Untitled Quiz

Session 5: New Public Management - State, Society, and Market

• Session covers the relationship between the State, Society and Market.
• Discusses the social contract between State and citizens.
• Explores the interaction between the State and the market, including market failures and state intervention.
• Examines the increasing role of the State and its effects through examples like the New Deal and Washington Consensus.
• Notes the role of structural reforms in the withdrawal of the State from the market.

Part I: State and Society

• Discusses the nature of the State and public policy, referencing Hobbes' Leviathan.
• Notes that the State is the most powerful actor in society, wielding coercive power.
• Discusses the role of the State in driving, lockdowns respecting laws, and collecting taxes.
• Highlights how the State infringes on individual liberties, referencing examples in India.
• Argues that societies valuing individual freedom can best harness their people's energy.

Social Contract between State and Citizens

• Explains the social contract as an agreement between rulers and the ruled, defining rights and duties.
• Outlines the state of nature as a condition before social contract, characterized by conflict and lack of rules.
• Explains that the social contract allows individuals to leave a state of nature and enter a civil society.
• States that the ruler's performance is measured by the success of public policies.
• Mentions the importance of states providing basic resources and rights, with citizens paying taxes.

Social Contract in Modern Times

• Highlights the State's role in alleviating people's suffering through programs like the New Deal.
• Describes the New Deal as a domestic program to improve economic conditions, including industry, agriculture, finance, waterpower, and housing in the USA.
• Defines social engineering as an overreach of public policy and gives examples like China’s one-child policy and demonetization.
• Explains how government intervention is necessary to adjust economies experiencing recession.

Keynesian Economics

• Introduces Keynesian economics, with the central role of aggregate demand.
• States that aggregate demand (spending, government, and business) is the principle driver of the economy.
• Explains that insufficient demand leads to recession and unemployment.
• Highlights the need for government intervention in the form of countercyclical fiscal policies during economic booms and busts.
• Discusses government intervention in economic downturns to stimulate employment

High Growth and Keynesian Economics

• Describes the post-war economic growth in Western Europe, emphasizing the efficiency in welfare service delivery.
• Notes the model of high taxes and efficient service delivery as followed by Nordic countries.
• Explains how the success of social reforms in these countries strengthened social democracy.
• States that the post-war growth in Europe was fuelled by Keynesian economics.

Neo-Liberalism

• Defines neo-liberalism as a 20th-century resurgence of 19th-century economic liberalism.
• Lists aspects of neo-liberalism, such as privatization, austerity, deregulation, free trade, and reduced government spending.
• Explains that neo-liberalism offers an alternative to post-WWII focus on state interventionism and social safety nets.
• Highlights a contrast between neo-liberalism and the post-war Keynesian consensus, which lasted from 1945 to 1980.

Washington Consensus

• Describes the Washington Consensus as a set of ten recommendations for economic reform.
• Outlines the ten recommendations, including fiscal discipline, re-directing public expenditure, and tax reform.
• Outlines that the consensus was applied in various developing countries.
• Notes that the Washington Consensus's impact is contested, sometimes causing uneven terms of trade for developing nations.

Washington Consensus and Dependence of Developing Countries on External Loans

• Discusses structural reforms, domestic market deregulation, and privatization of public firms as core goals of the Washington Consensus.
• Mentions the two major stages of intervention: macroeconomic stability with adjustment programs and improving institutions.
• Explains that the IMF/WB conditionality forced many indebted countries to implement these reforms.
• Notes that these reforms led to an increase in dependence on external loans.

Disastrous Consequences

• Discusses the negative impact of SAPs and macroeconomic stabilization programs on social welfare, in particular the rise in unemployment and poverty for developing countries.
• Explains that excessive government intervention can also have detrimental impacts if it exceeds the critical limit of 25 % of the total economic activity.
• Highlights the need for social protection programs for protecting vulnerable populations.

Public or Social Goods

• Defines social goods as those benefiting a large number of people (e.g., clean air, healthcare).
• Emphasizes that social goods often require government intervention to become widely available.
• Explains rivalrous and non-rivalrous services, excludable/ non-excludable aspects of private and public goods.

Merit and Demerit Goods

• Defines merit goods as those deemed beneficial for society that may be under-consumed without government intervention.
• Discusses examples of merit goods like education and health care.
• Defines demerit goods as 'bad' goods for society (such as alcohol and cigarettes) that tend to be over-consumed, citing the need for government intervention via taxation and regulation.

Allocation of Resources for Public Good

• Acknowledges that allocating resources for public goods is complex because of diverse preferences and varying income levels of consumers.
• Explains how the decision-making process for public goods differs from those for private goods.
• Discusses how collective decision-making (including taxes, imposed based on need) is a key aspect in resource allocation.

Bowen's Model

• Presents a visual model (graph) comparing prices of social and private goods.

State and the Market

• Discusses the circumstances where State intervention in the form of public policy is needed.
• Explains the concept of market failures, a situation in which the free market fails to efficiently allocate resources.
• Notes that market failures can be attributed to externalities, asymmetric information, market power, and public goods.

Modes of Government Intervention

• Lists various ways the government can intervene in the economy.

Wagner's Law of Expanding State Activity

• Presents Wagner's Law, explaining that government activity will increase as economies grow.
• Uses graphs depicting government expenditure growing proportionally with GDP.
• Outlines the functional relationship between economic growth and government activity.

Empirical Evidence of Wagner's Law

• Presents data to support Wagner's principle of correlation between state activity growth and economic growth, and shows specific examples using graphs.
• Data includes examples like Sweden, UK, US, Japan, and Germany.

Wagner's Squared Hypothesis

• Outlines the difference between how government expenditure grows, with a focus on the role of the increase in government activity.
• Mentions that the growth in public expenditure is more rapid than the growth of goods produced.

Positivist Theory of Displacement

• Discusses the fact that growth in expenditure during wartime may exceed the limitation on taxation which typically leads to higher postwar civilian expenditures.
• Mentions the concentration effect and inspection effect in government spending.
• Identifies various factors including environmental, technological, economic, political and administrative concerns as relevant in determining public expenditure growth.

Peacock-Wiseman Displacement Theories

• Discusses punctuated increases in government spending, especially after periods of crisis.
• Uses a graph showcasing an increase in government expenditure as a result of various wars.
• Explores possible reasons driving this growth.

Causes and Effects of Increases in Govt. Expenditure

• Discusses the Clark's Critical Limit Hypothesis, stating that when government sector exceeds 25 % of GDP there is a pressure point, leading to inflation.
• Includes Baumo's Cost Disease and Leviathon theories as explanatory factors for the increase in government spending.

Bowen's Model

• Provides visual representation of the model comparing public and private goods.