Week 2: States and Markets in Early Development Flashcards
What debate did the 2008 financial crisis lead to?
led to new debate about the need for the state to regulate markets
What did profiteering and wealth concentration during the pandemic calls out for?
regulation
(need to confront climate change)
What is a famous example of problematic state intervention in markets?
USSR and Eastern bloc which had repression, inefficiency, industrial pollution
Who did Adam Smith say the pursuit of self-interest benefits?
Society as a whole
What does Hayek believe markets guarantee?
freedom
(socialism denies personal freedom)
Why is Hayek against planned economies?
question of who is to do the planning and the complexities and specific knowledge required to use resources efficiently means no one can ever know
According to Hayek, what is the foundation of a free society and why?
the price system, as it allows division of labour and coordinated use of knowledge (induces the individual, while seeking their own interest, to do what is in the general interest)
According to Hayek, why do self-regulating markets ensure individual freedom?
best economic outcomes, as people acting in their own self-interest produce the most positive social outcome
What is Hayek’s conceptualisation of society?
opponent of the welfare state and redistributive policies (methodological individualism, but was not a neoclassical economist)
How does Sen view markets?
sees markets as a source of freedom
Why does Sen view markets as a source of freedom?
freedom of exchange and transaction are “part and parcel of the basic liberties that people have reason to value”
“the freedom of people to act as they like in deciding on where to work, what to produce, what to consume and so on”
Why is freedom of employment important? (Hayek)
allows escape from bonded labour, child ‘slave labour’, socialist forced’ labour, women’s unpaid labor in family
According to Polayni, is the rise of capitalism spontaneous?
nothing spontaneous about the rise of capitalism
According to Polayni, what is the state needed for?
state needed to both establish markets and to shield society from the worst effects of markets
Pre-19th century, the economy was “embedded in society”. What does this mean?
three principles of organisation in traditional societies was reciprocity, redistribution, householding (land and labour regulated by custom and were not the objects of commence, still reflected in the economies of some indigenous communities)
What determines the allocation of resources in a market society?
price (no longer by custom)
What was needed to subordinate society to market principles?
state
Does “Fictitious commodities” contradict capitalism?
Yes, as commodities are things produced for exchange in markets
What are not true commodities? (market)
labour, land, money
Why is labour not a true commodity?
people’s lives cannot be stored or mobilised as other commodities can be
Why is land not a true commodity?
“is only another name for nature”, which is not “produced” at all
Why is money not a true commodity?
“is merely a token of purchasing power”
What is the concept of Polanyi’s “double movement”?
as markets in “genuine commodities” spread across the globe, markets were restricted by the state “in respect to fictitious ones” (“power institutions at the level of the state designed to check the action of the market relative to labour, land and money”, state was necessary to the functioning of markets)
What was the “Great Transformation”?
when “laissez-faire” could no longer hold and societies demanded states to subordinate the economy to social goals
(e.g. socialism via the Bolshevik Revolution, “New Deal” in Roosevelt’s USA fascism in Nazi Germany)
What does Chang say about the state’s role in historical development?
stated played a major role in the historical development of every existing rich country (no country or city state was able to industrialise or reach high levels of human development without states intervening in markets)
Through what channel did “adverse incorporation” of much of human society into the emerging capitalist global economy occur?
through asymmetric power
What is the economics of colonialism?
sources of raw materials and food as inputs to capitalist industries and production sites benefiting from cheap labour
What is necessary, if not sufficient, condition to bring about “structural change” in developing countries?
state power
When do countries promote laissez-faire?
when countries are at the top (if not at the top, countries have to promote infant industries)
What is a market economy?
implies a self-regulating system of markets (an economy directed by market prices and nothing but market prices)
What type of economy was the 19th century trying to establish?
market economy
Before the 19th century, was market economy seen?
this concept was unprecedented in human history, as previous economies were not controlled by markets in this way
Did the idea of “Economic Man” reflect early human societies?
No, historically economies were not primarily motivated by profit or grain from exchanges, “Economic Man” was a later construct
Misconception of Economic History is Adam Smith’s notion that human economic behaviour, particularly the propensity to barter and trade
How did pre-market economies look?
in early societies, economic systems were deeply embedded in social relationships, where individuals acted based on social standing and obligations rather than for personal material gain
(reciprocity and redistribution were the dominant economic principles)
What is reciprocity? (early society principle)
exchange of goods and services based on social ties, often without direct compensation (common in kinship-based and tribal societies)
What is redistribution? (early society principle)
goods were collected and redistributed by a central authority (e.g. chief or king) and this centralised system helped organise production and distribution across large territories
What is the economic organisation principle of house holding?
where production was for one’s own use or for the needs of a closed group (e.g. family or manor)
self-sufficient model, focused on meeting the needs of the household, not on profit
What was Aristotle’s distinction?
argued that production for gain (money-making) was unnatural and potentially limitless, contrasting the self-limiting nature of house holding
When did we see the emergence of a market system that controlled all aspects of economic life?
