CHAPTER 11 ECONOMICS AND POLITICS I. Why Focus on India? A. India is one of two rising powers (the other being China) expected to challenge the global power and influence of the United States. B. India, with a population of 1.2 billion people, has the second largest labor force in the world. C. Government policies shape India s economy. 1. In the 1970 s, India s government created five elite engineering universities whose graduates positioned India to assume a leading role in the global IT sector. II. The Economy A. Core Concept 1: The ongoing agricultural, industrial, and information revolutions have profoundly shaped the world s economic systems. 1. Economic system - the social institution of a society that coordinates human activity to produce, distribute, and consume goods and services a. Goods - any product that is extracted from the earth, manufactured, or grown food, clothing, petroleum, natural gas, automobiles, coal, and computers b. Services - activities performed for others that result in no tangible product, such as entertainment, transportation, financial advice, medical care, spiritual counseling, and education 2. Three major, ongoing revolutions have shaped the world s economic systems: the Agricultural Revolutions, the Industrial Revolution, and the Information Revolution. III. Types of Societies A. Six broad types of societies defined by the technologies each employs to produce food and exploit resources. B. Surplus wealth a situation in which the amount of available food items and other products exceed that which is required to subsist, or to meet basic needs for human survival. 1. Hunting-and-gathering societies do not possess the technology that allows them to create surplus wealth. 2. Pastoral and Horticultural societies are marked by domestication the process by which plants and animals are brought under human control. 3. Agrarian societies are built on the cultivation of crops using plows pulled by animals to achieve subsistence. 4. Industrial societies rely on mechanization or on machines powered by burning wood and fossil fuels. 115
Economics and Politics IV. a. Mechanization allows humans to produce food, extract resources, and manufacture goods at revolutionary speeds and on an unprecedented scale, eventually allowing a small percentage of the population to grow the food needed to sustain a society that could encompass hundreds of millions of people. b. The Industrial Revolution cannot be separated from colonization a form of domination in which a foreign power imposes its political, economic, social, and cultural institutions on an indigenous population to control their labor, resources, and markets. 5. Postindustrial societies rely on intellectual technologies of telecommunications and computers. Major Economic Systems A. Core Concept 2: The world s economic systems fall along a continuum whose endpoints are capitalism and socialism in most pure forms. 1. No economy fully embodies capitalist or socialist principles. B. Capitalism 1. Capitalism - an economic system in which the raw materials and the means of producing and distributing goods and services remain privately owned 2. Ideally, capitalist systems remain free of government regulations and other types of interference. Capitalist systems are governed by the laws of supply and demand. i. Laws of supply and demand - as demand for an item increases, prices rise ii. Manufacturers respond to increased demand by increasing production, which in turn increases competition and drives the price down. 3. Although most economic systems in the world, including the U.S. system, are classified as capitalist, in reality, no system fully embodies capitalist principles. C. Socialism 1. Socialism - an economic system in which raw materials and the means of producing and distributing goods and services are collectively owned. Public ownership, rather than private ownership, is an essential characteristic of this system. 2. Socialists reject the idea that what is good for the individual and for a privately owned business is good for society. They believe the government or some worker- or community-oriented organization should play the central role in regulating economic activity on behalf of the people as a whole. 3. No economic system fully realizes socialist principles. 4. Welfare state a term that applies to an economic system that is a hybrid of capitalism and socialism. D. World System Theory 116
1. Core Concept 3: Capitalists responses to economic downturns and stagnation have driven a 500-year-plus economic expansion, which has facilitated interconnections between regional, and national economies. 2. World-system theory focuses on the forces underlying the development of economic transactions that transcend national boundaries. 3. World-system theorists identify profit-generating strategies that have caused capitalism to dominate, and they facilitate a global network of economic relationships. a. Every country has come to play one of three different and unequal roles in the global economy. i. Core economies - the wealthiest, most highly diversified economies with strong, stable governments. ii. Peripheral economies - rely on a few commodities or even a single commodity (e.g., coffee, peanuts, or tobacco) or rely on a natural resource (e.g., oil, tin, copper, or zinc). iii. Semiperipheral economies - characterized by moderate wealth (but extreme inequality) and moderately diverse economies. E. Two Economies Compared 1. Core Concept 4: The United States qualifies as a core economy; India represents an example of a semi-peripheral economy. a. As measured by GDP, the United States has the largest economy in the world, and India has the fifth largest. b. In per capita or per person terms, the United States has the tenth largest GDP and India has the 163rd largest economy in the world. c. The US national debt is $14.2 trillion 97 percent of the country s GDP while India s national debt is 20 percent of its total GDP ($295.8 billion) d. Despite their large size and relative stability, core economies can have weaknesses. For the U.S., one such weakness is its dependence on foreign sources for raw materials. 2. Union membership a. Union membership in the U.S. declined from a high of 35 percent of the workforce in the 1950s to 11.9 percent in 2011. b. The drop in union membership has been connected to many factors: i. The declining significance of the manufacturing sector (the traditional base of union membership) in the overall economy ii. Increasing percentages of females in the workforce (who have tended to work in non-union positions) iii. Increasing global competition (which has added pressure to keep wages down and minimize union influence) 3. An economy as comprising three sectors: a. The primary - economic activities that generate or extract raw materials from the natural environment 117
