American Political Economy

1. American Political Economy • Political economy = interaction between the economy and government • Chapter 2 • Impact corporations have on politics • Chapter 3 • History of American Political Economy • Government’s role in sustaining capitalism • Sometimes tense, sometimes smooth relationship between political end economic power

2. Capitalism and Democracy • America’s democratic political system and capitalist economic system • Capitalism = system in which capital (the capacity to produce goods and services) is privately owned and controlled • Business decisions driven by profits (achieving greatest return on investments) • Markets = decentralized and “self-regulating” • Never wholly free or self-regulating • Requires rules, regulation by outside source, government

3. Dilemma of Markets • Markets highly innovative, efficient, dynamic, productive • Byproducts of competition among firms to reduce costs, prices, capture market share, increase profits • Can often conflict with public interest • Externalities = costs firms can effectively avoid paying • Example: mining industry (environmental degradation, pollution, etc.) • Unless government obligates companies to internalize socially harmful costs, community forced to pay • Well-crafted regulation can promote public interests

4. Dilemma of Markets, II • What is good for individual companies may not be good for the society • Pharmaceutical companies whose priorities are shaped by what is most profitable • Mortgage companies extracting revenues from strapped homeowners during housing crisis • Capitalism requires constant expansion of commodity production and consumption • Collides with realities that world has finite resources and ecosystems are fragile • Capitalism is unstable and can cause significant social dislocation (recessions, depressions, unemployment, inflation, etc.) • Capitalism tends to produce booms and busts (cycles) • Capitalism is an inherently undemocratic form of production

5. Dilemmas of Markets, III • Capitalism all these things • Externalities (socializing cost; privatizing gain) • Inherent contradiction possible between private interests and community (public) interests • Expansion/growth and ecological crisis • Instability (recession, depression, unemployment, inflation) • Boom and busts (cycles) • Undemocratic • Capitalism uniquely qualified to promote efficiency and productivity • Politics of power = conflicts about how to reconcile capitalist production and democratic politics

6. Making Sense of Capitalism • Key difference in political economies is extent of government regulation of markets and provision of social programs • U.S. = markets are more free and less regulated than most other democratic capitalist countries • Produces greater economic inequalities and imposes harsh social costs • Emergence of corporations with massive amounts of capital and concentrations of power • Capitalism a form of private government • A system that resembles public government • Its policies have fundamental impact on people’s lives and their communities • Government’s welfare heavily dependent on corporate prosperity • Held-hostage by business • One of first priorities = to promote business-friendly conditions • Corporations not all-powerful • Engaged in competition with domestic and foreign producers • Must contend with other groups with differing interests

7. The System of Corporate Capitalism • Suppose a small group controlled vast economic resources and political power • Several thousand Americans – unrepresentative, not democratically chosen – dominated the economy • Determined whether to invest, where to invest, what to invest in, how production is organized • Enormous political influence • Campaign contributions, lobbyists, lawyers, media • Can a government (political system) and society be described as democratic if it tolerated, promoted the existence of a small group with immense wealth along with a far larger group with meager income? • Corporate capitalism = system in which a small group controls U.S. economy and possesses immense political power

8. Whether to Invest • Investment decisions by industrial corporations and financial institutions (banks, equity firms, etc.) determine level of goods and services produced driven by profit motive • Citizens tend to identify personal welfare with welfare of business • What’s good for GM… • Widespread support for capitalism fueled by pro-business propaganda (schools, businesses, political parties, media) • Rational basis: entire society depends on business firms to generate jobs and prosperity • At same time, readiness among workers and other citizens to challenge many features of capitalist control • Americans tend to support capitalist values, such as individualism and minimum state interference, mostly in the abstract • While at same time supporting specific government programs (e.g., assisting the poor) • Non-elite Americans have shared powerful belief in community, collective action, and government’s responsibility to remedy market defects

9. Where to Invest • Decisions made on basis of which location will minimize production costs and maximize sales and profits • States and local governments compete by offering tax incentives, loans, anti-union laws, and weak environmental regulations • Shift of capital beyond U.S. borders (offshoring, outsourcing, and foreign direct investment) important elements of globalization

10. What to Invest In • Investment decisions determine kinds of goods available in society • Based on what will be the most profitable • Not what would be the most beneficial or useful for society • A good example are pharmaceutical companies devoting resources to devising medications for relatively harmless ailments in affluent countries rather than investing in devising medication to treat and prevent tropical diseases among low-income groups in the south

11. How Production is Organized • Workplace rules are undemocratic • Private managers decide: • Who will be hired, fired, and promoted • What tasks employees will perform • What kinds of technology will be utilized • Management seeks to fully control process of production because profits depend on how efficiently labor can be managed • Ongoing tension between workers who attempt to maximize their autonomy and managers who attempt to exert greater control • Workers have achieved gains through • Labor unions and collective bargaining agreements • As citizens pressuring government to enact legislation mandating improved labor standards (e.g., minimum wage laws, overtime, safety regulations, etc.)

12. What Do You Think? • The Tense Relationship of Capitalism and Democracy (p. 36) • At heart of American political economy is tension between undemocratic organization of capitalism and democratic procedures that regulate the elected branches of government. • Think of two examples of how undemocratic capitalism and democratic politics conflict. • When such conflicts occur, how are they resolved? • Could this tension be resolved so that the spheres are organized along the same lines? • Would such a pattern be preferable to the present pattern? Why or why not?