01.
Approaches
02.
Methods
03.
Target analysis
04.
Means analysis
05.
Institution analysis
06.
Political economy
07.
Welfare economy
08.
Order analysis
09.
Order conception
10.
Order dynamics
Outline:
1st Introduction
2nd About the history of the political
economics
3rd Essential features of political
economics
4th Micro- versus macro consideration
5th Distinction against scientific
socialism
6th Distinction against a science
imperialism
7th Distinction against the economic
policy teaching
8th Market economy versus democracy
9th Individual goods versus collective
goods
7th Distinction against the economic
policy teaching
Let us ask ourselves now, to which extent traditional
teaching of the economic policy differs from the political economics. Both
disciplines of knowledge have the economic policy as study subject, at least to
the extent as the political economics is concerned with the political system of
society. Nevertheless, the point of view, from which the political activities
are examined, is another.
The traditional theory of economic policy
examines how far certain economic political means are able to realize predetermined
aims, and furthermore to what extent negative effects on other aims of economic
policy are emanating from certain economic policy measures. This here examined
aims-means connection treats basically the same problems as the economic
theory, with the only difference that the cause-effect relationship of economic
theory is reformulated socio-technically into an aim-means connection.
In the context of the employment theory,
for example, it is examined the question, what are the causes (determinants)
for unemployment; the unemployment is therefore regarded as an effect of very
specific causes. The Keynesian employment theory, for example, explains
unemployment with a too small demand for goods by households and enterprises.
With regards to content, we refer to the
same connection when in the context of the teaching of economic policy an
increase in demand - now on the part of the state - is regarded as a suitable
means of fighting unemployment. Because employment depends on the level of
demand for goods, it requires an increase in the demand for goods to increase
employment.
A completely different problem is present
when a representative of the political economics investigates the question
under which conditions then a politician in a representative democracy ever has
an incentive and moreover has the resources to also perform the measures
recommended by the science of economic policy. Politicians are striving to be
re-elected at the next election respectively, if they belong to the opposition,
to gain the majority of votes, they will only implement such measures which do
not hinder their re-election.
8th Market economy versus democracy
Subject of this section is the
representative democracy. We had asserted above that the political economics in
particular is characterized in that it transfers the perspectives of economic
theory to non-economic areas. Subject of this knowledge discipline is here the
political societal system.
In the field of economic theory we
distinguish generally between a market economy and a state planned economy. In
this context, Walter Eucken has referred to the market economy as the transport
industry and to the state planned economy as a centrally administered economy.
A market economy is characterized in this case by the fact that the individual
economic persons exchange goods with each other, whereby the market represents
the place on which the individual operating persons meet.
The characteristic of a state planned
economy is here in no way that in contrast to a market economy the economic
activities are planned. Planning takes place in all economic systems - also in
the market economy. Each single company and each individual household draws up
plans, in which it is determined which offer or which demand is exerted for
individual goods.
According to Walter Eucken, a state
planned economy rather differs from a market economy, thereby that here plans
are established centrally under the direction of the state, which have to
determine how much goods will be produced in detail.
Friedrich August von Hayek spoke in this
context of spontaneous and sedate economic order. The market economy is in this
sense a spontaneous order, since no one asserts in a plan how the existing
scarce resources are distributed to the individual types of use (goods). Each
individual participant establishes only an economic plan about which goods he
wants to offer and demand. The market ensures then - of course only if certain
conditions are met - as if by an invisible hand that the production in the
whole economy will be aligned to the needs of consumers.
In contrast, von Hayek speaks about the
state planned economy as of a sedate order as to indicate that here an attempt
is made to define by aid of central plans, established by the State, at which
allocation of scarce resources, the overall economic welfare is realized best
possible.
Decisive factor here is: The difference
between a spontaneous and sedate order is precisely not the fact that only in
the state planned economy the production is geared to the common good. The
Liberalism even tried to prove that only in a market economy the production
will be aligned to consumer desires, whereas the attempt to optimize production
in the context of a central plan must fail because no central authority has the
knowledge that is necessary to align the production to the wide range of
consumer needs.
This distinction between market economy
and state planned economy now corresponds on the level of a political system to
the distinction between a democracy and a monarchy or a dictatorship. While in
a democracy all political power emanates from the people, in a dictatorship a
single political leader determines the fate of the population.
