Chapter 13: Economy and Politics

     

    Both, economy and politics, are two concepts very difficult to understand, people that understand both concepts well enough, understand that these two concepts are actually very connected to each other, they affect each other, and we often confuse each other by mixing them together. To satisfy a people’s needs and wants, every society develops a system of roles and norms that governs the production, distribution and consumption of goods and services. This system is called the economic institution. An Economic institution is different than a political institution, the system of roles and norms that governs the distribution and exercise of power in society. Different political institutions choose to take to practice different economic institutions, these two kinds of institutions are what form every country’s government. There is much more to these institutions and systems than only this.

    Economic systems are all about who controls the factors of production, resources needed to produce goods and services, either the people, or the government. All economic systems comprise three main sectors: Primary Sector, which deals with the extraction of raw materials from the environment, the Secondary Sector, which concentrates on the use of raw materials to manufacture goods, and the Tertiary Sector, which is composed of providing services. Economy is basically is not all the same, it has many economic models. In capitalism the factors of production are owned by individuals rather than by the government. In Socialism the factors of production are owned by the government, which regulates economic activity. In the picture below, you can see in the spectrum how economic points of view, or practices, change radically from one perspective to another.

    Capitalism is a form of economy where the people own the means of production. The economy is basically determined by the law of supply, states that producers will supply more products when they can charge higher prices and fewer products when they must charge lower prices, and the law of demand, states that consumers will demand more of a product as the price of the product decreases. Capitalism is known as a term called laissez-faire capitalism, which is French for “let the people do what they want to do”. Today we find free-enterprise systems thanks to capitalism limiting government control of business in economy. Another innovation capitalism has brought are corporations, a business organization that is owned by stockholders and is treated by law as an individual person. A problem that tends to happen on capitalist economies is the formation of an oligopoly, the market situation in which a few large companies control an entire industry.

    Totally opposite to Capitalism is communism, a political and economical system in which property is communally owned. Sometimes communism leads to totalitarianism, when this happens, those in power exercise complete authority over the lives of individual citizens.Sometimes governments do influence in capitalist economies though. During protectionism government uses trade barriers to protect domestic manufacturers from foreign competition. Many people are against free trade, trade that is not restricted by trade barriers between countries. There are some important factors inside politics that will help it succeed, one of them is power, the ability to control the behavior with or without their consent. Power is usually exercised by the state, the primarily political authority in society. Different political institution have different legitimacy, which refers to whether those in power are viewed as having the right to control, or govern, others. According to Weber, legitimate power is authority. There are different kinds of authorities, traditional authority is power that is based on longstanding custom. Rational-legal authority is based on rules and regulations, finally charismatic authority is based on the personal characteristics of the individual exercising the power. The opposite of authority is coercion, power that is considered illegitimate by the people.      

Types of Governments 

    There are many types of governments that make politics. There is democracy, power is exercised through the people, monarchy is a type of government in which one person rules, constitutional monarchy where the monarch is nothing but a symbolic head o state and democratic socialism which is the combination of a democratic government with a socialist economy. All these systems have been democratic, except for the monarchy, but there are also other systems, authoritarian systems. Here we include governments based on authoritarianism where power rests firmly with the state. Examples of these kinds of systems are absolute monarchy, an authoritarian system in which the hereditary ruler holds absolute power. A dictatorship, an authoritarian system where all the power is in hands of one individual only, when a little group has seized the power from a previous government, they become a junta. When there is a group trying to seek and gain power by legitimate means, it is called  political party.

    The final question then is, why do these two affect each other? Well, throughout history, it is clear how authoritarian governments have always had socialist/communist economies, while democratic governments have had less socialist and capitalist economies, that is how politics could change economy and how economic institutions shape political institutions, which in the end, were a little more similar than anybody ever thought they were.