19th century, marked a significant break from earlier systems where social and political systems were primary
How are humans expected to behave in a market economy?
market economy derives from the expectation that human beings behave in a way to achieve maximum money gains
In a market economy, what is the supply of goods (including services) available at a definitive price assumed to be equal to?
the demand at that price
A market economy assumes the presence of money, what does it function as?
functions as purchasing power in the hands of its owner
What does self-regulation imply?
that all production is for sale on the market and that all incomes derive from such sales (income for labour is wages, land rent and money interest)
What has to be the case for self-regulation?
there must be no external interference with price mechanisms
Why is labour, land and money treated as commodities in the entire market economy?
to maintain the market system
What are the dangers of self-regulating markets (in relation to the fictitious commodities)?
can lead to severe societal disruption, as treating labour as a commodity impacts human’s wellbeing, land can degrade the environment, money can destabilise economies
What was the impact of the Industrial Revolution for the market economy?
intensified the need to treat labour, land and money as commodities to keep production going, however this led to widespread social hardship and dislocation
Was labour and land subject to market forces like goods before the market system?
No
What did the mercantile system seek to do?
sought to enrich the country be restraining imports and encouraging exports
When did economic liberalism gain prominence?
in the 1820s
What is the organising principle of society engaged in creating a market system?
economic liberalism
What does economic liberalism believe in regards to labour?
it should find its price on the market (labour market)
What does economic liberalism believe in regards to money?
the creation of money should be subject to an automatic mechanism (gold standard)
What does economic liberalism believe in regards to goods?
goods should be free to flow from country to country without hindrance or preference (free trade)
What is protectionism?
an economic policy that limits international trade to help domestic industries
What does laissez-faire advocate for?
minimal government interference in the economy
What is a collectivist economy?
where the distribution and production of goods and services is managed by centralised authorities, groups of people, or the state
What is interventionism?
a government policy or practice of doing things to directly influence the country’s economy or the political affairs of another country
What is Polayni’s concept called that describes how the expansion of the market economy led to societal reactions against it, resulting in government interventions that aimed to protect social interests from the market’s negative effects?
Double Movement
What is imperialism?
the practice of a country extending its power and control over other nations (, often through the establishment of colonies)
What is Class Theory (at the centre of Marx’s social theory)?
the social classes formed within a particular mode of production that tend to establish a particular form of state, animate political conflicts, and bring about major changes in the structure of society
What is a monopoly?
a market structure with a single seller or producer that assumes a dominant position in an industry or a sector
What is feudalism?
a political, economic, and legal system prevalent in Europe from the 9th to 15th century and was a system of devolved power, where landowning elites rules over the common people
What is socialism?
social and economic doctrine that calls for public rather than private ownership or control of the means of production, property and natural resources, a system of “planned economy”
What is paternalism?
the interference of a state with another person, against they will, and defended or motivated by a claim that the person interfered with will be better off or protected from harm
What is capitalism?
an economic system where private individuals or businesses own the means of production and control property, and prices are set by supply and demand in the market
What does a social class form?
forms part of a society inhabiting the same geographical area
When does culture contact occur?
occurs usually between societies settled in different geographical regions
What does cultural vacuum lead to?
cultural vacuum is the cause of the cultural debasement of some of the valiant black tribes of Africa under the influence of contact with white civilisation
Are class interests sufficient to explain long-term social processes?
No
What is the fate of classes more frequently determined by?
More frequently determined by the needs of society than the fate of society is determined by the needs of classes
What was protectionism driven by after the 1870s?
cannot be attributed solely to economic class interests, it was driven by broader social needs like public health, safety and stability, responding to the demands of industrial civilisation
What was the social calamity of early capitalism more about?
was more about cultural disintegration rather than economic exploitation
What is early capitalism often compared to?
colonial exploitation
What are some misconceptions about the Industrial Revolution?
some scholars argued that it did not cause widespread suffering since wages and populations increased (misses the deeper damages caused)
What is fascism?
a tendency toward or actual exercise of strong autocratic or doctoral control
What was the cause of the collapse of the 19th century civilisation? (collapse of market society)
due to the conflict between the self-regulating market and the fundamental needs of society (market-driven economies based on self-interest created societal tensions that led to disintegration of that system, market society treated all aspects of life as commodities)
Do markets spontaneously arise when individuals act rationally?
