SUBJECT:

POLI
TICALSCI
ENCE

LL.
B.:
PART2

NOTESBY:MI
SSMAHTABJAMI
LAKHTAR

POLI
TICALECONOMY
OUTLI
NE:

 Adv
ancedI
ndust
ri
ali
zedSt
ates

 Dev
elopi
ngNat
ions

 Under
dev
elopedNat
ions

WhatI
sPol
i
tical
Economy
?
Poli
ti
caleconomyisani
nterdi
scipl
i
narybranchofthesoci
alsci
ences.I
tfocusesont
he
i
nterr
elat
ionshi
psamongindiv
idual
s,government
s,andpubli
cpoli
cy.
Poli
ticaleconomi stsstudyhoweconomi ctheori
essuchascapi tal
i
sm, sociali
sm, and
communi sm worki nther ealworl
d.Anyeconomi ctheoryi
sameansofdi rectingthe
dist
ri
butionofaf i
niteamountofr esourcesinawayt hatbenefi
tsthegreatestnumber
ofindivi
duals.Thesei deascanbest udiedboththeoreti
cal
lyandast heyareusedi nt
he
realworld.Inther ealworld,publ
icpoli
cyiscreat
edandi mplementedar oundt hese
economi ctheori
es.Pol it
icaleconomistsstudyboththeunderl
yingrootsoft hese
poli
ciesandt heirresult
s.
I
nawi dersense,pol
iti
caleconomywasoncet hecommont er
m usedf ort
hefiel
dwe
nowcal l
economics.Adam Smi t
h,JohnStuar
tMil
l,andJean-JacquesRousseauall
usedthetermtodescribetheirt
heori
es.Theshor
terterm"economy "wassubsti
tut
edin
theearl
y20thcenturywiththedevel
opmentofmor erigor
ousstati
sti
calmethodsfor
anal
yzingeconomicfactors.
Theter
m pol
it
ical
economyi
sst
il
lwi
del
yusedt
odescr
ibeanygov
ernmentpol
i
cyt
hat
hasaneconomicimpact
.

Def
ini
ti
on:
Pol
i
tical
Economy

Economics—thesoci
alsciencethatdeal
swiththeproduct
ion,
dist
ri
but
ion,
and
consumptionofmater
ialwealthandwiththetheoryandmanagementofeconomi
c
syst
emsoreconomi eswasoncecal ledpoli
ti
caleconomy.

1
Hi
stor
yandDev
elopmentofPol
i
tical
Economy
Therootsofpol
it
icaleconomyasweknowi ttodaygobackt othe18t
hcentury.
Scholar
sduri
ngtheper i
odstudi
edhowwealthwasdistri
butedandadminist
ered
betweenpeopl
e.Someoft heearl
ierwor
ksthatexaminedthisphenomenonincl
uded
thosebyAdam SmithandJohnSt uar
tMil
l.
Smi thwasaphi losopher ,economi st, andwr it
erwhoi scommonl yreferredt oast he
fatherofeconomi csandoft hepol itical economy .Hewr oteaboutt hef unctionofasel f-
regulati
ngfreemar ketinhi sfirstbook, whi chwascal led" TheTheor yofMor al
Sent i
ments."Hismostf amouswor k, "
AnI nquir
yi ntot heNat ureandCausesoft he
Weal thofNations"( or"TheWeal t
hofNat ions")hel pedshapecl assical economi ct heor
y.
Itwasal sousedast hef oundat i
onf orf utureeconomi sts.Mi ll
combi nedeconomi cs
withphilosophy.Hebel i
ev edi nutil
itarianism—t hatact ionst hatleadt opeopl e'sgoodwi ll
arer i
ghtandthatt hoset hatl eadt osuf feri
ngar ewr ong.9I nessence, hebel i
ev edt hat
economi ctheoryandphi losophywer eneeded, al ongwi t
hsoci al awar enessi npol it
icsi
n
ordertomakebet terdeci sionsf orthegoodoft hepeopl e.Someofhi swor k,including
"Princi
plesofPol i
ti
cal Economy ,
""Ut i
lit
ar i
anism, "andASy stem ofLogi c"ledhi mt o
becomeoneoft hemosti mpor tantfigur esi npoliti
csandeconomi cs.

