Political economy is the political choices that frame economic (buying and consuming) choices. Usually political parties and ideologies claim to have a clear ethical or moral system. Consumerium may help them do that.
The following was deleted as speculative after sitting for a year as part of the Wikipedia moral purchasing article, and having been edited by many people: Links are to Wikipedia articles to retain the original context of the section:
a new political economy?
Recent events suggest that asymmetric warfare remains effective even against the most developed nations, which are necessarily more "open societies" and thus more subject to such threats as biowar. Liabilities which were never accounted for in global business or military dealings are now moving from threat to a probable risk - and therefore altering many economic decisions.
Various unusual threat scenarios, e.g. flooded farmers in Bangaladesh blaming U.S. CO2 output for their loss of land to monsoons, e.g. Chinese peasants moved out of the way of the Three Gorges Dam flooding holding the Canadian bankers who seeded the project liable for their loss, are often suggested, especially in the anti-globalization movement. Although scenarios are often far-fetched, the mass mobilization of many bodies in protests where there is shared risk of bodily harm suggests strongly to leaders that people in developing nations affected by their choices have not only sympathizers, but active agents, in the developed nations.
It remains to be seen if these pressures will ultimately mold a new and global political economy, or if the existing system of global capitalism can stand the strain. This seems, to some, an inseparable goal from that of world government or global justice. And, indeed, advocates of moving towards such goals do often support moral purchasing - and a new political economy that would hold each of us ultimately responsible for all that we consume.
Political economy was, historically, an older and alternative name for the analysis of wealth and monetary policy, now called economics. Many technical economists view the two terms as synonyms, while others prefer the use of the term political economy which they see as having a wider meaning.
Political economy is also sometimes used to to mean the application of economics to the study of politics, i.e. 'the economy of polities' especially as related to the mercantalist economic assumptions of Napoleonic and earlier regimes.
The term was first widely used in the 18th Century by early economists such as the physiocrats and Adam Smith, in their critiques of such regimes of economic assumptions. The term was universally used to describe what we now know as economics until around 1870 when the term economics was coined, and brought into common use by influential neoclassical economists such as Alfred Marshall. Marshall and most other economists used both terms as synonyms, with the term political economy gradually falling out of favour in the English speaking world during the twentieth century.
Use of the term underwent something of a revival during the 1960s when it was used increasingly by the libertarian economists of the Chicago School. Political economy is also sometimes preferred by other radical groups with widely differing views, such as Post-Keynesian economists and Marxists. In green economics the term is used to refer to the infrastructure and assumptions by which living things, including human lives, are assigned a price in the human economy, and metrics which are used in measuring well-being of that population of humans.
Given the differences in political ideology and scientific methodology, the only definition of political economy may be 'those qualitative analyses which challenge the assumptions and axioms of conventional technical economics', which is concerned mostly with the matching of supply and demand curves to achieve Pareto-optimal outcomes. A good summary of these assumptions is found in Hawken, Lovins, Lovins analysis, which they call 'natural capitalism'.
In this broader sense, shared by many radical critiques of economics proper, the term refers to the legal and political factor economy of pricing choices reflected in professional ethics and regulations, building standards, legal toxicity levels, etc.. in insurance terms, 'morbidity expectations', accepted and mandated by the polity and society. Although economics proper claims to consider factors like these, most economists would acknowledge that it does so only imperfectly, if at all.
Political economy reflects the patterns of interaction between wealth and power; agents that cannot earn the desired reward in the marketplace always have the option of attempting to obtain their material objectives through organizing and attempting to bargain with their electoral support for the granting of some type of subsidy or other valuable consideration by government officials. Said another way, the application of social capital tends to distort markets in other types of capital. The political ideologies of the 20th century were largely concerned with implications of trusts, monopolies, unions and cabals of 'insiders', who could exploit their social capital against public interests:
Those on the left tend to view this complex of 'influence trading' activities as a manifestation of class interests and the inveterate tendency of govenments to use the "commonwealth" to augment the fortunes of the small but economically dominant elite at the expense of the majority of non-owners.
On the other hand, right-wing political economy focuses on individuals and the incentives that they face in deciding whether to devote their next unit of effort to market activities or to the cultivation of political influence (rent-seeking).
