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4
APPROACHES
Political Economy
By making it impossible to believe any longer in an automatic reconciliation of conflicting interest into a harmonious
whole, the General Theory of Employment, Interest and Money (1936) of John Maynard Keynes brought out into
she open the problem of choice and judgement that the neoclassicals had managed to smother. The ideology to end
ideologies broke down. Economics once more became political economy.
Robinson, cited in Gamble 1983: 64
Political Economy is not a fixed subject or discipline but a recurrent made of conceptualizing social life.
Vig 1985: 6
Political economy is the methodology of economics applied to the analysis of political behaviour and institutions
Weingast and Wittman 2006: 5
Economic interaction amongst people began with the invention of agriculture, and especially after agriculture
started to produce a surplus. Since then, markets have become an integral part of human existence. The barter
system prevailed before the invention of money; however, money, which makes enduring storage possible, stabilised
the rise of cities and the merchant class market. Demand automatically led to greater supply, and this also meant
a role for the state in order to deal with the market through regulations. In the beginning, political economy was all-
comprehensive and was based on a larger number of disciplines. This was reflected in Smith's The Wealth of Nations
(1776), with which the modern period of economic thinking began, The framework within which the state deals
with economic questions and the interdependence of politics and economics is called Political Economy.
In his History of Economic Analysis (1954), Schumpeter defined political economy as an exposition of a
comprehensive set of economic policies on the strength of certain unifying normative principles, such as the
principles of economic liberalism and socialism (Gamble 1983: 64). This differentiation of political economy
as an arena of normative philosophy and economics as a value free science can be traced to the origins of
political economy itself. As Vig (1985: 6) observes, ‘to some extent it still holds, since political economy raises
fundamental value questions about the proper role of the state and private markets and often gives rise to
critical evaluations of existing arrangements’. The Marxian critique of capitalism continues to provide the basic
structure of critical political economy, whereas theories of microeconomic choice and market equilibrium favour
the framework of liberal bourgeois society; and as Myrdal (1969) says, no study of the social sciences can be
value-free. The ideological moorings of seventeenth and eighteenth-century liberalism and socialism provide
the two broad divisions of the political economy approach, as well as the general philosophical framework to
formulate the arguments (Weingast and Wittman 2006: 5).
THE DIFFERENCE BETWEEN THE OLD AND THE NEW
However, there are reasons for the contemporary interest in and revival of political economy: (i) there has been
a great deal of effort to study democratic countries, which are more adaptable than non-democratic regimes; Theoretical Foundations of Comparative Politics
44
in democracies; (if) political and economic comparisons
titutions of the advanced industrial democracies’, rather
developing world (Weingast and Wittman 2006: 5);
‘ced capitalism is that large comparisons are possible
(ii) data and close observations are easily accessible
are more plausible for application in ‘developed ins
than the less stable and less institutionalised politics in the
(iv) An added reason for confining the enquiry to advan:
today, unlike in the past (ibid).
‘This has led to a situation where
normative theories and presumptions can be empirically tested because,
it sti Jogies for quantitative research; second, social
first, of the easy accessibility of sophisticated tools and methodologies for ative Fe ;
Sec are ecceieay being trained in statistics and mathemati ind third, the increasing use of ‘econometric
methods to political questions (Weingast and Wittman 2006: 7). With all these recent developments, ‘tis no
longer posible to-write political economy off a afield for amateur economists and moralists, through mutual
tion of disciplines it is now pressing forward at the boundaries of social science
interest and the cross fertil
research’ (ibid.).
POLITICAL ECONOMY AND INTERNATIONAL ECONOMICS AND POLITICS
“The international economic structure is of crucial concern to political economy. International trade, finance and
the role of important players like the IMF and the World Bank are critical as by their money power they exert
considerable influence and control over many nations. Their neutrality remains suspect as they are supposed
to benefit the host and key contributors, at the cost of recipients who have to follow diktats such as structural
adjustments for domestic issues like inflation and unemployment. Such an indirect but crucial remote control
creates dependency and a lack of autonomy for the recipient nations (Frank 1980; Wallerstein 1974-89).
