A1.

The defining features of capitalism and socialism along he three key analytical
dimension and how they are different
● Capitalism vs. Socialism:
1. Ownership of Means of Production - Means of production is the capital with which you
can produce goods / services. For example, this would include the land that your factory
is built on, it would also include the factory equipment, and it would also include the
employees that work together
■ Private Property (capitalism) is mostly indicative of wage laborers and the
employer largely has the most say on whether to fire or keep an employee.
■ Public/Collective Ownership (socialism) labor unions because they protect
the workers and have more bargaining power with the property owners. In
an extreme example, the employer would have no say as to which
employees work for them. Socialist countries have protections against
firing employees. One example is in France, there are very strict rules on
the notice that is given.
2. Allocation of Goods & Services - Being able to enter a competitive market. Markets are
competitive so that any individual could start a business. If an individual sees that they
could offer the goods for a lower price, a collective planning economy would not allow it.
Decision-making authority is not up to the individual business owner.
■ Market Competition (capitalism) the prices of goods are determined
through a competitive market. For example, supply and demand. Some
bad things such as price gouging in which case the supply is very low or
the demand is very high and the person selling the goods will increase the
price tremendously. Think toilet paper during the pandemic. Largely, the
government has very little (if not zero) say in how things work with prices
and the amount of goods created, etc.
■ Collective planning (socialism) within the socialist model… certain
actors/people restrict access to markets and try to ensure that through
planning/policies, there is the right amount of goods. One car brand for the
country. Example, one of China’s more communist policies today is that
for every car that is imported and sold in China, they must sell the
equivalent Chinese car.
3. Labor - net seller of labor, service that you can give and you need a certain set of skills,
those skills can be something you specialize in, things you learn in education, human
capital
■ Wage labor (capitalism) the market decides and you, the laborer, primarily
decide. The laborer and the market determine which practice area you will
join, which job you will take, and how many hours you will work. It is
determined by the market because the market determines the going price
for labor. The price of labor which either incentivizes or disincentivizes
people to join certain markets.
■ Distribution by need (socialism) the central planning committee
determines your wage, determines you vacation time, determines which
 industry you are employed in, determines where you work, and this is all
allocated based solely on efficiency.
A2: The primary subtypes of capitalism and their distinguishing features → Understand
why the Great Depression of the 1930s led to new forms of state intervention in economic
affairs including the Keynesian New deal in the US → more statis development models such
as important substitution industrialization in Latin America and social democracy in
northern Europe
Types of Capitalism:
1. Liberal/free market model - U.S. free market capitalism (neoliberalism)
a. AKA neoliberalism
b. Ex: Reagan was a big advocate of free market capitalism… if you just let airlines
do whatever they want to do, they will decrease prices and be more competitive. It
will let more people enjoy the experience of flying.
i. The second point: if there are outside factors/external actors in controlling
this, it stops that from occurring.
ii. Government regulations were viewed as extremely inefficient and the
market was viewed as efficient, a perfect way of regulating industries. A
good way to describe limited government intervention is the invisible
hand.
c. Prevalent in the US, GB, and Latin America (Chile)... it was largely fueled by the
Cold War and seeing communist/socialism fail in the USSR
2. State-led capitalism (developmentalist states) →
a. an economic system in which the state undertakes business and commercial
(i.e., for-profit) economic activity and where the means of production are
nationalized as state-owned enterprises
i. Ex: In China and Russia, it is when the government plays a rather active
role in the economy and controls it, but there are a lot of free enterprises
that can still operate under capitalism. The reason behind this is that when
economies are starting to develop, develop in a more protectionist way and
by doing so, prices will stay up and the economy will flourish by allowing
these companies to grow instead of being immediately destroyed by
foreign competition. Example (Samsung)
b. Japan, South Korea, Taiwan, Singapore, China, Latin America in 1930s & 1970s
3. Social Democracy (redistributive welfare states) - Scandinavia →
a. Social democracies generally have very progressive tax systems that tax the rich a
lot more heavily so that they could distribute the wealth through state programs.
b. Ex: Scandinavia → redistribute their resources (avoided the resource curse)
c. Ex: In Norway or Denmark, texting and driving is a percentage of your income,
not a flat fine.
Great Depression:
The Decline and Revival of Economic Liberalism in the 20th Century
d. Great Depression (1930s): Liberalist policies are now not viewed as the best. The
US takes an interventionist/protectionist approach.
i. Ex: New Deal under FDR & Keynesian Economics
1. Keynesian Economics → wages and prices are sticky (society
doesn’t just jump back up when things get better) and therefore,
the government should take an active role in bettering the wages
and the economy so that people could then get back on their feet. It
will not get better without government intervention.
ii. Heavy reliance on the state to stimulate demand, to pull the US out of the
recession, to provide a social safety net, to regulate the economy
1. Regulate Economy:
a. Fiscal: taxing & spending
b. Monetary: interest rates, printing money, buying/selling
bonds
e. This trend continues until the 1970s with Reagan and the rise of neoliberalism
i. Neoliberalism: free market economics with no government intervention
and government regulation is seen as extremely inefficient… so we begin
to see deregulation.
ii. Began in response to the economic hardships and inflationary pressures of
the 1970s (Volker)
Social Democracy in Northern Europe:
● Classic Liberalism
○ Industrial Revolution → free trade benefits England and Holland in the 18th 19th
century → send their manufactured goods around the world in exchange for raw
materials
■ No worker rights, workers were truly treated as a cost of production. They
were equivalent to any other capital… wood, metals, etc.
○ US, Germany, Japan → because they can’t compete with England on free trade,
they begin to institute protectionist policies (ex: tariffs, quotas) → this is mainly
used to play catch up. When you are a developed economy, you want to rely on
the free market.
■ Germany & Japan: relied on the state to mobilize capital to invest in
industry… because these countries were behind England in the industrial
revolution, they relied on the state to invest and catch up.
■ Singapore: govt investment to compete on the world state
■ Samsung TVs
Core Elements of the Liberal Model (Economic Liberalism - neoliberalism):
Neoliberalism → Satis Development Model
1. Overwhelming predominance of private property:
a. The idea is that private property must be protected so that when you work and
earn money, you can put that money into your private property and it will be
protected from thieves.
2. Emphasis on free trade:
a. whoever can produce good x at the lowest price should get good x at the lowest
price regardless of where it is located. So, if South Korea makes the cheapest TV
through Samsung, then US companies that make it more expensive should go out
of business and the US should import Samsung TVs.
3. Free labor market:
a. the government, labor unions, etc. do not interfere with an employer's contract
with the employee. This contract is completely negotiable and the employee is not
required to fulfill it as long as the employee follows the procedures in the
contract.
4. Limited Government:
a. the government is not involved in the economy and the economy is solely
controlled by the invisible hand

