Political economy approach states that politics and economics are intertwined as politics affects economic outcomes in a variety of ways, for example the ability of the state to preserve law and order in which property rights are protected, process of planning etc. Economical factors also play an important role in political outcomes, for example – political parties contest elections by promising to increase growth, reduce inflation etc. As per President Clinton rightly recognized that the economy shaped the state affairs.
In globalization economic factors determine political outcomes.
The term political economy implies that disciplinary separation of politics from economics is ultimately unstable. Almost every level of politics is intertwined with economics. Political factors are crucial in determining economic outcomes and economic factors are crucial in determining political outcomes.
Examples of political factors in determining economic outcomes – Politics affect economic outcomes in variety of ways ranging from the ability of the state to ensure a framework of public order in which property rights are protected and contracts are upheld to the capacity of government to regulate the economy or even exert direct control over economic life through planning and nationalization. Similarly economic factors also impact political outcomes. Political parties for instance compete for power by promising to increase in economic growth, reduce inflation, remove poverty etc. President Clinton recognized election results are often determined by the state of the economy, the government wins elections when the economy booms but are likely to be defeated during recessions or slumps.
History of Political economy approach
It originated in the West in Adam Smith’s “Wealth of Nations” (1776). Smith considered political economy as a branch of science of a statesman or legislator. Other examples are David Ricardo’s “Principle of political economy and taxation”, Karl Marx’s economic and philosophical manuscripts, JS mill’s “Principles of political economy”.
The east political economy can be traced to ancient India. Kautilya’s Arthashastra is considered the first book on it. Most important political obligation of the state is to secure material well being. Thus, Political economy is the study of the interaction of politics and economics. It focuses on the relationship between States and markets. Political economy encompasses a variety of perspectives and approaches. For example, political economy may focus primarily on the responsibility of the state with regard to the economy. In this sense it considers issues such as implication of state intervention, for growth and prosperity and the respective strengths of the state and market as a means of distributing wealth. Alternatively political economy may focus on ways in which economic factors affect political decision making. In this sense it is concerned with issues such as the political influence of business groups and the extent to which global markets serve as a constraint on national government. However at a deeper level political economy encompasses a range of competing traditions.
The most important of this traditions are as following –
- State centric Political Economy
- Classical and Neoclassical Political Economy
- Marxist Political Economy
The term “Political economy” has a long association with Marxism. Orthodox Marxist suggests that politics is merely a part of ‘superstructure’ determined or conditioned by the economic ‘base’, the politics being nothing more than a reflection of the class system. As a method political economy refers to the use of theories and approaches developed within economies to analyze politics and include the rational choice, public choice, social choice and game theories.
# It developed out of mercantilism (economic philosophy in which states play a dominant role in economics, Ex – Tariffs). Mercantilism was influential in Europe from the 15th century to late 16th century. Classical mercantilism philosophy was aimed to increase exports and reduce imports.
# Classical political economy – Unregulated market economy tends to long term economic equilibrium. It implies the policy of ‘laissez-faire’. Market is left to manage itself. Classical and new classical political economy treats individuals as a key actor.
# Marxist political economy – Portray social class as a key actor.
Theoretically, political economy approach can be understand through –
- World system analysis
- Articulation of modes of production
- Analysis and political regimes
- State centered approach
- Development as modernization
Criticisms
- Economic determinism – Economic determinism is a theory that emphasizes the dominant role of economic factors in shaping societies and historical developments. Critics argue that it oversimplifies complex human interactions, neglecting cultural, political, and psychological influences. While economic forces do play a significant role, other factors also contribute to shaping the course of history and social outcomes.
- Liberals criticize this approach for overemphasizing the intervention of the state in the market or impact of it.
Political economy approach has been widely used in India by Pranab Bardhan, Atul Kohli, Rudolph and Rudolph, Francine Frankel and Gurnar Mydral. It is useful because it has qualities of both being qualitative as well as prescriptive.
Disadvantages of political economy approach – It just focused on analyzing economic factors and politics. Hence always used in combination with other approaches.
Political economy has different schools of thought such as classical political economy – Adam Smith, Ricardo, Marxist Political Economy – Marx, Engles, Lenin, Rosa Luxembourg, Neo- Marxists and neo liberal political thought and so on.
