The economic ideologies of the right and left argue over how much economic freedom or economic equality to emphasize in an economy's markets, monetary policy, welfare-state policies, trade policies, and regulatory policies.
One thing that is clear is that the economy is not a monolith that can easily be controlled by policymakers.
Employment and wage data, price inflation or deflation, the level of public debt, the value of the dollar, the rise or fall of prices on the stock market are just a few of the details that people refer to when discussing the economy.
The production and consumption of goods and services are what all of these pieces relate to.
An economy is a system in which billions of individual choices are being made by individuals, firms, and governments about what will be produced, how it will be produced, and who will consume the goods and services produced.
Many of these choices are made at the smallest level, such as whether a person will buy a pack of gum for a certain price at a convenience store.
The decision by policymakers on what income tax rate to charge wage-earning individuals is one of the choices made on a large scale.
The economy is shaped by these choices and interactions with one another.
In the AP Comparative Government and Politics course, the focus is on political economy, which is the way in which politics and policymaking interact with the economy, particularly with regard to how the choice is made to balance two competing economic values: economic freedom and economic equality.
There is a conflict between economic freedom and economic equality.
The degree to which individuals and private firms are free to own property and make decisions about how to use, consume, or invest it without interference from the state is referred to as economic freedom.
The state plays a role in economic activity but not in determining how resources will be distributed or used.
The freedom encourages people to take actions that will earn them high wages or profits by providing goods and services to others that are in high demand.
The forces of supply and demand can be used to determine prices for goods and services.
Incentives that encourage innovation, development, and progress by incentivizing people to serve others have positive effects on the economy.
When an economic system gives a high degree of economic freedom, it inevitably leads to some economic inequality.
Some people go into successful industries or professions, while others are less fortunate in their choices for how to earn a living.
Some people are extraordinary in their professions, while others are not.
Some are born into families and inherit property and money while others are born into poverty.
State action is the most efficient way to reduce economic inequality.
Economic freedom and economic equality are prioritized by the left and right in political- economic debates.
Those who value economic equality prefer to move toward a society in which neither poverty nor extreme wealth exists, but rather the resources of the society are used to eliminate the struggles of poverty through redistributive state actions.
A policy based on this value might include imposing a small tax on all income earned in excess of a certain amount of money, followed by the state using that money to fund a program that provides income to the poor, elderly, or unemployed.
In a more extreme form, the state might deny the right to own private property altogether and collectivize the ownership of all industry, assigning jobs and making production decisions based on a central plan the state has made for what is needed.
Every decision made by the state to liberalize state control over the economy to give more freedom results in an increase in economic inequality.
The political climate in a state is often defined by the conflict between these two values, and from this conflict has emerged a common terminology: right and left.
Those who are on the right are those who prefer to move the current policy climate toward economic freedom.
Those on the left want policies to reduce economic inequality.
There are many reasons why the battle between these two sides is fought.
The ideology of the current regime, as well as the current government, will determine what actions the state will take in each component.
The price that must be paid for a good or service is determined by the markets, as well as the distribution of resources.
Markets allow people to buy, sell, and trade what they produce in exchange for what they consume.
Current supply and demand in the market affect prices.
If a company publishes a report that indicates it has had a down year, many of the shareholders who own the company stock might post that stock for sale.
Most investors wouldn't want to buy those shares at the current price.
The sellers would have to reduce the price of the stock in order to get buyers.
Markets for everything from food to land and wages are the same.
The state will sometimes attempt to disrupt market behavior when it sees outcomes it doesn't like, such as high prices for a good perceived by consumers as necessary.
A subsidy from the state may be used to artificially hold the price down, or a payment from the state may be used to help the producer keep the price down.
It is difficult to control markets.
The private actors have incentives that cause markets to arise spontaneously.
Many developed countries have a narcotic drug market that brings with it many negative outcomes, including violence, addiction, poverty, and child neglect.
In many cases, the state has banned the sale, purchase, or possession of these drugs.
Despite the laws of the state, a black market continues to operate.
The question of whether the market or the state is better suited to make production and consumption decisions on behalf of people is at the center of many heated conflicts between the right and left.
Property is the ownership of goods and services.
If the state can maintain the legitimacy of rule while they are doing so, they may choose to limit their role to the protection of private property rights, take the full ownership of all property, or both.