The role of the state in Neoliberalism in a strong and effective state:

1. Protect private property:
a. If you are rewarded based on the number of hours you work, your only incentive
to continue working is the money you earn. So, working that extra hour will give
you an extra $50 of something. That something will be used in your house or on
your property to improve. If that something will not be protected, there is no
purpose in putting in that extra hour.
2. Enforce contracts: free labor markets.
a. They will only function if the contract between the employer and the employee is
protected. Once you are specialized and you’re working, you must contract with
other people to get the goods you need that you can’t otherwise get because
you’re at work. So, every time you place an order at Wegmans to go pick up food
because you were not farming while at work, that is a contract. If that contract is
not enforceable, then you will not get food.
3. More controversially, correcting market failures:
 a. During the pandemic, we had the government give out stimulus checks. Today on
the news, all you hear about is how the government is either increasing or
decreasing interest rates to combat inflation and a pessimistic economy. For
example:
i. provide public goods that are undersupplied by the market– such as basic
infrastructure, education, national defense– and health care??
ii. prevent the rise of monopolies that distort markets (i.e., antitrust laws)
iii. avoid negative externalities that are not priced into markets (such as
pollution, environmental destruction or climate change)
iv. provide a social safety net for individuals who cannot support themselves
in the market (the elderly, those with disabilities or major illnesses, etc.)
A3: How social democracy in the Nordic countries represented compromise between
capitalism and socialism with its mixed economy, redistributive social policy and emphasis
on universal forms of social citizenship under welfare states

Nordic social democratic model

- They summarized the social democratic model as being based on "the principle
of universalism, granting access to benefits and services based on citizenship.
Such a welfare state is said to provide a relatively high degree of autonomy,
limiting the reliance on family and market