Component
sofPol
i
tical
Economy
Poli
ti
caleconomicsisspl
itintotwosections:Classi
calPol
it
icalEconomyandModer n
Poli
ti
calEconomy .Cl
assi
cal Pol
iti
calEconomyst udi
esthewor ksofphilosopher
ssuch
asMachiavell
i,
Adam Smith, andKarlMar x.ModernPol
iti
calEconomy ,ont heot
her
hand,st
udiestheworkofmoder nphil
osophers,economist
s,andpol i
ti
cal sci
ent
ist
s
suchasJohnMay nar
dKey nes,Milt
onFr eidman,andFr
iedri
chHay ek.
Thest udyofpol
it
icaleconomyi si nfl
uencedbygamet heory,asiti
nvolv
esdi f
fer
ent
groupscompet i
ngforlimit
edr esourcesandpowert hatassesswhichpol i
cieswil
l
providethemostbenefici
alresults.Ital
sorel
atestothecapabili
tyoftheeconomyt o
achievethedesi
redresult
s.Thest udyofpoli
ti
caleconomyf ocusesont hr
eemaj or
areas:
1.I
nter
disci
pli
nar
yst
udy
From ani nterdi
scipl
inarystandpoint,polit
icaleconomyf ocusesoneconomi cs,
sociology,andpol i
ti
calsciencetounder standhoweconomi csystems,poli
ti
cal
i
nstituti
ons, andtheenv ir
onmentaf fectandi nfluenceeachother.Thethreeareasin
i
nterdiscipl
inarystudyincludeeconomi cmodel sofpol i
ti
calprocesses,t
heinter
nati
onal
poli
ticaleconomyandhowi taf
fectsinternati
onal rel
ati
ons,andresourceall
ocati
onin
di
fferenteconomi csy stems.
2.Newpol
i
tical
economy

2
Thenewpol i
ticaleconomyar eatreat
seconomicpolici
esasabel i
eforacti
ont hatmust
befurt
herdiscussedr athert
hanasaf rameworkthatneedstobeanalyzed.Itunit
esthe
i
deologi
esofcl assicaleconomi csandnewadv ancesinthefi
eldofpoli
ti
csand
economics.Theappr oachdi smissesoldideal
saboutagenciesandtheinter
estof
stat
esandmar ketsandai mst oencouragepoli
ti
caldebatesaboutsoci
etalwantsand
needs.
3.I
nter
nat
ional
pol
i
tical
economy
Int
ernati
onalpol
it
icaleconomystudy ,
alsoknownasgl obal pol
it
icaleconomy ,
analyzes
therel
ati
onshipbetweeneconomi csandi nt
ernat
ional r
elati
ons.Itusesideasfrom
economics,soci
ology,andpoli
ti
calscience.I
nter
national poli
ti
caleconomyf ocuseson
howst at
esandinstit
utionsuseglobaleconomicinteracti
onst oshapepol i
ti
calsyst
ems.

I
mpor
tanceofPol
i
tical
Economy
Poli
ti
caleconomystudiesbothhowtheeconomyaff
ectspoli
ti
csandhowpol i
ti
csaf
fect
theeconomy .Aspol
it
icalpar
ti
escometoandleavepower,economicpol
icyof
ten
changesinacountrybasedontheideol
ogyandgoal
softhepar t
yinpower.
Pol
it
ical
changescanimpactmanyar easoftheeconomy
,whi
chcani
ntur
nimpact
el
ect
ionsandgovernmentpol
i
cies.Theseinclude:
1.Monet
aryandf
iscal
pol
i
cy

