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Questions and Answers

What is a primary characteristic of the Washington Consensus?

  • Promotion of market liberalization (correct)
  • Emphasis on social welfare programs
  • Restriction of foreign investments
  • Increased state intervention in markets

    • Which principle best represents the ideology of neoliberalism?

  • Increased public sector employment
  • Universal social safety nets
  • Minimal state intervention in markets (correct)
  • Enhanced state control over the economy

    • What is a potential impact of structural adjustment programs on developing countries?

  • Increased public sector growth
  • Enhanced government control over the economy
  • Reduction in poverty levels
  • Privatization of state-owned enterprises (correct)

    • How do market liberalization policies typically affect individual liberties?

    <p>They promote enhanced economic opportunities (A)</p> Signup and view all the answers

    Which of the following is not a component of neoliberalism?

    <p>High import tariffs (A)</p> Signup and view all the answers

    What is one key reason that liberal democracies are seen as more prosperous compared to non-liberal societies?

    <p>More trust built within society (C)</p> Signup and view all the answers

    What is the relationship between the state and market failure in terms of state intervention?

    <p>The state must intervene to correct market failures (A)</p> Signup and view all the answers

    Why might structural reforms require withdrawal of the state from certain market areas?

    <p>To promote competition and efficiency (B)</p> Signup and view all the answers

    Which of the following is NOT a component of neoliberalism?

    <p>Government intervention (C)</p> Signup and view all the answers

    What is the primary focus of the Washington Consensus?

    <p>Promoting structural reforms through external loans (D)</p> Signup and view all the answers

    What was the impact of the Washington Consensus on developing countries?

    <p>Structural reforms leading to enhanced competitiveness (B)</p> Signup and view all the answers

    Which principle is associated with market liberalization policies?

    <p>Free trade (D)</p> Signup and view all the answers

    What does 'minimal state' in neoliberal terms refer to?

    <p>Reducing state intervention in public services (B)</p> Signup and view all the answers

    Which recommendation was NOT part of the original Washington Consensus?

    <p>Subsidizing local industries (A)</p> Signup and view all the answers

    What economic phenomenon is closely linked to the failure of Keynesian economics in the 1970s?

    <p>The 1973 Arab-Israeli War and oil price spike (D)</p> Signup and view all the answers

    What mechanism is emphasized in the concept of rightsizing government?

    <p>Balancing public services with private sector involvement (A)</p> Signup and view all the answers

    What is the primary focus of Keynesian economics?

    <p>Aggregate demand as the primary driver of economic activity (B)</p> Signup and view all the answers

    Which policy approach is recommended during economic downturns according to Keynesian economics?

    <p>Increase government spending on infrastructure projects (B)</p> Signup and view all the answers

    What characterized the economic growth period in West European economies from the mid-1940s to early 1970s?

    <p>Prolonged economic growth averaging nearly 5 percent (B)</p> Signup and view all the answers

    Which of the following best describes the Nordic countries' approach towards welfarism?

    <p>High taxation combined with effective public service delivery (C)</p> Signup and view all the answers

    Which statement best reflects the Keynesian view on recessions?

    <p>They primarily result from a decline in aggregate demand (A)</p> Signup and view all the answers

    What role does fiscal policy play in Keynesian economics described in the content?

    <p>It should be countercyclical to stabilize the economy (B)</p> Signup and view all the answers

    What is a key outcome of the Keynesian policies in West European economies during the specified growth period?

    <p>Pursuit of high-budget welfare expenditures (B)</p> Signup and view all the answers

    What fundamental economic structure did the Nordic countries retain while pursuing social reforms?

    <p>A capitalist structure combined with social democracy (C)</p> Signup and view all the answers

    Flashcards

    Social Contract

    An agreement between citizens and the state where citizens give up some freedoms to gain protection and order.

    State of Nature

    A hypothetical pre-societal state where there's no governing power and everyone behaves in their own self-interest, creating a dangerous situation.

    State Violence

    The state's use of force or threat of force to enforce its rules and maintain order.

    State's Role

    The state acts as the main governing part of society, often regulating and controlling services and industries, as well as impacting individual liberties.

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    Market Failure

    Situations where the free market alone isn't able to provide goods or services efficiently or fairly, requiring potential state intervention.

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    State Intervention

    Government action to correct market failures or achieve social goals. This can involve everything from regulations to direct provision of certain services.

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    New Public Management

    A set of reforms aimed at improving efficiency and accountability in the public sector by using market-like mechanisms.

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    Keynesian Economics

    An economic theory advocating government intervention to stabilize the economy during recessions and depressions.

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    1973 Arab-Israeli War

    Event that caused oil prices to quadruple, impacting Keynesian economic policies.

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    Neo-liberalism

    A resurgence of 19th-century laissez-faire economic ideas, emphasizing reduced government intervention and market-based solutions.

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    Washington Consensus

    A set of ten economic policy recommendations, advocating for reduced government spending, liberalization, and privatization in developing countries.

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    Fiscal Discipline

    Controlling government spending and budget deficits.

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    Privatization

    Transferring ownership of state-owned enterprises to the private sector.

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    Deregulation

    Reducing government restrictions on businesses and markets.

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    Trade Liberalization

    Reducing barriers to international trade.

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    Minimal state

    A concept that advocates for minimum intervention by the government in delivering public services, aiming for a smaller role in the public sector.

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    Rightsizing of Government

    Reducing the size and scope of government operations and functions.

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    Keynesian Economics

    An economic theory that emphasizes the role of aggregate demand in driving economic growth and that advocates for government intervention to manage the economy and maintain full employment.

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    Aggregate Demand

    The sum total of spending by households, businesses, and government in an economy.

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    Market Failure

    Situations where the free market fails to allocate resources efficiently, requiring government intervention.

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    Fiscal Policy

    Government policies related to taxation and spending aimed at managing the economy.

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    Monetary Policy

    Government policies related to controlling the money supply and credit conditions to influence the economy.

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    Countercyclical Policy

    Government policies that are designed to moderate the business cycle, stimulating the economy during recessions and moderating it during booms.

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    Full Employment

    A situation in which the economy is generating enough jobs for all willing and able workers to find employment.

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    Economic Growth

    An increase in the production of goods and services in an economy over a period of time.

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    Welfare Expenditure

    Government spending on social programs, like education, healthcare and social security.

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    High level taxes

    High level of taxes for public welfare-enhancing expenditure.

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    Study Notes

    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.

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