Contribution of Political Science to Political Economy
Traditionally, the field of political economy was dominated by economists and sociologists. But the situation is
changing with the increasing role of the state in economic areas, even in countries committed to a free market
economy. It has also to do with reasonableness. John Rawls (1921-2002) had stated that human beings do not
want to be equal at a subsistence and starvation level and that a prosperous society is to have both incentives
and specialisation, which can only happen when the government is efficient. In such a state, the Weberian values
of efficiency, rationality and impersonality are indispensable. Zuckert (1985: 35-36) comments that ‘democracy
defined as equality of condition—income, occupation, influence and information is thus not merely inefficient
but fundamentally unfeasible’. In order to match democracy with efficiency—which John Maynard Keynes
(1883-1946) always emphasised—serious attention is to be paid to institutions, interest groups, elections,
bureaucracies and political parties. Pluralism and corporatism, two crucial areas of concern for political scientists,
are also of great interest to political economy. In terms of its evolution, the political economy approach is both
older and younger than Political Science.
ORIGINS OF POLITICAL ECONOMY
Bronowski and Mazlish (1960) acknowledge the impact of scientific enquiry and its movement from the
Mediterranean, brought about by Galileo's torture, humiliation and imprisonment to Northern Europe, especially
England, in comprehending the rise of Northern Europe and, commensurately, the decline of Southern Europe.
‘This is aso of crucial significance in understanding the rise of political economy. ‘The background to this was
provided by ‘writers on science, from Bacon to Locke, (who) slowly brought about an intellectual climate in
which scientific laws, the laws of narure, were equated with the law of God, immutable, rational precepts and
also with an equally immutable moral law’ (Hill 1972; 89). As both culture and science are conditioned by
economic development and abundance, the climate for scientific enquiry led by Newton was facilitated by the Political Economy 45
flowering of the glass and paper industry in Britain. This new scientific attitude was all-pervasive, with attention
focused on preserving accurate records, the balance of trade, public revenue and expenditure, mortality rates
of plagues and life insurance.
In this evolution, Sir William Petty (1623-87), who contributed immensely to the development of political
arithmetic, is acknowledged as the father of political economy. He developed the art of reasoning with the help
of figures relating to governmental expenditure and administration. His advocating of free rein to different
forms of individual self-interest served as the precursor to the later development of laisez faire economic theory.
He considered the maintenance of a high degree of employment to be the duty of the state, and advocated
the requirement of labour for production as the main determinant of exchange value. As Tawney observes,
‘the contemporary progress of economic thought fortified no less the mood which glorified the economic
virtues’ (1926: 157). He also adds that the development of economics in England was different from that in
Germany and France. In Germany, it flowed from public administration and in France, from philosophers
and important celebrities. But in England, continues Tawney, ‘with the exception of Petty and Locke, its most
eminent practitioners were business men, and the questions which excited them were those neither of production
nor of social organization, but of commerce and finance—the balance of trade, tariffs, interest, currency and
credit’ (ibid.: 160).
POLITICAL ECONOMY AND THE SCOTTISH ENLIGHTENMENT
In the eighteenth century, in a more definite form, political economy emerged as a precursor to modern
economics, political science and sociology. It was first consolidated in cightcenth-century England as a branch
of moral philosophy as part of the Scottish Enlightenment (1740-90). Scotland was traditionally allied to
France, and England was its enemy. However, against the background of thrce rebellions, a union between
England and Scotland took place in 1707. The major worry of Scottish thinkers was the future of the poor,
backward, stagnant Scottish economy when integrated into a common market with England, a world-class
dynamic economy. Scotland was sandwiched between a prosperous England and an impoverished Ireland.
In the context of the French Enlightenment, Scotland, which had a long association with France, shared the
spirit of France's age of reason and because of this emphasis on the rationalist spirit, a new kind of sceptical
and utilitarian philosophy developed under the influence of David Hume (1711-76). But unlike the French
Enlightenment, which had a broad canvas, the chief concern of Scottish Enlightenment was economic growth
and rapid development, international trade and the emergence of an urban, commercial, bourgeois society in
post-1707 Scotland.
