how each affects the other
Gross domestic product (GDP)	The total market value of all goods and services produced within a country’s borders in a given year; per capita GDP divides this by population
Gross national income (GNI)	A measure of the total income of all of a country’s citizens or residents, whether living in their home country or abroad
Purchasing power parity (PPP)	An adjustment to income measures that accounts for differences in the cost of living across countries
Inequality	The differential distribution of access to goods like power, status, and material resources across a population
Gini coefficient	The most common measure of income inequality in a given population, expressed as a number between 0 (total equality) and 1 (maximal inequality)
Employment	Ongoing, regular access to paid work
Unemployment	The lack of ongoing, regular access to paid work
Underemployment	A situation where workers are employed less than they wish to be, or below their skill level
Inflation	An increase in the prices of goods and services over time
Deflation	A decline in the prices of goods and services, often associated with depressions or serious economic slowdowns
Hyperinflation	Exceedingly high inflation that dramatically erodes the value of money over time
Fiscal measures	Measures of a government’s revenues and/or expenditures; fiscal policy refers to the use of taxing and spending to shape economic performance
Fiscal policy	Budget setting and the use of taxation and government spending to manage economic performance
Monetary policy	Government efforts to shape the value and supply of a society’s currency, often through a central bank
Neoliberalism	An ideological tendency that favors liberal democracy and market-led development; advocates minimizing government economic intervention beyond enforcing contracts and property rights
Privatization	The transfer of control of a business, industry, or service from public to private ownership
State interventionism	An approach to economic management in which the state plays a central role, including coordinating investment, supplying credit, and in many instances operating state-owned enterprises
Economic management	States’ efforts to shape the economic performance of their societies, especially through fiscal and monetary policy
Public goods	Goods or services, often provided by government, available to all members of society where one person’s use does not reduce another’s (e.g., national defense, basic infrastructure, clean environment)
Development	A process by which a society changes or advances, most commonly measured by economic growth, but also by quality of life, standard of living, access to freedoms, or other indicators
Poverty	The state of being poor, measured by low income, deprivation, lack of access to resources, or limited economic opportunities
Poverty line	A specified threshold below which individuals or groups are judged to be in poverty
Absolute poverty	A conception of poverty based on the inability to purchase a basic set of goods or services; often operationalized as living on less than $1.90/day (2011 PPP)
Life expectancy	The average age until which members of a society (or some group within it) are expected to live
Infant mortality	The number of infants per 1,000 born who do not survive to age one; a major public health indicator
Literacy rate	The percentage of a population who can read
Human Development Index (HDI)	A composite United Nations measure combining income, life expectancy, and literacy/school enrollment to provide a broad annual index of development and well-being
Utility	The value that people derive from resources to which they have access; an economics measure of the ability to fulfill preferences
Environmental sustainability	The quality of a practice of being compatible with the long-term health of the environment
Market-led development	An approach to economic management in which the state aims to control economic behavior as little as possible, relying on free markets
State-led development	An approach to economic management in which the state plays a prominent role in coordinating economic actors and intervening in the economy
Institution	A regularized or patterned activity that shapes the behavior of individuals and groups, including formal organizations and informal norms and values
New institutionalism	The turn toward institutional theory in economics, political science, and sociology over recent decades
Institutionalism	An approach to theorizing in comparative politics that places emphasis on the power of institutions to shape individual behavior
Rational institutionalism	An institutionalist approach emphasizing individuals’ strategic responses to their institutional environment; focuses on economic logic and incentives
Historical institutionalism	An institutionalist approach emphasizing how institutions shape behavior over time; stresses timing, sequencing, critical junctures, and path dependence
Path dependent	A description of historical processes in which future developments are shaped by earlier events; institutional arrangements tend to persist because of self-reinforcing dynamics
Civil society	Public space at least partially autonomous from the state in which individuals engage in deliberation, association, and social movement activity
Social capital	Advantages held by individuals or groups by virtue of their social relationships, including networks, trust, and norms of reciprocity
Trust	The extent to which an individual has confidence in the reliability or good conduct of others; a key factor in economic coordination and development
Dependency	A theory arguing that developing countries cannot simply embrace free trade because this perpetuates wealth disparities; low-income countries remain dependent on rich-world markets
Export-led growth	A development strategy dependent on selling natural resources, agricultural products, or industrial goods in foreign markets
Shadow economy	The totality of economic activity occurring outside official state regulation and therefore not captured in official GDP figures; includes both grey and black markets
Grey market	Trade in legal goods or services through unofficial, unregulated, or unlicensed channels — typically to evade taxes, tariffs, or licensing requirements