1. The Social Democratic Compromise - Berman

a. Europe’s marxists and socialist traditions began after pure free market
industrialization
i. Political parties with strong ties to labor unions and deep roots in class
cleavages → People who are working their jobs are influencing policy.
People who otherwise had no voice now can speak through labor unions
and get elected to Congress. Changes include limiting working hours,
setting minimum wages, and minimum ages.
2. 20th century two fundamental compromises:
a. 1) Broke with Marx’s Faith → social democrats compromised… did not advocate
for a full communist revolution in UK, but they gradually adapted these socialist
policies to the institutional constraints of liberal democracy.
i. Institutional Constraint of Liberal Democracy: There is no reason to
overthrow the liberal democracy of England. They decided that it would
be enough if the people elected labor-friendly politicians and these
politicians passed labor-friendly laws.
b. 2) backed away from earlier commitments to fully socialize the means of
production… idea that, initially, it was very Marxist/Socialist… but now you have
an injection of capitalism (private property) → introduction of a mixed economy.
Compromise (“mixed economy”)
 i. Social Democracy was established in Sweden and Norway in the 1930s.
Much milder policies than the USSR but not as mild as the US under
FDR’s New Deal.

3. Politics of Redistribution under Social Democracy:

a. Rather than socialize the means of production, they left farms and factories in
private hands (the whole idea of Marx was to socialize and have no private
ownership). They then taxed these farms and factories very highly to then
redistribute surpluses through diverse social programs
i. Initially → focused on workers → unemployment insurance, disability and
old-age pensions, public education, health insurance, job training, etc.
ii. Later → focus on women and families: family leave policies, child care,
preschool, etc.
iii. National Economy → state-mediated “corporatist bargaining”
● Corporatist bargaining: national labor and business confederation
→ increased level of labor unionization
4. Guiding Principle of Social Democracy: Social Citizenship
a. Beyond the right to vote →
i. citizens now are sort of arguing that they have certain rights to social
goods and services
ii. Right to education, health care, housing, parental leaves, etc.
iii. Universalist logic to social program → everyone receives them and that it
is very different from a liberal or “residual” welfare state
iv. A residual welfare state limits “benefits” only to the poor… whereas in a
socialist state, everyone gets free education, no matter how wealthy they
are.
v. It just goes to the point that this is a right as opposed to a government
handout. This is something that everyone deserves and should be as
protected as the right to free speech, the right to vote, etc.
vi. It is seen as an extension of the democratic principle of equality from the
narrow political sphere to a broader range of social and economic relations
vii. We used to view democracy as Dahl’s Procedural Minimums. But today,
we are starting to have a sense that democracy is more than procedural
minimums. It is the right to education, the right to health care, etc.

A4: How demographic, ecnoimc, and potlical pressures challgned welffare states after the
1970s
Welfare States Under Pressure: Demographic, Economic & Political
b. Demographic pressures:
i. Aging populations → people are living longer so they need social security
for longer years
ii. Declining birth rates (below the replacement rate) → not enough people
paying taxes into social security so the state cannot afford social security
 iii. Declining ratio of active workers to retirees → young people are entering
the workforce a lot later. Young people are starting to work later (maybe
it's because of college). Old people that are retiring earlier than they used.
We now have an economy that is largely dependent on immigration labor
because there are less workers than there were today
c. Economic Pressures:
i. Rising cost of health care & education → It’s just expensive. Note that
education is now giving a lot less return on your investment. If before, you
graduated college and you could afford a house. Today, many people
graduate college and cannot even apply for a loan to buy a house because
they drowning in student loans
ii. Globalization & market constraints → (1) Financial liberalization as part
of the neoliberal reforms… easier for the flow of capital and you can store
it in off-shore tax havens so it is harder for the government to tax capital.
(2) growing international competition in trade… companies can now
produce a product with very cheap labor or cheaper inputs and
immediately ship it across the world. This makes it harder for the US
economy, for example, to continue its growth when companies in China,
for example, are producing cars at a fraction of the cost.
d. Political constraints on welfare states:
i. Weakening of organized labor in many countries → many people went
into politics to protect unions and laborers. However, this has significantly
decreased overtime and you’re starting to see employers make contracts
that somewhat discourage protections towards employees
ii. Political backlash against high levels of tax → Bernie Sanders is not super
popular and does not win the nomination. While many believe taxing the
rich is good, it is not a popular platform to run on in the US because
candidates rely on donations from the wealthy.
iii. Stepan & Linz in the US → political institutions with multiple veto points
where reforms can be blocked… these institutions that restrain popular
majorities and empower minorities opposed redistributive reforms
● In the US, the way we constructed our government, it is very
difficult to get anything done without going through many many
checkpoints… think of these checkpoints as the Senate, the House,
the President, etc.
● If, at any level, something is unpopular and a congress member
worries about reelection, they won’t pass it.