In a democracy, thus the population is
regarded as sovereign. The literal translation of democracy reads popular
government. Therefore, the attempt of the Communists to describe their system
as a people's democracy is misleading. In every genuine democracy the political
power emanates from the people. Such an attempt to speak of people's democracy
must appear suspiciously. In reality, shall here be covered up that the power
actually does not emanate from the people. Already Gotthold
Ephraim Lessing lets the Franziska in his work 'Minna of Barnhelm' say that one
seldom speaks of the virtue that one possesses.
However, it is important to remember that
even the sovereign of the monarchies has not done every single policy measure
himself. Quite the contrary: the monarch left as a rule with few exceptions,
the political routine business to the ministerial, which had to meet the
individual policy decisions on behalf of the monarch.
A typical example is the role of Bismarck
under the King (the later emperor) Wilhelm I. It was Bismarck, who foreign
politically brought about the unification of Germany, and who domestically created a comprehensive
system of social security probably first in Europe, that had to be considered
as exemplary at that time in Europe, although by today's standards can be
viewed at best as a first step to a coverage against the social risks of the
illness or accident and the age.
The role of the monarch then was
essentially confined to the fact that he appointed the ministerial that took
action for him and possibly dismissed them again and that those officials were
acting on behalf of the monarch and that the king determined the policy
guidelines. This means that one can speak even then of a democracy if not all
political decisions are made directly by the people. The people as sovereign
appoint also in the elections its representatives and releases them under
certain circumstances by the fact that a government is voted out of office in
an election, and that therefore other parties are entrusted with the formation
of government. Also applies here, that the decisions of the representatives are
taken on behalf of the population.
The counterpart to democracy is then the
monarchy or dictatorship. Here, quite different varieties can be distinguished.
In historical terms, the kings were either elected (elective monarchy) by a
small circle of princes (in Roman German Empire by the electors), or were
determined as a descendant of a predefined succession. Dictators came to power
mostly by means of a revolution, whereat in some cases the existing government
was overthrown on the basis of an open revolution such e.g. at the Soviet
revolution; in some cases, however, as with the emergence of the National
Socialist regime, the dictator came to power through elections, but then abrogated
the democratic constitution.
There are two manifestations of democracy:
the direct and the representative democracy. In both manifestations the
political power emanates ultimately from the people. The emphasis here is on
ultimately. As only in a direct democracy the individual policy decisions are
taken directly by the population itself. The representative democracy, however,
distinguishes itself by the fact that the actual policy decisions are performed
of representatives. The population confines itself to elect these
representatives at periodic intervals of 4 to 5 years.
We had already seen in the preceding
introductory chapter that despite this fact (that the population is not
involved in the policy decisions in a direct way) still can be said that the
political power emanates from the people.
In the same way the population also takes
action as a sovereign in a representative democracy. By the elections it
appoints, so to speak, the politicians and at dissatisfaction, the present
governing politicians are voted out at the next election. Of crucial importance
is here alone that election takes place at regular intervals and that the
election results cannot be manipulated by politicians.
A major difference between direct and
representative democracy, therefore, consists in that the population in the
representative democracy confines itself to voting decisions in terms of the
determination of persons who have to conduct the political business; while in a
direct democracy, the people determine the substantive decisions directly.
This is only true for the pure, ideal
typical forms of democracy. In reality, we have to assume always that mixed
systems are present which have realized elements of both ideal types. So also
the representative democracy knows a limited participation of the people in the
substantive decisions. In this context, one speaks of public opinion poll and
referendum.
At the public opinion poll, the population
has the opportunity to express their opinions on specific topics, politicians
are then under political pressure to act within the meaning of the results of
the survey, however, they are not forced to implement these results one-hundred
percent.
At the referendum the will of the majority
has to be implemented directly, the politicians here do not have the ability to
negate this referendum, also not when they are convinced that this decision is
prejudicial to the public interest.
Thus, although the real political orders
certainly provide a certain participation of the population in these
substantive decisions, in this chapter shall only be analyzed the pure form of
the representative democracy.
9th Individual goods versus collective
goods
We want to continue with the attempt to transfer
the perspectives gained within the framework of the economic theory to the
political system of a representative democracy. The market is seen as a place
in which suppliers and demanders for goods and services meet and initially
different ideas are reconciled. So there are goods in the broadest sense, which
are at the focus of a market.
The role of the market in the economic
system is assumed by the elections in the political system. Here, too,
virtually goods or services are offered on the part of politicians or asked for
by the voters. Here, too, it depends on that the different ideas of the
individual voters and the politicians have to be reconciled.
