How do people use politics to create and distribute wealth?

• In March 2013, Venezuela lost its president, Hugo Chávez, who had been the leader since 1999.
• Chávez was a charismatic and polarizing figure with a significant impact on the country.
• Chávez was originally a military officer and embraced Marxist views early in his career.
• He believed that only radical change could solve Venezuela’s economic problems.
• Venezuela had natural resources like oil and gas but suffered from extreme inequality and high poverty.
• In 1992, Chávez led an unsuccessful coup against the democratically elected government and was sentenced to two years in prison.
• Chávez justified the coup by claiming it was to improve social conditions, which resonated with many Venezuelans.
• In the 1998 presidential elections, Chávez won over 50% of the vote and entered office with a promise to transform the country.
• Over the next 15 years, Venezuela underwent significant political-economic changes, leading to Bolivarian socialism.
• Bolivarian socialism aimed to improve living standards and increase political sovereignty, opposing American imperialism.
• Chávez’s policies included nationalizing key sectors like oil, agriculture, telecommunications, and finance, pushing out international firms.
• He also expanded social welfare programs, including building medical clinics, improving education, subsidizing food and fuel, and constructing public housing.
• The country experienced high economic growth during the 2000s and improvements in poverty and inequality, with poverty rates dropping from 50% to 30% by 2012.
• However, there were significant challenges:
  • The success of policies relied on a nearly tenfold increase in the price of oil.
  • Despite calls for independence from global capitalism, Venezuela became more dependent on oil exports.
  • In comparison to other Latin American countries, Venezuela’s economic growth and health improvements were less impressive.
  • Despite economic improvements, homicide rates doubled, making Venezuela the second highest in the world after Honduras.
• After Chávez’s death, Venezuela entered a politically unstable period, with weakened democratic institutions and growing polarization between the poor and the middle/upper classes.
• In the April 2013 presidential election, Nicolás Maduro (Chávez’s vice president) defeated Henrique Capriles by less than 2%.
• Maduro campaigned to uphold Chávez’s Bolivarian socialism, while Capriles promised to end nationalizations and liberalize the economy.
• Since taking office, Maduro has struggled with increased opposition and public discontent over basic shortages, crime, and inflation.
• Inflation reached over 700%, and a decline in oil industry investment led to a drop in oil output.
• With the decline in world oil prices, Venezuela faced economic collapse, with more people pushed into poverty.
• Venezuela’s economic challenges highlighted the relationship between politics and economics, showing how wealth can aggravate rather than solve poverty and inequality.
• Economic systems rely on various institutions, including rules, norms, and values, which influence how goods and resources are exchanged.
• Economic institutions are difficult to change and become self-perpetuating.
• The economy and politics are deeply interconnected, influencing the balance between freedom and equality.
• Some see the economy as the means to individual freedom, while others view it as the means to achieve collective equality.
• The balance between freedom and equality affects the distribution of wealth, types of economic activities, and security in society.
• Political economy studies the relationship between politics and economics, focusing on how their interaction shapes the balance between freedom and equality.
• The chapter explores the role of states in managing economies and how ideologies shape the relationship between state and market.
• Different ideological views lead to different political-economic systems, which can be compared in terms of wealth distribution and other outcomes.
• The relationship between state and market will continue to shape the balance between freedom and equality in the future.

The Components of Political Economy

Markets and Property

• Before comparing different relationships between states and economies, it’s important to understand the basic components of political economy.
• All modern states are heavily involved in the day-to-day affairs of their economies at both the domestic and global levels.
• States use various economic institutions to shape the economy to achieve their ideological goals.
• Markets and property are the most fundamental components of political economy.
• Markets are not just physical places but the interaction between supply and demand, which allocates resources and determines prices for goods and services.
• Markets can be decentralized, with decisions on production, price, and quantity made by millions of individuals rather than one person or government.
• Sellers and producers must create products that people desire at affordable prices, which generates competition and innovation.
• States are involved in enforcing contracts, sanctioning activities, and regulating supply and demand (e.g., by setting a minimum wage).
• States may try to control illegal activities, such as drugs or prostitution, but these markets often persist in underground or black markets.
• Property is crucial in any economy, referring to the ownership of goods and services exchanged in markets, such as land, buildings, businesses, and personal items.
• Property rights include the right to buy, sell, or transfer property and the right not to have it taken by the state or others without just cause and compensation.
• Without state regulation, property rights can be insecure.
• Property can be tangible (e.g., a car) or intangible (e.g., intellectual property like songs or software).
• As economies become more focused on intangible assets, the concept of property rights becomes more complex and less visible.
• States play a role in constructing and enforcing property rights, which can vary from state to state.
• States may fail to protect individual property rights or may claim certain property rights for themselves (e.g., airwaves, oil, land).
• In less-developed countries, there may be property but a lack of property rights, as the state may be unable or unwilling to establish and enforce these rules.

Public Goods

• Property can be acquired or used by individuals for their own benefit, but there are limits to what property and markets can achieve.
• In some cases, the interaction between markets and property doesn’t produce benefits that society desires, such as in transportation.
• Some forms of transportation, like toll roads or passenger ferries, exist in the private realm, but most societies question the implications of privatizing these goods.
• Privatization of goods like roads may limit economic development by impeding trade or failing to reach certain populations.
• Because of these concerns, states provide some level of public goods.
• A public good is a good provided or secured by the state that is indivisible and available for society as a whole—no one private person or organization can own them.
• Unlike private goods, which are linked to individual freedom, public goods can generate greater equality by allowing the public to share in their benefits.
• Examples of public goods include roads, national defense, health care, and primary education, all of which are available to everyone in the country.
• States differ in the extent of public goods they provide, influenced by the relationship between states and markets.
• In the United States, health care is not a public good; it remains in private hands, and access is not equal for everyone.
• In Canada, health care is a public good provided by the state, offering universal benefits to all citizens through publicly owned hospitals.
• In Cuba, the state owns most businesses, making them public goods; the goods and profits belong to the state and are distributed by the government.