Teaching Comparative Government and Politics

Monday, March 02, 2009

Economy 3.0

This essay by Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, might be a good way to help students understand the connections between government and market economies. Those relationships are usually oversimplified in journalistic reporting and almost always oversimplified in political discourse (although the new American president might be an exception).

I'd ask my students to read this and make note of the connections between government and economies posited by Rodrik and to make a timeline of changes in those relationships. Then we might have a debate or a practice FRQ based on this essay.

Coming Soon: Capitalism 3.0

"Capitalism is in the throes of its most severe crisis in many decades. A combination of deep recession, global economic dislocations, and effective nationalization of large swathes of the financial sector in the world’s advanced economies has deeply unsettled the balance between markets and states. Where the new balance will be struck is anybody’s guess.

"Those who predict capitalism’s demise have to contend with one important historical fact: capitalism has an almost unlimited capacity to reinvent itself. Indeed, its malleability is the reason it has overcome periodic crises over the centuries and outlived critics from Karl Marx on. The real question is not whether capitalism can survive – it can – but whether world leaders will demonstrate the leadership needed to take it to its next phase as we emerge from our current predicament.

"Capitalism has no equal when it comes to unleashing the collective economic energies of human societies... The catch is that neither property rights nor markets can function on their own. They require other social institutions to support them.

"So property rights rely on courts and legal enforcement, and markets depend on regulators to rein in abuse and fix market failures. At the political level, capitalism requires compensation and transfer mechanisms to render its outcomes acceptable. As the current crisis has demonstrated yet again, capitalism needs stabilizing arrangements such as a lender of last resort and counter-cyclical fiscal policy. In other words, capitalism is not self-creating, self-sustaining, self-regulating, or self-stabilizing.

"The history of capitalism has been a process of learning and re-learning these lessons. Adam Smith’s idealized market society required little more than a 'night-watchman state.'...

"Through the early part of the twentieth century, capitalism was governed by a narrow vision of the public institutions needed to uphold it...

"This began to change as societies became more democratic and labor unions and other groups mobilized against capitalism’s perceived abuses. Anti-trust policies were spearheaded in the Unites States. The usefulness of activist monetary and fiscal policies became widely accepted in the aftermath of the Great Depression...

"The postwar mixed economy was built for and operated at the level of nation-states, and required keeping the international economy at bay...

"The current crisis shows how far we have come from that model. Financial globalization, in particular, played havoc with the old rules...

"The lesson is not that capitalism is dead. It is that we need to reinvent it for a new century in which the forces of economic globalization are much more powerful than before. Just as Smith’s minimal capitalism was transformed into Keynes’ mixed economy, we need to contemplate a transition from the national version of the mixed economy to its global counterpart..."

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