A5: How colonialism created the international division of labor, and how this division
of labor changed with the rise of Japan and the adoption of import substitution
industrialization (ISI) policies in Latin America and East Asia. Know how East Asia and
Latin America responded very differently to the limits of ISI, and the key features of
export-oriented manufacturing in East Asia and neoliberalism in Latin America. What
conditions contributed to East Asia’s developmental success, in comparison to Latin
America?

1. States, Markets, and Development:

a. Modernization theory → social and economic development leads to political
democracy and stability
i. Neither economic development (china) nor free market (chile) necessarily
breed democracy
ii. Democratic regimes do not necessarily perform better economically
2. Unequal International Order:
a. Europe, followed by the US, is very prosperous → new changes to the world
order by increasing the economic success of East Asia and China.
b. Colonialism led to this divide → political institutions (ie. states) fostered
economic growth and took capital out of those countries into the West.
● Colonialism’s Most Durable Legacy: Intl division of labor:
○ 1492-1945 → European powers claimed control of Asia, Africa, and Latin
America… first globalization
■ Poor countries export raw materials and agricultural goods and cheap
labor
■ Rich countries produced the manufactured goods at a lower cost
● The Slave Trade:
○ Approx. 11-12 million slaves crossed the Atlantic
■ Brazil was single alrgest destination in global slave trade
■ Caribbean (owned by British, French, Dutch, and Spanish)
■ Others to British US/North America
● Japan → Outlier
○ Two centuries of relative isolation, and in 1853, the U.S. forced japan to open it
ports
■ Japan ends up on the right side and is able to become the first non-western
society to industrialize
● 1930s Great Depression is a turning point:
○ Collapse of free market economics → introduction of massive state intervention
to stimulate growth, this new social democratic economics in the Global North
○ Southern countries, which depended on the north to buy goods, ended up not
being able to sell those goods and their economies were ruined
■ Collapse of export revenues → less foreign exchange
■ Thereby, they adopted policies of import substitution industrialization
(ISI)
■ Economies started to develop and industrialize
● Logic ISI:
○ Challenging the post-colonial international division of labor
 ■ Increases the role of the state in promoting development → tariffs to
protect local industries, state subsidies, credits, and contracts to nurture
new industries.
■ In some cases, a greater role for the state in the provision of social welfare,
as well, especially for emerging urban industrial labor force → Cardenas
in Mexico and Peronism in Argentina
● From ISI to Export-Oriented Manufacturing:
○ East Asia and Latin America
■ 1960S & 70s, Japan and the NICS (“newly industrialized countries”) –
South Korea, Taiwan, Singapore, Hong Kong)
● Exploiting their new comparative advantage with cheap labor
● Created a niche in the global economy for low-wage manufactured
goods
○ Latin America
■ They decided to double down on ISI policies and prevented the
globalization of their economies and hence failed at becoming the same
export-oriented economies
● Manufacturing for Export: East Asia’s Developmentalist States
○ Injecting money into the economy and creating tariffs to protect manufacturing
sectors
○ State development agencies in strategic partnership with financial capital and
private firms → ie. building the interstate system, Amtrak is a private company
but employed by the government, COVID testing sites, etc.
○ Haggard and Evans called this “embedded autonomy”
Global Capitalism and the Rise of China and East Asia:
● PRE-INDUSTRIAL to fully industrialized economies in a single generation
○ Two types of capitalism:
■ 1) liberal/free market economics (U.S./Great Britain, and parts of Eastern
Europe after the fall of the soviet union)
■ 2) developmentalist state models (Japan, South Korea, Taiwan, Singapore,
and even China)
● East Asian Alternative:
○ State-led transition from ISI (late industrialization) to export-oriented
industrialization in the 60s
■ Globalization of manufacturing production, relocation of basic consumer
goods industries to low-wage countries → The New International
Division of Labor
■ State industrial policies promoted this new industry, technological
innovations, international competitiveness → provided loans, credit,
subsidies, etc.
■ Rapid shift to more technology-intensive industries → US infrastructure is
sort of dilapidated for this time in that you’re no longer needing these