Viewed starkly from the perspective of technical economics, both alternatives represent potential avenues for the attainment of the decision-maker's objective, the decision will ultimately turn on the balance of marginal benefits and marginal cost. This is called "public choice theory", for the development of which Professor James Buchanan received the Swedish Bank Prize in Economic Sciences, sometimes controversially called 'the Economics Nobel'.
The management of Enron represents a case study of such choices. They could have invested their time in actually pursuing the business that they promoted to investors and employees as a good investment of their money and time. Or, with less effort, make hundreds of thousands of dollars in corporate campaign contributions (sometimes referred to in lobbyist circles as "oxygen") to a relatively small group of politicians in order to assure themselves a respectful hearing when they proposed to change the company from "your mother's utility" into a hedge fund, sans required capital reserves. They chose the latter, and the larger political economy of the United States suffered massive losses of social capital in the form of trust in business and politicians and in accounting, measurable in many billions of dollars of financial capital lost to the capital markets, and many man-years of effort put into investigations and reforms.
However, it is hard to change the assumptions underlying wealth itself - wealth by definition is against such changes. So, the rewards for purchasing influence in North America are usually perceived as higher than the rewards of genuine competitive risk-taking. The resulting pattern is a "vicious cycle" (if you happen to be a bilked employee or shareholder) of wealth used to leverage more power, and power used to increase wealth, and so on, ad infinitum - a positive feedback loop gone wild. The problem lies in the fact that, while markets can (at least in principle) operate through a variety of negative feedback mechanisms to limit these types of excesses, electoral processes depend for their efficacy in such cases on the initiative of other groups of voters to organize as a counterweight. Calls for electoral reform and the rise of green parties in North America seem to be at least partially related to the collapse of public support for speculative capital structures, and 'creative accounting' methods.
One result of public choice theory is that small groups with strong preferences on any issue will generally have the greatest degree of success in using the electoral mechanisms to obtain rewards. Examples: agricultural price supports, Social Security, trade protection. A useful term to describe this state of affairs is "concentrated benefits - diffuse costs"; a member of the interested segment of the population may count on the outcome of a single legislative act for her very livelihood, while no one really has any notion regarding their share of the cost of the annual dairy subsidy program. Therefore, bet on the dairy farmers getting their subsidies, and likewise for all small, dedicated groups pursuing assistance at the public trough. This is a special case of the general rule that a tragedy of the commons results when resources are too widely shared, particularly by people who have few values or risks in common.
Regardless of the perspective chosen, the term "political economy" implies the recognition that material well-being, and even honest methods of measuring well-being, depend not only on voluntary exchange and markets, but also on the size and structure of the government and the degree to which any agent can influence government officials so as to enlist them as confederates in obtaining for themselves additional benefits (i.e., coercive power) over and above those corresponding to the values that their offerings have in the public market.
Another even better version.
Political economy originally referred to the study of the economy of politics, and is still used in this sense by some economists.
In recent times it has been described also as a particular view of economics in the context of a human society. There would be several competing schools whose definitions vary, but all would propose to describe the way political constraints affect the allocation of scarce resources - and frame the study of economics.
Classical political economy
The term political economy was first widely used in the 18th century by early economists such as the physiocrats and Adam Smith. After refinement by David Ricardo (later reviewed by Piero Sraffa) and John Stuart Mill, it was universally used to describe what we now know as economics until around 1870 - so it properly describes classical economics:
Adam Smith's 1776 assumptions in "The Wealth of Nations" laid a clear dividing line between economics proper and political economy: the state (following his classical economics) had to provide "defense, infrastructure, justice, education and a stable currency".
Although the definition of defense, infrastructure, justice and education have changed, this is still considered to be the best definition of the political economy of capitalism. Each of these functions can be said to be a collectively and legally-managed commons.
Neoclassical political economy
Marshall and most other economists used both terms as synonyms, with the term political economy gradually falling out of favour in the English speaking world during the twentieth century - partly due to its association with Marxist economics (see below). Use of the term underwent something of a revival during the 1960s when it was used increasingly by the radical libertarian economists of the Chicago School, to describe macroeconomic studies influenced by game-theory and rational-choice theory.
