SISAF 444 Africa Studies Seminar

1. SISAF 444 Africa Studies Seminar Political Economy 101 A Toolkit of Concepts from Political Economy

3. Ambrogio Lorenzetti,Allegory of Good Government (Palazzo Publico, Siena, 1340)

4. Ambrogio Lorenzetti,Allegory of Good Government (Palazzo Publico, Siena, 1340)

5. Ambrogio Lorenzetti,Allegory of Bad Government (Palazzo Publico, Siena, 1340)

6. Ambrogio Lorenzetti,Allegory of Bad Government (Palazzo Publico, Siena, 1340)

7. What is �Political Economy�? The study of how the allocation and use of power affects the allocation and use of resources

8. What is �Political Economy�? The study of how the allocation and use of power affects the allocation and use of resources

9. What is �Political Economy�? The study of how the allocation and use of power affects the allocation and use of resources

10. Adam Smith (Glasgow, Scotland 1723-1790)

11. Adam Smith: The Division of Labor �The division of labor arises from a propensity in human nature to exchange� �Division of labor is limited [�] by the extent of the market� �Division of labor being established, every man lives by exchanging� (The Wealth of Nations, 1776) �It is the division of labor which increases the opulence of a country� (Lectures on Jurisprudence, 1762-63)

12. Key concepts in political economy Exchange/Change in ownership (or �trade�) Division of labor (or �specialization�) Transaction costs (or �costs of trading�) Property rights Investment (or �saving�, or �current sacrifice�) Violence/Threats of violence (or �power�)

13. Conditions of Exchange How costly or expensive is exchange? It depends on: Geography (mountains, rivers, coastlines, deserts) Institutions (for example, the state and the legal system)

14. Conditions of Exchange How costly or expensive is exchange? It depends on: Geography (mountains, rivers, coastlines, deserts) Institutions (for example, the state and the legal system)

15. Transaction costs (costs of exchange) How costly or expensive is exchange? Economists think about this question in terms of transaction costs

16. Transaction costs (costs of exchange) Exchange involves a change in ownership Changes in ownership are costly: what has been exchanged, and when? is it of the right quantity and quality? will the other party comply? if not, can the contract be enforced? what will enforcement cost? The costs involved when ownership changes are called transaction costs Transactions costs exchange

17. Transaction costs (costs of exchange) Changes of ownership (transfers of property rights) take place in markets Well-functioning markets enable exchange Well-functioning markets lower transaction costs

18. Property rights and exchange Property rights are the rules that determine how goods or assets can be used, or exchanged�.and by whom It is easier and cheaper to exchange something if it is clear who owns it (i.e. transaction costs are lower)

19. Property rights and investment When property rights are more clearly defined, and more reliably enforced, people are more likely to make investments that increase the value of their property (because they can reap the rewards from that investment)

20. Putting these concepts together Property rights can be enforced through informal arrangements (e.g. family, kinship group) which lowers transaction costs within that group, enabling exchange and investment �but exchange with outsiders or strangers will face high transaction costs because it is difficult to enforce property rights when dealing with strangers� �which means the market will be small!

21. Putting these concepts together A common system of property rights protection and property rights enforcement between strangers requires the threat of force or violence� �and the emergence of �specialists in violence� (the state)� �whose protection allows specialists in wealth creation to carry out exchange and investment

22. Putting these concepts together A common system of property rights protection and property rights enforcement between strangers requires the threat of force or violence� �and the emergence of �specialists in violence� (the state)� �whose protection allows specialists in wealth creation to carry out exchange and investment

23. Putting these concepts together A common system of property rights protection and property rights enforcement between strangers requires the threat of force or violence� �and the emergence of �specialists in violence� (the state)� �whose protection allows specialists in wealth creation to carry out exchange and investment

24. Weingast�s Dilemma �The fundamental political dilemma of an economic system: A government strong enough to protect property rights is also strong enough to confiscate the wealth of its citizens.� Barry Weingast "The Economic Role of Political Institutions." The Journal of Law, Economics, and Organization (1995)

