Before we jump into discussions of ideology and the material of Unit II, let’s talk about how we’re conceptually going to approach learning about economic systems. In other words, let’s take a look at what we might call a “topical road map” to economic systems.
Speaking as a professor, I’ve always found that one the great challenges in teaching comparative economic systems is that the topic, an economy, is indeed a system. This means that everything fits together and all the parts and processes affect everything else. Which, in turn, means there’s no clear starting point. Most courses have an obvious starting point. In a history class, start at the beginning and go forward. Other classes, like math or computer programming, can start with a simple task and then gradually make it more complex. But when it comes to economic systems, there’s no clear starting point. This means we just have to pick a topic, start there, and move on to gradually build up an understanding of the whole structure or system. Let’s look several common ways the topic of comparative economic systems is divided and then I’ll explain how we’ll approach it. Typically authors or professors divide the course/topic according to types of countries, structural aspects of the system, or processes that influence the economic system. Let me briefly explain what this means.
Types of Countries: First, Second, and Third Worlds and the BRIC
The Comparative part of Comparative Economic Systems means we compare the economic system of different countries. Each country is unique and there are nearly 200 of them in the world today. But researchers have often categorized all the countries in the world into 3 groups. These groups have historically been called “First World”, “Second World”, and “Third World”. This terminology started in the mid-20th century at the beginning of the Cold War between the U.S. and the USSR. The definition of who is in which group though has changed. Historically, the “First World” meant those countries who were allied with the U.S., U.K, France, and the other non-communist victors of World War II. It meant what at the time was also referred to as “the free world”. In practical terms, it meant the rich free world. Eventually the term “First World” became synonymous with “developed, fully industrialized, and rich”. This is the meaning it has today. The “First World” today is the rich industrialized countries: the US, Canada, the UK, western and northern Europe, Japan, and Australia. The more politically correct term today is now “Industrialized Nations”.
The “Second World” historically referred to those nations that were aligned politically with the USSR during the long Cold War from 1948-1991. Many of these countries, such as Russia, Poland, and Hungary were heavily industrialized with relatively high incomes (although lower incomes than the First World). But the “Second World” also included countries that were not very industrialized at the time such as Cuba, China, and North Vietnam. When the Soviet Union collapsed in 1989-91, the term “Second World” lost it’s meaning. Since then, the idea of a “second world” of nations has been shifted from Soviet-aligned nations to those nations who are growing rapidly and heavily industrializing (or re-industrializing). The big nations in this group of “Newly Industrialized Countries” are China, India, Russia, and Brazil. Taken together these four nations are also sometimes called “BRIC” (the first initial of each country). There are others in this “Newly Industrializing” category, but the BRIC countries dominate our thinking.
Finally, there is the “Third World”. This term originally meant those countries in the world who were not politically aligned with either the US or the USSR. Typically, these countries were poor and not very industrialized. Again, as the Soviet Union collapsed and the Cold War ended, the meaning of “Third World” shifted. It now refers to the large number of very poor, non-industrialized nations in the world.
Structural Aspects of Economic Systems (the Four I’s)
Another way to analyze an economic system is to look at how it is structured. Systems (and countries) differ according to what I call the “four I’s”: Ideology, Integration, Industrialization, and Institutions. Ideology is primarily the question of what role government is to play in the economy and how the basic economic questions are to be answered. Integration refers to how trade happens. Does the country trade with others? What does it trade? Under what terms? Why? Industrialization is closely tied to the level of development in the economy. In other words, how do people produce goods? How many goods? What is the standard of living? Is it changing? Why? Institutions refers to the organizations, processes, procedures, and laws that a nation has that affect the economy. For example, what laws govern contracts and exchange? What rights do buyers, workers, sellers, lenders, or borrowers have? How are these rights enforced? What organizations exist? How are these organizations governed?
Again, economies are systems. This means that Ideology in a particular country helps to influence and create the institutions the nation has. But the nation’s institutions also affect the evolution of its ideologies. The prevailing ideology and institutions will determine the degree of trade and integration and industrialization. But industrialization and trade will in turn affect institutions and ideology. Change is a chicken-and-the-egg problem. Major crises happen when conflict between these structural elements emerge. For example, when the Soviet Union collapsed in 1991, the prevailing Ideology changed dramatically. Communism and central planning were out, markets were in. But Russia (successor to the Soviet Union) lacked the institutions to support free-markets. Laws to enforce and protect contracts and property rights were missing. The result was severe crisis.
Taken together, Ideology, Institutions, Integration, and Industrialization constitute a country’s economic system. We could simply compare and contrast the differences between countries and identify patterns of economic systems. But that leaves us with a shallow understanding. We wouldn’t know why countries had such different economic systems. To understand why, we need to also look at the primary influences or trends that affect Ideology, Institutions, Integration, and Institutions. We now start to leave the realm of pure economics and cross-over into other fields. I see four major types of outside forces and influences on economic systems: Politics, History, Culture, and Technology.
Road Map for Our Intellectual Journey
As you can see, there are several different ways I could logically divide the course. To illustrate, I’ve created this diagram. You can think of it as a blueprint for understanding or comparing economic systems. As befits a system, it’s circular with no clear starting point. We could pick any particular block or arrow, start there, and then explore the others and the various inter-relationships.
For this course, I’ve chosen to view this as a clock-face and start at one-o’clock. This means we’ll be starting with Ideology in Unit II. To understand the role of Ideology in an Economic System and to compare different Ideologies, it’s convenient to study the history and politics of the First World, or Industrialized countries. In Unit III we will move on and focus on questions of Integration and trade. The Newly Industrialized Countries of the BRIC make an excellent focus for that discussion. We will introduce how both history and culture affect the degree of integration and rapid growth in a country. In Unit IV we will move on to questions of poverty, wealth, and living standards. These are issues related to industrialization and the lack thereof. So we will focus on The Third World, Industrialization, and Development then. Poverty and industrialization are often the result partly of history, but also culture and technology. Finally, in Unit V we will shift our attention to Institutions. In particular, we will focus on how politics and technology are interacting to create new challenges and new issues in the 21st century. Examples of these new challenges are environmental challenges and multi-national corporations.
The Journey begins on the Next Page with a look at Ideology, Politics, and History in the First World.