Political Economy of Institutions and
Development
Week 1: General Introduction to Political Economy
Introduction to Political Economy
Political economy is the study of the relationship between economics and politics, states and
markets.
If you want something, you look at your cash, think about other things you might want, look at prices
and weigh those up against the preference list to make a decision. This decision is based on disposal
and preference, but not on the price because the market decides the price (space where transactions
happen).
There are also public goods (when something is too difficult or expensive to get on your own). Public
goods are supplied and consumed collectively. For this you need to access the state and join with
people who want the same thing (or not) and formulate a program. To realize this, you need power.
Where to find power?
- Leaders (drive, charisma, organizational talent)
- Resources (money, lol)
- Control over decision making
What has economics to do with this?
Well, markets sound very neutral since there’s a consumer preference and there are supplier
calculations. However, markets need rules to function, to ensure right to property and guarantee
concluded transactions. If the rules are not followed, there need to be sanctions and enforcement.
This goes right back to politics and power.
Businesses don’t necessarily have power, but since they have a lot of money, they have access to a
lot of things that increase power (lawyer, PR, lobbyist, academic). The voice of business carries more
weight in policy-making. The study of markets shouldn’t be preserved to economists, as the study of
states shouldn’t be preserved to political scientists.
The Evolution of Political Economy
Adam Smith started the modern approach of political economy in his famous book, The Wealth of
Nations in 1776 where he suggested that personal gain could also contribute to the common good,
through the self-regulating mechanisms of the market.
David Ricardo observed the power relationship between the land owner and the tenant in 1809
where the landlord would benefit most by productivity improvements made by the tenants.
Karl Marx took this idea of power a step further in his publication Das Kapital, 1867 where he
claimed that market capitalism is a device where capital owning classes maintained their exploitative
power over the working class.
,Only after the appearance of Alfred Marshall’s Principle of Economics in 1890, economics started to
become a discipline on its own.
The classical economists assumed that the economy was governed mostly by markets and market
forces (and so the state lost it’s central position in economic analysis and became one of the actors
among consumers and enterprises).
In 1930s there was a split in economics when the supposedly self-regulating world economy couldn’t
emerge from the Great Depression (John Maynard Keynes argued that the government should
intervene with its own spending). This approach brought the state more central in the economic
analysis and led to econometrics; economic statistical measures to track progress and do forecasting,
check the growth, inflation and unemployment.
Ronald Coase launched new institutional economics in 1937 with the idea that institutions matter
(this never disappeared). Institutions assist economic growth by reducing transaction costs.
In 1890s, in the political science strand, politics became a discipline on its own as well and
international relations was important. Realists believe that states pursued own self-interests and
institutionalists thought that other actors such as institutions could influence state behavior.
In the early 1970s American scholars focused on economic issues in international relations, empirical.
In Europe, because of the imperialist past there was more focus on historical and cultural factors but
later on it was more descriptive. Except for Marxist scholars who followed an ideology.
The economists, in that time, started to quantify social and government indices and asking questions
on the causes of prosperity and persistence of poverty. The economists also adopted the
institutionalist ideas of the political scientists that’s based on trust, governance and growth.
International Political Economy
Marxism states that economic power provides the basis for political power. However, political power
persists after its economic base is vanished. This is due to major shifts in the production system but
eventually, the imbalance becomes too great and the dominant economic class seizes control. Class
matters and economically determined.
There’s a capitalist competition going on which leads to economic power in fewer and fewer hands
(aka the bad ass rich) which controls the production means / exploitation.
Critique on Marxism
- Possible false consciousness designs to seal where true class is (patriotism, nationalism,
religion, race, culture)
- Economics isn’t the only base of power and exploitation
- Capitalist class survives crises in stead of going under?...
World Systems Theory (sub-branch of Marxism) divides the world into a center and the periphery
and various subdivisions. The center has grown rich at the expense of the periphery. (According to
this economic liberal prick it’s not true, because the center “doesn’t grow rich because of the
periphery”. Also, capitalist elites in both the center and periphery can maintain their own power at
the expense of their own citizens.
Realist school in world systems states that the world was anarchic and the prime object of the state
was to preserve its own existence, done by maximizing its own position in relation to others. Fewer
economic interests > collective state interests. The power is economic and military and this is seen as
,hard power. When states are more powerful, soft power, ideology and diplomacy to culture and
people is needed.
