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G. The issue is how to develop a balance between states and markets that promotes
the best qualities of markets, such as innovation and productivity, while avoiding
their worst effects, such as instability and inequality
X. IN-DEPTH: INDIA: FROM STATES TO MARKETS
1. High tariffs that limited imports in order to protect domestic producers from
2. Public ownership of major industries including steel, power, and
3. Heavy regulation of industry through licensing that would give the state
control over investment, competition, prices, technology, and labor policy
B. India abandoned statist economic policies in the wake of the economic reversals
that it suffered in the 1980s
4. India welcomed foreign trade and investment
4. More than 60 percent of all Indians derive their livelihoods from agriculture,
an economic sector that experienced little growth
D. In sum, reforms improved the life chances of urban Indians but increased rural-
urban inequalities
XI. COMPARATIVE POLITICAL ANALYSIS: DOES GLOBALIZATION HELP OR
HURT WORKERS IN THE DEVELOPING WORLD?
1. Does globalization contribute to or compromise workers’ rights in developing
countries?
2. Critics of globalization say it leads to a “race to the bottom” that represses
3. Supporters of globalization say it contributes to workers’ rights by attracting
companies that bring their best practices with them and care more about the
quality of their labor than its cost
B. Methods and hypothesis
1. Mosley and Uno hypothesize that the impact of globalization on workers
depends on the way countries participate in global production networks
2. Workers will benefit when countries attract more foreign direct investment,
but they will suffer when countries engage in more trade
a. Foreign direct investment is benign because multinationals urge
governments to improve infrastructure and the skills of the native
workforce
121
b. Trade compromises workers’ interests because low wages are key to
increasing exports and winning business for local subcontractors
C. Operationalizing concepts
1. The authors operationally define workers’ rights, their dependent variable, by
counting the number of labor rights violations that countries committed from
1985 to 2002
2. They operationalize one of their independent variables, foreign direct
investment (FDI), by looking at annual changes in FDI and the overall level of
FDI as a percentage of GDP
3. They operationalize their other independent variable, trade, by looking at the
ratio of imports and exports to GDP
D. Results
4. Workers’ rights in developing countries that attracted foreign direct
investment, but deteriorated in countries that engaged in more open trade
5.4 Identify the shortcomings of market systems.
Video: Tony Blair MP (Prime Minister) speech at the launch of the Stern Report into climate
change
5.5 Summarize the historical swings in the balance between states and markets.
Reading: Brazil Focuses on Cost of Welfare as Growth Slows
5.6 Define globalization and evaluate whether it contributes to or thwarts the Good Society.
Case Study: IMF Ireland
Video: G20 countries need to boost resources from the International Monetary Fund
122
Multiple Choice Questions
1. Which of the following is true of market systems?
a. In market systems, business activity is coordinated by the state.
b. Market systems work better in the absence of states.
c. Market systems ensure an equitable division of goods.
d. In market systems, production is for profit.
to work and are alternatives to them.
Topic: States and Markets
Difficulty Level: Easy
Skill Level: Understand the Concepts
2. In pre-modern times, most economic production took place in:
a. open marketplaces.
b. large, urban factories.
c. the household.
d. small public shops.
Answer: c
Learning Objective: LO 5.1: Distinguish between state and market systems for producing
and allocating goods and services.
Topic: Introduction
Difficulty Level: Moderate
Skill Level: Remember the Facts
123
3. Which of the following actions constitutes an effort on the part of the state to regulate the
extensiveness of the market?
a. regulating access to the radio spectrum
b. maintaining roads, bridges and other infrastructure
c. imposing high taxes on imported goods
d. prohibiting the sale of body parts
Answer: c
Learning Objective: LO 5.1: Distinguish between state and market systems for producing
and allocating goods and services.
Topic: Introduction
Difficulty Level: Moderate
Skill Level: Apply What You Know
4. The relationship between states and market systems is best understood as:
a. market systems are a natural phenomenon independent of states.
b. states are inherently threats to market systems.
c. states are about rules and compulsion while markets are about choice and individual
expression.
d. market systems require states to function.
Answer: d
Learning Objective: LO 5.2: Explain how economies that rely on markets require states
to work and are alternatives to them.
