Basics of Economics & Political Economy

http://www.unctad.org/infocomm/anglais/banana/sitemap.htm

What is the difference?

• Economics addresses the functioning of systems of production & consumption, specifically through markets, such as those for bananas.

• Political economy addresses the role of power, rules and relationships in organizing the economy, such as how global banana markets came to be organized as they are.

The global economy is a capitalist one

• Economic liberalism– Individual preferences– “Free” market– Bargaining & exchange– Money as value

• Capitalism– Produce low, sell high– Division of labor– Comparative advantage– Profit incentive– Tendency to monopoly

A few other points about capitalism

• The price of goods is not often determined by supply & demand

• Those who lack money cannot access markets

• Capitalism tends to enrich the wealthy

• Strong regulation is required to modify these tendencies

• Such regulation is provided by the state

Bananas are an international commodity

• Produced in vast quantity, on large plantations, with low-cost labor

• Shipped in vast quantities to temperate zone countries

• Supply vs. demand notionally set the prices of bananas

• Companies make a profit & invest in more plantations

• How many bananas can the world consume?

80 million tons per year or 350 billion bananas (@ 50-75¢/lb =$175-260 billion/yr.)

Marijuana is also an international commodity

• High quality product can be grown virtually anywhere

• High prices generate competitive production

• Barriers to entry for large-scale production (land, secrecy)

• The “border” acts as a regulator of international trade

• Markets are segmented by quality & location

• Price is determined by local supply & demand (http://www.priceofweed.com/

• Important part of many local economies

Banana companies compete to increase market share—& raise prices

& profits• Increase production to

make bananas cheaper• Reduce production costs • Undercut or buy out other

companies• Use advertising to make

product more attractive• Lobby for trade rules

favoring specific producer• Corner the market and

establish monopoly prices

Evolution or world production and international trade in bananas in thousands of tons (1961-2006)

Marijuana “companies” tend to compete over turf and territory

• Mexican cartels follow corporate model

• Seek territorial monopolies over gateway cities

• This leads to literal warfare

• In California, organization of production less clear

• Distribution more along network lines

• Fragmentation makes it difficult to increase price

• Legalization could well lead to falling prices…

http://www.cnbc.com/id/36179677/How_Big_Is_The_Marijuana_Market

Comparative advantage & international division of labor

• Bananas only grow in tropical climates

• Labor is low cost there• Some countries specialize• Shipping bananas is cheap• Rich buyers pay high prices• Rich countries provide capital

& technology• Producing countries must buy

technology from rich• They pay with “hard currency”

earned from exporting bananas

Marijuana is subject to a different “division of labor” & comparative advantage logic

• California production costs are $5-25 per oz.

• Distribution costs are minimal (middlemen?)

• Profit is up to $300/oz.• Mexican costs are

probably lower: $1-5/oz.• Shipping: estimate

$10/oz• No taxes, licenses, etc.• Distribution: est. $50/oz• Profit is up to $340/oz

California: retail @ $350/oz

Mexican on E. Coast: > $400/oz

Grower

MiscellaneousProd. cost

Cartel

ShippingProducer

Distribution

What is “globalization?”

• Is globalization “real?”– Yes– No– Depends on definition

• How is it defined?– Growing global integration– Global Americanization– Flows of capital, people,

technology– Near-instant

communication– Penetration of capitalist

morés throughout world