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Midterm Flashcards

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1
Q

Commanding Heights

A

Economic sectors the government believes must be under public control because they are foundational to national power and economic development.

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2
Q

Examples of Commanding Heights

A

Energy (oil, electricity)
Heavy industry
Transportation (railroads, airlines)
Banking/Finance
Defense Industries
Artificial Inteligence (AI)
Space Exploration
Rare minerals

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3
Q

Characteristics of Commanding Heights

A

1) Structurally central to the economy
2) Linked to national power or sovereignty
3) Affect national security
4) Shape political and social order
5) Often resemble natural monopolies
6) Involves long term strategic investment

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4
Q

Guarded Globalization

A

States allow markets and cross-border economic activity — but only under political conditions that protect regime stability, national power, or strategic control.

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5
Q

Factors Countries with Guarded Globalization take into account

A

1) The countries or regions with which to do business
2) The sectors in which they will allow capital investment
3) The local (often state affiliated) companies to promote

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6
Q

How businesses can navigate a guarded globalized future

A
  • Do NOT expand
  • Make alliances with businesses in host countries
  • Offer help in building infrastructure for host countries
  • Commit to local sourcing of workers and materials
  • Commit to technology transfer
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7
Q

Entrepreneurial State (Leader in Markets)

A

When the government is a leader and cooperates with private companies in the market.

Tend to be the first to do something because of various resources they have, which private companies do NOT have.

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8
Q

Policy “Prescriptions” (Recommendations) for Entrepreneurial States

A
  • Development Banks: government sponsored bank with low interests and long term finances
  • Income contingent loans and equity: ties repayment obligations to a borrowers future income
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9
Q

State as a Hindrance in Markets

A

A skeptical POV that demonstrates that states can also create “non-market” failures.

State will NOT ALWAYS succeed where the private sector fails

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10
Q

4 Types of Non-Market Failures

A
  1. Internalities
  2. Redundant and rising costs
  3. Derived externalities
  4. Distributional inequity in influence/power
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11
Q

Market Failure: Internalities

A

When organizational concerns are included in the work public sector employees do, which can wash off the work they do to solve societal needs.

Examples:
- Internal Goals
- Motivations
- Standards of public agencies

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12
Q

Market Failure: Redundant & Rising Costs

A

Ex: Hard to fire people

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13
Q

Market Failure: Derived Externalities (NEED HELP UNDERSTANDING THIS ONE)

A
  • Indirect costs or benefits of production/consumption that impact 3rd parties not directly involved in transaction
  • Government intervention can harm areas where public policy was not initially intended to effect
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14
Q

Market Failure: Distributional Inequity in Influence/Power

A

Ex: Voting, taxes, wage changes

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15
Q

Types of Market Elements that fuels non-market failures

A
  1. Products
    - Hard to define, measure, evaluate, and take credit for
    - Ex: roads, national defense
  2. Consumers
    - Do NOT provide immediate, thorough feedback
    - Sticky situation because people pay taxes for things that will be funded that they may or may not like
  3. Competitors
    - Few of them
  4. Bottom line unclear
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16
Q

State as a Facilitator

A
  • State and markets are compliments of another
  • Markets require institutions to provide rules of the game and reduce transaction costs
  • State acts as a tool for the markets but is NOT a leader. SO there when private markets need it.
  • Ex: setting regulations for private markets to follow
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17
Q

State as a Corrector

A

Provides public goods and common goods for the public.

^^Because private failures lead to inequities and market imperfections

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18
Q

Factors that determine rivalrousness and excludability of goods

A

-Not static
- Socially constructed
- Could be partially rivalrous or excludable

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19
Q

Keynes Critique of Laissez-Faire

A
  • Believes there is MORE of a need for government in economics
  • It is built on assumptions
  • Markets are not naturally optimal
  • Remaning unchanged preserves bad ideas
  • Views the government as a leader (but laissez faire sees govt as a corrector/hindrance)
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20
Q

Friedman & Friedman

A
  • Views government as a HINDRANCE
  • Believes world is off track because:
    1) too much political favoritism
    2) government too involved
  • Interprentations of Keynesian’s belief on duties of government:
    1) national security
    2) level playing field
    3) public goods provision
    4) protection of people who are not responsible (ex: ppl w/ disabilities, elders)