Topic: States and Markets
Difficulty Level: Moderate
Skill Level: Understand the Concepts
5. According to economist Joseph Stiglitz, the defining political question of our age is the
struggle between those advocating __________ and those advocating __________.
a. radical Islam, democracy
b. authoritarianism, democracy
c. state-owned firms, free markets
d. a minimalist role for the state, a greater need for government
Answer: d
Learning Objective: LO 5.1: Distinguish between state and market systems for producing
and allocating goods and services.
Topic: Introduction
Difficulty Level: Easy
Skill Level: Remember the Facts
124
6. Historian Niall Ferguson argues that London, rather than Paris, emerged as the epicenter
of world capitalism in the eighteenth century because:
a. it had better access to major sea routes.
b. England was a protestant country with a strong protestant ethic while France was
Catholic.
c. England had more coal and iron ore needed for industrial development.
d. England had rules more supportive of markets.
to work and are alternatives to them.
Topic: States and Markets
Difficulty Level: Difficult
Skill Level: Remember the Facts
7. Austrian economist Joseph Schumpeter coined the term creative destruction to:
a. describe how market systems progress by developing new products that sweep away
old products.
b. condemn the harmful effects of capitalism in Europe.
c. celebrate the achievements of capitalism in Europe.
d. persuade governments to take a more active role in the economy.
Topic: The Advantages of Market Systems
Difficulty Level: Moderate
Skill Level: Understand the Concepts
8. Why are market-based economic systems more dynamic—better able to adjust to the
changing needs of society—than planned economies?
a. Market-based economic systems encourage entrepreneurs to produce a wide variety
of goods and services based on consumer demand.
b. Market-based economic systems empower political leaders to allocate goods and
services in a manner that accounts for society’s changing needs.
c. Market-based economic systems guarantee that the people will have the ability to
change society through the ballot box.
d. Market-based economic systems are not more dynamic than planned economies.
Topic: The Advantages of Market Systems
Difficulty Level: Difficult
Skill Level: Understand the Concepts
125
9. The collapse of housing prices in 2007–2009 illustrates that:
a. market systems drive less-competitive firms out of business.
b. market systems are prone to economic booms and busts.
c. market systems generate great income inequality.
d. market systems are not as productive as planned economies.
Topic: The Dark Side of Markets
Difficulty Level: Easy
Skill Level: Apply What You Know
10. The coexistence of a market system and a communist government in China shows that:
a. the market system has weakened authoritarian rule in China.
b. market systems cannot function in authoritarian political systems.
c. market systems are no guarantee of democracy and personal freedom.
d. democracy is more likely in countries with market systems than those with planned
economies.
Topic: The Advantages of Market Systems
Difficulty Level: Difficult
Skill Level: Apply What You Know
11. Political economy can be defined as:
a. the balance between political and market forces within an economy.
b. the balance between too much and too little government regulation.
c. an economy with too much political control.
d. a political arrangement that leaves most of the power in private hands.
to work and are alternatives to them.
Topic: States and Markets
Difficulty Level: Moderate
Skill Level: Remember the Facts
126
12. Following World War II, the balance between state and markets:
a. shifted in favor of state intervention.
b. shifted in favor of free markets.
c. was made irrelevant by new modes of international cooperation.
d. was largely the same as it was before the war.
states and markets.
Topic: The Shifting Balance Between States and Markets
Difficulty Level: Moderate
Skill Level: Remember the Facts
13. Developing countries in Africa and Asia adopted planned economic systems in the 1950s
and 1960s in order to:
a. leverage the profit-motive to encourage productivity and development.
b. bring modern industry to traditional agricultural areas.
c. gain access to U.S. and other Western markets.
d. balance their budgets and reduce government spending.
states and markets.
Topic: The Shifting Balance Between States and Markets
Difficulty Level: Difficult
Skill Level: Understand the Concepts
14. The driving force behind greater state intervention in the economy after World War II
was:
a. businesses hoping to benefit from more state expenditures.
b. working-class voters.
c. political parties seeking voters.
d. the executive branch of government seeking more power.
states and markets.