Black market	Trade in goods or services that are illegal, heavily restricted, or officially rationed; transactions prohibited by the state
Informal economy	The portion of economic activity not covered by formal employment contracts, legal protection, or state oversight; often used interchangeably with “shadow economy” but typically focused on labour rather than criminality
Historical materialism	Marx’s theory that a society’s material/economic conditions of production — not ideas or culture — are the primary driver of historical change and shape its political and ideological life
Base and superstructure	The economic base (forces + relations of production) determines the superstructure (state, law, religion, ideology, culture) which in turn legitimizes the base
Bourgeoisie	In Marxist theory, the class that owns the means of production (factories, land, capital) and appropriates surplus value from workers
Proletariat	In Marxist theory, the class that owns only its labor power and sells it for wages; the working class under capitalism
Surplus value	The difference between the value a worker produces and the wages they are paid; the gap appropriated by the capitalist as profit — the mechanism of exploitation
Alienation	Estrangement of workers from their labor, the products they create, other workers, and their own human potential, caused by the wage-labor relationship under capitalism
Immiseration	Marx’s prediction that workers’ conditions would worsen as capitalism develops, with wages driven toward subsistence while wealth concentrates
False consciousness	A Marxist concept whereby the ruling class propagates dominant ideas that make exploitation appear natural, preventing workers from recognizing their own oppression
Cultural hegemony	Gramsci’s concept that the ruling class maintains power through cultural dominance — shaping the values and “common sense” of society so subordinate groups consent to their own domination
Mode of production	A specific historical way of organizing economic production, characterized by particular forces and relations of production (e.g., feudalism, capitalism, socialism)
Class struggle	In Marxist theory, the conflict between classes with opposing economic interests — the engine of historical change and the driving force of political life under capitalism
Conservatism	A political philosophy emphasizing social order, tradition, hierarchy, and gradual change; associated with Burke; skeptical of abstract rationalism and revolutionary transformation
Social conservatism	A strand of conservatism emphasizing the importance of traditional social institutions — family, religion, community — as foundations of a stable and moral society
Fiscal conservatism	A strand of conservatism emphasizing balanced budgets, low taxes, limited government, and skepticism of public debt
The New Right	The 1980s political movement fusing neoliberal economics (free markets, privatization, deregulation) with social conservatism (law and order, traditional family values, national identity); associated with Thatcher and Reagan
Spontaneous order	Hayek’s concept that effective social institutions — markets, language, law — emerge from voluntary individual interactions rather than deliberate design, and function better than centrally planned alternatives
Monetarism	Friedman’s economic doctrine holding that inflation is caused by excessive money supply growth and that central banks should target stable monetary growth rather than using discretionary fiscal or monetary stimulus
Supply-side economics	The view that cutting taxes on businesses and high earners stimulates investment, growth, and eventually broad prosperity; associated with Reaganomics and the Laffer Curve
Public choice theory	The application of economic reasoning (self-interested actors) to political behavior; holds that politicians and bureaucrats pursue their own interests, producing systematic government failure; associated with Buchanan
Rent-seeking	Efforts by groups to gain advantages through political means (subsidies, tariffs, regulatory protection) rather than productive activity; a key concept in public choice theory
Austerity	Government policies reducing public spending and/or raising taxes to cut budget deficits, typically after economic crises; associated with neoliberal fiscal conservatism
Laffer Curve	The theoretical relationship between tax rates and tax revenues, suggesting that at very high rates, cutting taxes can increase revenue by stimulating economic activity; used to justify supply-side tax cuts
TINA	”There Is No Alternative” — Thatcher’s phrase presenting free-market capitalism as the only viable economic system; an ideological claim that delegitimizes alternatives by framing them as impossible rather than merely undesirable
State-controlled system	An economic system where the government controls decisions about what is produced, sold, and at what price; features limited or no private ownership; found in totalitarian and one-party Communist states
Capitalist system	An economic system primarily based on private companies and individuals as consumers, where free market exchange determines demand, price, and supply of goods
Classical liberalism	A political ideology focused on individual political freedoms and limited government involvement in the economy; advocates laissez-faire economic policy while accepting provision of some public goods
Laissez-faire	An approach to government in which economic decisions are left to the market and to individuals and businesses, with minimal state intervention
Socialism	A political ideology that grew out of the industrial revolution, emphasizing economic equality and a significant role for the state in running the economy
Resource curse	The paradox whereby states with abundant natural resources may experience worse development outcomes due to over-reliance on a single resource, economic volatility, corruption, and neglect of other sectors
Political ideology	An organized set of ideas about politics that is normative in character — presenting views about the role of the individual, the state, and social values, and picturing the world as it is or ought to be

