1. Political economy โ midterm essay questions
Done by: Sarah Lee Shan Yun
Question 14
According to Bowles, Edwards and Roosevelt, there are three assumptions
made by neoclassical economists that political economists argue against. Firstly, the
economic man assumption refers to the notion that human beings are calculating,
amoral and self-interested (Bowles et al, p. 32) and only have a disposition to
consider how one's action will affect oneself and not how they may affect others.
Secondly, a complete contract is always assumed to have taken place in neoclassical
economics, implying that everything that each party does in a contract is a result of
the contract itself, which fully specifies all tasks and is enforced by the court
(Bowles et al, p. 58). Thirdly, neoclassical economics also assumes that there are no
increasing returns to scale (where the average costs of production decreases as a
result of the increase in the scale of production or rate of output) (Bowles et al, p.
59).
As an alternative, Bowles, Edwards and Roosevelt offer a three-dimensional
approach to studying economics, as opposed to a narrower one that the neoclassical
economists pose. The three dimensions of interest to political economists include
competition, command and control (Bowles et al, p. 54-55).
Competition is the horizontal dimension in economics referring to aspects of
economic relationships in which voluntary exchange and choice among a large
number of possible buyers and sellers play the dominant role (Bowles et al, p. 54).
For example, in a the apple market, there are several suppliers selling apples to the
consumer, and as a result the consumer has to make the choice to buy from one of
the suppliers, creating competition amongst the suppliers to sell at a lower cost or
higher quality. This, therefore, creates a relative equality of power among those
offering the choices engaging in exchanges and competing with one another (Bowles
et al, p. 54). The study of competition is most commonly associated with neoclassical
economics, as macroeconomics and microeconomics investigate the models and
tools that help explain the workings of markets. For example, a framework such as
2. the supply and demand curve justifies the reasons behind changes in market prices
or sales quantities of a good or service.
The second dimension to studying political economy is command - where
there is a vertical aspect in economic relationships in which power plays the pre-dominant
role (Bowles et al, p. 54). This includes notions of power, coercion,
hierarchy, subordination and authority. Command also involves relations among
nations, classes, races, men, women and other groups in society (Bowles et al, p. 54).
It involves one party influencing the conditions under which another party will be
making a choice, thereby influencing their actions in order to promote the interest
of the person or group in power (Bowles et al, p. 55). For example, in a capitalist
society there exists a dominant class (the capitalists) who own and control the
capital goods of production and who have the rights to decide how the resulting
surplus will be used (Bowles et al p. 124). As a result, a class hierarchy is created
between the employers and employees, and thus an aspect of command. A study of
command can therefore be achieved by looking at the conflicts that arise as a result
of such hierarchy. For example, how can capitalists use power to influence political
legislation in favor of themselves to avoid paying taxes?
The third dimension to studying political economy is change, which is the
time dimension in economics referring to the historical evolution of people and
economic systems (Bowles et al, p. 55). For example, business expansion occurs
when owners of the business re-invest resulting surplus back into the business,
resulting in the opening of several new stores or the expansion of the business to
new markets. Therefore, a culminating change or growth of the business occurs over
time. It is, therefore, important for economists to look at how changes occur
historically in a such dynamic economic system such as capitalism.
According to Adam Smith, the individual pursuit of self-interest in
competitive market interactions has socially beneficial effects brought about by the
"invisible hand" (Bowles et al, p. 91) relating back to the dimension of political
economy involving competition. Under his assumption, markets are self -regulating
and can function solely without the involvement of government intervention
(Bowles et al p. 74). Adam Smith's theory, however, does not consider the economic
3. man assumption mentioned earlier, and leaves out big aspects of the command
dimension, in terms of the government enforcing laws and rule in the society.
Karl Marx, on the other hand, investigates the dimension of command to a greater
extent. He noted that all known economic systems have divided societies into
dominant and subordinate classes, and that members of a common class work
together in the pursuit of their common interests (Bowles et al, p. 91). He also noted
that technical progress, the growth of knowledge and conflict among classes all
foster perpetual change (Bowles et al, p. 91), relating to the time dimension of
political economy.