3
 2.Foodsecur
it
y
3.Gl
obal
trade
4.Laborsuppl
y,demand,
andcr
ises
5.Gr
ossdomest
icpr
oduct(
GDP)
6.Fi
nanci
ali
nequal
i
ty
7.Di
sast
ermanagement
8.Env
ironment
alst
abi
l
ity
Astheeconomi esofmor ecountr
iesbecomeinter
connect edthroughglobal
ism and
i
nternat
ionaltr
ade,thepoli
ti
csofonecountrycanhav east r
ongi mpactontheeconomy
ofanother.Under
standingther
elati
onshi
pbetweenpol it
icalpowerandeconomi c
deci
sionsinonecount r
ycanhelpothercountr
iespredicthowt hei
rowneconomi eswil
l
beimpacted.
Understandi
ngpolit
icaleconomycanal sohelpacount r
y'seconomybecomemor e
resi
li
ent.Ift
hegovernmentl eadersinpoweratanygivenmomentar eforwar
d-thi
nki
ng,
theycanputl awsandpol i
ciesinplacethatcr
eatethegreat
estpossi
bil
it
yforeconomic
stabi
li
tyandgr owt
h, r
egardlessofchangingpoli
ti
calpower.

Ty
pesofPol
i
tical
Economy
Poli
ticaleconomyisabr anchofsocial
sciencet
hatstudi
estherel
ati
onshi
pthatforms
betweenanat ion'
spopulati
onanditsgovernmentwhenpublicpol
i
cyisenacted.I
tis,
ther
ef or
e, t
heresul
toftheinter
acti
onbetweenpoli
ti
csandtheeconomyandi sthe
basisoft hesoci
alsci
encediscipl
i
ne.
Asment
ionedabov
e,t
her
ear
esev
eral
not
abl
ety
pesofpol
i
tical
economi
es:

Soci
ali
sm:
Thi
sty
peofpol
i
tical
economypr
omot
est
hei
deat
hatt
hepr
oduct
ionand
di
stributi
onofgoodsandwealtharemai nt
ainedandregulatedbysociety,r
atherthana
parti
culargroupofpeopl
e.Therat
ional
ebehi ndthi
sisthatwhateverisproducedby
societyisdonesobecauseofthosewhopar tici
pat
e,regar
dlessofstatus,wealt
h, or
positi
on.Social
ism ai
mstobri
dget hegapbet weenri
chandpoor ,
eliminati
ngtheabi l
it
y
ofindivi
dualsorgroupst
ocontrolt
hemaj or
ityofpowerandweal t
h.

Capi
tal
i
sm:
Thi
stheor
yadv
ocat
espr
ofi
tasamot
ivef
oradv
ancementandt
heabi
l
ity
offr
eemarket
storegul
ateanddr i
vetheeconomyont hei
rown.Theideabehind
capi
tal
i
sm i
sthatpr
ivat
ei ndi
vi
dual
sandot heractorsaredri
venbythei
rown
i
nter
ests—t
heycont
rolproducti
onanddist
ribut
ion,setpri
ces,andcr
eatesupplyand
demand.

4
Communi
sm:
Indi
vi
dual
sof
tenconf
usecommuni
sm wi
thsoci
ali
sm,
butt
her
eisa
di
sti
nctdif
fer
encebetweent heset wotheori
es.Communism wasatheorydevel
oped
byKarlMarx,
whof el
tthatcapital
ism waslimit
edandcreat
edabigdivi
debetweenrich
andpoor.Hebeli
evedinsharedr esources,
incl
udi
ngproper
ty.Unl
i
kesocial
ism,however,
undercommunism product
ionanddi stri
buti
onareover
seenbythegovernment.
Thosewhor esearchthepol
iti
caleconomyar ecal
ledpoli
ti
caleconomists.Theirst
udy
general
lyinv
olvestheexaminati
onofhowpubl icpol
icy,
thepoli
tical
sit
uation,and
poli
ti
calinst
it
uti
onsimpactacount ry
'seconomicstandi
ngandf utur
ethrougha
soci
ological
,poli
ti
cal
,andeconomi clens.

