Question

 

2. Why does the GDP maximization not always equal to better wellbeing? Give two examples and explain your argument.

3. What were Galbraith's main social concerns? List two and explain.

4. What should be the goals of development for the poor countries, Symbolic Modernization, Maximized Economic Growth [=GDP], or Selective Growth? List the advantages and disadvantages of each of the growth mode.

5. How can social democracy cure the phenomenon of "private opulence and public squalor"? Take Sweden or another Nordic democracy as example.

Answer 1

2) GDP maximisation does not equal better wellbeing

a) There may be economic inequality. Person A has 5 dollars and person B has 500 dollars. If the income of person B becoms 1000 dollars, per capita GDP will increase but so will inequality. GDP does not take that into account.

b) Suppose GDP of a country X is high. GDP of country Y is low. But Country Y has higher literary rates, gender equality etc. From GDP point of country X is better. But Country Y may have better wellbeing.

3) Galbraith is a critic to neoclassical conventional wisdom.

According to him large enterprises dominate moder capitalism. He stated that producers decide what should be produced and then mold the tastes of the consumers via advertisment etc. This is the dependency effect. He implies that it cannot be stated that production satisfies wants of the consumers when the production itself creates the wants. As a result there is underallocation of resources to public goods due to creation of artifical wants for private goods. New automobiles are now more desired than new roads. This is called social imbalance.

It is assumed that cooporate behaviours can be better understood if it is assumed that firms attempt profit maximisation. According to galbraith, this does not explain planning sector. A stockholder who does not like actions of a firm cannot fire the management. According to Galbraith this neo classical structure causes an ill ( high prices, less output) effect ,when it does not exist, to pursue profit maximisation. He states that economic forces do not help anyone but the powerful. Thus he believes a public planning authority has to be established to coordinate economic activities.

4) Symbolic Modernisation:

Advantage:There will be enhanced medical facilities, smart cities, quality of communication.

Disadvantage: There will be change in culture, economic inequality, pollution.

GDP:

Advantage: It measures overall standard of living and is simpler.

Disadvantage: It does not consider economic inequality.

Selective growth

Advantage:It is more practical to focus on those sectors which do need to be enhanced. it helps in skill formation.

Disadvantage: Lack of factor mobility, neglect of some industries, danger of inflation.

The poor country should first focus on Maximised Economic growth if it is slacking in all aspects. if it is thriving well in one sector and falling it other, it should focus on selective growth. After increasing the GDP to a certain level, they should focus on modernisation.

5)Social democracy comes with some values. These values in Sweden include fairness, and doing things. A strong preference is there for solutions that work, both publicly and privately, with a lower barrier to ripping up decisions that have been proved to be inadequate.the private opulance is not there because the rich are taxed heavily so that the poor can be helped. They take more from the rich to pay for healthcare and most education thus helping with the problem of public squalor.. The public squalor is also a result of lack of maintenance but the Swedish way of "doing things properly" includes building wells and doing maintenance to stop deterioration.