“The central task of the moral philosophy of Scottish Enlightenment was to analyse the societal consequences
of human greed and acquisitiveness. Bernard de Mandeville (1670-1733) propounds the thesis that private
vices lead to substantial public benefit, that virtuous simplistic behaviour on the part of an individual does
not lead to any social benefit, and that private virtue need not be idealised as it does not lead to any public
good. Hume linked the question of private morality with a utilitarian calculus. Pleasure is virtuous and pain
is vice. He showed little concern at the rise of corruption and its effect on morality under capitalism. He
was confident that a moral code for individuals would rise subsequently. Francis Hutcheson (1694-1746)
interpreted virtue in the moral sense of providing the greatest good to the greatest number, and considered
pain unnatural. Smith reconciled these different strands by bringing in the concepts of moral sympathy and the
invisible hand of God to control human passions. He also brought in the concept of stages of economic growth
within a larger historical pattern. ‘This scheme of the stages of human history was followed both by Hegel and
by Marx. Smith, along with Adam Ferguson (1723-1815), propounded the theory of the division of labour
as the key factor in the expansion of commerce. Montesquieu linked commerce to civilised behaviour, with a
mutual stake in perpetuating prosperity. Smith in his masterpiece, The Wealth of Nations, gave industry and Theoretical Foundations of Comparative Politics
46
Image 4.1: Karl Marx (1818-83)
manufacturing a special position of honour. Ferguson, in his Essay on
the History of Civil Society (1792), noted the increasing specialisation
of professions that debase the lower ranks of commercial socier
which seem to threaten the upper ranks with imminent moral
corruption. To check this trend, he advocated a recreation of the
ancient classical ideal of virtue, to be calculated by the militia and
the citizens. Machiavelli also championed civic virtue, but his
essential concern was not with economics or social change. But
Hume's and Smith's perceptions are different as they are shaped by
the emergence of commercial society, which makes new demands
on institutions: (a) limiting the burden of government to defence,
administration of justice and execution of public woks; and
(}) broadening the political participation of citizens.
‘The broad framework of these Enlightenment thinkers centres
‘on economic life. They were not interested in developing a theory of
the modern state (as attempted later by Hegel), but were concerned
with dissecting the institutional settings crucially related to economic
life. Within this broad framework that gave primacy to economics,
the related yet vital questions of political life—for instance, the
public/private divide and the question of political liberty—came to the fore. Hume and his associates created
this new discipline of political economy. It examined questions relating to economic life and growth, seen as
key concerns of social science. Smith subsequently reinforced the fact that an ordinary wage labourer in Britain
or Holland was much better-off than an American Indian King.
This tradition of analysing economic arrangements as they affect life dominates the writings of Smith,
J. S. Mill and Marx. However, the late nineteenth and early twentieth centuries saw the rise of distinct
scientific disciplines like economics, sociology and political science. With increasing specialisations and detailed,
specific enquiries, the social sciences were compartmentalised, and different independent perceptions evolved
(Routh 1975).
Source: hitps://commons.wikimedia
orgfwikifFile:Karl_Marx.ipg
THE MARGINALISATION OF POLITICAL ECONOMY
Apart from this separation of individual social science disciplines, there was another important reason why
mainstream Western social scientists ignored the questions of political economy. Political scientists ignore
economic development and economic policies, considering them the problems of the post-colonial societies of
Asia and Africa after World War Il. In the West, steady economic growth and affluence within the framework
of a neo-Keynesian consensus is taken for granted. The advanced capitalist democracy is supposedly stable;
theories espousing the end of ideology and convergence posited that both advanced capitalism and developed
socialism were areas where fundamental problems of economics had been solved. his led to the rise of the
behavioural movement, and attempts to explain the sociological and psychological roots of partisan voting and
similar political activities. :
‘With emphasis on the pluralist nature of advanced capitalism and the interplay of interest group politics,
economic questions have been relegated to secondary importance. Simultaneously, the attribution of Western
capitalism as post-industrial and post-material has distanced social science research from key political
economy questions. With large areas of consensus amongst political parties and decision-makers, economic
policy options within the politcal process have been reduced to a minimum, exemplified by Lipset’s famous
assertion that politics has become boring. The issues that dominate are whether metal soles ick to get Political Economy 47
a nickel more an hour, or whether the price of nickel ought to be raised. These may be important, but are
hardly the grounds to stimulate ideological debate. Since the fundamental political problems of the industrial
revolution have been solved, it has spelled the ‘end of domestic politics for those intellectuals who must have
utopias or ideologies to motivate them into political action. ... The ideological issues dividing the left and right
has been reduced to a little more or less of governmental ownership and economic planning’ (Lipset 1964:
290; 1973: 406).
REVIVAL OF POLITICAL ECONOMY
However, this apparent tranquillity.of the social sciences with the indifference to political economy questions
began to break in the late 1960s with the onset of the Vietnam War, and the subsequent student unrest in
many developed capitalist countries. The 1970s and 1980s saw an unexpected revival of political economy. In
the 1970s, advanced capitalist countries faced a great deal of stagnation, inflation, unemployment and economic
difficulties because of the decision of the Organization of the Petroleum Exporting Countries (OPEC) to
raise the price of oil fourfold. This adversely affected all non-petroleum exporting countries, especially the
developing ones, but the impact was felt more in the West as one of the major reasons for the spectacular
post-World War II recovery of Western Europe was the supply of cheap oil from the Middle East (West Asia).