No, contrary to the 19th century beliefs, economic behaviour focused solely on self-interest is not natural or universal
What was the result of the transition from market to social primacy?
the shift no longer allowed markets to dictate society (government and societies regained control and allowed more diverse forms of cooperation between nations and internal organisation of societies)
What was the more obstacle of change from market to social primacy?
resistance to regulation and planning persisted undermined meaningful reform, justified in the name of “freedom” tied to free enterprise
What is the difference between fascism and socialism?
both accept the reality of society and the inedibility of power and compulsion, however fascism rejects freedom in favour of power and socialism strives to maintain freedom within the constraint of a complex society
According to Polayni, what is the meaning of freedom and what is the challenge?
in a complex society is not the absence of regulation but the presence of institutional safeguards that ensure individuals’ rights and freedoms
challenge is to balance regulation with the extension of personal liberties, ensuring that society is free for all
What is individualism?
a social theory favouring freedom of action for individuals over collective or state control
What is liberalism?
freedom of the individual is paramount and that government’s role should be largely limited to protecting that freedom
What is industrial liberty?
a system where workers have the freedom to organise and bargain collectively with their employers, without fear of retaliation or discrimination
What led to totalitarianism?
people believed that pursuing ideas like freedom, justice, and prosperity would lead to progress, but inadvertantly led to the rise of totalitarian regimes
Why did both fascism and socialism lead to totalitarianism?
as both share the common trait of wanting to direct society towards a single goal
What did the shift from individualism to collectivism lead to?
the loss of personal freedoms (society’s attempt to plan and control economic life resulted in a trend toward total state control)
What was Hayek’s concern regarding the shift towards collectivism?
the shift towards collectivism, central planning and the rejection of economic liberalism endangers individual freedom (, potentially leading to totalitarianism)
What is totalitarianism?
a form of government that attempts to assert total control over the lives of its citizens
What are the disputes over socialism?
the main debate is not about its aims, but about the means used to achieve them /centralised economic planning), as many fear these methods can undermine other values like freedom
What are examples of collectivism?
socialism (where economic activities are centrally planned)
fascism (shares the same planning but aim for different outcomes)
What is the argument for competition vs planning?
individualists support competition because it allows for decentralised decision-making, planning requires the state to direct resources toward specific ends, often leading to restrictions on individual autonomy
What is the legal framework for competition and how does it differ for central planning?
a competitive system needs clear rules to ensure fair play
central planning cannot rely on such rules because it involves constant adjustments to economic activity, leading to arbitrary decisions by authorities
What is the core issue of in planned economies?
who controls whom (centralising economic and political powers leads to these decisions)
In a planned economy, what is decided by those in power?
every aspects of a person’s life and position
Why does government control under planned economy’s lead to power struggles?
as governments extend control, it creates pressure among different social classes, with competing interests striving for influence over resource distribution (lower-middle class groups began to feel resentment toward both capitalists and the elite of the industrial working class, creating tension within socialist movements)
Why are people more likely to tolerate inequality in a competitive society than in a planned society?
because in a planned society these disparities are the result of deliberate decisions by authorities
What is the relationship between collectivist systems and morality?
moral decisions cannot be imposed by external authorities without losing their ethical significance
by taking away indivual responsibility, undermine mortality (the promise of freedom from responsibility is seen as inherently destructive to ethical behaviour)
Who is one of the most important promoters of the modern market economy (often regarded as “the father of neoliberalism”)?
Hayek
What is positive freedom?
the ability to pursue personal development and self-realisation
What is Polayni’s definition of freedom?
is collective as it is a social matter that involves bearing responsibility for one’s choices (responsibility is an important component, strongly relating to the roles of social, moral, and ethical values in the marketplace)
is positive, involving the active role of the state in providing the right conditions
material conditions like poverty and lack of access to basic resources limit true freedoms
What is Hayek’s definition of freedom?
has two components (negative freedom and economic freedom)
focused on individual freedom, primarily as the absence of coercion and ability to make economic choices in a free market without interference
believed that any attempt to realise common goals and ends through state intervention was a form of coercion that would eventually jeopardise freedom
regarded positive freedom as the “most dangerous” concept to the achievement of freedom, because it can eventually engender totalitarian regimes
What is negative freedom?
