AIPA 2: UNDERSTANDING ACTORS, INTERESTS & POWER Institutions Basic level – states exist to provide (1) defence and (2) social order this requires the presence of a functioning economy. State not only produces, consumes and redistributes; it’s also the main source and enforcer of “rules of games”. “Rules of games” are institutions institutional quality is related to economic performance. Evidence: No country has gotten rich with bad institutions. Politics Politics is the process of creating new institutions. Existing institutions create a constraint on this process. Political processes can be analysed in terms of Actors involved in the processes, their interests and their relative power (AIP). Actors: Political, Societal(land, labour, capital, business associations, unions, students, military), International (hegemon, institutions) Interests: Assume, Deduce or Judge by stated intention and observed behaviour. Power: voter base, past performance, military control, resource control, shared nationalism/ethnicity, moral authority, int’l support Usually, the actor with greatest relative power wins. IPA 3: STATE STRUCTURES 1: ENDS, DECISION-MAKING & IMPLEMENTATION Ends = the ultimate end of economic policy, not necessarily what is said. Self-enrichment - “rentier state” e.g. Zaire, Congo. Anything possible for highest bidder. Economic Development - “developmental state” e.g. Japan, S. Korea. Risk-sharing and high intervention with bias to domestic firms. Equal outcomes - “welfare state” e.g. Scandinavia, Netherlands. Minor state intervention, heavily regulated, little adjustments & intervention. Equal opportunity - “regulatory state” e.g. US, Hong Kong. Minor state intervention, light regulations & adjustments Decision-Making Bottom-Up “Pluralist” e.g. US, AngloSaxon Top-down “Statist” e.g. most countries Participatory “Corporatist” e.g. Netherlands Limited need to rely on government: do on one’s own Government can be influenced through lobbying Direction and speed of outcomes depend on relative power in the lobbying process Decisions in hands of small group of decision-makers at top of government Slack and information flow a problem, thus error-prone Quick decisions possible (but not guaranteed) Nothing works without associations getting involved Typically consensus-oriented Often slow decision-making, but implementation can be fast
Implementation = Good proxy is Transparency International Corruption Perception Index. Lower score less reliable implementation. Implications for Business: Ends: How much is state likely to intervene in economy i.e. how much you can gain from lobbying (non-market strategies? Be careful of developmental states: fast-growing but highly interventionist in favour of domestic firms
Decision-making: How to lobby and how quickly decisions likely to be reached? Potential for quick change is linked with higher political risk. Implementation: How much uncertainty over the rules and how much corruption there is? IPA 4: STATE STRUCTURES 2: FORMAL & INFORMAL STRUCTURES Politics is predominantly about creating formal rules, but many political processes have informal elements. Centralization: All power in the center, interested in generating aggregate benefits, better view of the overall picture and implied tradeoffs, produces one set of rules for everyone, policy errors have big impact because they affect the entire country, quick policy changes, political deadlock at center means the entire country is stuck Decentralization: Political power is devolved to various levels, interested in generating benefits at the respective level (e.g., state), better information about local conditions (-> “subsidiarity principle”), results in multiple sets of rules at various levels that may be contradictory, hedges against policy errors through local experimentation, policy changes may take more time because more actors need to agree, less vulnerable to deadlock because other levels of...
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