As a consequence of these factors, economic issues regained central focus within the social sciences. There was
also a realisation that economic problems could not be understood in isolation from other social realities; no
one discipline is capable of finding satisfactory answers and as such, the interdisciplinary nature of political
economy was advocated.
THE NATURE OF POLITICAL ECONOMY
However, the subject of political economy is varied and can be termed an umbrella ideology. It is a normative
area of study where the laws of physics do not operate. It deals with many important aspects, such as the
market, property, the intricate problem of supply and demand, and the selection of priorities and consequent
allocation of resources. The questions of a minimum wage and labour welfare to tackle the problem of organised
versus unorganised labour, the formal and informal markets, and the world economic system all come under
the purview of political economy. The priorities and limits of social expenditure, that is, whether to spend
more on education or on medical aid for the poor and the aged, taxation, money supply, inflation, corruption,
structure of the state, regulation, competition and the comparative advantage of trade and commerce, natural
resources and human resources are all components of political economy.
As it covers such a wide variety of subjects, political economy is neither a rigid nor a fixed subject of study. It
is a continuous process of comprehending the many linkages that compose economic life. Its relative importance
shrinks and broadens at different times and in different places. For instance, US society is often described as
apolitical, with minor contradictions and a near total approval of capitalism with a Calvinistic spirit. But even
in the US, following the depression, there has been a great deal of debate about political economy, which
ultimately led to the passage of the New Deal legislations, and a compromise with many essential presumptions
of traditional American capitalist values. Political economy, to a very large extent, is an expression of economic
belief systems, like the contemporary supporters and critics of globalisation.
In spite of this primacy of value preferences in political economy, some key variables are present in all the
different formulations, for example the question and nature of human equality, growth, impact of scientific
inventions and discoveries, change in the world system (the rise and fall of fascism and communism), the
emergence of post-colonial societies, and the emergence of the newly industrialising countries of East and
Southeast Asia and China, which is why the twenty-first century is said to belong to the Asia-Pacific region. 48
‘Another key aspect of polit \
Within the larger interlinking of economy and polity,
Theoretical Foundations of Comparative Politics
section of prevailing ideologies and thought processes,
economy is the critical diss 4 :
got ae some key characteristics manifest themselves in the
following manner:
@)
(b)
©
@
©
ive and empirical. It combines the speculative perceptions
ofan ideal economic arrangement with an emphasis on hard empirical facts. This combination began
dr Smith and continued with contemporary commentators like Friedman. Both the defenders and
ites of 2 poltcal-economic arrangement follow the same pattern, In political economy, facts do
rot always speak for themselves but are interpreted to carry a particular meaning. For instance, when
Marx says that 100 years of capitalism had done more wonders than all the preceding civilisations put
together, he i ying to interpre che impact of capitalism in cvilisational tems and speculate on the
Tiberating tole played by capitalism in the normative sense. However, when he details the intricacies of
contemporary economic facts, including surplus value, he is interpreting the facts ina particular manner
to build his thesis.
Political economy is policy-oriented, but cannot be termed a branch of policy analysis, Political economy
has a practical aspect—recommending policy preferences within the larger ideological preference—which
makes it both a macro and micro-based discipline. The classic example of such initiatives can be traced
back to the Fabian Society pamphlets, which dealt with particular problems of Great Britain's economic,
social, cultural and political issues within a larger framework of Labour Party programmes. Similarly, the
‘Adam Smith Institute is the think-tank for the British Conservative Party. In India, during the initial
years of planning, the contrasting framework of policy formulation followed the Fabian collectivistic
model with state-directed import substitution, which Chakravarti Rajagopalachari (1878-1972) within
liberal economics opposed, terming it the permit-licence-quota-raj. In contrast, the ambit of policy
sciences is much more restricted and specific.
Political economy asa discipline is both normat
Political economy incorporates both structural and behavioural levels of analysis. The basic questions
pertaining to social, political, cultural and economic structures constitute the essential framework of
political economy. Questions concerning a weak or a strong state, order and disorder, a soft or effective
state are important considerations for political economy. But the question of leadership, levels of consensus
in society, levels of social discipline and motivation are also emphasised by political economy.
