Lecture 1 Comprehensive Understanding of Political Economy PDF

Lecture 1 Comprehensive Understanding of Political Economy as a Discipline Mr. Ramces M. Dili Department of Political Economy Polytechnic University of the Philippines  Why Political Economy? development...

Lecture 1 Comprehensive Understanding of Political Economy as a Discipline Mr. Ramces M. Dili Department of Political Economy Polytechnic University of the Philippines  Why Political Economy? development how politics affects the government economy and the economy affects politics determine the relationship policy between governments and people individuals, and how public market policy affects society. The political economy not only applies to the overall economic value of the Government, but acknowledges that economic decision- making is inherently political. Political economists therefore accept the role of politics in economic activities and emphasize the use of political intervention for the correction of economic problems. Political economy answers the role of the state and economic policy in the era of crisis.  Economic Cycle Period (Years) Kitchen Cycle (Inventory) 3-5 Juglar Cycle (Fixed Investment) 7-11 Kuznet Swing (infrastructural Investment) 15-25 Kontratieve Wave (Technological Basis) 45-60 Expansion Boom Recession Depression “the science of the laws governing the production and exchange of the material means of subsistence in human society... Political economy is therefore essentially a historical science. It deals with material which is historical, that is, constantly changing." Political economy is concerned with the interaction of political and economic processes within a society: the distribution of power and wealth between different groups and individuals, and the processes that create, sustain and transform these relationships over time.’ - Collinson Political economists are very interested in who gains and who loses from a particular policy. TRENDS DIVIDED THE POLITICAL ❑Governments began to reduce their direct control over the economy FROM THE ECONOMIC ANALYSIS ❑Emergence of different political forms Over the past 50 It analyzes how political forces affect the economy Voters and interest groups have a powerful impact on virtually every possible economic years, political policy. Political economists strive to identify the relevant groups and their interests, and how political institutions affect their impact on policy. economy has It assesses how the economy affects politics become Macroeconomic trends can boost or ruin an incumbent’s chances. At the more microeconomic level, features of the economic organization or activities of particular increasingly firms or industries can have an impact on the nature and direction of their political activity. prominent in both economics and It uses the tools of economics to study politics Politicians can be thought of as analogous to firms, with voters as consumers, or political science, governments as monopoly providers of goods and services to constituent customers. Scholars model political-economic interactions in order to develop a more theoretically in three ways: rigorous understanding of the underlying features driving politics. Who owns the means of Politics… production? Economics… Scarcity??? The relationship between power & wealth? The distribution of wealth? Economic Systems: Market versus State CRISIS SPARKS Great Depression (1929) Oil/Energy Crisis (1973) ASEAN Financial Crisis (1997) Global Financial Crisis (2008) EFFICIENCY OF THE MARKET  MARKET FAILURE If the market can achieve a socially desirable allocation of resources, there would be no need for government to coercively intervene in economic activities such as production, distribution, exchange, consumption and investment. However, the market is not able to achieve optimality in all economic activities. Any divergence of market equilibrium from the point of Pareto optimality is called market failure. The government is supposed to ensure an optimal correction of market failure.  MARKET FAILURE Public Goods: Public Bads: MARKET FAILURE Imperfect Information: Regulation of Monopoly: Distribution of Incomes: Market failures happen when the free market, left to its own Market failures are a big deal because they mean the free devices, doesn't produce the market isn't always the best best outcome for everyone. way to do things. Sometimes, It's like a game where everyone is the government needs to trying to win, but the rules are messed step in with rules or regulations to make sure up, and the whole thing ends up unfair everyone benefits. or inefficient. shift to the STATE Paradigm Shift (1940’s-1970’s) (Kuhn, 1962) scientific fields undergo periodic "paradigm shifts" rather than solely progressing in a linear and continuous way, and that these paradigm shifts open up new approaches to understanding that scientists would never have considered valid before. John Maynard Keynes GOVERNMENT FAILURE Inefficient Budget Allocation: occurs when there is over- supply of a public good. Inefficient Budget Allocation: arises not only due to misuse of budget, but also from undue regulations to bias in resource allocations. shift to the STATE (1980’s-present)  Why Government Intervention? Market Failures: As the text you provided explains, markets don't always produce the best outcomes for everyone. Things like pollution, lack of public goods, monopolies, and information problems can lead to inefficient or unfair results. Government intervention can help address these market failures. Social Goals: Governments often intervene to achieve social goals that the market might not prioritize, such as reducing poverty, ensuring access to healthcare, or providing education. Stabilization: Governments can use tools like fiscal and monetary policy to stabilize the economy, manage inflation, and promote economic growth.  How Government Intervenes Regulation: Governments set rules and regulations to protect consumers, workers, and the environment. This might include setting safety standards, enforcing antitrust laws, or controlling pollution. Taxation and Spending: Governments use taxes to raise revenue and fund public services. They can also use spending programs to stimulate the economy or address specific social problems. Public Goods: Governments often provide public goods, like national defense, infrastructure, and education, that are difficult or impossible to provide through the private market. Social Welfare Programs: Governments can provide social safety nets, like unemployment insurance, welfare, and food stamps, to help those who are struggling economically.  The Debate: There's a long-standing debate about the appropriate level of government intervention. Some argue that the government should play a limited role, while others believe that more intervention is necessary to achieve social and economic goals. Free Market Advocates: They believe that the free market is the most efficient way to allocate resources and that government intervention often does more harm than good. Interventionists: They argue that government intervention is necessary to correct market failures, achieve social goals, and stabilize the economy. Key Considerations: Efficiency vs. Equity: Government intervention can sometimes improve efficiency, but it can also lead to unintended consequences. There's often a trade-off between efficiency and equity. Cost and Benefits: Government intervention always has costs, both in terms of money and potential negative consequences. It's important to weigh the costs and benefits of any intervention. Political Influence: Government intervention can be influenced by special interests and political considerations. It's important to be aware of these influences and to ensure that interventions are designed to benefit society as a whole. The role of government intervention in economic systems is a complex and evolving issue. There is no one-size-fits-all answer, and the appropriate level of intervention will vary depending on the specific circumstances. On the Choice of Economic System: Politicians and bureaucrats are agent for the citizens and should serve and promote the welfare of the nation. Yet they usually place high priorities on their own profit than on the peoples’ or even their own nations well-being. Formative Assessment 1 1. How does the paper "From Political Economy to Political Analysis" challenge the traditional approach to political economy in development studies? Focus on the critiques of the "economics of politics" approach and the limitations of the three generations of political economy analysis. 2. What are the key features of the authors' proposed "political analysis" framework, and how does it differ from the "political economy" approach? Consider the disaggregation of key concepts, the emphasis on power and agency, and the inclusion of ideas and contingency. 3. How does the paper argue that "politics matters" in development, and what are the implications of this for policy and practice? Explore the historical shift from "governance" to "politics," the role of political actors, and the importance of understanding political processes. 4. What are the limitations of relying solely on "incentives" as a means of understanding and influencing political behavior in development contexts? Discuss the arguments against the "economics of politics" approach, including the critiques of its assumptions about rationality, institutions, and power. 5. How can the concept of "contingency" be incorporated into political analysis for development, and what are the implications for policy and practice? Consider the role of choice, accident, and historical events in shaping political outcomes, and discuss how donors can work more effectively in a context of uncertainty.