How Political & Economic Change Influence Each Other

Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught history, and has an MA in Islamic law/finance. He has since founded his own financial advice firm, Newton Analytical.

Money has the ability to influence political landscapes and economists would say that the vice versa scenario is also true. Learn more about how political and economic change influences each other's spheres and what those changes can look like. Updated: 11/03/2021

Defining Change

Around election time, one of the primary issues that both candidates and voters constantly want to discuss is the economy. Voters want to know what the candidates can do to help the economy, while candidates know that voters care about little else with as much ferocity. In fact, a strong economy could allow a candidate to pass some legislation that would otherwise be impossible for voters to stomach. To many, it seems like political changes influence economics, while economic changes must influence politics. However, as this lesson will show, that is not always the case.

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  • 0:01 Defining Change
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Political Change Influencing Economics

To show how political change can really impact economics, let's go back in time to the early 1990s. All over Eastern Europe and Russia, the old Communist ways were being abandoned. In their place grew a surprising number of businesses, some of which are still around today. In fact, due to this change in government, places like Poland and the Czech Republic went from being puppet states of Moscow to being important members of the European Union, an organization that doesn't make a habit of letting unstable economies join.

We can also look more recently at the collapse of Saddam Hussein's rule in Iraq, specifically in Kurdistan. While the rest of Iraq still suffers from political instability, and therefore achieves relatively little economic growth, the self-governing Kurdish regions are more stable than they have been in decades, and are enjoying monumental economic growth as a result.

Economic Change Influencing Politics

They say that 'money talks.' While I hope you wouldn't be so jaded, it can't be ignored that, as people's incomes increase, so too, does their engagement with the political system. For a perfect example, simply look at how voting rights were granted to people throughout the history of England and the United Kingdom. In the beginning, only the King had real authority. However, as the nobles grew in wealth, they demanded a say.

That's why we have the Magna Carta, which essentially limits the powers of the king to the benefit of the nobility. A bit later, as commoners were growing wealthy and buying land, political power was extended to this new aristocracy. And after the Industrial Revolution, when wealth became better measured in bank accounts rather than acres, the right to vote was also extended to factory owners and professionals. Finally, as World War I and the massive industrialization that went along with it caused millions more to join the middle class, so too, did they join the voting class.

Economic Change Without Political Change

Still, economic change does not always guarantee political change will follow. This is especially true if the authorities are committing to keeping political change from happening. For an example of these conditions, we'll return to the Middle East. You may have heard of the wealth of places like Qatar, Abu Dhabi, and Dubai. In fact, people in Dubai are so rich that they are literally dumping sand in the ocean to build resort islands for the sole purpose of conspicuous consumption. If our observations about England held true, you could expect the Arab states of the Persian Gulf, rich off of oil production, to be among the most democratic places on Earth!

Sadly, it is actually the opposite. This is because these places are run as rentier states. Rentier states have governments that buy, or rent, the political rights of the people for economic prosperity. They are literally bribing the citizens to not care about how the government is run. In short, you don't have to worry about anything like money, but the flip side is that you aren't allowed to change anything even if you are worried.

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