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SOC 2280 (11)
Chapter 8

Chapter 8 Summary (First half only)

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SOC 2280
Mark Juhasz

Chapter 8 Transforming Structures: Markets, Politics and Policy The chapter opens with two Case Studies 1 – Curitiba, Brazil- in 1973, mayor Jamie Lerner paid people for their garbage. She also gave tokens in exchange for food, in order to clean up the slums (known as favelas) 2 – Southern Mexico – Zapatista National Liberation (rebels) vs the government. The ‘rain forest rebels’ wanted to save what remained of the rain forest in southern Mexico. They declared war in 1994, while the government had just signed the North American Free Trade Agreement (NAFTA). No real reforms were made. Both deal with Structural Change. Markets - humans have needs and those needs are provided by the earth’s resources - investors, producers, sellers and buyers are all a part of the economic market - ex of a market : old times & less developed countries are prime ex of small markets; the competition is right next door and clearly visible, easy to compare product quickly, prices can be haggled - Now; not traditional but abstractions to represent the interaction among the costs of production, the asking price and the price consumers are willing to pay for goods and services - Real economic values (prices) are determined by the interplay of supply and demand - Markets send realistic signals : you see the actual economic value of goods and services, and the work put in with the prices people are willing to pay - Neoclassical economic theory views markets as primarily as structures to allocate values, it emphasizes that many human problems can be understood as market problems and failures - Resources are limited - you get what you pay for and you lose what you don’t pay for. - Neoclassical economic theory is embedded in an intellectual Resource Allocation Paradigm of the human world.  It argues that producers and consumers respond to changing relative incomes, prices, and external constraints SO if market signals are allowed to reach individuals and market prices include all the social costs and benefits of individual actions Market Failures - Some reasons why markets don’t always work is because not all resources are owned or used in the same manner 3 categories : 1 – private property resources (owned and used by individuals), > eye to long term sustainability > ex : clothing and cars 2 – common property resources(people have virtually free and unrestricted access) > not owned by individuals > few incentives exist to manage or pay for upkeep because of few existing incentives for managing them > common-property resources : air, water, biological resources 3 – public- property resources > jointly owned by all people of a country, state or local community > ex : national and state forests, beaches, parks, and rangelands - Social institutions can also be understood as resources restricted from private ownership - Air and rivers have been polluted, fishing grounds depleted and water is down and because they are all controlled by the government, rights of access to timber, minerals, grazing land, and energy resources are often priced far below what they would be if they were all treated as private property resources - no real economic reason to preserve them More problems … - Externalities are another problem Externalities : someone pays the full cost of production and consumption but they are not calculated into existing marketing price. Individuals are not involved in buying or selling a good may be affected. - Externalities may be a tax on you or others (in the future) - Governments often impede the market by providing price regulations or creating a sort of quasicommons (public-property resource) from what COULD be privately owned. - Those favours can lead excessive, uneconomic and environmentally destructive production - Cost Accounting problems exist. - The accounting problem is intense when there is a dilemma of consuming something now and saving for the future - Neoclassical economist usually discount the future and that consuming now is of greater economic value Environmentally Perverse Subsidies and Market Incentives - One needs to understand the powerful and pervasive ways the government interventions distort markets in most nations, they actively encourage private and public decisions that stimulate unsustainable resource use and environmental degradation - Mechanisms of intervention include tax and fiscal incentives, pricing, marketing policies, and subsidizing the currency exchange rate - Energy subsidies usually favour large supply projects but undermine funding for innovative and renewable energy development; some subsidies underwrite the development of coal, oil, and natural gas while ignoring the fact that they pollute - Canada heavily subsidizes its forestry sector - Agriculture provides the clearest cases of perverse subsidies - The entire food cycle in North America, Western Europe and Japan attract huge direct or indirect subsidies - Such subsidies send farmers more powerful signals than do the small grants that support soil and water conservation - They encourage farmers to cut forests and use pesticides Transforming Market Incentives: Green Taxes and Owning the Commons (p.320) How could markets be reformed to produce a more sustainable economy and society? - Invert the old system of taxes and subsidies to internalize the full costs of doing business and reassign them to the marketplaces - Green Taxes - The purpose of green taxes should NOT be to increase total government revenues, they should be to provide all participants in markets with accurate information about full costs - Contrary to intuition, the more costly the price of energy resources, the greater the technological innovation and economic growth - There are proposals that exist & deal with externalities and common problems Should a piece of air belong or be “owned” by someone? - With some ingenuity, quasi-markets could in fact be created where none exist. Ex: proposals to measure industrial pollutants New Measure of Economic and Social Progress - The economic health of nations is usually measured in terms of changes in the total value of all goods and services bought, a measure called the gross national product (GNP) - Economists also use the real GNP, which is adjusted for inflation, or the GNP per capita, which is the GNP divided by the number of people in the population: this calculation ignores the fact that the real world wealth is not evenly divided within the population - Sometimes they use a measure called the gross domestic product (GDP), which factors out the value of imported goods and services - - The United Nations developed a Human Development Index, which combines economic and social indicators to estimate the average quality of life in a country Rational-Choice Theory and Hu
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