25. Weingast�s Dilemma �The fundamental political dilemma of an economic system: A government strong enough to protect property rights is also strong enough to confiscate the wealth of its citizens.� Barry Weingast "The Economic Role of Political Institutions." The Journal of Law, Economics, and Organization (1995)

26. Weingast�s Dilemma �The fundamental political dilemma of an economic system: A government strong enough to protect property rights is also strong enough to confiscate the wealth of its citizens.� Barry Weingast "The Economic Role of Political Institutions." The Journal of Law, Economics, and Organization (1995)

27. Violence The state can use violence in two ways: �domesticated�: to support the creation of prosperity for all (universal PR* enforcement as a public good, impersonal rule) �undomesticated�: to enrich itself and its key supporters (selective PR enforcement as a private good, personal rule)

28. Violence The state can use violence in two ways: �domesticated�: to support the creation of prosperity for all (universal PR enforcement as a public good, impersonal rule) �undomesticated�: to enrich itself and its key supporters (selective PR enforcement as a private good, personal rule)

29. Robert Bates Prosperity and Violence: The Political Economy of Development

30. Bates Prosperity and Violence The importance of comparative development in historical perspective �Growth of per capita incomes and the transformation of social and political systems� Economic transformation Political transformation EQUILIBRIUM!EQUILIBRIUM!

31. Bates Prosperity and Violence Development Growth of per capita incomes Transformation of political and economic systems = Economic development + Political development EQUILIBRIUM!EQUILIBRIUM!

32. Bates Prosperity and Violence Economic development: Capital formation (investment) Formation of organizations (firms) Political development: Domestication of violence Use of coercion to enforce laws impersonally EQUILIBRIUM!EQUILIBRIUM!

33. Bates Prosperity and Violence Economic development: Capital formation (investment) Formation of organizations (firms) Political development: Domestication of violence Use of coercion to enforce laws impersonally EQUILIBRIUM!EQUILIBRIUM!

34. Bates Prosperity and Violence Political foundations of economic development The decision to form capital and the formation of institutions that render it rational to form capital EQUILIBRIUM!EQUILIBRIUM!

35. Bates Prosperity and Violence Political foundations of economic development The decision to form capital and the formation of institutions that render it rational to form capital EQUILIBRIUM!EQUILIBRIUM!

36. Bates Prosperity and Violence Bates� historical story Agrarian society: informal enforcement (kinship), private violence, poverty Commercial/industrial society: formal enforcement (state), public violence, prosperity EQUILIBRIUM!EQUILIBRIUM!

37. Bates Prosperity and Violence Bates� historical story Europe Growth of markets and towns Growth of violence and warfare Bargaining between rulers and traders Emerging states Warfare and the �revenue imperative�: The promotion of commerce and industry EQUILIBRIUM!EQUILIBRIUM!

38. Bates Prosperity and Violence Bates� historical story Europe Growth of markets and towns Growth of violence and warfare Bargaining between rulers and traders Emerging states Warfare and the �revenue imperative�: The promotion of commerce and industry EQUILIBRIUM!EQUILIBRIUM!

39. The European Story �The core of what we now call citizenship consists of multiple bargains hammered out by rulers and ruled in the course of their struggles over the means of state action, especially the making of war�

40. Bates Prosperity and Violence Bates looks at the emergence of sovereign states in developing countries� �and compares it to the way states emerged in European history EQUILIBRIUM!EQUILIBRIUM!

41. Bates Prosperity and Violence Postwar period: international system shapes the way developing countries are ruled Foreign sources of finance (aid) Countries did not have to develop their own domestic economies Limited bargaining power for citizens Bad governments, predatory states Patronage and privilege EQUILIBRIUM!EQUILIBRIUM!

42. Bates Prosperity and Violence Postwar period: international system shapes the way developing countries are ruled Foreign sources of finance (aid) Countries did not have to develop their domestic economies Limited bargaining power for citizens Bad governments, predatory states Patronage and privilege EQUILIBRIUM!EQUILIBRIUM!

43. Bates Prosperity and Violence Postwar period: international system shapes the way developing countries are ruled Foreign sources of finance (aid) Countries did not have to develop their own domestic economies Limited bargaining power for citizens Bad governments, predatory states Patronage and privilege EQUILIBRIUM!EQUILIBRIUM!