Political Economy
Important terms
Lists of important stuff
Recap/Summary/Conclusions // Extra notes about something non-substantively
Lecture 1: The foundations for political economy: what is political economy?
Political economy = not a course in economics (as it is considered today)
It is about what the essentials are of a market and: how they are governed.
The economy is inherently political and normative.
Legal entities give firms international property rights. Because the world is so globalized,
corporations can choose where they base themselves. They are not depending on a factory,
and this gives them more freedom to go to places with low taxes. > This is an example of
something you can study in political economy.
The situation in Amsterdam: housing prices, interest rates, central bank policy, inflation.. We
can look at this from a political economic perspective by asking: what can we do about it,
and what is the cost of state intervention?
A big question in political economy: is it states or markets? Are the markets in power or is it
the state? and also.. How can we organize the economy so that we can thrive, to increase
welfare and prosperity?
Political economy:
1. Studies the fundamental interconnection between states and markets
2. Understands economic politics as a means for states to achieve their objectives
(Strategies for development; Schwartz: Verdoorn, Kaldorian, Ricardian)
3. Considers today and tomorrows political economic relations and battles from a
historic perspective
Standard economic thinking is a risk because it might not take into account what we need to
take into account. Almost everything in our society can use a political economic perspective
to reveal underlying layers.
The economy is inherently political. And much of what is political, is directly related to the
economy. PE is everywhere, and everything is PE. But if that is true.... How can you study
this?
PE emerged 250 years ago.
4 Perspectives
I. POLITICAL ECONOMY I: The classic thinkers on state and market, and their
followers
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,They considered both states and markets, integrated in one academic debate.
People started to consider how society is organized if you look at it really well, and this
raised questions about human behavior.
Given how people behave in a certain way: how then should we organize society and public
organization in a way to achieve wealth and a good society.
The academic divide: After some time, the domains separated into 2 domains: political
science and economics and they developed in their own way.
II. POLITICAL ECONOMY II: The political science of economic policy fields
The governance of political institutions (and decision making, and regulation)
Questions about for example pensions, unemployment, social benefits, migration issues,
climate change.
To take into account the underlying power forces, producers, laborers, states.
III. POLITICAL ECONOMY III: Political phenomena considered from an economics
perspective
This is what is usually taught at economics departments.
What is economics?
> oikos = the family, the family's property; a large estate or even a village
> nomos = greek term for law.
> the way we organize society to provide for our needs
What is economics? Different definitions.
1. “the branch of knowledge concerned with the production, consumption and transfer of
wealth.” (Google)
2.“a branch of the science of a statesman or legislator with the objective of providing a
plentiful revenue or subsistence for the people.” (Adam Smith)
3. Combining The assumptions of maximizing behavior, stable preferences, and market
equilibrium, used relentlessly and unflinchingly (Gary Becker)
Economics Is?
➔ A domain
➔ A perspective and approach to study social interaction
demand/supply, competition; rational behavior; homo economicus; individualism
Taking an economic perspective on politics.
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, IV. POLITICAL ECONOMY IV: Markets and business considered from a political science
perspective
Studies markets and market actors (corporations, businesses). More and more the division
of economics.
You want to understand corporate governance, how corporations are governed and for
example the corporation as political actor (in law making, lobbying)
It is important because many things are related to corporate conduct: for example climate
change etc.
Much regulation is not done by states: it is private regulation. Market players who regulate
themselves with links to national - or even transnational - governance > (for example UN
united nations)
The role that business plays in for example the European Union: one thing is lobbying, but
also the process of European unification is closely tied to business interest.
Large corporations have a lot of business interest and therefore the money to be on the front
row in law making and European policy.
Example: Tax havens: Businesses trying to submerge tax, storing their money at places
where you don’t have to pay too much taxes. (Bahamas, bermuda, switzerland)
But, today, companies can put their headquarters wherever they like. Domicile of
convenience (cayman islands). The firms seek low regulation; regulation that is well suited to
them.
Offshore financial centres / tax havens
➢ Low taxation
➢ Lenient regulation
➢ Secrecy
➢ Tax avoidance vs. Tax optimization
➢ Firms use complex ownership structures
➢ Countries / jurisdictions facilitate corporations competition on tax rates
Effective tax rates: often the bigger the better. The bigger you are, the lower your effective
tax rate is. This differs per country.
This game between corporations and states is a game you try to understand with political
economy. States want to have companies but also do not want to have an unfair policy.
The Netherlands is a big sink, a big tax haven actually! You see a lot of headquarters and
mail boxes in Amsterdam because of this. We can question ourselves: is this a situation we
want?
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, About the course:
PART I: The ingredients of Political Economy (The overview of different political economic
ideas and an understanding on how these ideas build upon each other and relate to each
other)
PART II: Developments in Global Capitalism (Takes you on a grand tour of the development
and relationship between states and markets. And what can countries do to increase the
wealth of their nation?, what are the do’s and don’ts?)
PART III: Real World Economics in times of crisis
Lecture 2: Classic Political Economy: Capitalism and classical thinkers in PE
Capitalism:
1. A way to organize society and to create wealth.
2. A concept that describes the dominant political-economic activities and relations in a
social scientific manner.
3. As a model, it is an IDEAL TYPE
4. A concept that invites a debate on the positive and negative aspects of economic
actions and activities.
Capitalism wasn’t always as dominant as it is today. It became dominant in the north western
part of europe when post feudal british society transformed in the 1700’s. This went together
with growing trade and markets.
Capitalism is an ‘ideal type’. A description of how the world could look like. However, this
could never exist fully ideally in real life.
Debates about what are the problems and what are the solutions (for example with crises)
It’s tricky because it is really difficult to precisely define. This is more often the case with
concepts we use every day. SO it is a useful concept but also illusive.
A minimal definition of capital (Cf stilwell)
1. Private property ( = ownership. With which you can buy and sell)
2. Labor market (labor is a product you can sell)
3. Capital market (capital system creates surplus level, if profit emerges and
accumulates and some people can lend it out: a capital market emerges)
4. Market for land (land is not a common good, it has ownership and you can sell it, also
important for taxes)
5. Market for goods and services
6. Rules and regulations (governance) for the protection of property rights, contracts.
7. Focus on growth and expansion (strength, because there is a drive for innovation but
also a weakness; more and more but at the cost of what? (for example natural
resources))
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