political economy of the media

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Political economy of the media

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Political economy of the media. Definition of political economy. A study of the interrelationships between political and economic institutions and processes. - PowerPoint PPT Presentation

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Page 1: Political economy of the media

Political economy of the media

Page 2: Political economy of the media

Definition of political economy

• A study of the interrelationships between political and economic institutions and processes.

• A study of the ways in which various sorts of government affect the allocation of scarce resources in society through their laws and policies

• A study of the ways in which the nature of the economic system and the behavior of people acting on their economic interests affects the form of government and the kinds of laws and policies that get made.

Page 3: Political economy of the media

Definition of political economy

• Political economy examines the political, economic and cultural factors that affect the production and distribution of wealth

• It is a recognition that economic activities (production etc) are affected by economic approaches, politics, ideology, philosophy, cultural values.

Page 4: Political economy of the media

Political economic factors that shape the news

• Political and economic systems of the society in which the media operate

• Political and economic status of the country

• Dominant cultural and social values

• Cultural/national alignments or conflicts

• International relations

Page 5: Political economy of the media

Types of economic schools: mercantilism (statism), 1500-1750

• Extensive state regulations of economic activities in the interest of the national economy.

• The quest to increase state’s economic and political power.

• Mercantilism was economic warfare

• Some principles: trade balance, protectionism, maximizing tangible assets (gold etc).

Page 6: Political economy of the media

Neo-mercantilism / statism

• Many of the old ideas are still alive today: trade balance, protectionism, maximizing tangible assets (currency reserve).

• In the 1960 Japan used mercantilist approach

• Today China is pursuing an essentially mercantilist trade policy

• Recommended reading: China's Wrong Turn on Trade by Robert Samuelson, Newsweek, 2007

Page 7: Political economy of the media

Types of economic schools: classical

• New thinkers: Adam Smith, David Ricardo, Thomas Malthus, John Stuart Mill (18-19th cent).

• Primarily concerned with the dynamics of economic growth.

• Stressed economic freedom and promoted ideas such as laissez-faire and free competition.

Page 8: Political economy of the media

The Wealth of Nations (1776)Adam Smith

• A Quote from Smith: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to our humanity but to our self-love.”

• Key points: • The free market is self-regulating to produce the right amount

and variety of goods• Self-regulation (“invisible hand”) through self-interested

competition in the free market (keeping prices low and giving an incentive for a wide variety of goods and services).

• Smith: "by pursuing his own interest, [the individual] frequently promotes that of the society more effectually than when he intends to promote it."

Page 9: Political economy of the media

The Theory of Moral Sentiments (1759) Adam Smith

• Smith suggested that conscience arises from social relationships.

• People have a natural inclinations toward self-interest. However, self-interest is mitigated by the need for mutual relationships.

• A theory of sympathy: the act of observing others makes people aware of themselves and the morality of their own behavior.

Page 10: Political economy of the media

David Ricardo: comparative advantage

• Smith: absolute advantage

• Free trade is beneficial when each nation can produce some particular commodity more efficiently than any other.

• Ricardo: comparative advantage

• Even if a country/firm has no absolute advantage, it can still derive gains from trade/exchange

Page 11: Political economy of the media

Comparative advantage

• Absolute advantage

• Comparative advantage

• Opportunity cost: What it costs someone to produce something; the value of what is given up

• Someone may have an absolute advantage at producing every single thing, but he has a comparative advantage at many fewer things

Page 12: Political economy of the media

Mercantilism v. classical liberalism

• Mercantilism: subordinates economics to politics

• Liberalism: subordinates politics to economics to the point of nonexistence

Page 13: Political economy of the media

Karl Marx: socialism

• Free market economy leads to improved quality of life. However, at the same it causes polarization of wealth (rich get richer and poor get poorer).

• According to his labor theory of value, the value of a commodity is the socially necessary labor time invested in it. However, capitalists never pay full labor value (unpaid labor=surplus value).

• Thus:

• (1) alienation of workers from the products of their labor

• (2) exploitation of workers

• (3) imperialism (the need for accumulation of wealth)

Page 14: Political economy of the media

Marx and Marxism

• Socialist economy: Communal ownership of the means of production is the only way of ensuring an equitable distribution of wealth. People act out of solidarity and for the good of society as a whole.

Page 15: Political economy of the media

Neo-marxism: Dependency theory

• The world economic system is designed to promote interests of the developed countries.

• The First World dominates developing countries through:

• The wealth and technology

• Multi-nationals

• Indigenous capitalists

Page 16: Political economy of the media

Neo-marxism: cultural critique/theory

• Cultural theory: analysis of the production, interpretation, and reception of cultural artifacts within concrete socio-historical conditions; contesting the cultural hegemony

• The Frankfurt School and Critical Theory

• The Birmingham School and cultural studies

Page 17: Political economy of the media

Neoclassical economics

• The classical theories of value =value to be a property inherent in an object

• However, people are often willing to pay more than an object is "worth.“

• New theory: value is associated with the relationship between the object and the person obtaining the object, the"supply" and "demand” relationship

• It dispensed with the labor theory of value in favor of a marginal utility theory.

Page 18: Political economy of the media

Neoclassical economics

• Marginal utility. Buyers attempt to maximize their gains from getting goods by increasing their purchases of a good until what they gain from an extra unit is just balanced by what they have to give up to obtain it.

• In this way they maximize "utility"—the satisfaction associated with the consumption of goods and services. Individuals make choices at the margin.

Page 19: Political economy of the media

Neoclassical economics

• Neoclassical economics systematized supply and demand as joint determinants of price and quantity in market equilibrium.

