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Political economy revisited

A Fragile Alliance

Theo C.M.J. van de Klundert

‘business interest’. The 30 Capitalism and democracy decisive factor is whether these ‘business interests’ are complementary to labour. This distinction is important for understanding why elites may behave in different ways as Bourguignon and Verdier (2010, p. 3) argue: ‘elite-­dominated economies relying primarily on mineral natural resources are likely to behave differently than elite-­dominated economies relying on manufacturing exports’. If rent extraction is based on the exports of a natural resource labour input may be negligible and the optimal tax rate is

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Conclusions

A Fragile Alliance

Theo C.M.J. van de Klundert

. Polanyi (1944) refers to this remarkable feature as ‘The Great Transformation’. North et al. (2009) discuss such a fundamental change in terms of the transformation ofnatural states’ into ‘open access orders’. The characteristic for this revolutionizing change is that economic and political choices are no longer the prerogative of an absolute ruler with military power, but are based on free competition between organizations and groups of people. An essential condition for such a freedom of choice is that the property rights of economic agents are secured. In England

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Engines of growth

A Fragile Alliance

Theo C.M.J. van de Klundert

of labour (L) and the effectiveness of this factor in the production function (A). Therefore, the factor A augments the labour potential. Both L and A grow at a fixed rate. The sum of these growth rates is called the natural rate of growth (gn). It is indicated by a horizontal line in Figure 3.1. The growth rate of capital (gK) depends on the exogenous savings rate and the endogenous productivity of capital. When the effective capital-­labour ratio is low, relative capital scarcity results in a high return on investment. Consequently, the growth rate of capital is

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Emerging markets

A Fragile Alliance

Theo C.M.J. van de Klundert

between different forms of what he refers to as economic integration. The latter concerns the way the process of production, allocation and distribution of goods is organized and economic activities are coordinated. Before the (first) Industrial Revolution, economic systems were based on the fundamental principle of either reciprocity or redistribution, or on a combination of these two. Reciprocity or mutuality rests on the exchange of gifts in a symmetric situation. Redistribution presupposes a central authority that coordinates economic activity. Self-­interest and

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Capitalism and Democracy

A Fragile Alliance

Theo C.M.J. van de Klundert

Capitalism is driven by technological revolutions, leading to alternating periods of regulation and deregulation in leading economies. Technologically backward countries face a different situation as they have to catch up with the leaders. Against this backdrop, Theo van de Klundert examines the relationship between capitalism and democracy, combining economic theory and historical description to analyse long-run economic development. Emphasis is placed on the interrelation between economic and political power, and a robust state-of-the-art overview of today’s political economy is presented.
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Michael Reich

demand for services. On the other hand, the level of manufacturing employment (also shown in Figure 11.1) did increase in the 1960s and 1970s. It then fluctuated in the 1980s and 1990s with the value of the dollar against other currencies and with the growth of the US current account deficit (McKinnon, 2004). According to McKinnon, the steep decline of manufacturing in the 2000s reflects the large increase in the fiscal deficit, which increased interest rates and increased the value of the dollar, thereby increasing the manufacturing trade deficit. For this reason, the

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Jan Winiecki

coming to the rescue of greedy bankers in order to save the general public, it is worthwhile to make a few general comments. If one prefers to portray profit making as greed, so be it. But whatever the ­­terminological preference, one may safely assume that in a private-­ownership-­based, profit-­oriented, competitive economy, profit making or greed is a constant. Montesquieu stressed in the eighteenth century that enlightened self-­ interest is in social science an equivalent of gravitation in natural science. Nothing in particular changed the level of greed in the

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Jan Winiecki

the lesson of humility and continued with his false prophecies. In the same decade (the 1970s) he also prophesied that our civilization would disappear due to the end of oxygen. I do not need to add that it did not. He continued to foretell the end of just about everything, including – of major interest in this chapter – mineral resources. It was these prophecies that tempted the late Professor Julian Simon, a noted expert on natural resources from the University of Maryland, to challenge Professor Ehrlich in 1975 to put his money where his mouth was and bet $10 000

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Minqi Li

during expansions. As a result, there has been a tendency for the government debt to rise in relation to GDP. This tendency was intensified under neoliberalism as interest rates tended to be relatively high in relation to economic growth rates (Li, 2009). The government debt–GDP ratios cannot keep rising indefinitely. Beyond a certain point, the debt–GDP ratio could be so high that the government’s ability to stabilize the capitalist economy would be seriously compromised. From the Marxist perspective, this contradiction of big government capitalism reflects the

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Jan Winiecki

environment and strongly guarded property rights. In the contemporary Russia it is just the opposite: a heavy-­handed, if not downright ham-­fisted, regulatory regime and very weakly guarded private property. Besides, in the case of Russian large firms ‘private until further orders from the government’ there is one additional disincentive, characteristic of all despotic regimes through the ages. If a given firm succeeds in markedly improving its performance, increases sharply the level of profitability and so on, it may attract an (unwanted!) interest from the state and