J. Schumpter states that the key to progress is innovation and capitalism
above all other economic systems fosters innovation (Bowles et al, p. 91). He also
notes that the growth of the capitalist economy is uneven, and that periods of
prosperity and stability alternate with periods of stagnation and instability (Bowles
et al, p. 91). Both of these statements relate to the time aspect of political economy
and suggests that the changes that occur in economic systems are on-going and
perpetual, and should therefore be studied. Furthermore, he notes that the
operation of a modern economy is determined by a relatively small number of large-scale
organizations rather than by a large number of small businesses and
individuals (Bowles et al, p. 91) - relating to the first and second dimensions of
political economy involving competition and command. For example, monopolies
create power in businesses to influence and determine market prices as a result in
the lack of competition, leading to conflicts between consumers and businesses, and
therefore may result in certain government intervention.
J.M. Keynes notes that the market system is not self-regulating, and that left
to its own devices the market system fails to make sensible use of our productive
potential. He also notes that unemployment is a chronic problem in a capitalist
economy and that government intervention in the economy can reduce
unemployment and instability (Bowles et al, p. 91). These ideas look largely at the
role of the government in economies, and therefore relates to the command
dimension, whereby an institution sets rules that influence the social structure of
accumulation (SSA) in an economy, and can thereby affect the actions of employers.
4. Ronald Coase talks predominantly about the competition and command
aspects of economics, stating that capitalism is a mixture of competition and
command (Bowles et al, p. 91). He notes that bargaining among private individuals
can often solve problems that governments or market exchanges cannot solve, and
that government policies should facilitate these private bargains (Bowles et al, p.
91). In addition, he says that firms are mini-command economies based on the
giving and following of orders rather than on market exchange (Bowles et al, p. 91)
relating to ideas of the command dimension in political economy.
Finally, Amartya Sen talks largely about the role of government in the
distribution of incomes, and that famines are not the result of the shortages of food,
but that they result from shortsighted government policies that fail to address
problems of poverty (Bowles et al, p. 91). This relates greatly to the command
dimension of political economy, as it addresses the power of governments and their
decisions over the public and society.
Question 15
a) A social structure of accumulation (SSA) is the institutional setting within
which accumulation occurs. It influences and is influenced by relationships among
capitalists, between capitalists and workers, among workers and between
government and the economy. (Bowles et al, p. 158)
b) In competitive capitalism (1860s to 1898), strong craft-based unions
existed in some industries, where skilled workers in particular occupations were
organized and represented (Bowles et al, p. 165). There was extensive workplace
control by skilled workers (Bowles et al, p. 161) and workers could bargain their
wages and working conditions (Bowles et al, p. 162). In corporate capitalism (1898-
1939), employers became dominant and labor unions became weak or illegal
(Bowles et al, p. 161). Workers had few rights and there was no unemployment
insurance, so the loss of a job meant the loss of a livelihood (Bowles et al, p. 162).
During regulated capitalism (1939-1911), labor unions became legalized, resulting
in an increase in membership. This resulted in employees' influences on wage
setting and politics. The NLRB or labor accord was established where workers could
5. demand rises in real wages with rises in productivity (Bowles et al, p. 161). New
policies were also adopted to protect workers' health and safety on the job (Bowles
et al, p. 162). Finally, in transnational capitalism (1991-present), the labor accord
ended, global mobility of capital increased its bargaining power over labor, union
membership fell and an inequality between workers and employers has begun to
grow (Bowles et al, p. 161). Real wages of workers fell in the last quarter of the 20th
century and workers who were already working for low wages saw their real wages
decline even further (Bowles et al, p. 163)
c) According to a 2013 article in Forbes magazine, 1.4 million Americans
work at Walmart today, with many paid under the $12 per hour minimum wage. In
this example, the power of capitalists in controlling and utilizing the surplus
generated from a large company is clearly seen. According to Robert Reich,
Chancellorโs Professor of Public Policy at U.C. Berkeley, Walmart can easily afford to
raise worker's pay to at least $15 per hour, given its net income of $17 billion per
year. In an article by the Business Insider, entitled "Meet The Waltons: Wal-mart
Family Tree", Megan Willet notes that the Waltons are the richest family in America,
and that the descendants and family of Wal-Mart founder Sam Walton, control more
than 50% of the Wal-Mart Corporation and have a combined net worth at least $150
billion. According to calculations, that's almost $100 million of surplus for every
employee who works at Wal-mart. However, given the current economic climate of
the transnational phase of American capitalism workers have little or no power to
influence their wage rate. Wal-mart has several anti-union tactics in place such
as managerial surveillance and pre-emptive closures of stores or departments who
choose to unionize, leading to worker's reluctance to join labor unions.