These, they believed, were fair descriptions of the way that financial capital mediates valuation of factors of production. Neoclassical economics avoids the general complexity of political science by assuming that these factors are defined by law, ethics, and customs that prevail in the economic civilization. In effect, that political economy is just policy, and that economics is a science of the allocation of scarce resources, a definition which many see as too narrow, and have often challenged seriously.
Robin Hanson asks a pivotal question about the human origins in his essay "Is Fairness only about clear fitness signals?" It is a common theme among neoclassical economists that their study is a science, and does not depend on social or political relations but rather on human nature.
Marxist political economy - stability and fiat
However, a simultaneous track, extremely influential in sociology and political science, studied class-relations and the relationship between capitalism and colonialism. Karl Marx strongly emphasized the role that military fiat plays in stabilizing credit money or commodity money - imposing closure on transactions to favor a social class of power-holders. As the key concern of economics is enabling trade that helps an individual to survive without being alone against the forces of nature, this political economy has come to focus clearly on the role of government. But in recent years it has focused on civil society, ecology, families and other concerns.
Marxists argue that capitalism in various forms is inherently destabilizing due to ecological or social damage - notably Joseph Alois Schumpeter who argued in 1962 that it was "the most efficient" but also "doomed" because of its alienation of people from work.
Like other views of political economy, this analysis is concerned with the types or forms or styles of capital exist and how they relate via the media of financial capital - "money" which may be backed by military fiat (as "fiat money), by commodity, by credit, or even by the natural capital of an ecoregion. It does not, in general, accept macro-economics "balanced growth" assumptions, is more concerned with externalized harms than two-player games, and assumes no rationality of economic choice. The assumption is that capitalism and economics as defined classically and neoclassically is not efficient in the broader political sense of helping the society allocate scarce resources.
This analysis has come to be known as socialism in its political form.
The two different sets of assumptions (neoclassical and Marxist) assume different things about stability of capitalism, but both grew up on classical assumptions, and neither challenged its basic micro-economics - Marx's means of production differs from Smith's factors of production only in asserting that labor is not a disposable commodity input.
The debates between these views have been titanic and helped spark the Cold War. Through most of the 20th century the views were felt to be somewhat irreconcilable. In modern terms, socialist parties advocate for a higher valuation of social capital and a general theory of human capital, while conservative parties advocate for a higher valuation of instructional capital and a general theory of intellectual capital, in line with their Marxist and classical roots and the theory of value that prevails in each system.
The most extreme practitioners of the neoclassical economics tend to be thelibertarian parties who advocate a totally liquid or free market or laissez-faire form of capitalism which permits trust, instructions, and infrastructure to find relative values in an open market of equal players. And, without limit, labor and social and natural capital as well.
Differences between economics and ecology
Critics of 'this' view hold that there is little equality between players due to historical inequities, e.g. colonialism, and that natural capital has no voice in systems that are defined wholly by human commodity and contract relationships.
This is of course the difference between economics and its parallel in the non-human world ecology - economics is intended and required to give humans an advantage over nature. However, we can't escape interdependence, as we are creatures who require air, water, food, and other natural services:
Adding an axiom employed by many Greens that "economy is three fifths of ecology" - Mike Nickerson, green economists emphasize that the commodity natural resources and waste disposal services of an ecoregion are poorly represented on this left-right spectrum. Most green parties consider thus natural capital undervalued.
Safety, fairness, closure
As the object of economic study, and a different theories of economics, have changed, so has the use of this term. Most generally, the term refers to the intersection of or relationship between politics and economics, and in this sense it is preferred by some other radical groups with widely differing groups such as Post-Keynesian economists, Marxists, and the green economists.
As it assumes and thus justifies a systematic valuation of different types of capital, the term is regularly contested by various factions advocating different views of political science, of capitalism, and of socialism. Its modern origins are traced to David Ricardo, 1817, and the extension of this and the competing analysis of Adam Smith, 1776, by John Stuart Mill into the concept of three factors of production - beginning a contest of "right" versus "left" views of nature, human, and tool value which continues to this very day.