Economics and Politics b. The secondary - economic activities that transform raw materials from the primary sector into manufactured goods c. The tertiary - economic activities related to delivering services, including the creation and distribution of information V. Political Systems and Authority A. Political system - the institution in a society that regulates the use of and access to the power that is essential to articulating and realizing individual, local, regional, national, international, or global interests and agendas 1. Power - the probability that an individual can achieve his or her will, even against another individual s opposition. That probability increases if the individual can force people to obey his or her commands or if the individual has authority over others. 2. Core Concept 5: When people believe that power differences are legitimate, those with power possess authority. 3. Authority - legitimate power; power that people believe is just and proper 4. Max Weber identified three types of authority. a. Traditional - relies on the sanctity of time-honored norms that govern the selection of someone to a powerful position and that specify responsibilities and conduct appropriate for the individual selected b. Charismatic - derives from the exceptional and exemplary qualities of the person who issues commands c. Legal-rational - derives from a system of impersonal rules that formally specify the qualifications for occupying a powerful position VI. Forms of Government A. Core Concept 6: Government is an organizational structure that directs and coordinates human activities in the name of a country or some territory, such as a city, county, or state. That structure may be democratic, authoritarian, totalitarian, or theocratic. 1. Government - the organizational structure that directs and coordinates people s involvement in the political and economic activities of a country or some other territory, such as a city, county, or state B. Democracy 1. Democracy - a system of government in which power is vested in the citizens or the people and in which the citizenry participates directly or indirectly in making decisions 2. In a democracy, political candidates and parties can campaign in opposition to the party holding power. 3. In assessing whether a form of government is a true democracy, it is important to consider who has the right to vote. At one time or another, many governments classified as democratic have on the basis of race, sex, income, property, criminal status, mental health, religion, age, or other characteristics excluded portions of their populations from decision making. 118
VII. C. Totalitarianism 1. Totalitarianism - a system of government that is characterized by a single ruling party led by a dictator, an unchallenged official ideology that defines a vision of the perfect society and the means to achieve that vision, a system of social control that suppresses dissent, and centralized control over the media and the economy 2. In order to help the state meet the government s goals, political leaders, military, and secret police intimidate and mobilize the masses. 3. Totalitarian governments are products of the 20th century. Technologies existed that allowed a few people in power to control the behavior of the masses and to control the information given to the masses. 4. Many of the governments labeled as totalitarian have followed Communist principles. D. Authoritarianism 1. Authoritarian government - no separation of powers exists; a single person (a dictator), a group (a family, the military, a single party), or a social class holds all power 2. Authoritarian leaders typically receive support from a foreign government that expects to benefit from their leadership. 3. Making a clear-cut distinction between totalitarian and authoritarian governments is difficult. E. Theocracy 1. Theocracy - a form of government in which political authority rests in the hands of religious leaders or a theologically trained elite group 2. Theocracy means rule of the deity. 3. The primary purpose of a theocracy is to uphold divine laws in its policies and practices. It recognizes no legal separation of church and state. F. Government Laws and Policies 1. All forms of government make laws formal rules that mandate people to behave in specified ways or to refrain from behaving in some specified way. Power-Sharing Models A. Core Concept 7: There are two major models of power: the power elite and pluralistic models. The two models help us to evaluate whether an elite few hold the power in society or whether power is dispersed among competing interests. 1. Power elite - those few people who occupy such lofty positions in the social structure of leading institutions that their decisions affect millions, even billions, of people worldwide 2. For the most part, the source of this power is legal-rational residing not in the personal qualities of those in power but, rather, in the positions that the power elite have come to occupy. 3. The power elite use their positions and the tools of their positions to rule, control, and influence others. 119
Economics and Politics VIII. 4. According to C. Wright Mills, since World War II, rapid advances in technology have allowed power to become concentrated in the hands of a few. 5. In writing about the power elite, Mills does not focus on any single individual but, rather, on those that occupy the highest positions in leading U.S. institutions. B. Pluralist Models 1. Pluralist models of power view politics as a plurality of special interest groups competing, compromising, forming alliances, and negotiating with each other for power. 2. Pluralist model - views power as something dispersed among those groups. C. Imperialism and Related Concepts 1. Core Concept 8: Empire, imperialism, hegemony, and militarism are concepts that apply to political entities such as governments that can exercise their will over other political entities. a. Empire - a group of countries under the direct or indirect control of a foreign power or government that shapes their political, economic, and cultural development b. Imperialistic power - exerts control and influence over foreign entities either through military force or through political policies and economic pressure c. Hegemony - a process by which a power maintains its dominance over foreign entities. Those in power use institutions (such as the World Bank and the United Nations) to formalize their power. d. Militaristic power - belief that military strength and the willingness to use it is the source of national and even global security. D. Is the United States an Imperialistic Power? 1. The U.S. intervened in Iraq despite having limited international support for this action. 2. In terms of its ability to invest in its military, the U.S. accounts for almost 60 percent of all military spending worldwide. Summary of Core Concepts A. Core Concept 1: The ongoing agricultural, industrial, and information revolutions have profoundly shaped the world s economic systems. B. Core Concept 2: The world s economic systems fall along a continuum whose endpoints are capitalism and socialism in most pure forms. C. Core Concept 3: Capitalists responses to economic downturns and stagnation have driven a 500-year-plus economic expansion, which has facilitated interconnections between local, regional, and national economies. D. Core Concept 4: The United States qualifies as a core economy; India represents an example of a semi-peripheral economy. E. Core Concept 5: When people believe that power differences are legitimate, those with power possess authority. 120
F. Core Concept 6: Government is an organizational structure that directs and coordinates human activities in the name of a country or some territory, such as a city, county, or state. That structure may be democratic, authoritarian, totalitarian, or theocratic. G. Core Concept 7: There are two major models of power: the power elite and pluralistic models. The two models help us to evaluate whether an elite few hold the power in society or whether power is dispersed among competing interests. H. Core Concept 8: Empire, imperialism, hegemony, and militarism are concepts that apply to political entities such as governments that can exercise their will over other political entities 121