“the absence of coercion” on the part of other people, organisations, or agents (coercion occurs whenever the decisions that individuals made within their private spheres were not determined by own will, but through imposition of the will of an external authority)
What is economic freedom?
freedom that allows individuals to voluntarily choose how to earn, spend, save, and invest their incomes based on their own values, skills, and knowledge, without external interference in the marketplace
necessitates individuals are able to freely enter into all occupations and willingly engage in any business enterprise
requires existence of a competitive free market, where voluntary cooperation and free choices on the part of individuals are necessary
Why did Polayni draw on tribal societies?
to highlight the communal nature of social responsibility (tribal societies operated through reciprocity and mutual support, ensuring survival and avoiding the destructive behaviours associated with market-driven individualism)
What does the term “The Great Open Society” Hayek used describe?
modern complex societies where people do not know each other’s needs personally (argued that tribal societal norms are incompatible with large, modern societies, which rely on impersonal market mechanisms to coordinate actions and information)
What does the self-regulating modern market economy?
market order is dynamic and constantly changing, and individuals frequently alter their choices as new situations and circumstances materialise
What did Polayni believe about market functioning?
markets cannot regulate themselves without causing harm (believed that free market system was not product of spontaneous forces of society, but result of conscious and deliberate planning)
What did Hayek believe about market functioning?
,arket is inherently self-correcting, and state interference
disrupts natural efficiency of economic processes
believed free market is best mechanism to achieve negative
freedom, arguing that individuals pursuing their own self-interests in a
competitive market naturally leads to beneficial social outcomes
What was Hayek’s view on spontaneous order?
believed that society functions best when organised by spontaneous order (economic and social outcomes emerge naturally from individuals’ independent actions )
What did Polayni and Hayek agree on?
both opposed central and deliberate planning on the part of the state
What are criticisms of Polayni?
focuses on destructive effects of self regulating markets but overlooks harms originating elsewhere
focuses on corrosive effects of commodification upon communities but neglects injustices within communities e.g. slavery, that depend on the social constructs of labour, land and money as non-commodities
does not mention protections often have helped solidify hierarchies and exclusions
What does Chang critique modern development institutions and wealthy nations for?
advocating free trade, deregulation, and market liberalisation in developing countries (denying them the tools that industrialised nations previously used to foster their own economic growth)
What is Chang’s critique against modern development institutions and wealthy nations regarding free trade?
rich countries now champion free trade, but relied on protectionist policies to become economically powerful (industrialised nations used tariffs and subsidies to protect young industries from international competition)
What is Chang’s critique of free trade ideology?
critical of the idea that free trade automatically leads to economic development (suggests that free trade primarily benefits countries with already strong industries by giving them access to new markets while undermining the industrial potential of developing nations)
Without what does Chang argue that developing nations will remain reliant on imports and unable to build robust domestic economies?
without measures like tariffs, subsidies, and other forms of protectionism to nurture industries until they are capable of competing on a global scale
What does Chang critique regarding the double standard in modern policy?
criticises current international economic policy regime, particularly Washington Consensus, for advocating free-market policies to developing nations (vastly different from ones that industrialised countries used)
argues it is hypocritical and counterproductive
What does Chang mean by “kicking away the ladder”?
developed countries are actively removing the tools that could enable poorer nations to advance
What is a historical example of protectionist measures helping now developed countries before?
during 19th and early 20th centuries, US had some of highest tariffs in world, which helped its manufacturing sectors grow without competition from Britain’s well-established industries
Germany and Japan followed industrial strategies that included state-led interventions, such as subsidies for strategic sectors and investments in education and infrastructure
What were both Polayni and Hayek responding to and what was their opinion?
the crises of the early 20th century, e.g. the Great Depression and fascism (Polanyi’s opinion was from the social issues caused by laissez-faire capitalism, Hayek’s opinion was from his opposition to the spread of socialism and totalitarian regimes)
What did the 2008 financial crisis demonstrate?
that a crisis in the modern market economy has the potential to be far more destructive than any previous economic crisis in world history (including Great Depression)
What is the crisis in 3 dimensions regarding the market economy?
Ecological (depletion non-renewable resources and destruction biosphere)
Financialisation (creation of shadow economy of ‘paper values’)
Social reproduction (strain in neoliberalism)
What does the “structural interpretation” of fictitious commodification that draws on Hegel’s idea that society cannot be based entirely on contracts highlight?
how unregulated markets can undermine their own conditions of possibility, emphasising the socially constructed and historically specific nature of these conditions
