Category Archives: 3171_2015: Gov’t./Capitalism

Conditionalities: Ties that Bind or Enable?

The International Monetary Fund, World Bank, and various regional development banks have commonly issued conditionalities on the loans they provide to developing countries: conditions that require certain structural adjustments to a borrowing country’s national economic, monetary, and social policies (such as lowering government spending, eliminating subsidies to domestic industries, promoting greater interstate trade by reducing tariff and non-tariff barriers, and limiting the authority of its central bank to set interest rates or the value of its currency).  Examples abound of the alleged harmful impact that these strict conditions have on developing nations and their capacity to grow economically and create stable, competitive economies.  Consider, e.g., recent criticisms of IMF policies toward the African bloc or the IMF’s historical impact on Jamaica’s economy or Pakistan’s turn to the World Bank and its reliance on further IMF loans to pay off its existing debt to the organization.

Are conditionalities on such loans justified?  Why or why not?  In answering this question, you must (1) briefly explain what you believe the central point is of these conditions, (2) find one example in which a developing country received loans from the IMF, World Bank, or some regional development bank, which entailed certain structural adjustments, (3) briefly describe the example and the conditions that the borrowing country was required to meet, (4) explain how the country instituted these necessary changes, and lastly (5) describe what the long-term impact of these loans and structural adjustments were on the borrowing country’s economy.

Growth v. employment: where should our loyalties lie?

We have seen that the decades following the reconstruction effort of war-torn Europe and the rise of the United States’ prominence in the global economy were marked by deep tensions in the U.S. over economic policies that strove toward full employment versus those that promoted greater economic growth.  Similar tensions exist today, with unemployment slowly rebounding after the 2008 recession (currently at 5.7% or 9 million Americans), deficit spending and public-held debt at record highs, and economic growth waning in recent years.

Which policy objective do you believe should have prevailed then and should prevail today, and why?  In answering this question, you must (1) briefly explain whether these two policy objectives are inherently contradictory (is it not possible to achieve both concurrently?), (2) identify what the primary social or moral value is that grounds you answer (e.g., prosperity or security or equality, etc.), and (3) briefly discuss one particular public policy whose consequences illustrate why you believe that eliminating unemployment or achieving greater economic growth was/is more important than the other.

Intersection of economics and politics: a look at the “Big Three”

The American auto industry—led by Chrysler, Ford, and General Motors—has been the target of much criticism for lobbying against National Ambient Air Quality (NAAQ) emissions standards of the Clean Air Act, for lowering Corporate Average Fuel Economy (CAFE) standards promulgated by the NHTSA, for resisting more stringent auto safety standards, for exploiting economic downturns and the anxieties of policy-makers to prioritize job growth and economic recovery, for relying on and shaping the terms of government bailouts, for benefiting from the government’s seizure of private property through Eminent Domain, and so forth.

Briefly explain one example in which one of the “Big Three” has exerted its economic power to influence politicians in Washington and shape public policies or foreign policies favorable to their particular corporate interests.  The following are some questions that should guide your response: (a) what were the stated goals of the executives of the particular corporation you choose, (b) what policy alternatives would the company have been willing to accept, (c) what was the final result (what policy alternative was chosen), (d) how was the company able to influence policy-makers, and (e) what were or are the ramifications of the chosen policy to average Americans?

After briefly discussing these specifics, the bulk of your response should explain whether the ability of powerful corporations like Chrysler or Ford or GM to influence the public policy process is a problem.  If so, then why should we be concerned about, and how might we effectively prevent, this intersection between economics and politics?  If not, then why isn’t this intersection a concern—how do the benefits of the influence of corporate special interests outweigh the costs?

Intersection of economics and politics: a look at ExxonMobil

ExxonMobil has been the target of much criticism for failing to comply with environmental standards, for neglecting to take responsibility for the numerous oil spills it has failed to prevent, for aggressively lobbying policy-makers to deregulate the oil and gas industry and relax environmental standards, for benefiting from corporate tax codes that privilege the rich,  for manufacturing scientific skepticism about anthropogenic climate change and resisting global efforts to curb the emission of greenhouse gases, and so forth.

Explain one example in which ExxonMobil has exerted its economic power—as one of the largest corporations in the world—to influence politicians in Washington and shape public policies or foreign policies favorable to their particular corporate interests.  The following are some questions that should guide your response: (a) what were the stated goals of ExxonMobil executives, (b) what policy alternatives would the company have been willing to accept, (c) what was the final result (what policy alternative was chosen), (d) how was the company able to influence policy-makers, and (e) what were or are the ramifications of the chosen policy to average Americans?

After briefly discussing these specifics, the bulk of your response should explain whether the ability of powerful corporations like ExxonMobil to influence the public policy process is a problem.  If so, then why should we be concerned about, and how might we effectively prevent, this intersection between economics and politics?  If not, then why isn’t this intersection a concern—how do the benefits of the influence of corporate special interests outweigh the costs?

Problems inherent to capitalism?

If thinkers like Schumpeter are correct that companies that stop innovating will quickly become uncompetitive and will soon find themselves out of business, if capitalist economies in other words do require constant growth and expansion (due to the nature of competitive markets), then are planned obsolescence, high rates of waste, and competitive-consumption and high levels of personal debt (Schor reading) inevitable consequences of capitalism?  Why or why not?

If they are inherent to capitalism, then how can these problems be resolved?  Do you believe that these are problems at all?  How might market-based approaches help to prevent these controversial consequences?  On the other hand, if they are not inevitable upshots of competition and the drive for profit, then what might explain these consequences?  Can the virtues of capitalism be harnessed to help prevent these controversial consequences?

Can externalities be corrected without government intervention?

Ronald Coase famously argued that negative externalities can be eliminated through a process of ‘private bargaining’, in which all affected parties, who have various conflicting interests, can negotiate over how to distribute the costs of a plausible and mutually-acceptable solution to the dispute (see Bowles et al., chapter 4)—without ever turning to government.  In other words, Coase claims that when faced with negative externalities, our options need not be to either accept these market inefficiencies/failures or to accept the need for government intervention to prevent or correct for these failings.  Consider the illustrative example of how American Electric Power and residents of Cheshire, OH reached such a negotiation, as reported by New York Times: 13 May 2002.

Are thinkers like Coase correct: can these sorts of externalities be internalized without government intervention?  In answering this question, you can discuss other relevant examples (your focus need not be on the Cheshire case), but you do need to address possible problems with the private bargaining process, and to explain whether these problems can be overcome.  For instance, with regard to the Cheshire example, did the decision of residents to sell their properties to AEP and move away solve the externality problem?