Even realists began to see that institutions have a function. John Ruggie, political scientists, said that
institutions aren’t neutral and they embody the values of their creators and project them into the
international field (fascist, communist institutions).
Realists prefer organization with a specific function, large membership, weak institutional support
and few built-in commitments to avoid unwelcome interlinkages of issues, formation of dominant
coalition, central leadership. Institutionalists prefer organizations with open ended ambitions, small
membership with strong secretariat so the institution can encourage interlinkage as part of own
development.
Week 2: Introduction to Data used in Political Economy
Mapping the World
Everyone knows the Mercator projection (1569), which is a world map named after Belgian
cartographer Gerardus Mercator. A Chinese map has China in the center. Mercator was faced with
the question how to portray planet earth, 3D, into a 2D space. Moving away from the equator, the
surface area decreases (countries larger).
The view of the world is well-established, but this is our own view shaped by our knowledge,
prejudices and interests and differs from the view of other parts in the world.
Different maps
- Saul Steinberg 1976, NYC perspective; Manhattan in details, points of interest in the USA and
in the horizon just a couple big countries as China and Russia
- Maikop Vase, first ever world map which is 4500 years old showing the Kuban river region
and rivers with wild animals, forests, fruit trees, mountains
- Turkish map by Mahmud Kashari over 950 years old where the top faces east; more close to
home, more detailed, different symbols and colors, north = unhabitable cold
Recognize own limitations of view (that’s distorted). To configure the world you need 1. A frame
work of questions 2. Data to answer.
Visualization: World Maps
- Mercator projection (most common in the west)
- Maikop Vase
- Silk map discovered in Hainan, China 1973 from 160 B.C. very accurate and used symbols
- Map by the Greek Ptolemy living in Egypt 1400s, enclosed Indian Ocean
- Roman map 300-400 shows the Roman Empire
- Mosaic map of the Middle East intended for Christians (discovered 1884)
- Kashghari map
- Arab map by Mohammed Al-Idrisi 1154 oriented to the south, detail of Indian Ocean and
better scale of Mediterranean than Ptolemy, Britain suffered
- Christian medieval map 1265 oriented to the east, Jerusalem center, top half Asia, bottom
left Europe, bottom right Africa > bible
Political Economy and Data
States should be the unit of analysis
- International relations
, - Rules and enforcement within borders
- Taxation and collective goods
- Collection of data on national level
Population is one of the first sets of data that needs to be examined
- Indication for size of the state
- Indication of military potential
- Indication of economic power
- Population is used for a common unit “per capita, per person”
National income of a country is regularly expressed in per capita. The most commonly measured
subcategory is the Gross Domestic Product (GDP) to indicate how the economy is doing in one single
number (since the second half of the 20th century). However, calculating national income is more
complex.
Why is national income interesting?
- Relative economic size (compared to the world economy)
- Indication of productivity or competitiveness, when divided by labor force
- Indication of wealth of citizens, when divided by population
- (Rich or poor?, not anymore)
Converting national income is giving a misleading picture (traveling abroad).
In the 1970s economist started experimenting with new methods for national income comparisons,
which wasn’t a huge success and had failures. Now the World Bank can compare very well, even
though there are still problems with measuring economic growth or comparisons over time.
Per capita income is still used as an average measure, but doesn’t say anything about the poverty
degree. The World Bank tried to measure poverty as the number of people living below a certain
figure and the UN Development Program wanted to broaden the poverty definition, which resulted
in the Human Development Index (more factors as access to education and health, living standards).
Population
On October 11th in 2011, the world’s seven billionth citizen was born in the Philippines (UN sad it was
symbolic lmao). In 1900, there were 1,6 billion people living on this planet and in 1960 this was still
only 3 billion (x 4,4 growth).
The largest relative gains were in Africa and Asia because death rates decreased because of modern
medicine and the control of killer epidemics; the young survived and then had children. In Europe
and Japan, birth rates decreased, later start of childbearing and reduced family sizes. Countries with
high birth rate have to find productive employment in the labor markets and countries with lower
birth rate have to deal with an aging population and costs of health care.
Population is seen as one of the simplest numbers, because people can be counted and so this data is
more accurate than other data. However, this depends on the statistical agencies available; in poorer
countries there are less resources, less reliable results of deaths and births. However, counting
population is not only about resources but also political; distribution of seats.
In Kenya in 2009 there were 1000 deaths and more than half a million people misplaced and the Un
ignored this.
Data is close to reality but not necessarily at local level!