Dickovick & Eastwood, Comparative Politics: Integrating Theories, Methods, and Cases, 3rd ed. (New York: Oxford University Press). The textbook defines political economy loosely as “the ways politics and economics interrelate and affect one another.” ↩

Lecture Notes

Explorer

Unit 5 - Political Economy and Development

Key Concepts

Part 1: Political Economy (Chapter 4)

What Is Political Economy?

Concepts: Measuring the Economy

Gross Domestic Product (GDP) and Gross National Income (GNI)

Purchasing Power Parity (PPP)

Inequality and the Gini Coefficient

Employment and Unemployment

The Shadow Economy: Grey and Black Markets

Why Shadow Economies Exist

Political and Development Implications

Grey vs. Black Markets: A Spectrum

Inflation and Deflation

Fiscal Measures

Types: Markets and States in Modern Economies

State-Controlled Systems

Capitalist Systems

State Intervention in Capitalist Systems

The Market-State Debate

The Neoliberal Argument

The Statist Argument

The Synthesis

Political Ideology and the Economy

Classical Liberalism and Laissez-Faire

Socialism

The Marxist Critique

Historical Materialism and Base/Superstructure

Modes of Production and Class Struggle

Surplus Value, Exploitation, and Alienation

The State as Instrument of Class Rule

Contradictions of Capitalism and Historical Change

Welfare States as Co-optation

Marxism and Development Theory

Conservatism and the New Right

Traditional Conservatism (Burkean)

Social Conservatism

Fiscal Conservatism

Neoliberalism vs. Traditional Conservatism

The New Right: Fusing Neoliberalism and Social Conservatism

The Populist Turn Away from Neoliberalism

Conservatism, Neoliberalism, and Development

Types: Economic Functions of Modern States

1. Economic Management

Fiscal Policy

Monetary Policy

2. Investment in Human Capital: Education and Health

3. Welfare State Functions

Causes and Effects: Why Do Welfare States Emerge?

Theory 1: Cultural Changes

Theory 2: Industrial Capitalism

Theory 3: Mobilization and Political Action

Theory 4: International Learning Effects

Part 2: Development (Chapter 5)

What Is Development?

Types: Multiple Dimensions of Development

Poverty

Social Outcomes and Human Development

Gender Relations and Racial/Ethnic Identities

Satisfaction and Happiness

Cultural Development

Environmental Sustainability

Causes and Effects: Why Does Development Happen?

Category 1: Institutions — The Market-State Debate, Revisited

Market-Led Development

State-Led Development

Category 2: Institutions — Beyond the Market-State Debate

Category 3: Culture and Development

Civil Society, Social Capital, and Trust

Religion and Development

Value Systems

Category 4: Systems and Structures — Domestic and International

Domestic Economic Structures and Class Interests

International Economic Structures: Dependency and World Systems

Geography

Thinking Comparatively: North Korea vs. South Korea

Applying the Theories

Chapter Summaries