This summary covers the full information written in Prof. Vermeiren's book. It is, in other words, a fully-written summary of the chapters he teaches in class, and requires as mandatory reading. With this summary alone, I received a 15/20 for his exam. Disclaimer: any information from the slides i...
Economy
and
Society
------------------- Book Summary -------------------
2019-2020
Prof. M. Vermeiren
Maria Rebrean
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,Maria Rebrean
Table of Contents
Introduction.....................................................................................................................................3
Democratic capitalism.......................................................................................................................3
Inequality...........................................................................................................................................3
Neoclassical economics.....................................................................................................................3
Economic variables............................................................................................................................4
Political economy...............................................................................................................................4
From Keynesianism to neoliberalism.................................................................................................4
Chapter 1: Economic inequality and instability in democratic capitalism..........................................4
Part 1: Measures of economic inequality..........................................................................................4
Part 2: Explaining the rise in inequality in advanced capitalism........................................................8
Part 3: Economic inequality and financial instability.......................................................................11
Chapter 2: The rise and fall of egalitarian capitalism......................................................................13
Part 1: The rise and fall of the Keynesian Welfare State..................................................................14
Part 2: Theoretical perspectives: interests, ideas and institutions...................................................16
Chapter 3: Macroeconomic policy – from full employment to ‘sound money’................................20
Part 1: Keynesian macroeconomic policy – objectives and instruments.........................................21
Part 2: Neoliberal macroeconomic policy – objectives and instruments.........................................23
Part 3: Neoliberal ideas and the quest for policy credibility............................................................23
Part 4: Low inflation and distributive conflict..................................................................................25
Part 5: Varieties in macroeconomic policy institutions and growth models....................................27
Chapter 4: Social policy – globalisation, deindustrialisation and varieties of capitalism.................28
Part 1: Industrial relations and social policy during Fordist era.......................................................28
Part 2: Neoliberalism, labour markets and social policy..................................................................30
Part 3: Power resources, class conflict and social policy..................................................................31
Part 4: Varieties of capitalism, sectoral conflict and social policy....................................................32
Part 5: Varieties of social policy and growth models.......................................................................34
Chapter 5: Corporate governance – the rise of shareholder capitalism...........................................35
Part 1: Corporate business strategies during the Keynesian era......................................................35
Part 2: The rise of the shareholder model in the US economy........................................................36
Part 3: Shareholder vs stakeholder models in varieties of capitalism..............................................39
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Part 4: Financialization of non-financial corporations......................................................................40
Chapter 6: Market-based banking and the global financial crisis....................................................42
Part 1: Banks and financial intermediation during Keynesian era....................................................42
Part 2: Market-based banking and the great debt transformation..................................................44
Part 3: Regulatory capture and financial industry power................................................................47
Part 4: Financial policy, household debt and growth models.........................................................50
Introduction
Democratic capitalism
Two central challenges that appeared after the global economy was affected by 30s Great
Depression:
a. Rising inequality
b. Economic instability
Rich democratic countries experienced a threefold crisis. The crises are connected to growing levels
of income and wealth inequality across groups and classes where the top 10% percent always own
40% of national income. America was more drastic than constant Europe.
Banking crisis banks extended too much credit to households and then had to be saved by
national governments
Public finances the above led to a fiscal crisis which meant that governments were in debt and
had to implement fiscal austerity policies. Also caused by free-market economy
Real economy the second resulted in this, which meant economic stagnation
They mark the end of the post-war Golden Age of egalitarian capitalism when people had to borrow
to maintain consumption patterns in the face of stagnating incomes, leading to the rise in household
debt.
This debt was reinforced by fiscal austerity, which affected the bottom half of income distribution.
These inequality levels are a cause of low economic growth and secular stagnation. Capitalism is
inherently instable.
Inequality
World Economic Forum (WEF) recognises inequality as a concern for both economy and the
legitimacy of the political system. This fuel the consideration of alternatives e.g. authoritarian
regime, participating in single-issue movements rather than parties, and voting in favour of
populism. It considers a political economy perspective.
Neoclassical economics
Dominant approach to economy. The goal is to predict behaviour not formulate realistic
assumptions. Formalistic, depending on mathematical models and quantitative methods, detached
from the social context. Failed to explain the global financial crisis 2008 and its broader economic
consequences.
Critics find it simplistic, unrealistic, conservative and overly optimistic about free markets as well as
homo economicus. Assumptions include:
a. All people have information about all products
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b. Efficient market hypothesis
c. Politics is different from economy
Believe that someone's wage is dependent on marginal productivity e.g. the CEO. But ignore the
factors e.g. institutions that give these individuals more value over others.
Economic variables
a. GDP b. Inflation c. Unemployment
Political economy
Political economy explains the events post-hoc, but is also bad at predicting. They include non-
economic factors and realistic assumptions, e.g. power and politics, so political forces being behind
wealth accumulation of the rich through the implementation of policies, and not necessarily the
technological-global aspects.
From Keynesianism to neoliberalism
Political power shifted in favour of the rich through a set of policies which will be further explained
in the course, contributing to inequality in both income and wealth. Changes fall under neoliberalism
which tried to undo Keynesian compromises through a process of marketisation.
The neoliberalist turns heightened wealth and income inequality, contributing to the 2007-2009
financial crisis. There were four policy domains that were important and acted on since the 80s,
whose transformation was impactful especially for Europe and USA:
a. Macroeconomic policy c. Corporate governance
b. Social policy and industrial relations d. Financial policy
These transformations were recorded by the Comparative and International Political Economy:
CPE/IPE.
Chapter 1: Economic inequality and instability in
democratic capitalism
Part 1: Measures of economic inequality
Rising inequality in advanced capitalist economies
Ways through which it can be measured include:
a. Measures of personal income distribution - Gini-index
b. Measures of functional income distribution - labour and capital share in national income
c. Measures of wealth distribution
Since 1980s patterns of inequality have been shaped by various types of capitalism including:
a. Liberal Market Economies - LME
b. Coordinated Market Economies - CME
Explaining inequalities and why it is important
Neoclassical interpretations are not good enough as they only look at exogenous market forces such
as: technological change and globalisation but advanced capitalist economies have been equally
exposed to those, it fails to provide a good explanation.
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