Politics and Economics
Whereas politics is concerned with the distribution of power and resources and the control of information in society, economics is concerned specifically with the production and distribution of society’s wealth—material goods like bread, toothpaste, and housing, and services like medical care, education, and entertainment. Because both politics and economics focus on the distribution of society’s resources, political and economic questions often get confused in contemporary life. Questions about how to pay for government, about government’s role in the economy, and about whether government or the private sector should provide certain services have political and economic dimensions. Because there are no clear-cut distinctions here, it can be difficult to keep these terms straight. We can begin by examining different economic systems, shown in Figure 1.1.
economics production and distribution of a society’s material resources and services
The processes of politics and economics can be engaged in procedurally or substantively. In procedural political and economic systems, the legitimacy of the outcome is based on the legitimacy of the process that produced it. In substantive political and economic systems, the legitimacy of the outcome depends on how widely accepted is the narrative the government tells about who should have what. The outcome is based on the decision of a powerful person or people, not a process that people believe is impartial. In procedural systems, the means (process) justify the ends; in substantive systems, the ends justify the means.
Figure 1.1 A Comparison of Economic Systems
President for Life In March 2018, China’s legislature, the National People’s Congress, voted to change the country’s constitution to eliminate the existing ten-year presidential term limit. This step toward authoritarianism sets up President Xi Jinping as a potential president for life.
Capitalism
Capitalism is a procedural economic system based on the working of the market—the process of supply and demand. In a pure capitalist economy, all the means that are used to produce material resources (industry, business, and land, for instance) are privately owned, and decisions about production and distribution are left to individuals operating through the free-market process. Capitalist economies rely on the market—the process of supply and demand—to decide how much of a given item to produce or how much to charge for it. In capitalist countries, people do not believe that the government is capable of making such judgments; they want to keep these decisions out of the hands of government and in the hands of individuals, who they believe know best about what they want. The most extreme philosophy that corresponds with this belief is called laissez-faire capitalism, from a French term that, loosely translated, means “let people do as they wish.” The government has no economic role at all in such a system. However, no economic system today maintains a purely unregulated form of capitalism, with the government completely uninvolved.
capitalist economy an economic system in which the market determines production, distribution, and price decisions, and property is privately owned
Like most other countries today, the United States has a system of regulated capitalism. It maintains a capitalist economy, and individual freedom from government interference remains the norm, but it allows government to step in and regulate the economy to guarantee individual rights and to provide procedural guarantees that the rules will work smoothly and fairly. Although in theory the market ought to provide everything that people need and want, and should regulate itself as well, sometimes it fails.
regulated capitalism a market system in which the government intervenes to protect rights and make procedural guarantees
procedural guarantees government assurance that the rules will work smoothly and treat everyone fairly, with no promise of particular outcomes
The notion that the market, an impartial process, has “failed” is a somewhat substantive one—it is the decision of a government that the outcome is not acceptable and should be replaced or altered to fit a substantive vision of what the outcome should be. When markets have ups and downs—periods of growth followed by periods of slowdown or recession—individuals and businesses look to government for economic security. If the market fails to produce some goods and services, like schools or highways, individuals expect the government to step in to produce them (using taxpayer funds). It is not very substantive—the market process still largely makes all the distributional decisions—but it is not laissez faire capitalism, either.
Socialism
In a socialist economy like that of the former Soviet Union, economic decisions are made not by individuals through the market but rather by politicians, based on their judgment of what society needs. In these systems the state often owns the factories, land, and other resources necessary to produce wealth. Rather than trusting the market process to determine the proper distribution of material resources among individuals, politicians decide what the distribution ought to be—according to some principle like equality, need, or political reward—and then create economic policy to bring about that outcome. In other words, they emphasize not procedural guarantees of fair rules and process, but rather substantive guarantees of what they believe to be fair outcomes.
socialist economy an economic system in which the state determines production, distribution, and price decisions, and property is government owned
substantive guarantees government assurance of particular outcomes or results
The societies that have tried to put these theories into practice have ended up with very repressive political systems, even though Karl Marx, the most famous of the theorists associated with socialism, hoped that eventually humankind would evolve to a point where each individual had control over his or her own life—a radical form of democracy. Since the socialist economies of the former Soviet Union and Eastern Europe have fallen apart, socialism has been left with few supporters, although some nations, such as China, North Korea, and Cuba, still claim allegiance to it. Even China, however, introduced market-based reforms in the 1970s and in 2015 ranked as the world’s second largest economy, after the United States.
Social Democracy
Some countries in Western Europe, especially the Scandinavian nations of Norway, Denmark, and Sweden, have developed hybrid economic systems. As noted in Figure 1.1, these systems represent something of a middle ground between socialist and capitalist systems. Primarily capitalist, in that they trust the market process and they believe most property can be privately held, proponents of social democracy nonetheless argue that the equitable outcomes often promoted by socialism are attractive and can be brought about by democratic reform rather than revolution. Believing that the economy does not have to be owned by the state for its effects to be controlled by the state, social democratic countries attempt to strike a difficult balance between providing substantive guarantees of fair outcomes and procedural guarantees
