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Chapter 9
The Economy and Society
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‘It’s the Economy, Stupid’
Reminder on the wall of Bill Clinton’s office during
the 1992 US presidential election campaign
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Key Issues
• How, and to what extent, does the
economy condition politics?
• What are the major economic systems
in the world today? What are their
respective strengths and weaknesses?
• What are the key economic and social
cleavages in modern societies?
• To what extent do class, race and
gender structure political life?
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• Politics is intertwined with the economy and with
society.
• Voting behaviour and party systems are shaped
largely by social divisions and cleavages.
• Parties compete for power by promising to
increase economic growth, reduce inflation,
tackle poverty, etc.
• President Clinton recognises that election results
are often determined by the state of the economy:
governments win elections when the economy
booms, but are likely to be defeated during
recessions or slumps.
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Economic Systems
• An economic system is a form of
organisation through which goods and
services are produced, distributed and
exchanged.
• The central features that were usually
associated with a capitalist economy
were the following:
• Commodity production, a good or service
for exchange
• Productive wealth (means of production) in
private hands
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• Market principles: demand and supply
• Material self-interest and profit maximisation are
the motivation for enterprise and hard work
• Socialist economies are based on the
following principles:
• Production for the satisfaction of human needs
• Public or common ownership of productive
wealth
• Planning, rational process of resource allocation
• Cooperative effort for general well-being
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Capitalisms of the world
Three types of capitalist system can be
identified in the modern world:
• Enterprise capitalism
• Social capitalism
• Collective capitalism
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Enterprise Capitalism
• Enterprise capitalism is widely seen,
particularly in the Anglo-American world,
as ‘pure’ capitalism: other capitalisms are
drawn from it.
• This model has been rejected in most
parts of the world except for the USA.
• Its central feature is faith in the
untrammelled workings of market
competition, born out of the belief that the
market is a self-regulating mechanism.
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• Enterprise capitalism has serious
disadvantages: the most significant of
these is a tendency towards wide
material inequalities and social
fragmentation.
• E.g., in the USA, absolute poverty,
growth of poorly educated and welfaredependent underclass.
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Social Capitalism
• It refers to the form of capitalism that has
developed in much of central and western
Europe. Germany is its natural home.
• The state intervention should be used to
protect infant industries from the rigours of
foreign competition. The central theme of
this model is the idea of a social market:
that is, an attempt to marry the disciplines
of market competition with the need for
social cohesion and solidarity.
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• Further strain is imposed by the relatively high
levels of social expenditure required to maintain
high quality welfare provision. These push up taxes
and so burden both employers and employees.
• Whereas the supporters of the social market insist
that the social and the market are intrinsically
linked, its critics argue that social capitalism is
nothing more than a contradiction in terms.
• In their view, the price of financing ever-expanding
social programmes is a decline in international
competitiveness and a weakening of the wealthcreating base of the economy.
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Collective Capitalism
• This model is based on the example of
post-1945 Japan. The East Asian ‘tigers’
have eagerly adopted.
• The distinctive character of collective
capitalism is its emphasis on cooperative
long-term relationships. This allows the
economy to be directed not by an
impersonal price mechanism, but through
what have been called ‘relational markets’.
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• The firms themselves provide the social core of
Japanese life. Workers are ‘members’ of firms in
a way that does not occur in the USA or even
social-market Europe. In return for their loyalty,
commitment and hard work, workers have
traditionally expected lifetime employment,
pensions, social protection, and access to leisure
and recreational opportunities.
• Particular stress is placed on teamwork and the
building up of a collective identity, which is
underpinned by relatively narrow income
differentials between managers and workers.
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Varieties of Socialism
• Modern socialists have increasingly been
prepared to accept that capitalism is the
only reliable means of generating wealth.
They have looked not to abolish capitalism,
but to reform or ‘humanise’ it.
• Two very different models of socialist
economy:
• State Socialism
• Market Socialism
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State socialism
• This system was based on state
collectivisation, which brought all economic
resources under the control of the partystate apparatus.
• The drawbacks of state socialism:
• Inherent inefficiency.
• Poor economic performance – social
safeguards built into central planning, with
egalitarian system of distribution– enterprise
efficiency not promoted or encouraged.
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Market Socialism
• The attraction of market socialism is that it
appears to compensate for many of the most
serious defects of central planning. Not only
does a market environment provide a
guarantee of consumer responsiveness and
efficiency, but the dangers of bureaucratic
power are also kept at bay.
• This is not to say that a socialist market is
entirely unplanned and unregulated.
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Is There an Economic ‘Third Way’?
• The idea of an economic ‘third way’ that
provides an alternative to both capitalism and
socialism has attracted political thinkers from
various traditions.
• The Swedish economic model (Keynesian
social democracy) attempted to combine
elements of both socialism and capitalism.
Productive wealth was concentrated largely
in private hands, but social justice was
maintained through the most comprehensive
welfare system and highest tax regime found
anywhere in the world.
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Social Structure and Divisions
Individualism
Collectivism
A belief in the primacy of the
individual over any social group or
collective body, which suggests
that the individual is central to any
political theory or social
explanation. ‘There is no such
thing as society’ (Margaret
Thatcher). This view is usually
underpinned by the belief that
human beings are naturally selfinterested and largely self-reliant,
owing nothing to society for their
talents and skills.
Stresses the capacity of
human beings for collective
action, highlighting their
willingness and ability to
achieve goals by working
together rather than
through self-striving. It
draws from the belief that
there is a social core to
human nature, implying
that social groups are
meaningful political entities.
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Social Class
• From Marxist tradition
• Marxists regard class as the most fundamental, and
politically the most significant, social division.
• Communist Manifesto (1848): ‘the history of all
hitherto existing societies is the history of class
struggle’.
• This reflected his belief that politics, together with
aspects of life such as the law, culture, the arts and
religion, is part of a ‘superstructure’ that is determined
or conditioned by the economic ‘base’.
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Workers of the world unite! (Communist Manifesto 1848)22
• A ‘ruling’ class of property owners (the
bourgeoisie) dominates and exploits a
class of wage slaves (the proletariat). This
gave rise to a two-class model of industrial
capitalism that emphasised conflict and
progressive polarisation.
• ‘Underclass’: in its broadest sense it refers
to those who suffer from multiple
deprivation (unemployment or low pay,
poor housing, inadequate education and so
on) and are socially marginalised– ‘the
excluded’.
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Egyptian Social Pyramid
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Race:
• Racial and ethnic divisions are a significant
feature of many modern societies. (e.g.,
South Africa: Apartheid)
Gender:
• Social divisions based on gender or sex
have traditionally attracted less attention
than those rooted in, for example, social
class.
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