Question 16
A class is a group of people who share a common position in the economy
with respect to the production and control of the surplus product (Bowles et al, p.
123). A class relationship exists between the producers of the total product,
including the surplus product, and those who command the use of the surplus
product (Bowles et al, p. 123). There are four aspects of the concept of class. Firstly,
6. every class is defined in terms of a relationship. A class cannot exist by itself and can
only exist in relation to some other class (Bowles et al, p. 123). Secondly, a class
relationship refers to a labor process, where classes are defined by the particular
positions that they occupy with respect to the labor process (Bowles et al, p. 124) -
for example, capitalists do not have to produce products vs producers who work to
produce a product in return for a wage. Thirdly, class relationships are hierarchal or
vertical in that there is a group on top controlling the labor and the products of
those below (i.e., capitalists commanding the labor and controlling the surplus
created in production or lords receiving the products of the slaves's or serfs' labor)
(Bowles et al, p. 124-125). Lastly, the interests of producing and controlling classes
are usually, but not always, in conflict. A gain for workers will usually result in a loss
for employers (Bowles et al, p. 125).
Each economic system has a distinct set of class relationships, and each set of
class relationships is identified with a specific way of organizing and controlling the
system's labor process (Bowles et al, p. 125). Property rights establish the owner's
right to control the property to decide who uses it for what purpose and to the
benefit of whom from its use or sale (Bowles et al, p. 125). In different economic
systems, such as slavery, feudalism, central planning and capitalism, there exists a
dominant class (slave drivers, lords, monarchs and capitalists respectively) and a
subordinate class (slaves, serfs and workers). The dominant class has control over
the labor processes of the subordinate class, therefore class relationships and
economic systems are directly related.
The principle income flows for capitalists include capital gains, where an
increase in the value of a capital asset (stocks or property) gives it a higher worth
than the purchase price, and can thus be sold for a profit; and property income,
where income is received in the form of profit, rent, interest or dividends as a result
of owning an asset (such as a business, a piece of land, an existing structure, a bond,
or a share of corporate stock) (Bowles et al, p. 140). The principle income flows for
workers, on the other hand, is wage labor, where work is performed under the
direction of an employer in return for a wage or salary (Bowles et al, p. 143). As a
7. result, the capitalist class is often wealthier and owns a significantly greater
quantity of assets or has a much larger flow of income as compared to employees.
Employees thus have a more constraints, in terms of purchasing power, as
compared to capitalists as a result of lower disposable income levels. This limits
their spending potential, and thus affects their preferences in terms of the kinds of
products and services that they buy (e.g., purchasing an economy class airplane
ticket as opposed to a first-class one).
Furthermore, higher quality educational opportunities are often more
available to wealthier classes, as private education is often more costly than public
or government-funded state schools. This may therefore lead to better educational
qualifications of the elite classes, and thus higher-paying jobs or careers that result
in higher income levels, repeating the process. This cycle results in wider income
gaps and thus creates an even greater disparity between the different classes. For
example, in America, all Ivy League colleges are private schools (Princeton, Yale,
Brown, Columbia, Cornell, Dartmouth, Harvard and University of Pennsylvania) with
tuition fees averaging $40,000 per year, or $160,000 for a four -year college degree.
Elena Bajic, founder and CEO of Ivy Exec, mentioned a CNBC article that "an Ivy
League education makes a candidate stand out, even before a recruiter talks to
them".
Lastly, in a capitalist society, investment is required to drive economic
growth. If investment is required, capitalists, who control decisions on whether to
start and grow businesses in a specific nation or region, have significant power to
influence economic growth. As a result, governments often attempt to convince
investors to finance economic growth in their nations, thus certain policies or
actions such as regressive income tax (where the amount of tax decreases as the
amount of income received by an individual increases) may be put in place to
encourage investors to stay put. In an article published by Metro UK in 2012, it was
noted that some multi-millionaires in Britain paid a lower rate of tax than their
cleaners. It is, therefore, possible that the income gap between the rich and poor
may be made wider by certain governmental policies. Although not specific to
8. capitalists and employees, the difference in the amount of income received by the
two classes certainly affects and is affected by political institutions.
