Political Economy

Dr.Pakinam Fikry
How to contact me?
 Email:
Pakinam_fikry@feps.edu.eg

Spring 2025 2
Course Materials
 Lecture notes/slides (with gaps to fill)
 Your notes
 Main Textbook:
➢ Clark, Barry. (2016). Political Economy : A
Comparative Approach. USA: Bloomsbury
Publishing USA.

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Course Materials
 The lecture slides will be available on
Thinqi

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Student Evaluation
Classwork 30 points
(Quizzes, Research,
Presentations)
Midterm Exam 20 points

Final Exam 50 points

Total 100 points

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Course Outline
 Introduction to Political Economy

 Political Economy Perspectives

 Application of Political Economy to

Selected Topics

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Introduction to Political
Economy

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 Political Economy
 Politics and Economics are both concerned
with resource allocation.

 Hence, both are intertwined that we cannot

study one without the other.

 Beginning in the 17th century, writers used

the term political economy to describe
efforts to understand the relationship
between commerce and government.
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 Political Economy
 At that time, most European governments
were actively involved in promoting
economic development through tariffs,
regulations, subsidies, and even government-
owned enterprises.

 No person seeking to understand this

“mercantilist” system would have conceived
of separate analyses of politics and
economics because commercial activity was
firmly embedded in a web of political and
cultural constraints and supports.
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 Political Economy
 By the latter part of the 18th century, however, the
expansion of commerce created a dramatic shift in
the balance of political power, as merchants and
manufacturers successfully challenged government
policies restraining the pursuit of wealth.

 Their efforts gained intellectual legitimacy with the

appearance of Adam Smith’s book “The Wealth of
Nations in 1776”.

 Smith argued that government intervention was

impeding economic growth and that competition in a
free market would generate greater prosperity than
could ever be attained through government
management of commerce.

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 Political Economy
 Adam Smith (1723–1790) was among the first
theorists to perceive the contours of an emerging
new society in which the market was becoming
disembedded from previous political and cultural
constraints.

 For the first time in human history, it was now

possible to conceive of an economy distinct from
the rest of society. Smith and subsequent
“classical” political economists devoted
themselves to analyzing this new capitalist system
in which the individual pursuit of self-interest was
a more powerful force in shaping society than the
dictates of monarchs, aristocrats, and religious
leaders.
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 Political Economy
Yet, within half a century, the
consequences of free markets were
generating intense political opposition.
➢ In England, workers found themselves
toiling (working) for up to 16 hours per
day for subsistence wages and in
dangerous unhealthy factories.
➢ Polluted cities
➢ Slums and beggars
➢ Social tensions and class conflicts (strikes
and crimes).
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 Political Economy
 By the mid-19th century, the discontent
with capitalism led social reformers to
initiate efforts to regain some political
control over commercial activity.

 Governments enacted new laws to

address issues such as child labor, length
of the workday, occupational health and
safety, pollution, education, and product
safety.
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 Political Economy
 In effect, neoclassical economists artificially separated
politics and economics by assuming away all the political,
social, cultural, and psychological factors affecting
economic activity.

 By making highly unrealistic assumptions, they created

an imaginary free market and a fictitious
homoeconomicus (economic man), who made rational
choices based purely on calculations of personal costs
and benefits.

 They believed that the actions of rational persons in

free markets would lead to a stable economy with full
employment and maximum value of output.

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 Political Economy
 Primary Actors: Based on neoclassical economics:
➢ The primary actor in economics is the individual.
- Economics deals with efforts by individuals to maximize
attainment of their private goals using whatever resources
they own.

➢ In Politics, political decisions are made by groups or

representatives of groups and, once made, are binding
on all members of the group.

- Although economic activities are essential to human

survival, they fail to engage the uniquely human capacities
for cooperation and collective decision making based on
reasoned argument, dialogue, persuasion, and compromise.
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 Political Economy
 However, this distinction is problematic. Why?

1- Most individuals function as members of

groups ranging from families to communities,
corporations, and nations.

➢ To be a good parent, good neighbor, good

employee, or good citizen, individuals need to
demonstrate a commitment to the well-being of
the groups to which they belong.

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 Political Economy
2- The boundary separating the private sphere of
economic activity and the public sphere of politics
is porous.
➢ the collective choices of democratic nations
reflect the aggregation of private individual
preferences as registered through voting and
poll-taking.

➢ individualsand corporations are able to

influence public choices through lobbying,
campaign contributions, and control over the
selection of candidates for public office.
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 Political Economy
2- The boundary separating the private sphere of
economic activity and the public sphere of politics
is porous.

➢ the private interests of individuals are shaped

by the quality of public life. Humans form their
identities, meanings, and purposes within a
social context (social interaction within groups).

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 Political Economy
 Primary Goals: Based on neoclassical economics:
➢ The primary goal in economics is prosperity while the
primary goal in politics is justice.

➢ Economics dealt with the choices of individual

consumers and producers pursuing prosperity (i.e.,
higher income and wealth) through the market.

