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Lecture 15

Lecture 15

7 Pages
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Department
Political Science
Course Code
POL101Y1
Professor
Jeffrey Kopstein

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January 31, 2011
Lecture 15: How the rest got rich Political Economy 101
Last lecture, the west got rich through a set of values.
Todays lecture says getting rich has less to do with people and more to
do with structure.
Hong Kong is the freest economy in the world it is the most capitalist.
There are three pillars to the Hong Kong economy: 1. Tourism, 2.
Business services, 3. Logistics management. These aspects are all
extremely efficient.
17th Century Dutch Hegemony
In the 17th Century, the Dutch are the strongest economic power in the
world.
At the end of the 16th century the Spanish economy begins to decline.
The Dutch economy rises and it is the most multicultural. Amsterdam
was the most multicultural city in the world and people all lived
together in the interest of commerce. This brought global knowledge
and ideas into one place.
Industrial Innovation -- This was before the era of steel. The Dutch had
their famous windmill technology and the sawmill was created creating
a basis for an industrial economy.
Amsterdam was the center of modern finance. Amsterdam had the first
stock exchange and first bank of commerce.
Dutch East India Trading Company first Multinational Corporation.
Dutch economy was based on trade. The 17th Century was the first time
that large-scale international trade was present. Trade routes were
crossing the seas to all other continents.
The invention of the Flute ship this was the ship that was used by
the Dutch throughout the 17th century. This particular ship was very
significant. It was cheaper to make because of wind power and
mechanized sawmills. The Flute ship required less manpower and the
hull of the ship was very shallow allowing the ship to make port in
inland ports and other ports that deeper hulled ships could not go to.
Because it had a shallow hull and because the hull was rounded, it had
an increased cargo capacity (30-50% greater than any other ships at
the time), the Dutch outdid the British.
Market Principle
www.notesolution.com
If you can decrease the cost by which you provide a good or service, you
can increase the supply. This thereby decreases the price, which
presumably increases consumption. If you increase consumption, you
increase your trade and market share.
What we see is simple economic principles at work; it has nothing to do
with Protestantism. By looking at China we see that they realized if
you can supply abundant and cheap labor, you can increase the supply
of goods and China and their firms are able to decrease their prices
and supply to the Wal Marts of the world.
The Price Function: demand and supply intercept at equilibrium giving
us the optimal price.
Principles of the Market Economy
1. Assuming demand is constant, consumption is a function of price the
lower the price the better. (Going shopping in Buffalo)
2. An increase in supply decreases price, which should lead to an increase in
consumption. (The Wal-Mart effect)
3. A decrease in supply increases price and therefore decreases consumption.
(Look at the energy sector. What determines the price of oil is the supply of it.
If there is less oil, the price goes up, and we consume less of it.)
- If there is a change in supply then there is a change in price. Trying to get
rich requires manipulating supply.
Adam Smith The Wealth of Nations (1776)
The invisible hand of the market is natural and free from interference.
There are some consequences to this theory:
As a country you take advantage of your comparative or absolute
advantages. E.g. if youre good at making wine and not at textiles,
youll capitalize on wine production.
The invisible hand means that countries should focus on what they’re
good at, but this leads to specialization. Each economy specializes at
what they are good at. E.g. pharmaceutical drugs It costs about 500
million dollars to manufacture a new drug. The research and
development probably took place in the U.S, the testing probably took
place in Asia or South America, the manufacturing probably took place
in the U.S, the financing probably happened in the UK or the US or
Hong Kong, the packaging probably happened in China, etc. etc.
Productive efficiency. As long as we specialize at what were good at, we
will be efficient and the world will end up divided by specialization
www.notesolution.com

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Description
January 31, 2011 Lecture 15: How the rest got rich Political Economy 101 Last lecture, the west got rich through a set of values. Todays lecture says getting rich has less to do with people and more to do with structure. Hong Kong is the freest economy in the world it is the most capitalist. There are three pillars to the Hong Kong economy: 1. Tourism, 2. Business services, 3. Logistics management. These aspects are all extremely efficient. 17 Century Dutch Hegemony th In the 17 Century, the Dutch are the strongest economic power in the world. At the end of the 16 century the Spanish economy begins to decline. The Dutch economy rises and it is the most multicultural. Amsterdam was the most multicultural city in the world and people all lived together in the interest of commerce. This brought global knowledge and ideas into one place. Industrial Innovation -- This was before the era of steel. The Dutch had their famous windmill technology and the sawmill was created creating a basis for an industrial economy. Amsterdam was the center of modern finance. Amsterdam had the first stock exchange and first bank of commerce. Dutch East India Trading Company first Multinational Corporation. th Dutch economy was based on trade. The 17 Century was the first time that large-scale international trade was present. Trade routes were crossing the seas to all other continents. The invention of the Flute ship this was the ship that was used by the Dutch throughout the 17 century. This particular ship was very significant. It was cheaper to make because of wind power and mechanized sawmills. The Flute ship required less manpower and the hull of the ship was very shallow allowing the ship to make port in inland ports and other ports that deeper hulled ships could not go to. Because it had a shallow hull and because the hull was rounded, it had an increased cargo capacity (30-50% greater than any other ships at the time), the Dutch outdid the British. Market Principle www.notesolution.com
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