Emphasis is placed on both international and national political economies. Political economy incorporates
both as an integral part of study, as one is not comprehensible without the other. Increasingly, political
economy is paying more attention to international players like multinational corporations and international
financing agencies like the International Monetary Fund (IMF) and the World Bank. Wallerstein speaks
of a world capitalistic system within which is a rise and fall of national economics. ‘The emphasis on an
integrated study received further impetus afier the collapse of the Soviet economic management, which
followed a highly secluded economic structure. In contrast, the economies that were integrated with the
West, namely the Newly Industrialised Countries (NICs) of South Korea, Taiwan, Hong Kong and
Singapore, did very well and now China, with its integration, has achieved spectacular results. However,
the question of desirable levels of integration or isolation continues to be hotly debated in political
economy.
Political economy has a critical dimension. With marked value preferences, political economy reflects
heavily on the critical dimension of enquiry. It does not lead to a Kuhnian consensus and like political
theorising, it continues with many alternative paradigms, more in the nature of a zero sum game. The basic
reason for this is that much of contemporary political economy is derived from the value orientations of
the age of ideologies of the eighteenth and nineteenth centuries, within the larger categories of liberalism
and socialism. The same tradition continues today with the incorporation of new issues like sustainable
development and environmentalism, making the issues more complicated and sophisticated. Political Economy 49
The larger frameworks of political economy can be classified under the following categories: Liberalism;
Mercantilism; Communism; Social Democracy; and Developmental state. Two other frameworks for analysing
political economy, namely Anarchism and Fascism, have been relegated to history and are rarely referred to in
contemporary debates of political economy.
Liberalism
Laski (1936) described Liberalism more asa mood than a doctrine. It took shape in England in the late seventeenth
century. Early liberalism, from the late seventeenth to the carly eighteenth centuries, was essentially libertarian
in outlook. It was based on the idea of plenty and a rough parity of individuals, both in the enjoyment of
freedom and ownership of property. Liberalism defends both private property and the market a these encourage
competition and innovation, and only the critical areas of defence and education are to be the responsibility of
the state. Early Liberalism defended a limited state with litle regulation of market and property, and supported
capitalism, a system of production based on private ownership and market. The state should provide for social
goods only in critical areas such as education.
“The essential framework of liberal political economy was provided by Smith in Wealth of Nations, in which
he portrayed a realistic picture of economic operation in the context of the increasing internationalisation of
commerce and industry, and the role of the government in managing the complex interplay of trade, commerce,
governmental regulation, economic well-being and growth. For economic development, there is no need for
the presence of an all-powerful leviathan; on the contrary, what is needed is a limited government with least
interference in an individual's political and economic freedom. He considered an average individual responsible
enough to rationally control his own behaviour and interests, and look after his own well-being. He advocated
the twin principles of market and the institution of private property, the sanctity of which was first established
in Europe through Roman law. He dealt at length with the questions of harnessing individual initiative and
entrepreneurship to the furthest possible extent. To achieve the optimum capacity of each individual, he advocated
a limited government with the possibility of maximising individual autonomy. He rejected a paternalistic, top-
down policymaking process; legislation would be limited to defence, maintenance of law and order, protection
of labour and the provision of public goods, leaving the rest to the individual.
Smith placed tremendous faith in the capacity of the individual, and therefore regarded elaborate regulatory
mechanisms as stifling individual initiative and enterprise. He supported competitive capitalism and provided
numerous examples of innovation that ordinary entrepreneurs make in their daily work. Private ownership and
free markets are the essential pre-requisites for the successful operation of an economic order. He remarked,
‘little else is requisite o carry a state to the highest degree of opulence from the lowest barbarism, but peace,
easy taxes and a tolerable administration of justice all the rest being brought about by natural course of things’
(Smith 1980: bocx). His philosophy of free trade and free market was ultimately to be regulated by the Invisible
Hand. However, although he advocated a limited government, he also wanted an effective government that
would guarantee laws to protect labour and provide for health and education.
Smith laid down the essential framework of a liberal economic order that remains relevant till date. Along
with Locke and Montesquieu, he exerted a seminal influence in all subsequent economic formulations. The
US Constitution is the first modern constitution to sanctify Smith’s recommendation (following Locke and
Montesquieu) ofa limited government, with state power restricted by means of checks and balances. Montesquieu
pointed to the importance of commerce and the need for social balancing to achieve the desited equilibrium
between politics and economics. This tradition of liberal economics continued ill Marshall, and the US,
Canada, UK, Australia and New Zealand are the best examples of counties that followed the prescription of
limited government.
However, within this broad liberal economic framework are many innovations to tackle crises. One such
example is the Keynesian revolution after the Depression of 1930, The depression deal a shattering blow ro the ‘Theoretical Foundations of Comparative Politic,
50
cover the entire framework of the free market. Keynes recommended
1S and to the inauguration of the welfare state
over the crisis the Depression had brought