2. •Politics:
• It is a branch of social science that refer to the set of activities associated
with making decisions in groups or other forms of power relations between
individuals such as distribution of resources and status. How the behavior
of people controlled by use of regulations and power.
•Economics:
• Economics is a social science that studies how people interact and make
efficient allocation of limited resources to achieve maximum satisfaction of
society wants.
3. Political economy:
Definition
1. Political economy is an interdisciplinary branch of the social sciences that
focuses on the interrelationships among individuals, governments, and public
policy.
2. Political economy is a branch of economics that studies production, trade, and
their relationship with law and the governmental policies.
3. It is used to describe the policies set by governments that affect
their nations 'economies.
4. The political economy seek to understand how history, culture, and customs
impact an economic system. As any economic theory is a methodology that is
adopted as a means of directing the distribution of limited resources in a way
that is beneficial for the greatest number of individuals.
5. Hence, the term political economy is widely used to describe any government
policy that has an economic impact.
4. Global political economy studies how political forces shape
global economic interactions.
Therefore, the main concern of political economy is to
determine the relationship between governments and
individuals, and how public policy affects society
5. Understanding Political Economy
Political economists study how economic theories such as capitalism, socialism, and
communism work in the real world.
• Socialism:
• This type of political economy promotes the idea that the
production and distribution of goods and wealth are
maintained and regulated by society, rather than a particular
group of people. Socialism aims to bridge the gap between
rich and poor, where one or more individuals don't have the
majority of power and wealth. (Norway, Sweden, and
Denmark)
6. Main Features of Socialism
1. Higher-income tax on high-earners
2. Creation of National health care system – free at the point of use
3. Nationalisation of key industries, such as coal, electricity and gas.
4. Creation of welfare state with minimum income guarantee for the unemployed.
5. Labour market reforms, such as greater protection for trade unions.
6. Expansion of free education
7. Socialism emphasises equality of opportunity, using the state to redistribute income from the
highest earners to others. But, it does not insist on equality, only aiming for equality of
opportunity. Democratic socialism combines both public sector intervention with private sector
enterprise.
8. Traditionally socialist parties may want to nationalise key public sector industries (which are
natural monopolies), but private firms are free to operate in the free market. Rather than
control individual firms, the state implements rules to avoid the exploitation of workers and
consumers.
9. Socialism allows private property and private ownership, but it may place a certain tax on
wealth and inheritance to redistribute opportunity and wealth.
7. Communism:
Communism was a theory developed by Karl Marx, who felt
that capitalism was limited and created a big divide between
rich and poor. He believed in shared resources, including
property, and that production and distribution should be
overseen by the government. (China, Cuba, Russia, North
Korea)
8. Main Features of Communism:
1. Communist economic and political theory was developed by Karl Marx. He
developed the concept of a ‘Dictatorship of the Proletariat’ arguing that the
working class should rule in the interests of the people, and ignore democratic
norms.
2. Marx also advocated for a revolution to overthrow capitalism and create a new
economy where industry was owned and managed by the government rather
than private individuals.
3. In practice, the Soviet Union did achieve a new kind of economy through the
1917 revolution. Lenin and then Stalin also cracked down on individual liberty
and removed all forms of democracy. An overriding aspect of the Communist
society was the lack of individual liberty and freedom.
4. In the Communist Soviet Union, the state became all-powerful in managing the
economy, setting targets, deciding what to produce and how to produce. It left
very little if any role for the price mechanism and free markets.
9.
10.
11. Capitalism:
Capitalism:
This theory advocates profit as a motive for advancement. The aim behind
the idea of capitalism is that private individuals and other actors are driven
by their own interests—they control production and distribution, set prices,
and create supply and demand.
A capitalist economic system is characterized by private ownership of assets
and business. A capitalist economy relies on free-markets to determine,
price, incomes, wealth and distribution of goods.
It is argued that inequality is essential to encourage innovation and
economic development.
Equality, Ownership, Efficiency, Unemployment, Price controls,
12. An Approach to study Political Economy
• Interdisciplinary studies:
• The interdisciplinary approach draws on sociology, economics, and political
science to define how government institutions, an economic system, and a
political environment affect and influence each other.
International political economy:
• Also known as global political economy, this approach analyzes the link
between economics and international relations. It draws from many
academic areas including political science, economics, sociology, cultural
studies, and history. The international political economy is ultimately
concerned with how political forces like states, individual actors, and
institutions interact with global economic issues.
13. Political Economy Behavior
• Political economists are very interested in gains and losses
incurred with the implementation of a certain policy. It gives
them an idea as to which groups support the policy and
which groups don’t. They also examine how individuals
increase their utility by participating in political activity.
•
Capital and labor are used to influence political processes
and generate policy outcomes with the most benefit. The
political behavior of an economy is shaped by:
14. Political Economy Behavior
• 1. Interests
They include the interest of individuals and groups who are able to
use their power to influence policy. Individuals in government tend to
promote their own economic and political interests that will help
them retain power. People outside the government are often more
concerned with the outcome of the economic policies implemented.
2. Institutions
There are political institutions which set rules & Constitution and
define how leaders are chosen and how a new policy can be
implemented. Institutions help structure incentives facing individuals
and groups within the economy.
15. The Relationship between Economics and Politics
• Economics is concerned with studying and influencing the economy.
Politics is the theory and practice of influencing people through the
exercise of power, e.g. governments, elections and political parties.
• In theory, economics could be non-political. An ideal economist
should ignore any political bias or prejudice to give neutral, unbiased
information and recommendations on how to improve the economic
performance of a country. Elected politicians could then weigh up
16. Economics needs political support
• If you study economics, you can make quite a convincing case for
Agricultural Tax – a tax which makes farmers pay the full charge on
total revenue earned in a year. But it remained very heavily defeated
in a referendum. As an economist, you would like to see more
congestion charging because it makes economic sense.
• But, what can make ‘sense’ to an economist can be politically
unpopular.
•
Privatization of Public Institutions
GOP Tax Cut Policy
17. Who runs the economy – Politicians or economists?
• Another issue with economics is that some criticise the subject for
prioritising economic growth and maximisation of monetary welfare.
Some argue that the aim of society is not to maximise GDP – but to
maximise happiness, the environment and being satisfied with what
we have. Therefore, a politician from an environmental background
may disagree with the whole premise behind macro-economics. It is
not just about the best way to promote economic growth. But,
whether we should be aiming for economic growth in the first place.
• That is a political issue too.
