Economic Policy

(Week 3)

Domestic politics recap:

Kane’s success happens when economy is weak. The difficult part of Kane’s (when economy is
hot) spends less and increase taxes. (Harder politically) Application is different cause
governments say we have to pay our depts.

The problem with small state if you leave people in the market (looking for self interest) people
will be more motivated. (Bubbles; price above its worth) Which is pricing above the value,
which is misinformation. (info might not be shared accurately)
Governments can make mistakes, and so can we

 Week 3 (practices) different varieties of capitalism

New economist; (Varities of capitalism)

Everyone is capital to some extent. A system is defined by certain things; industrial
relations means labor relations. (people who give the jobs and people who work it; employees).
Employers and employees; wages for a whole branch? Who’s got more power to fix wages?
Whether these wages are fixed or not. ‘Training’ is a system.

Finance; they actually mean how you get money from the people who have money into
companies; if theirs a stock market money is going from my savings into companies, other
places would be bonds, depends on the ownership of companies (many shareholders; or cross
shareholdings, etc.) Important because company’s behavior changes, with companies owned by
local shareholders maybe they feel company will be less profitable. (So its not maximum
profits) If it’s a large shareholder (who owns) looks for DIVIDENDS. (different outcomes for
financing into companies)

Competitiveness (looking for the best price; aggressive within the supply chain)
Or Cooperativeness

 LME/CME (Basic two categories)

Liberal; most deals done on market basis (competition, supply-demand, labor relationships all
are markets) Which is small state; ex England vs USA (England being smaller USA) Liberal ;niel
liberal. More network; can change prices – all different basis of negotiation (capitalism)
Authorities which are supposed to regulate (make sure everything is right; and to make sure
market contracts are enforced. Here you make decisions on your own (without coordination)

Coordinated; lots of dealings done by negotiation, institutions (what economic decisions to be

make; who’s sitting on table; the national government or the local government, etc.)
Agreements are depended on stakeholder negotiations. (The worlds economy has degrees
within the two)
There is a whole subset of studies, under varieties of capitalism; which says in a CME where
nature is negotiating, it is better for in cremation. So they change standard, and is good for little
innovation. (Accordion market economy) Great coordination.

 International Bus. Interested in many countries; why talk about domestic policies. A big
debate to which policies can travel or not; would an economic system perform the same
way in another country (can it travel and be applied in other places) Whether certain
economic systems reflect on others. Ex. Swedish system (great).
 ‘Quality circles’ applied by Japan, people want to make better quality, and people want
to copy it, so the idea of whether a culture may be easy to travel or adapt to or not.

Rest of Lecture:
(Varieties of capitalism)

‘Market oriented capital system’

Idea is that, people are there to maximize self-interest. Companies trying to make as
much as possible; increasing its utility. Protectionism in the united states (helps them).
Money which is made by most efficient and effective, will trickle down (USA) top-down vision,
in the US you don’t have companies owned by managers, you have many managers with its
shareholders not thinking about much, having no local stake.
In US, money comes from the stock market. Business can lobby big, or pass a law or
concept which is good for business. (US tend to lobby Politian’s hard).

Washington Consensus: Don’t run big deficit (Anti Keynes), have state spend lots of money
(high taxes) here low spending, meaning low or no taxes.

Real interest rate:

Hayek didn’t like Keynes, Hayek wants liberal market economy, small stake, high interest rate.
Money is expensive.

Exchange rate:
Strong currency helps improve inflation which helps productivity.

You shouldn’t hide behind protectionism; foreign competition is good.

If your principles aren’t perfect, you reform it. Or it will blow everything up, so capitalism
must evolve by accepting criticism.

(Japan)
Developmental Capitalism (means a country where state gets involved in ensuring economies
development) Japanese capitalism (feudal) isolated; till Americans warships in Tokyo, showing
they are behind in technology. So they wanted to start industrial development and that is from
the country. And the country catching up with others around the world. Japanese coordination
works as a whole for the country. After world war 2, US gave Japan certain individuals to work
in economic activities. Japanese thought as an entire economy. Under coordination of
economist, every time a company would invest in a new product they would help their
suppliers. Japan didn’t really have a free market, because money had to stay home
(government saying funding must be domestic). Have a private enterprise (will never get fired
from job) since if you’re a Japanese citizen is working for the whole of Japans economic
interest, means they never get fired. Japanese capitalism, if some company is doing bad,
government subsidies. In other countries, you just die.

(Germany)
In between the two
‘Social market capitalism’:
Social market economy, made my Germans, having a half way route between social and market
competition. German companies have to compete like free markets, but quiet a taxation at
personal level (high). USA (consumer is always right) In Japan and Germany (need economic
equilibrium). US always has a trade deficit; in Germany they are more focused on not having
deficits. So this is a national matter. (no one wants big deficits; government oversight) The
strength in Germany is the medium MNE’s. would specialized in narrow niches; supported by
state subsidies (schools). Funding comes from the big bank (control; national interest; talks with
the Politian’s; coordination’s). Germans hold their shareholders together. More capitalism here,
kind of a hybrid model. Liberal and coordinated (being under competition when global south
rise, they realized they didn’t get too expensive, so left wing proposes a deal be done where
workers keep their job but get a pay cut. Shows it is both liberal and coordinated mechanisms.

These guys, talk about global north, but in global south does both categories work. Global south
more coordinated; state is involved in decision making. (Hallinsas ask about this guy)

Liberal market economy (more market related)

Coordinated (supposed to listen to all, all at the table, less inequality)