➢ Politics consisted of decisions by groups ranging from

local communities to nations aimed at promoting justice
(i.e., defining and protecting property, civil, and human
rights) through government.

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 Political Economy
 Primary Goals: Problems
➢ A prosperous society is more likely to be perceived as
a just society because the range of individual choice
and opportunity is broadened.

➢ Conversely, a just society fosters prosperity by

providing equal opportunity, fair rewards, and the
security of individual rights to motivate production and
accumulation of wealth.

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 Political Economy
 Institutional arenas: Based on neoclassical
economics:
➢ In economics, exchanges of commodities and money in
the market constitute economic activity. Allocation of
resources is achieved through the market where the
price system coordinate the choices by individuals to
buy or sell particular commodities.

➢ In politics, elections, campaigns, and lawmaking occur in

the political arena. The allocation of resources is made
by the government which has the power to make an
“authoritative allocation” binding on all citizens.

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 Political Economy
 Institutional arenas: Problems:
➢ Corporate executives have the power to formulate
goals and rules binding on all employees. Just as
governments punish those who violate the law,
employers rely on sanctions such as dismissal or
demotion to maintain control over workers.

➢ To the extent that corporations are successful in

suppressing competition, they gain market
power(control prices).

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 Political Economy
 Institutional arenas: Problems:
➢ Many market activities have public consequences (e.g.
pollution) and therefore become political issues to the
nation as a whole.

➢ Income inequality might create a greater power of

employers to command the obedience of employees.

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 Political Economy
 To sum up
➢ Both politics and economics are concerned with
organizing human activity, marshalling resources,
resolving conflict, allocating burdens and benefits for the
satisfaction of human wants and needs.

➢ However, politics and economics are not the same;

although individual/group, prosperity/justice, and
market/government may be interrelated, they are not
identical.

➢ The separation of economics and political science as

academic disciplines serves the purpose of advancing
knowledge through specialization of scholarly activity.
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 Political Economy
 Although neoclassical economics continues to
dominate the mainstream of economic theory, its
influence has declined substantially. It was challenged in
the 19th century by historical economics in Germany,
socialist economics in France, and institutional
economics in the United States.

 Great depression in the 20th century----> Keynesian

economics explicitly recognized a significant role for
active government policies in maintaining a healthy
market economy.

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 Political Economy
 Beginning in the 1960s, a resurgence of political
economy developed along three broad paths.

1- Neoclassical economic theory is used to

understand political and cultural institutions.

➢ Public choice theory: assumes that politicians,

bureaucrats, and voters are rational maximizers
of self- interest and views the political process
as a market in which these individuals engage in
mutually beneficial exchanges.
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 Political Economy
 Beginning in the 1960s, a resurgence of political
economy developed along three broad paths.

1- Neoclassical economic theory is used to

understand political and cultural institutions.

➢ New institutional economics: explains political

and cultural institutions as arising from the
rational, self-interested choices of individuals
formulating rules to coordinate their activities
more efficiently.
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 Political Economy
 Beginning in the 1960s, a resurgence of political
economy developed along three broad paths.
2- The economy is viewed as a political process in which
the formation of individual preferences, the development
of technology, the pattern of resource ownership, and the
structure of markets are all determined by social and
political processes in which power differentials determine
the outcomes.
➢ Post-Keynesian economics

➢ Social economics

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 Political Economy
 Beginning in the 1960s, a resurgence of political
economy developed along three broad paths.
3- Economic and political problems are symptoms of
cultural and moral decline.
➢ From this perspective, the neoclassical assumption of
autonomous individuals maximizing their self-interest is
merely a description of the disintegration of traditional
institutions such as families, neighborhoods, and
communities.

➢ Without these “mediating structures” to restrain self-

interest and harmonize social relations, politics
degenerates into a clash of private interests and the
economy deteriorates.

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 Political Economy
 Despite the existence of multiple approaches, there is a
consensus that the interdependence between politics
and economics dictates a more holistic method of
analysis, encompassing the broad matrix of economic,
political, and cultural institutions through which humans
coordinate their interaction.

 Both the market and government are sufficiently flawed

institutions to require a balancing of political and
economic processes to sustain a healthy society.

 In a positive sense, each institution serves to

complement weaknesses of the other.
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 Political Economy
 Since the market and government interact with
each other, efforts to analyze them separately
will yield only partial, and therefore distorted,
understandings of the social system.

 The field of political economy can be divided

into two more specific subgroups:
comparative political economy and
international political economy.

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 Political Economy
 Comparative political economy (CPE) is
defined as the comparison across and between
countries of the ways in which politics and
economics interact.

 Often, this comparison allows studying how similar

political policies result in different economic
outcomes.

 Comparative political economy has generally

focused on the politics of economic development,
the analysis of different economic systems, the
effects and implications of globalization, as well as
general economic and social policies.
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 Political Economy
 International political economy (IPE) is
defined as the study of political economy from a
global perspective or through international
institutions.

 IPE focuses on international trade, economic

development, international monetary bodies, as
well as the influence of multinational
corporations and non-governmental
organizations.
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