4/10/2012

APPLIED MICRO – PART 2
ECON 215/BBA 204,
4 October 2012

Introduction to Part 2
• Different approach
• Build on theories used in first half
• Less theory – more specific applications in lectures
• Look at how far economics can take us
• Economic approach v. political, ethical decisions
• Can we really separate the economic from the political?

• Continue with focus on incentives
• But look more at how they are constructed (how markets themselves are constructed) 1

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Construction of markets
• Free markets operate within institutional boundaries
• E.g. child labour – developed countries have legislated against it
• Another e.g. – slavery: we now take it for granted that you cannot trade in humans • What is considered ‘state intervention’ in one place is not in another.
• What is market failure then?
• When a market does not work in the way expected of an ideal market
• In some schools of economic thought an ideal market is perfectly competitive
• Others might think ‘market failure’ is generation of high levels of income inequality –
• not a market failure in neo‐classical econ, because income inequality is a given

• Important, therefore, to understand that the ideal market is politically

determined.
• It can only be defined with reference to the existing institutional structure

• Institutions both influence individuals’ perceptions of their

interests/utility and constrain the choices available to them.

Polanyi (1944) The Great Transformation
“[t]he road to the free market was opened and kept open by an enormous increase in continuous, centrally organised and controlled interventionism. To make Adam Smith’s ‘simple and natural liberty’ compatible with the needs of human society was a most complicated affair. Witness the complexity of the provisions in the innumerable enclosure laws; the amount of bureaucratic control involved in the administration of the New
Poor Laws which for the first time since Queen Elizabeth’s reign were effectively supervised by central authority; or the increase in governmental administration entailed in the meritorious task of municipal reform…” [emphasis added]

2

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Schedule
Week Topic

8

Using regulation to construct and shape markets
‐
‐

child labour

10

Social capital and the World Bank

No tutorial

the case of labour standards

9

Tutorial

11
12
13

International labour standards
Child labour

Firm behaviour and economic organisation ‐ networks v autonomous Social capital and inequality firms Firms in value chains – monopoly and
Business networks competition Revision

Evil empire or successful competitor?

Using regulation to construct and shape markets: the case of labour standards
• What are labour standards?
• Core labour standards set out in ILO Declaration of Fundamental
Principles and Rights at Work 1998
• Freedom of association and protection of right to form organisations of their

own choosing;
• Right to collective bargaining;
• Elimination of all forms of compulsory labour;
• Abolition of child labour (baseline