Political economy Essay

Most people don’t think about their country’s economy unless it happens to be the nature of their business or unless it somehow directly or indirectly has an impact on the manner of living to which they’ve become accustomed. Economy is the financial circumstance of a country based on its level of prosperity which is determined by the success or failure of it business practices and dealings and proved by the lifestyle of its citizens. The economy is only as good as its management while management is only as good as its political economy. The political economy is a combination of economic and political factors that determine the methods of management or governing. Just what method of governing is best for a country’s economy remains a topic of debate. According to David Coates, â€Å"†¦capitalism as an economic form can be distinguished by the qualitatively distinct mixes of technologies, forms of business organization, characters of labor forces and state functions that come to predominate within it. (Coates) There are three methods of governing capitalism: market-led capitalisms, state-led capitalisms, and negotiated or consensual social capitalisms. The United States is an example of market-led capitalism. In this form, decisions are left to the discretion of private companies. While lucrative to the higher-ups within the company, employees are often only minimally compensated in the wages they earn and in industrial and social privileges. In this form of capitalism, the states involvement is constrain ed and extends only to creating and protecting the market. Ideals related to morality and business ethics are unique to individual companies and tend to be permissive. In state-led capitalism, decision making is left up to the private companies, but only after they’ve met with the approval of administrative leadership within the banking system. Japan is a shining successful example of state-led capitalism. In consensual social capitalism state regulations are minimal, but the political system supports the rights and welfare of the labor and allows them to cast their votes in decision making. Sweden and Germany are strong examples of consensual social capitalism. (Coates) Scholar, Milton Friedman contends that democracy and the rule of law are key factors that together, are instrumental in growing a strong economy. While research ratifies the benefits of property rights and the rule of law, it conveys ambivalent reactions towards the benefits of democracy. Stable property rights and an effective legal system are positive reinforcements, but even when property rights are unstable it doesn’t necessarily affect the economy adversely. Situations such as this tend to increase business activity. When the government spends money to help maintain and protect the rights of businesses, it can actually strengthen the economy. When regulations are tightened to the point that they hinder businesses and increase tax rates, it’s then that the economy is negatively affected. In a democracy, redistributions of income by means of land reforms and social welfare are implemented in order to alleviate social discord. When the governments response is exorbitant, this too will have and adverse affect on the economy. Democracy does have its flaws, but it has greater potential and is more favorable than that of an autocracy. (Robert J. Barro) In the context of rapid marketing and global integration, the consensus was that capitalism adversely affected the labor wages in countries with low labor costs. Brazil, however, has a renewed eagerness for capitalism. According to Arminio Fraga, with Gavea Investimentos, â€Å"Taken together, these things have created a new enthusiasm for capitalism, a feeling that the stockmarket is not a casino and that being part of the world economy is a good thing. (Sen) Their currency is strong and the economy is getting stronger. Companies have a more positive outlook in regards to international integration. The citizens of Brazil are also reaping the benefits. Although Brazil remains closed for the most part, they are reaping the benefits of their limited involvement in the international market. Despite the fact that Brazil is closed, it’s not unaffected by e conomic situations in the United States. A short time after the stock market crashed in 1929, Brazil’s democracy ended and a dictatorship rose up out of the dust. Brazil’s economy was hit again in the 1950’s when coffee prices soared in the U. S and again in the 1970’s when oil prices rose. It’s also been adversely affected by economic crises in other countries. Author, Sen sums it up this way, â€Å"Its politics are frustrating: corruption is rife in public life, violence widespread, illiteracy normal, poverty stubborn. And yet compared with the Brazil of old, this has the feel of a golden age. † (Sen) Trade liberalization has been a slow and steady process in Brazil. Attempts at policy reforms have met with road-blocks and often the progress that was made was lost. Despite setbacks, Brazil has made more progress in building an industrial base than other Latin American countries. They fought back against the debt crisis by pushing its exports. This move proved to be smart and effective in that it stopped the grouping of economic conglomerates. Other countries didn’t fair as well but, between 1982 and 1992, Brazil showed a trade balance of over $11 billion. (Schamis) The economy is gauged in various ways. Peter Gourevitch says, â€Å"Economic performance derives from political choices, social organization, culture, circumstances, history. † (Gourevitch) Investors measure the performance of the economy with specific indicators including the gross domestic product, job growth, consumer confidence, weekly retail sales, monthly retail sales, earnings growth rates, and the Institute for Supply Managements index. Some of these indicators, however, are determined by the spending habits of the citizens. Spending habits can also be a reflection of consumer confidence. When sales are up and the public is investing their money, it’s a fairly reliable indication that the economy is in good shape, at least from the people’s perspective. Unknown) The quality of life of the citizens should definitely be considered when gauging the performance of economy. Brazil’s economy is fairing far better now than it did for twenty years. Since 2004, the economy has shot up at a rate of 4. 5%. The economy is stable and growing. Paulo says, â€Å"In fact, for those excited by economic meltdowns and political turmoil, the place has become r ather dull. † (Sen) As recent as 2007, the stockmarket experienced growth by 44%. Overall, growth increased to 5. 4%. In comparison to Russia, India and China, one might think that Brazil’s economy is dormant and insignificant, but nothing could be further from the truth. Although out-ranked in size, Brazil’s economy is growing and strong. Once hounded by the persistent problems of inflation, debt and democracy, the country has successfully overcome them and now their economy is in good standing. Due to considerable reforms, Brazil’s corporate and financial future looks bright as well. Growth is fixed and holding. Inflation is no longer out of control and has stabilized. Foreign exchange has gradually increased and so has foreign investment. International reserves have also stepped up. Domestically speaking, retail sales have increased to 9. 7 percent and auto production has reached 13. 9 percent. The unemployment situation is improving and new jobs are being created. There has even been a rise in social mobility. Now, 49 percent of the population is in the ranks of the middle class compared to 32 percent 2002. Success has been a long time coming for Brazil. According to Mauro Leos, Vice President of the Sovereign Risk Unit, these achievements were reached by means of good luck and hard work.