*Liberalist ideology

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21
Q

Critique of Keynesianism (Friedman)

A

1) Government too involved

2) Sometimes only special interests are considered
- end up furthering the general interest

3) Political invisible hand
- rhetoric about general interest ends up rewarding special interests

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22
Q

Economic Bill of Rights (Friedman & Friedman)

A

1) Tax and spending limits
2) Reductions in tariffs, wage, and price controls
3) Flat income tax
4) Inflation Management

LONG TERM GOAL= TO CHANGE MINDSET
- because society has normalized centralizing power to any entity (government included)

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23
Q

Mixed Economy (Yergin-Stanislaw)

A

An economic system in which both markets and the state play significant roles in allocating resources

NOT AN IDEOLOGY

Views government as a facilitator and corrector

Defined by institutional structure:
- some sectors private and others public
- government influences markets

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24
Q

Mixed Economy’s Main Policy Tools (Yergin-Stanislaw)

Study These Flashcards
A

1) Regulation
- ex: tariffs

2) Keynesian fiscal management
- ex: government involved in national monetary management
- ex: department of treasury

3) Monetary policy

4) Planning
- deciding what economic priorities important now
- pipeline of workers (STEM in education)
- what needs more resources

5) Industrial Policy
- government picking areas “winners” have most impact/potential

6) State ownership
- ex: national oil companies, postal service (USPS), transportation