Pol
i
tical
EconomyTheor
y
Themoder
neconomi
st’
stheor
iesar
espl
i
tint
othr
eei
deol
ogi
es,
namel
y:
1.Li
ber
ali
sm
Theliberali
deologyst
emsf rom theconceptoflaborandexchangeandtheuseofland,
l
abor ,andcapi
taltoproducedurablegoods.Liberal
economist
sbeliev
ethateconomics
canbenef i
teveryoneandthatsocietycanprogresswit
htheimprovementinthe
standardofli
ving.
Theythi
nkthatthewant softhecommunityr
athert
hanofindi
vi
dual
saremost
i
mpor t
antfordeci
sion-making.Theyal
sobel
ievei
nequaloppor
tuni
tyf
orev
ery
oneand
areconcer
nedwi t
ht hestr
uctureofci
vi
lsoci
ety
.
2.Mar
xism
Marxi
sm st
atesthatinequali
tyi
sbad,andwealt
hisgener
atedfr
om l
aborandexchange.
I
tdoesnotsupportthepr i
vat
eownershipofr
esour
ces,whi
chitbel
i
evesleadst
o
i
nequal
it
yandonl yf
av orstheneedsoftheel
i
teandnotofthewhol
esociety
.
3.Economi
cnat
ional
i
sm
Economicnati
onal
i
sm isthebeli
efthatt
hestatepossessesallthepowerandt hat
i
ndivi
dual
sshouldworktomakeuseoft heeconomi cbenefi
ts.Theideologystat
esthat
thegover
nmentshouldcontr
olall
resour
cesandt hati
ndivi
dualsareignorantand
cannotcr
eateacohesiv
esociet
ywi t
houtastrongstat
e.
Thus,pol
it
icaleconomyprovi
desuswit
hanunderstandi
ngofhowacountryand
househol
dar emanagedandgov er
nedbyconsi
der
ingboththepol
i
tical
andeconomi
c
fact
orsassociatedwi
theach.
WhatNext
?Thedilemmasf acingmankindareextremebutnotnew.Thoseli
vingi
n
af
fl
uencehaveof
tent akenitforgr
antedthatthepoorshoul
dpaythepriceofthei
r
weal
thandcomfort.From aMar xi
stper
specti
v e,
onewouldsaythatcl
assstruggl
e,

5
agai
nstwhi chhistor
yispl
ayedout,
conti
nuesunabat
ed.Andthatinthest r
ugglefor
surv
ivalsomecount ri
esandsomesocialcl
asseswil
lmanagebetterthanothers.But
sustai
nabledev el
opment,
ifi
tistof
indexpr
essioni
nreal
it
y,wouldrequirechangesin
modesofpr oduct
ionandconsumpti
onaswellasnewsocialandpoli
ticalstr
uctur
es.
Tomakedev el
opmentsust ai
nabl e,progressmustbemadet oi
nt egratethe
perspecti
vesofthreedisci
pli
nes: (i
)thatofeconomi sts,whosemet hodsseekt o
maximizehumanwel farewit
hintheconst r
aint
sofexist i
ngcapi talstockand
technol
ogies;(
ii
)thatofecologists,whost ressthepreserv at
ionofecol ogical
subsystems;and(iii
)thatofsociologists,whoemphasi zet hatthekeyact orsarehuman
beings,whosepatternsofsocialorganizationarecr
uci alfordev i
singv i
ablesol
utions.

AndMancr eat edt heplasti

cbagand
thet i
nandal umi num canandt he
cellophanewr apperandt hepaper
plat e,andt hiswasgoodbecauseMan
coul dt hent akehi sautomobi leand
buyal lhisfoodi nonepl aceandHe
coul dsav et hatwhi chwasgoodt oeat
i
nt her efr
iger atorandt hrowawayt hat
whi chhadnof urtheruse.Andsoon
theear thwascov eredwi t
hpl ast
ic
bagsandal umi num cansandpaper
plat esanddi sposabl ebot t
lesand
ther ewasnowher et ositdownor
wal k, andManshookhi sheadand
cried: “Lookatt hisGodawf ulmess.”
—Ar tBuchwal d