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POLI 214
Introduction to Comparative
Politics
Session 5 POLITICAL ECONOMY
Lecturer: Dr. Maame Adwoa A. Gyekye-Jandoh
Contact Information: [email protected]
College of Education
School of Continuing and Distance Education
2014/2015 – 2016/2017
Session Overview
– Overview
This session brings us to a study and analysis of political
economy, the various components of political economy, and
introduces students to four political economic systems and
discusses the criteria for comparing these systems.
At the end of this session, students should be able to define
political economy, name and distinguish the different
components of political economy, and discuss the four
political-economic systems.
Slide 2
Session Outline
The key topics to be covered in this session are as
follows:
• Topic One: The Various Components of Political
Economy
• Topic Two: Political-Economic Systems:
Liberalism and Social Democracy
• Topic Three: Political-Economic Systems:
Communism and Mercantilism
Slide 3
Reading List
• Chapter 4 of Recommended Text – Essentials of
Comparative Politics (2007) by Patrick H. O’Neil.
• Adam Smith. (1980). Essays on Philosophical
Subjects. Indianapolis: Liberty Classics.
• Edward Bernstein (1961). Evolutionary Socialism: A
Criticism and Affirmation. New York: Schocken.
• Friedrich List. (1966). The National System of Political
Economy. New York: Kelley.
• United Nations Human Development Report.
undp.hdr.org
Slide 4
Topic One
THE VARIOUS COMPONENTS OF
POLITICAL ECONOMY
Slide 5
What is Political Economy?
• Political economy is the study of how politics and
economics are related and how their relationship shapes
the balance of freedom and equality. It is a subject which
makes it possible to understand the interactions between
the political institutions of any given country and the
economic institutions that have been put in place to
enhance the wellbeing of the citizens.
• A healthy balance between the set of institutions ensures
the prosperity as well as the freedom of the citizenry. To a
large extent, the political ideology of a country has a direct
relationship and reflection on the form and nature of the
system of economy practiced in the country.
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What is Political Economy?
• The nature of the economies of countries under the
former Soviet Union bloc (USSR) was inherently
different from that of countries under the Western
Capitalist bloc during the Cold War. However, China
has been one exception where the interactions
between political institutions and economic
institutions do not have any direct impact on the
nature of the economy. A communist political system
in China does not prevent the economy from being
run as an open economy.
Slide 7
Components of Political Economy
• The political economy of a country is made up of various components.
Below are some of the major components that one may see in any given
country.
• Markets: In economics, markets are the interactions between the forces
of supply and demand.
• It is a mechanism as well as an avenue for the allocation of resources in
the country. The forces of demand and supply determine the prices of
goods and services in the country.
• The significance of markets in a political economy is that it creates
opportunity for prices of goods and services to be determine by the
people rather than a government or politicians fixing prices in the country.
• Property: The concept of property in political economy refers to the right
to own goods and services as well as the right to intellectual property. It
also includes the responsibility of governments to guarantee and protect
the right of citizens to own property.
Slide 8
Components of Political Economy
• Public goods: Public goods are goods and services
provided by the state or governments for the benefit of
all citizens. Unlike property, which is a private
entitlement, public goods are goods owned by the state
and put at the disposal of all citizens to benefit. Examples
include roads; water; safety and security; education etc.
• Taxation: Taxation is a very significant component of
political economy. It is the means by which the state
collects the funds to pay for public goods and services.
Every government depends on taxes to provide basic
public goods for the citizens.
Slide 9
Components of Political Economy
(contd.)
•
•
•
•
•
•
Other components of political economy include:
Social Expenditures
Money, Inflation, and Unemployment
Regulations
Trade
According to O’Neil (2007), the most basic “building blocks” of
political economy are markets and property.
• States oversee how goods and services are produced, and
delineate basic economic rights and restrictions. States also
intervene in the market when the private sector cannot or
should not provide or control certain things, and this leads to
states’ provision of public goods and other social expenditures
(O’Neil, 2007, p. 88).
Slide 10
Political Economy
• Note that different states have taken radically
different approaches to the ideal relationship
between the state and the market, resulting in a
variety of distinct political-economic systems around
the world.
Slide 11
Sample Questions
• Explain the concept of Political
Economy in your own words to a
friend.
• Why must there be a healthy
balance between the political and
economic institutions in a country?
• Explain briefly three components of
political economy.
