Contrasting Theories of Economic Growth in Modern Political Science

Contrasting Theories of Economic Growth

In the literature on modern political science, there are different theories that predict how nations grow economically and politically. As we have observed earlier, political economy is the branch of political science that studies the evolution and development of modern nation states in terms of the political and economic structures prevalent in those countries. For instance, in the aftermath of the Second World War, the world was divided into two camps that posited contrasting theories of economic growth.

While the United States led, capitalist bloc insisted that capitalism and free markets were the way to go in terms of promoting economic growth, the communist bloc led by the Soviet Union took the opposing stand that state planning, centrally directed command, and control economies were the answer to solving the riddle of economic growth. In between, we had countries like India that took a middle path where there were elements of both market based economy and a centrally planned one.

Further, as there was no consensus on which model was superior, many countries simply followed the model that advocated extensive state control but at the same time gave leeway to the private sector to pursue its market based model.

The Collapse of Communism and the Ending of an Era

The collapse of communism in the 1990s ushered in an era of unprecedented explosion in the number of countries that followed the capitalist path. The newly independent countries from the erstwhile Soviet Union along with those from East Europe soon declared themselves capitalist economies, as did China, which had already embarked on a program of opening up its economy since the late 1970s.

Of course, China remains one of the enduring mysteries of modern political economy as it follows a market-based economy with authoritarian political system that is an enigma to most academics and experts who have dubbed it “Red Capitalism”. Concomitant with these changes, India too opened its economy though it was in response to the crisis of the balance of payments and a failing domestic economy.

The point here is that by the 1990s, it was evident that capitalism has won the argument on which model of economic growth was superior. This decade also witnessed the onset of globalization that provided impetus and gave momentum to the spread of global capitalism.

In other words, the capitalists had never had it so good.

The Crash of 2008 and Doubts over Capitalism

However, the global economic crisis of 2008 proved that capitalism far from being the only model of economic growth had its failings as well. The rapidity with which the Western economies almost collapsed surprised many and the ensuing sovereign debt crisis in Europe meant that even the modern nation states were at risk and not the private sector alone. The reasons for this are that capitalism without regulations is like cowboys running wild without any law enforcement agencies.

In other words, though free markets know best and correct themselves from time to time, there is a need to oversee their functioning.

Further, crony capitalism where the wealthy enrich them at the expense of the less privileged has been shown to be another failing of capitalism. Taken together, these aspects proved that maybe communism or even socialism might stage a comeback in the battle of the ideologies. As the experience of the Asian countries in the aftermath of the crash of 2008 showed, the mix of capitalism and state control practiced in countries like China and India, which puzzled many western economists, might be the answer to either fully state controlled economies or completely deregulated capitalist ones.

Closing Thoughts

Finally, it is too early to say which ideology and model of economic growth would carry this decade and the decades to come. However, it is clear that most models and economic theories have failed as can be seen from the discussion above and hence, this is the time for the present generation who would become the economists and the managers of tomorrow to work out a model of economic growth that would rebuild the shattered economies.

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Political Science