Page 20: Political economy of the media

Keynesian economics

• Aggregate demand is influenced by a host of economic decisions—both public and private—and sometimes behaves erratically. The public decisions include, most prominently, those on monetary and fiscal (i.e., spending and tax) policies.

• Fiscal and monetary policies affect aggregate demand.

• Many Keynesians advocate activist stabilization policy to reduce the amplitude of the business cycle, which they rank among the most important of all economic problems.

Page 21: Political economy of the media

Economic systems

Free market ←------------------→ Command

mixed

In the U.S. primarily free market capitalist

system with limited government intervention.

Almost the entire production is from private sector

Page 22: Political economy of the media

ECONOMIC SYSTEM CHARACTERISTICS EXAMPLES

CAPITALISMProducer-oriented

Private ownership of productive resources;Low taxes;Low regulations & subsidies

Japan, South Korea, Taiwan

CAPITALISMConsumer-oriented

Private ownership of productive resources;Higher taxes & regulations

United States, Europe

MARKET SOCIALISM High level of government ownership of productive resources; high regulations

Middle East, South America, Africa

PLANNED SOCIALISMCommand Economy

Government owns productive resources and directs them centrally

Former Soviet Union; North Korea, Cuba

Page 23: Political economy of the media

Macro- and microeconomics

Macroeconomics:Political economy

Aggregates in the economy (e.g. production and

consumption, GDP). Growth, employment and inflation

Microeconomics:Specific markets

How individual economic units (households and

firms) decide their economic activity.

Page 24: Political economy of the media

Supply and Demand

• Supply: the quantity of a product or service that will be offered for sale at each price.

• Demand: the quantity of a particular product or service that consumers will purchase at each price

Page 25: Political economy of the media

Supply and demand equilibrium

Page 26: Political economy of the media

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Page 27: Political economy of the media

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Market demand for DVD players (monthly)Market demand for DVD players (monthly)

Page 28: Political economy of the media

Other determinants of demand

– tastes

– number and price of substitute goods

– number and price of complementary goods

– income

– distribution of income

– expectations

Page 29: Political economy of the media

Elasticity of demand: the responsiveness of demand and supply (response to pricing)

Price elasticity of demand =

change in quantity ÷ change in price

• Elastic (>1) : change in quantity greater than change in price (Revenues increase when price decrease)

• Unit-elastic demand (=1): a change in the price results in an equivalent change in quantity (proportional)

• Inelastic (<1): change in quantity less than change in price (revenue decreases when price decreases)

Page 30: Political economy of the media

P($)

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Elastic demand between two points

Page 31: Political economy of the media

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Inelastic demand between two points

Page 32: Political economy of the media

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Page 33: Political economy of the media

Typical inelastic goods

• When the price of inelastic goods rises, consumers will cut back on the quantity purchased. However, the increased price does not discourage consumption enough to decrease revenue.

• Examples: Staple foods usually have very low elasticities because there are few substitutes.

• Tobacco, gasoline (at least in short term).

Page 34: Political economy of the media

Elastic goods: consumers are price-sensitive

• When prices rise, consumers cut back. However, the reduction in quantities more than offsets the price increase, so total revenue falls.

• Examples of elastic goods are less essential items (restaurant meals) or items with a wide range of substitutes (newspapers).

Page 35: Political economy of the media

Factors which can influence the demand elasticity curve

• The availability of substitutes: a wider array of substitutes increases elasticity (for example the newspaper market).

• Whether the product is a necessity or a luxury: necessary products, such as medicines, tend to be more inelastic that luxury products

• The proportion of income that the item will take up: a product which takes up more of consumer’s income will tend to be more elastic, such as salmon being more elastic that tuna

• The time period of any changes: price elasticity will increase in the long term as customers will have longer to adjust their consumption patterns.

Page 36: Political economy of the media

Price Discrimination

Greater profit extracted from the less elastic buyer

Generally means higher prices charged to less elastic demanders

Always greater profits than a single price

Example: airline seats

Page 37: Political economy of the media

Classifying markets: the degree of competition

– number of firms (also buyers)

– freedom of entry to industry

– nature of product (product differentiation)

– nature of demand curve

Page 38: Political economy of the media

The four market structures

– perfect competition

– monopoly

– monopolistic competition

– oligopoly

Page 39: Political economy of the media

Features of the four market structuresFeatures of the four market structures

Page 40: Political economy of the media

Perfect Competition

• Assumptions

– firms are price takers (market sets prices)

– freedom of entry

– identical products

– perfect knowledge

Page 41: Political economy of the media

Perfect competition

Benefits of perfect competition

– price equals marginal cost

– prices kept low

– firms must be efficient to survive

Disadvantages: Incompatibility of economies of scale with perfect competition

Page 42: Political economy of the media

Monopolistic Competition

Assumptions of monopolistic competition

Barriers to entry: high (lower than in monopolistic system)

Prices less competitive (Non-price competition)

• The public interest

– comparison with perfect competition

– comparison with monopoly

Page 43: Political economy of the media

Monopoly: a single seller of a product exists and dominates the market

• Barriers to entry: Very high• Monopolies are price makers (setters)

• Disadvantages

– high prices / low output

– lack of incentive to innovate, inefficiency

• Advantages

– economies of scale

– profits can be used for investment

– high profits encourage risk taking

Page 44: Political economy of the media

Oligopoly: market dominated by a few firms

Barriers to entry: High

Interdependence of firms: action of one firm affects other firms

• Competition versus collusion

• Collusive oligopoly: cartels

Page 45: Political economy of the media

Examples of media markets

• Monopoly: newspapers, cable television

• Oligopoly: television networks, motion picture studios, recording industry

• Monopolistic competition: Magazines

• Perfect competition: possibly internet based material

Page 46: Political economy of the media