What is Political Economy?

What problems does political economy address? 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.
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Relevance to real economic problems

In our everyday life earning a living, managing an income, and making decisions about consumption and saving. 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.
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The Political Economy Questions

take globalisation for example

First: What is happening?

requires a careful definition of the process globalisation of finance, of trade, of culture, of environmental concerns, and of human rights, etc.
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 Second: Why?
Draw attention to the causal factors. Explore the relative significance of technological change, consumerism, and government policies in driving the changes. 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 hallmarks of POLITICAL ECONOMY.
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 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 specified)
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 Finally: what can be done?

The role of government and the state come under scrutiny. Whether the states 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.
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Cont.

How surplus maybe expanded e.g., whether through trade and an increasingly complex division of labour is central to the analysis of economic growth. How the fruits of economic activity are distributed e.g., among capitalists, workers, and landowners.

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Cont.

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.
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 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.
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 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.

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Cont.

Major elements of neoclassical economic theory are the analysis of externalities (environmental degradation) and the measurement of demand and supply elasticities.

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 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 explicit. Environmental concerns/issues are central to modern political economy. Some argue to create an ecological economics.
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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.

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