The degree to which the state protects and allows private property ownership is a key factor in determining the right/ left nature of the state's policies.
The state has the ability to do that.
In less developed countries, where there is a lack of resources compared to developed countries, the state may not be able to take on even the minimal function of private property protection, which leads to property decisions being made at a much more local level.
Public goods are goods and services that are free of charge or heavily subsidized by the state.
Which goods should be provided in this way, rather than by the market, is a major focus of argument between the left and right sides of the political spectrum.
If the state has the resources to do so, states are likely to provide goods for which there is no market profit motive, such as a military for national defense, road systems, and law enforcement.
Every state has its own programs and funding levels that it chooses to use as public goods.
All of the United Kingdom's citizens have access to health care.
Nigeria's oil is public and it subsidizes the cost of gasoline.
Goods and services were rationed by the state in Maoist China to guarantee economic equality.
Social expenditures are similar to public goods in that both involve the state providing some kind of economic good or service to their people, but public goods are provided to all people regardless of their status.
Social expenditures are given to some members of society, but not others, in order to achieve more economic equality.
The welfare state is when the state takes the welfare of its poor and most vulnerable people on as a responsibility to correct, or in other cases, the state is providing a universal benefit as a guaranteed right to all of its people.
Welfare-state programs can include old-age pensions, unemployment insurance, low-income food or housing assistance, or reduced school tuition fees for children of low-income parents.
This type of assistance is often the subject of political battles because it gives a benefit to one group at the expense of others.
Each dollar of benefits was paid for by someone's tax dollar.
The left supports a higher level of state spending on public goods and social expenditures than the right does.
The right wants to spend less on these components in order to keep taxes low.
The political argument is related to taxation in every political society.
Like social expenditures, taxes involve very specific choices that can result in winners andlosers, who will pay, how much will be paid, and who will not pay at all.
The left favors taxes that are more progressive, meaning they charge higher percentages in taxes against wealthier people in the country, while the right prefers to reduce progressivity and move closer to flat taxation.
Figuring out who the tax policy should target and how much to charge is one of the contentious political fights.
Money is an incredibly complicated topic that will not be covered in full detail in this course, but for a brief explanation, it is essentially some item that a society has agreed upon to be universally accepted as payment for all other goods and services.
If the public has faith that the value of the money will stay relatively stable and that it won't lose much of its value over time, then this can happen.
Money operates on the same principles of supply and demand as all other goods and services.
In the past precious commodities such as gold or silver were often used as money because of their perceived value and the ability to store them without fear of losing their value.
The silver would become worthless if prices rose dramatically.
This is how inflation happens.
Money is usually a legal tender issued by a central bank that manages the money supply, backed by a guarantee from the state that the currency must be accepted as payment by all people within the country.
The central banks have a responsibility to ensure that the money supply is growing fast enough to accommodate an expanding economy without growing the money supply so much that inflation occurs.
There is a lot of political pressure on the bank to help spur a recovery when the economy is declining and less is being produced.
Flooding the economy with cheap loans is an easy way to do this, but it might grow the money supply and cause inflation.
A modern central bank has to balance the need to fight inflation or unemployment with the need to take appropriate action.
When the central bank makes a policy shift, these actions will have important impacts on individuals and firms that count on some to win and some to lose.
Government directives control the activities of people and firms in the market.
Regulations can be justified as measures to improve the safety of employees on a job site, protecting consumers from harmful products, protecting the cleanliness of the environment, or preventing fraud and abuse by company insiders, among many other reasons.
The state can ban the sale of certain goods or services, such as the requirement that someone be at least 18 years old to purchase alcoholic beverages.
It can require companies to allow a state inspector to come onto their premises to inspect for safety violations, or it can require that a car achieve a certain level of reduction in carbon emissions before it will be allowed on the road.
The prices of goods and services are affected by these regulations.
The degree to which trade will be allowed under certain geographic constraints is the final component.
Those on the right believe that allowing people the freedom to buy and sell whatever they please without restriction will result in the highest net economic growth, as individuals are better suited to decide what they want, or where they can sell at a high profit.
Those on the left are more likely to support protectionist policies by the state because they fear that free trade will result in losing jobs to cheaper labor abroad.
They worry about competing with foreign firms that can take advantage of low-cost labor.