Slide 12
POLITICAL-ECONOMIC SYSTEMS:
LIBERALISM AND SOCIAL DEMOCRACY
Topic Two
Slide 13
Liberalism
•
• Liberalism is a political–economic system which
advocates the limiting of state power in favour
of greater freedom for the individual and the
market. Adam Smith is the father of economic
liberalism with his strong support for the
market mechanism and ownership of property.
• Liberalism is the central principle of capitalist
nations where the economic system is based
on private ownership and free markets.
Liberalism encourages laissez–faire where the
economy is allowed to operate freely without
the interference of the state.
Slide 14
Social Democracy
• Social democracy is a political economic system which
embraces some elements of liberalism but also
advocates for a role of the state in ensuring that the
wealth of the nation is distributed equitably.
• Unlike liberalism which discourages state intervention,
social democrats believe that unchecked economic
development produces great inequality. State
intervention ensures that the nation’s wealth is not
concentrated in the hands of a very few group who takes
advantage of market forces.
• One way that social democrats ensure equality in the
distribution of the nation’s wealth is by taxing the rich to
provide social amenities for the poor.
Slide 15
Liberalism and Social Democracy
• Liberalism and social democracy are two
opposing political economic systems practiced
in most countries in the twenty-first century.
• Whereas economic liberalism encourages free
market economic systems where the state’s
influence is reduced to a minimum, a social
democratic political-economic system
encourages a much greater role for the state to
ensure equal distribution of economic
resources.
Slide 16
Questions to Consider
• Questions to consider:
• Discuss at least three differences between Liberalism
and Social Democracy.
• What are two advantages and two disadvantages of a
Liberal political-economic system?
• What benefits can citizens derive from a Social
Democratic political-economic system?
Slide 17
Topic Three
POLITICAL-ECONOMIC SYSTEMS:
COMMUNISM AND MERCANTILISM
Slide 18
Communism
• Communism is an economic system which seeks to eliminate the
role of market forces and private ownership of property. It
encourages collective equality at the expense of individual
freedom.
• Under communism, the state is the sole factor determining the
distribution of economic wealth to the citizens. The notion of the
invisible hand of market forces is totally eliminated. Every
economic activity is controlled and managed by the state.
• Karl Max is considered the foremost advocate of communism. He
stated that private property ownership and the free market
system cannot truly serve the needs of society as a whole, but
the interest of a few privileged classes in society. Cuba and the
former Soviet Union are examples of countries that have run the
communist system.
Slide 19
Mercantilism
• Mercantilism is a political economic system where the wealth
of the nation is used for national power. It is a system which is
less concerned about individual freedom or collective
freedom, but puts much emphasis on how the domestic
economy can be used as an instrument for empowering the
state in its position in the international system.
• In a mercantilist system, the state uses its political power to
gain control over resources and markets and makes sure that
it eliminates competition in the process. A good example of
mercantilism was the British colonization of some African
countries. The resources and markets of these countries were
used to empower Britain, and their economies were forced to
trade with Britain alone, without any competition.
Slide 20
Communism and Mercantilism
• Communism and Mercantilism are two major
political-economic systems which are diametrically
opposed to free market economic principles.
Whereas communism undermines market forces and
private ownership of property, mercantilism
encourages state dominance of the economy and
elimination of competition.
Slide 21
Conclusion of Session 5
• In this session, we have discussed the fact that there are several
components of political economy, which help countries strive to
achieve the important goals of individual freedom and collective
equality.
• Political economy is an understanding and analysis of the complex
relationship between politics and economics, as well as the
balancing of the relationship to provide freedom, security and
prosperity for citizens. The various major components of political
economy include market forces, public goods, property ownership,
social expenditures and taxation.
• We have also examined four political-economic systems that have
been dominant in different countries over time.
• The next session will look at the criteria for comparing politicaleconomic systems, the United Nations Human Development Index,
and the future of political economy.
Slide 22
References
• Chapter 4 of Recommended Text – Essentials of
Comparative Politics (2007) by Patrick H. O’Neil.
• Adam Smith. (1980). Essays on Philosophical
Subjects. Indianapolis: Liberty Classics.
• Edward Bernstein (1961). Evolutionary Socialism: A
Criticism and Affirmation. New York: Schocken.
• Friedrich List. (1966). The National System of
Political Economy. New York: Kelley.
• United Nations Human Development Report.
undp.hdr.org
Slide 23