25
Washington Consensus
A set of free-market economic policies supported by big financial institutions (IMF, World Bank, US Treasury) Intended to help developing countries that faced economic crises
26
Original (old) Washington Consensus
Policy proposals given: 1) Fiscal discipline 2) **Reorientation of public expenditures** 3) **Tax Reform** 4) **Financial liberalization** 5) Unified and competitive exchange rates 6) **Trade liberalization** 7) Openness to a development financial institution (DFI) 8) **Privatization** 9) **Deregulation** 10) **Secure property rights**
27
Augmented (New) Washington Consensus
Old policy proposals PLUS these new ones: 11) **Corporate governance** 12) Anti-corruption 13) Flexible labor markets 14) **WTO agreements** 15) Financial codes and standards 16) Prudent capital-accounting opening 17) Non-intermediate exchange rate regimes 18) Independent central banks/inflation targeting 19) **Social safety nets** 20) **Targeted poverty reduction**
28
Rodrik's Belief on Washington Consensus (2006)
- Standard reforms do NOT always produce growth (Wash consensus does not offer guidance about which to work on first) - Criticizes Washington Consensus because: 1) Its reform was treated as a universal checklist 2) Not applicable to all countries (one size-fits-all)
29
Rodrik's Alternative to Washington Consensus
1) **Diagnostic Analysis** 2) **Creative and innovative policy design to target the identified constraints appropriately** 3) **Institutionalization of this process**
30
Rodrik's Diagnostic Analysis
Purpose: To find the constraints on economic growth in a given setting Low investment exists in a country because either: 1) Cost of finance is too high - high interest rates - entrepreneurs want to invest but cannot 2) Private returns are too low - aid increases consumption, not investment
31
National (In) Security
A state's perception that it faces serious external threats to its survival, sovereignty, or geopolitical standing
32
National (In) Security Factors
1) Deflecting international pressures 2) Constant search for autonomy in relation to the outside world
33
National (In) Security Effects
Can motivate rapid economic development because: 1) Have this feeling for the need to catch up 2) Creates more urgency to uphold the country 3) Want to protect the country from other economically powerful countries
34
National (In) Security is about...
- War - Rival states - Cold war pressures - Military vulnerability - Fear of foreign domination
35
Pistor's Thoughts on Washington Consensus (2025)
There is a DIFFERENCE between previous washington consensus and the new one 1) Previous Washington Consensus focused on DECREASING the government's roles in business so... - Private sector GREW as public sector STEPPED BACK 2) New Washington Consensus focuses on INCREASING BUSINESS' ROLES in government so... - Private sector GREW as public sector is TAKEN OVER by them
36
Chang (2008): Early vs. Late Developers Main Argument
Today's rich countries did NOT become rich by following free trade and laissez-faire policies. INSTEAD, they used protectionism, tariffs, subsidies, and industrial policy during their development phase and only promoted free trade AFTER THEY BECAME DOMINANT/POWERFUL.
37
Absolute Advantage
Is about who is better at producing something A country has absolute advantage in producing a good if it can produce that good using fewer resources (or more efficiently) than another country
38
Comparative Advantage
About what a country sacrifices and opportunity cost (who gives up less) A country has comparative advantage in producing a good if it gives up less of something else to produce it
39
Chang (2008): Early vs. Late Developers Correlation vs. Causation
Protectionism + Industrial policy -> Development -> Wealth -> Free Trade In this case, rich countries are not rich because they all adopted free trade policies, instead they adopted it after
40
Chang (2008): Early vs. Late Developers Use of Britain Example
Britain did NOT develop through free trade it switched to it after industrial dominance was secure Argues Britain instead: 1. Used heavy protectionist policies during early industrialization 2. Restricted colonies from industrializing 3. Promoted free trade only AFTER it became technologically dominant 4. Repeated the corn laws in the 1846 party to benefit its industrial sector
41
Absolute Advantage Example
For the US: 1 car=10 hours For Mexico= 1 car=20 hours The US has absolute advantage b/c they produce cars faster than mexico.
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Comparative Advantage Example
For me: 1 smoothie= 1/2 a sandwich For friend: 1 smoothie= 1/3 a sandwich Friend has comparative advantage in sandwiches b/c they sacrifice less than me
43
Japan's National Insecurity (Johnson 1995)
Post WW2 faced: - US Occupation - Cold War pressures - Regional communist threats Therefore, Japan now has national insecurity which created: - political cohesion - tolerance for state coordination - acceptance of elite guidance Economic growth= national survival
44
Japan's Capitalist Development State (Johnson 1995)
This is a hybrid mix of capitalism, marxism, and nationalism Japan believed markets needed strategic coordination - b/c they did not believe in pure market self-regulation (industrial policy) Theory of the market rests on oligopoly (pricing control lies in the hands of a few sellers and powerful ppl in society)
45
Basic Ways in which Firms or Countries Grow (Johnson 1995)
1) Add resources 2) Shift resources to more productive uses 3) Keep resources, but get more efficient with them
46
The Strategy of Japan Inc. (Johnson 1995)
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Japan's Capitalist Development State: Key Features (Johnson 1995)
1) Genuine private ownership 2) Indirect state control - to achieve societal goals) 3) Elite bureaucratic guidance 4) Soft authoritarianism - driven by an elite that works within a formal system of legality and popular sovereignty
48
The Strategy of Japan Inc.
1) Product Line 2) Marketing 3) Manufacturing and technology 4) Finance 5) Human Resources 6) Control Mechanisms
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The Strategy of Japan Inc: Product Line
Having well known products from Japan. ex: technological brands, car brands
50
The Strategy of Japan Inc.: Manufacturing & Technology
- Japan imported foreign technology, improved it, and scaled it. - Did NOT invent from scratch - Continous innovation & ahead of trends - Product efficiency
51
The Strategy of Japan Inc: Marketing
- Building global brand reputation - Targeting export markets - Learning foreign consumer preferences - Strategic export promotion
52
The Strategy of Japan Inc: Finance
- Banks closely tied to industrial groups - State influenced credit allocation - Japan supported priority sectors - Japan provided patient capital - Strategic debt - A lot of government lending to businesses
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The Strategy of Japan Inc: Human Resources
- Attract highly skilled workers - Keep highly skilled workers - Have highly educated workforce - Continuous skill upgrading - Human capital aligned with industrial strategy
54
The Strategy of Japan Inc: Control Mechanisms
Japan disciplined firms, and if firms did NOT meet performance goals, state support could be withdrawn Examples: - Bureaucratic oversight - Performance monitoring - Protection tied to export targets - Industrial targeting
55
Beijing Consensus
A descriptive label of China's developmental path Was named and created by observers of China, NOT by china Emphasizes: - Strong state role - Industrial strategy - State-owned enterprises - Less ideological export
56
Industrial Policy
Government Mechanism to protect industries with: - Tariffs - Subsidies - Workforce training - Public education - Access to loans and foreign currency
57
Economic Ideologies that Support Industrial Policy
1) Nationalism 2) Marxism 3) National Security
58
Economic Ideologies that DO NOT Support Industrial Policy
1) Liberalism
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