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What is Political Economy?
•What problems does political economy
•What questions does it ask?
•On what analytic foundations does it build?
Thee ways of defining
‘political economy’
• In terms of the practical, ‘real-world’
problems on which it focuses;
• In terms of how these problems are
analysed; and
• In terms of the currents of economic
thought from which it draws
Stilwell, F. (2000), Political Economy: the contest of economic ideas, p.3.
Relevance to real economic problems
• In our everyday life– earning a living,
managing an income, and making
decisions about consumption and
• Beset us collectively– how to balance
economic growth against environmental
concerns, how much to redistribute
income through taxes and government
expenditure, and how to deal with
imbalances in international trade.
The Political Economy Questions
take globalisation for example
• First: What is happening?
• requires a careful definition of the
• globalisation of finance,
• of trade,
• of culture,
• of environmental concerns, and
• of human rights, etc.
• Second: Why?
• Draw attention to the causal factors.
• Explore the relative significance of
technological change, consumerism,
and government policies in driving the
• A process of enquiry that takes nothing
as given.
• Third: Who gains, who loses?
• Specific aspects, such as the changing international
distribution of jobs.
• Large multinational companies have often relocated
parts of their routine manufacturing activities to Third
World nations (profit maximisation).
• Original employees face wage reduction or
unemployment? Alternative employment available?
• To Third World nations, more jobs but associated with
particular health or environmental risks; companies pay
more taxes to help the local community?
• This illustrates the interdependence of economic, social
and political considerations, which is one of the
• Fourth: Does it matter?
• Requires specification of the criteria by
which evaluation occurs.
• Include efficiency (in achieving what?);
equity (according to what standards of
fairness?); sustainability (economic,
social, or ecological?); and consistency
with other social and political goals
(which themselves need to be clearly
• Finally: what can be done?
• The role of government and the
state come under scrutiny.
• Whether the state’s capacity for
national economic management is
undermined by the greater mobility
of capital.
Contributory Conceptual Currents
• Focus on the ‘real-world’ questions does
not deny the value of economic theories.
• Four different schools of economic
thought developed during the last 250
years, four have obvious relevance in the
construction of modern political economy.
• One is classical political economy,
including Smith, Ricardo and Malthus.
• The economic system produces goods
and services surplus to what is required
for social reproduction remains valuable.
• How surplus maybe expanded– e.g.,
whether through trade and an
increasingly complex division of labour–
is central to the analysis of economic
• How the fruits of economic activity are
distributed– e.g., among capitalists,
workers, and landowners.
• Having its roots in classical political
economy, Marxist economics provides a
quite different, more critical, interpretation
of capitalism.
• It emphasises: property relations, the
associated class structure and economic
inequalities, and the relentless drive for
capital accumulation.
• It posits the exploitation of labour as the
source of the economic surplus, which
springs class conflict and the potential for
radical political economic change.
• Institutional economics (German
historical school of 19 century) focus on
the growth of big business, transnational
corporations, the influence of trade
unions, and the character of
governmental economic activities in
different nations.
• A particular focus is the potential for
more extensive interventions by the state
to alleviate the inequality and instability
of free-market capitalism.
• Keynesian economic analysis stresses on
the persistence of involuntary
unemployment, and identified the
necessary remedial politics.
• The ‘macro’ economy did not function
simply as the aggregation of ‘micro’
economic markets and without enlightened
government intervention, the capitalist
economy would not ensure full employment.
• Major elements of neoclassical
economic theory are the analysis of
‘externalities’ (environmental
degradation) and the measurement of
demand and supply ‘elasticities’.
• A common theme for modern political
economy is the rejection of the pseudoscientific ‘positive economics’ in favour of a
more down-to-earth approach that
addresses real problems and makes values
• Environmental concerns/issues are central
to modern political economy.
• Some argue to create an ‘ecological
A final thought
• How the economy works– using natural, human,
and manufactured resources to produce goods
and services, and distributing the fruits of those
endeavours according to the relative economic
power of the participants– there is considerable
continuity in the real world.
• Also there is considerable change, of rapid
technological innovation, globalisation, and
structural economic adjustment.
• The need for creative political economic thinking
is imperative.