A decisive difference, however, is present
on this issue between the economic and the political system. On the markets
individual goods are traded, in elections, however, public goods are traded.
Under an individual good we understand a good that at the purchase on the
market is passed to the hands of a consumer for the sole use. A collective good,
however, is always collectively available to all the citizens, as opposed to
the individual good the individual voter receives no ownership of the state
services requested in the elections. The collective good is at disposal to the
entirety of the population.
In the context of economic theory two
different definitions of the collective good have been proposed. So has Mancur
Olson suggested, speaking of public goods always when a potential user of the
questionable good cannot be excluded from the consumption of this good, even if
he is not willing to participate in the costs for the creation of such good.
Individual goods are generally only handed
over to the demander against payment of a price. The one who is not willing to
pay the price of this good, can neither enjoy this good. He can therefore be
excluded from the consumption of this good. In the textbooks to finance usually
it is referred to the street lamp as a prototype of a collective good. The
street lamp gives light for all who linger in the relevant street.
It is impossible already for technical
reasons, to exclude someone who lingers in a street from the benefit of the
lantern, whether he lives there or whether he uses this street for other
reasons. However, we presume here tacitly that in principle everyone has the
right to linger in this street.
Of course, it would be conceivable to deny
to someone to use a street and therefore exclude this person from also enjoying
the lantern. Here, however, quite other goods are addressed (such as access to
streets or living in a street). It is not possible to exclude somebody from
enjoying a good, without additionally denying this person the consumption of
other goods also.
Paul A. Samuelson has suggested a
different definition of the collective good. According to Samuelson always then
a collective good is present, if due to the fact that an individual makes use
of a particular good, the consumption possibilities of another individual are
not impaired at the same time.
Let us bring an example here again. Let us
suppose that in the lecture room L of the University U will be held a lecture
at a specified time T, but that the lecture room is not fully occupied. We
allege that the lecture room contains, for example, 100 seats, but that so far
only say 80 students attend the lecture. We now assume that another student
enters the lecture room and wants to listen to the lecture. Here, we can say
that the addition of another student does not affect the benefits that draw the
present listeners from this lecture. Here, the lecture represents a collective
good in the sense of Samuelson. Would indeed all seats have been occupied
already, then the addition of another listener would have compromised the
benefits of other listeners, for example, by the fact that now two classmates
have to share a seat or some students have to listen to the lecture standing.
While according to Olson the question,
whether a potential consumer can be excluded from the enjoyment of a good
(exclusion principle) decides whether a collective good is present, it is
according to Samuelson the question, whether the benefit of a consumer is
reduced when an additional consumer shares this good, whether we are speaking
of public goods (rivalry principle).
Now, for the analysis of political
processes the term formulated by Olson is better suitable than the definition
of Samuelson. It would be impractical, if we, for example, would no longer
count the services of the jurisdiction as public goods only because the
administrative apparatus is sufficient in the field of law enforcement and the
dispensation of justice to fulfill the necessary tasks. We will therefore take
the term coined by Olson as a basis in the course of this chapter.
Just as we had to add at the distinction
of a direct and representative democracy that in reality no pure systems, but
almost always mixed systems occur, we must adhere also here at the distinction
of the goods or services that in reality mixed systems are quite found.
Individual goods are offered sometimes also on behalf of the politicians. Each
subsidy is provided to a quite specific company or a quite specific household
at free disposal. Equally, certain facilities are used collectively in a market
economy, we think, for example, of the railway system, which is shared by
different transport companies. Nevertheless, it is also expedient in this
chapter to subject only the providing of public goods to our analysis, while
the economic theory is concerned solely with the problems arising from the
production and consumption of individual goods.
Let us consider in somewhat greater detail
the characteristics of a public good. The first main difference to private
goods is the personal differentiation. While in a market economy, each consumer
can choose how he spends his income, for which consumer goods he decides; the
public goods are used in a political system together with the consequence that
the voters have to decide for a particular solution, it is the same collective
good for each and every citizen, thus it is not possible that every citizen
decides for another collective. The decision of the majority applies to all
citizens, regardless of whether the individual voter inferior at the voting had
preferred a different good.