 giant factories and suburban communities, really, you just need what East
Asia produces: electronics, steel, cars, ships, microchips, etc.
○ LIMITING FOREIGN INVESTMENT → the money would not leave the
country. If you are a foreign investor, you invest, and then the equity, you take
back to the country you live in. In East Asia, that wasn’t the case. The
government would force you to sort of reinvest the money back in the economy.
● Facilitating Conditions for East Asia’s Success:
○ East Asia had a lack of natural resources, so not highly integrated into the global
economy in the 19-20th century of extracting raw material → Japanese
colonialism in these countries actually encouraged industrialization
○ U.S. occupation after the war encouraged land reform in Japan, South Korea, and
massive U.S. financial assistance during the Cold War facilitated this
○ Elimination of the landlord class (impediment to industrialization in Latin
America → more egalitarian land ownership, social relations broadened the
domestic market for local industries, encouraged greater investment in human
capital → it became a comparative advantage → rising skill levels and technology
as opposed to just a reliance on cheap labor or natural resources
● Departure of ISI to Export Manufacturing in East Asia (while Latin America turned into
neoliberalism)
○ Export Manufacturing → creating finished goods and selling them at a massive
profit because they can since the Global North’s goods are priced even higher.
■ East Asia and Latin America both developed ISI policies post Great
Depression/WWII
■ 60s and 70s → Japan and other East Asia countries began to combine ISI
with an export-oriented economy
■ Latin America → doubled down on ISI, protected inefficient national
industries and they relied heavily on foreign debt
● This crisis set a massive setback for neoliberal reform to turn back
towards free markets 1980s
■ This began in Chile under Pinochet → following the overthrow of
Allende’s socialist government
● Core Elements of the Neoliberal Model (diffusion from Chile to the rest of Latin
America)
○ Privatization of state-owned enterprises
○ Free trade (drastic cuts in tariffs)
○ Liberalization of prices (no more price controls)
○ Liberalize exchange rates
○ Sharp cuts in state spending
○ Privatization of social programs (no more public education, no more social
security → or if there is, it is given by a private company making a profit)
○ More foreign investment in the country
● China - Hybrid Model (Sino-Capitalism):
 ○ Combination of state-led development from above, and decentralized private
entrepreneurial networks from below → massive change to the soviet experience
○ Gorbachev → combined political liberalization (glasnost) with market reforms
(perestroika) – end up with economic crisis and state collapsing
○ China, instead, adopted partial market reforms while hardening single party rule
under Xi Jinping → led to massive economic growth (NO POLITICAL
LIBERALIZATION IN CHINA)
○ Massive reliance on state-owned enterprises
■ 40% of the GDP was state-owned
■ State controlled banks, financial systems, allowing for highly strategic
investments
● McNally on Sino-Capitalism
○ What is sino-capitalism → capitalist system that is global in reach but one that
differs from American capitalism. It relies on informal business networks rather
than on legal codes… (Chinese politicians control which companies succeed or
don’t). It also assigns the state a leading role in fostering and guiding the capital
accumulation. Where it will be, etc.
○ Central to this capitalist structure is the unique duality of “top-down state-led
development” with “bottom-up entrepreneurial private capital accumulation”
● The Looming Hegemonic Transition
○ China’s GDP in 2022 was 73% of the US (in 1990, is was 7%)
■ The world used to look to the US to see how the economy would move
forward… and now, the world looks at China.
● Challenges to Liberal Global Capitalist Order:
○ Used to have U.S. controls the world economy, it is an economic hegemony
■ This economic powerhouse was based on free trade, mobile capital, and
free enterprise (neoliberalism and generally policies that we associate with
democracy)
■ However, China is growing and its growing fast, and it challenges this
● State-subsidized industries → China has them, the US has less
● Free trade with labor-repressive regimes → should we, as the US,
be exploiting cheap labor in China? Is that ethical? Do you buy
clothes in Shien to save a ton of money while exploiting cheap and
potentially dangerous labor practices?
● Protectionist pressures in the US & Europe are growing (the US
feels a need to protect its farmers, its factories, etc. by placing
tariffs on China (hence Trump’s Tariff War))