Topic: The Shifting Balance Between States and Markets
Difficulty Level: Easy
Skill Level: Understand the Concepts
127
15. In the 1970s and 1980s, critics of high levels of state intervention in the economy blamed
slow economic growth and high unemployment on a number of factors, including:
a. low tax rates that contributed to economic inequality.
b. deregulation that made it easy for businesses to push spillover costs onto the public.
c. cuts in government spending that made it harder to address social problems.
d. welfare policies that discouraged people from working.
states and markets.
Topic: The Shifting Balance Between States and Markets
Difficulty Level: Difficult
Skill Level: Understand the Concepts
16. One way of testing the hypothesis that high welfare state spending caused slow economic
growth in European countries in the 1970s would be to:
a. use average total welfare spending in each country in the 1970s as the independent
variable and average GDP growth rates as the dependent variable.
b. use average GDP growth rates in the 1970s as the independent variable and average
welfare spending as a percentage of GDP as the dependent variable.
c. use average GDP growth rates in the 1970s as the independent variable and total
welfare spending in each country as the dependent variable.
d. use average welfare spending in the 1970s as a percentage of GDP as the independent
variable and average GDP growth rates as the dependent variable.
states and markets.
Topic: The Shifting Balance Between States and Markets
Difficulty Level: Difficult
Skill Level: Apply What You Know
17. The shift toward greater support for markets from the 1970s through the 1990s resulted
in:
a. significant declines in the level of state activity.
b. significant contractions in the size of state budgets.
c. significant reductions in welfare states.
d. new types of regulations that encouraged competition.
states and markets.
Topic: The Shifting Balance Between States and Markets
Difficulty Level: Moderate
Skill Level: Understand the Concepts
128
18. What impact did the global recession that began in late 2007 have on public opinion?
a. The public blamed state institutions for economic failures and public support for state
intervention plummeted.
b. The recession had little impact because the public was largely uninformed about the
global recession.
c. The public became more skeptical of the private sector and more supportive of state
regulation.
d. The impact was varied, as the American public was more supportive of markets but
Europeans were more supportive of government intervention.
states and markets.
Topic: The Shifting Balance Between States and Markets
Difficulty Level: Moderate
Skill Level: Understand the Concepts
19. The policy reforms put in place in India in the 1980s:
a. nationalized key industries.
b. redistributed income from the wealthy to the poor.
c. made it easier for entrepreneurs to start a business.
d. closed the subcontinent to foreign investment.
states and markets.
Topic: The Shifting Balance Between States and Markets
Difficulty Level: Moderate
Skill Level: Remember the Facts
20. The case study examining the impact of economic reforms that took place in India in the
1980s found that:
a. privatizing nationalized firms led to more efficient use of national resources and
faster growth.
b. increasing government licensing requirements protected consumers from shoddy
goods.
c. increased tariffs encouraged foreign competition and made domestic firms more
competitive.
d. economic deregulation had mixed effects, depending on whether someone lived in
urban or rural India.
states and markets.
Topic: The Shifting Balance Between States and Markets
Difficulty Level: Difficult
Skill Level: Apply What You Know
129
21. The extent to which globalization benefits most people in a state or only some depends
on:
a. the state’s institutions and governing coalition.
b. the state’s natural resources.
c. the level of openness to foreign trade and investment.
d. the level of taxation and government spending.
or thwarts the Good Society.
Topic: Globalization
Difficulty Level: Moderate
Skill Level: Apply What You Know
22. The difference between foreign direct investment and foreign trade is that in foreign
direct investment, a company:
a. sets up offices outside its home country to manage sales in foreign countries.
b. sets up production facilities outside its home country in a foreign country.
c. hires citizens of another country to sell its products in that country instead of using
citizens from its own country.
d. allows nationals of a foreign country to buy its stock.
or thwarts the Good Society.
Topic: Globalization
Difficulty Level: Moderate
Skill Level: Understand the Concepts
23. The concept of a “global production chain” refers to:
a. increasing foreign investment in less-developed countries.
b. increasing foreign trade among developed and less-developed countries in recent
decades.
c. the phenomenon of different steps in the manufacturing process of a product such as a
Barbie doll taking place in different countries.
d. Chinese, or other foreign workers, making blouses for U.S. companies such as the
Gap.
or thwarts the Good Society.
Topic: Globalization
Difficulty Level: Easy
Skill Level: Remember the Facts
130