Let us take the example of a television
broadcast. We want to insinuate that only one television broadcaster exists
with a single transmission frequency and that therefore all citizens who want
to watch a program can view only the same program. Here, a collective good is
present. If, however, a variety of competing television programs are offered,
so everyone could decide for the broadcast, which suits his needs best, it
would not mind that other television viewers prefer other programs. Here,
individual goods are offered.
It is clear that the offer of a collective
good because of this personal undifferentiatedness
guarantees a lower welfare as an offer of private goods. This is especially
true because we have to assume in general that the demand structures of
individual citizens differ more or less. Only when identical demand structures
would be present for all citizens, could with the offer of a collective good be
achieved the same welfare for all as with the equal offer of relevant private
goods. The greater the outvoted minority is at majority voting - and it may be
49% in an extreme case -, the greater is the loss of welfare.
For these reasons, it is desirable that
wherever needs can be satisfied by individual goods, the way of the individual
good should be chosen and that a public goods offer appears only desirable
where an individual offer cannot be realized. Let us take again the example of
the television program. Technically, it is quite possible, to broadcast several
different programs at the same time. The more use is made of these options,
also the more can different needs of the individuals be attended.
Let us also take an example that certain
tasks can be realized only through a collective offer. So the demand for equal
rights for all citizens can just be satisfied only in that there is also only
one jurisdiction for all individuals.
A second difference between collective and
individual goods is the factual differentiation. In a market economy system,
the individual consumer can in principle decide freely how he divides his
income on the individual modes of use. The fact that a household when
purchasing fats has decided for margarine and thus against butter, does not
limit essentially in any way its decisions on the purchase of clothes.
Of course there are numerous
complimentarily relations between the goods and it stands to reason that a
household which at the purchase of fats has decided for organic food, probably
at the purchase of proteins meets best to its needs when it prefers a health
food also here. Nevertheless, it is the decision of the individual, how he
decides at the individual types of goods, and the diversity of individual
demand structures entails that very different usage types of income may be desired.
With regard to a public goods supply,
though, these options do not exist anymore. If a voter has chosen a party, then
he has also decided for a very specific division of requested services. He
thereby chooses a particular foreign policy, economic policy, social policy and
cultural policy.
It cannot be assumed that just this
selection of the individual parts of a party program corresponds to the needs
of the individual voter. It has to be assumed often that to a voter perhaps the
economic program of the FDP, the foreign policy of the CDU and the social
policies of the SPD would correspond to his own ideas better than the program
of a single party. He must, however, opt for a party and thus enter into a more
or less sized compromise with regard to the specific aims. The parties provide
virtually a bundle of goods and, in contrast to a market economy, the voter has
to opt for one of these bundles of goods, even if he himself has considered a
different combination as expedient.
It is clear that this factual undifferentiatedness is a direct consequence of the
representative democracy. In a direct democracy, voters decide on the
individual policy measures. Even when in the vote on an economic problem they
have decided for a solution, which was preferred by the FDP, during the vote on
social policy issues they are by no means held to choose a solution which in
turn is preferred by the FDP.
A third difference between a public good
and an individual good consists in a temporal differentiation. The demand for
individual goods can in principle be corrected at any time. If I as a customer
have met my need for milk with whole milk in the past month, I can at any time
change to a different product at the next purchase; I can spend these income
parts at the next income reference for a completely different product.
Parliamentary elections in comparison take place only every four to five years.
So, in principle, a government can be voted out of office only after the expiry
of this legislature, regardless that under certain circumstances the voters
want to correct their decision a lot earlier.
Of course, here certain transitions take
place in reality. Also the production of individual goods requires time and
sometimes passes a certain time until a consumer can realize the change of his
consumption desires. For example, he has closed a deal with a provider under
which he is obliged to take a certain good monthly. Even if he has changed his
consumption desires, he cannot switch readily to another product in this case.
He must first terminate the existing contract and continue to obtain the
current goods until the expiry of a notice period.
However, it is important in this context
that these notice periods are not based in the nature of the goods.
Technically, it would be quite possible to provide an immediate termination of
a contract, or without a contract to decide new in each period whether and to
what extent a product shall be obtained.
Conversely, it is conceivable in
exceptional cases that a government gets under so much pressure that it
withdraws prematurely, that the voting conditions do not permit the formation
of a new government, so that elections must take place perforce before the
expiry of the legislative period.
Also with regard to this third difference
can be stated that in the production of individual goods the adaptation to
changes in the demand structure occurs faster than in the provision of public
goods and that therefore in a supply of individual goods generally a higher
welfare can be achieved.