Protectionist policies include tariffs on foreign goods imported, import quota restrictions on foreign goods entering the country, or other barriers such as raising regulatory requirements for foreign products above domestic products.
The left tends to favor protecting domestic industry from foreign competition, while the right tends to favor a free-trade policy agenda.
As a result of the expansion of globalization and trade, different people are likely to come out as winners orlosers, as the ideology in the area of trade is strongly influenced by occupation and place in society.
Capital investors can expect that the opening of trade with a new market will bring higher sales revenues and higher profits to the companies they have invested in, which in turn leads to a higher investment return.
The company might be able to get lower cost labor in a less developed country.
Laborers in manufacturing in the developed country would face stiff competition from low wage workers in a newly accessible country.
They are likely to face downward pressures on their wages and possibly lose their jobs.
Business entrepreneurs, investors, and managers are often optimistic about the possibilities of trade and globalization because labor in the developed world is likely to resist free trade.
Many laborers in the developing world see opportunity in the chance to work for multinational firms that pay better than regional employers, and many in the professional educated class are excited about the prospects of upward mobility that large firms provide.
Competition from large and efficient multinational firms may threaten local business owners.
The dependency theory of economic development was the subject of an ideological battle in the late twentieth century.
Many from the post-colonial environments in Latin America, Africa, and Asia suggested that former colonies of the developing world were dependent on their former colonial masters for economic markets and products, and that their newly independent societies would never become developed and powerful themselves unless they protected.
The detractors of the theory believed that the dependency theory would lead to the developing world cutting itself off from the investment, technology, and know-how that the developed world could provide in trade.
Poor growth and sustained poverty caused many countries that enacted protectionist policies to reverse course and adopt free-trade and pro-market policies as part of the new wave of globalization.
No two states answer the same questions the same way, and every society has to establish the rules under which the political system regulates and interacts with economic forces.
Who and how much the state will tax, whether the state will own or regulate firms providing goods and services, and the regulation of the money supply are just a few of the decisions that must be made.
There are common themes that allow social scientists to classify a set of generalized political- economic systems.
The degree to which the state might attempt to regulate the behavior of economic actors is liberalized.
The state doesn't have much of a role in economic regulation, preferring to let the markets decide what will be produced, who will produce it, and who will consume it.
Tax rates are kept relatively low, and taxes fund the basic defense and regulation necessary to protect property owners and consumers.
The state allows trade.
Modern Britain and Mexico are examples of political- economic systems that are based on liberalism.
Most property in both countries is private.
People can start their own businesses, invest in other businesses, buy what they want, and choose what jobs they want to pursue.
The last few decades of economic policy around the world have been defined by growing liberalization.
Most of the elements of free-market policies have been adopted by former communist countries such as China and Russia.
In the 1980s and 1990s, there was an explosion in the number of economic systems that abandoned state ownership and controls in favor of private enterprise.
Social democratic systems value the benefits that come from private property ownership and use markets to allocate resources, but they also attempt to correct for the economic inequality that accompanies a liberal capitalist system.
The term social democracy should be distinguished from authoritarian socialism, in which the state uses political force in order to achieve more economic equality.
Social democratic systems redistribute wealth with the consent of the people in a liberal political environment, allowing for freedom of speech and freedom for any citizen to actively participate in the political process.
Public regulation of wages and prices and progressive rates of taxation are often used by social democratic systems to transfer wealth to the poor.
Legislation for high wages, social benefit programs, and comfortable safety net programs for the elderly, unemployed, and impoverished are some of the programs that transfer wealth through.
The idea behind social democracy is to reduce the extremes that result from unfettered capitalism or complete state ownership and control.
During and after the Depression of the 1930s, both Britain and Mexico were socialist and redistributing private land and property in order to build welfare states.
Most state-owned industry was privatized in Britain and Mexico in the 1980s and 1990s, and many of the remnants of these policies are still in place today.
Many Western European states still use social democratic systems.
Marx decried the oppression of the working-class laborers by the industrial capitalist during the Industrial Revolution in the 19th century.
Marx called for a system in which all property would be collectively owned by the workers, since they were the ones who created surplus value when they worked to create a finished product from a set of raw materials.
Marx believed that the profits created by the workers were being unfairly accrued by the business owners, who were not responsible for the actual labor.
Business owners would make a lot of money while paying very little to their workers.
All of the people of the society could share in the prosperity and profit of the capitalist if workers owned all property in common through a proletarian state.
Marx did not believe that political reform, regulation, and compromise could ever happen.
He believed the result would come from a violent revolution against capitalism by the global working class.
Russia and China were influenced by Marxist ideology in the early twentieth century, but eventually developed in different directions.
The Marxist-Leninist ideology of democratic centralism is based on the idea that political decision making should be centralized into a small revolutionary elite who will make all decisions on the basis of benefiting the common man as much as possible.
The revolutionary elite were members of the Bolshevik Party, which had complete political control without fair and competitive elections, freedom of speech, or any of the other institutions necessary to democracy.
The industrial working class at the center of the Soviet Union's rise was created by Russia's turn toward industrialization.
In China, in the 1930s and 1940s, Mao led a proletarian revolution of peasants against the Nationalist regime that had ruled China since the 1920s.
While Mao used a similar program of democratic centralism as the governing philosophy, the peasant was the center of Mao's vision for Chinese development, and leaders were expected to stay in touch with their agrarian constituents, sometimes even forced into labor in the countryside to learn from the wisdom of the peasants
The nationalization of property and industry, centrally planned control of economic activity, and a complete lack of civil liberties are all part of the same system.
Communism is a viable economic system in the modern world.
Most former Communist states, including Russia and China, have abandoned this model in favor of freer, less regulated, more privately driven markets.
The rise of absolute monarchies in Europe led to the creation of state-owned manufacturing and trading companies in order to bring gold, prestige, and power to the kingdom.
The underlying assumptions of mercantilism are not present in modern world economic systems.
In a democratic socialist system, large state-owned enterprises that do not produce profits for the benefit of the people at large are included.
The need for the state to be strong and powerful is emphasized in modern mercantilism.
Some of the state-owned parastatal companies in Mexico are still state-owned today.
The companies produced income for the state to enrich the elites, build national industrial capacity, and grow military and security services.
Russia in today's era of Putin exhibits many of the same characteristics, with the government taking business property away from private tycoons who got wealthy after the collapse of the Soviet Union, and handing it over to former KGB and military men who work formally.
The Iranian Revolution was against the mercantilist nature of the Pahlavi dynasty, which sold oil drilling rights to build their security forces while denying these revenues or other economic opportunities to regular Iranians.
Measurement and evaluation of economic performance through statistics is common to the work of social scientists.
Some of the most commonly cited measures of national economic outcomes are listed below.
There is a table with recent data from each of the countries of focus in the AP Comparative Government and Politics course, as well as the United States for a point of reference.
The GDP is the total value of all goods and services produced within a country for a period of time.
Adding together the final prices paid by consumers for goods and services and the annual incomes of all people in the country can be used to calculate it.
It doesn't reveal much about the life or standard of living for the average person in the country because it is an aggregated stat.
The average income and standard of living can be shown by dividing the GDP by the population.
It doesn't account for trends such as widespread economic inequality or the number of people living in poverty compared to those who are wealthy.
GDP per capita is a measure of the standard of living of the average person in the economy.
The Gini index tries to measure the degree to which income is distributed from the top to the bottom of a society.
In a society where one person earned every dollar of income, the coefficients would be 1.0.
In a society where every single person earns the same amount of money, the coefficients would be 0.0.
Every country will finish somewhere in the middle of the index, but the higher the coefficients, the more inequality there is.
Extreme poverty is defined as living below the equivalent of two dollars per day, which is a good indicator of the degree to which daily survival is difficult for a number of people in a country.
It is a top policy consideration for developing countries to conquer extreme poverty.
Most people in developing countries still work in agriculture, as most of the country's resources are devoted to feeding people.
Many people work in subsistence agriculture, producing enough food to feed their family, but little more to sell at any profit.
As the country develops economically, people increasingly transition into work in factories or other types of industrial production, especially as farm work adopts new technologies that can produce more food with fewer human labor hours.
Workers prefer the higher and steady wages of factories to theunpredictability of farming.
By the time countries are developed economically, people are working in specialized fields to provide services to one another, as machinery and technology are capable of producing food on the farm and products in the factories.
Data on what percentage of the country's GDP comes from agriculture, industry, or services can reveal a lot about the level of economic development in a country.
The terms that appear on the AP Comparative Government and Politics exam are tested.