Critique of economics
Some claim that the 20th century and its wars over economic systems and over property rights were entirely irrational due to shared failures of all three (classical, neoclassical, Marxist) systems. They seek a new political economy.
All three views, these critics argue, subordinate individual capital and natural capital by definition to some "progress" or "production" that is collectively and socially defined. And therefore imposed on the whole society.
As in Marx's "means" versus "factors" distinction, these are viewed to subordinate, control or alter the other forms of capital in predictable ways - as the natural consequence of being alive with a body in a natural ecology. Views of life processes and what constitutes "moral necessity" within them is a field of its own - theology. A major driver of the critique of economics have been religious movements, who oppose among other things usury and the commodification of the lands of peoples who have long held them in common. These often argue that social capital is undervalued, and that measuring well-being is a better way to maximize the utility.
Content of commons
All of this cast varying degrees of heat and light on the safety, fairness, and closure of transactions on the commons - politically managed resources, broadly shared. Advocates disagree over the importance of debt relief, land reform, food security, etc., but they tend to agree that overall global biosecurity is reduced if there is no representation whatsoever for traditional societies, customs or ecologies.
For instance, most theories of political philosophy would accept some degree of right to breath clean air or drink clean water or not have harms of pollution externalized on oneself by one's neighbors.
Attempts to represent such rights in a market system have led to negative commodity markets to represent such things as the harms due to pollution. But these are not wholly functional nor in general satisfactory.
Proposed unsustainable positions of the three major theories
The environmental economics applies the neoclassical political economy to "natural capital", Marxists see "human capital" improving by joint action and education, while the United Nations and NGOs have sought an outright alternative to the three main theories of political economy:
This has led to theories of measuring well-being, of sustainable development, environmental finance, and the negative commodity markets. These rely on neoclassical assumptions with Marxist assumptions about stabilization, but fall short of being a new political economy in themselves. Some green economists claim that a new, fourth, theory, is near at hand, as they find ways to integrate the environmental economics and the behavioral finance which denies the rational-choice hypothesis.
The North-South debate and the right to live
However, some suggest that there would be no great trust in any of these academic or expert approaches.
There is a certain consensus, in the anti-globalization movement but not only, that the political balance of power between the advocates of all views above has historically strongly favored citizens of developed versus developing countries. This is often referred to as the North-South debate or global development problem. Attempts to assign high valuations to scarce forms of capital in one country often lead to their arbitrage to another as natural resources or human resources, in this view, further impoverishing the developing nations that open up to global markets.
Accordingly, the Global Commons Institute, UK critiques the IPCC analysis of global climate change, claiming that "the IPCC was persuaded to include the results of a global cost-benefit analysis in its report". In this analysis every possible damage that might result from global warming, including human lives, must be given a dollar value. These values are calculated on the basis of asking people's "willingness to pay" to avoid the risk that damage. People in rich countries, it was assumed, would be willing to pay 15 times more than people in poor countries. In other words, the right to live could depend on respective income. The same ratio was applied to non-human life in each country, i.e forests, biodiversity etc.."
Risk of biased positions
This quote illustrates the basic conflict of any political economy - or indeed any justification for military fiat: the individuals arguing for it have their own lives, loyalties and localities, and associated bias that prevent a neutral point of view from which to assess the economic development process.
As views of law, science, ecology, economy, and civilization itself change, through what some call an evolution of societies, some people have argued that they "bubble up" to alter the framework of political economy, thence political science and perhaps also to alter the basic ethics of the civilization, e.g. as in the biodiversity debate and climate change debate.
In effect, the system is always biased, it is a question of how well bodies and ecologies survive it into the next generation. Some say that globalized economies are the only real choice. Others argue for regimes that keep the food and essential goods close to the consumer. These arguments have been the same throughout human history: centralization or decentralization?
Hypothesis for a global economy
It is investigated whether there could be any global political economy that all cultures would, could or should agree on. Some call the World Trade Organization the first serious attempt to find one, based on experiences with continental trading blocs. However, critics within the anti-globalization movement claim to prefer a more traditional fragmented national or bioregional democracy that would continue linguistic and political traditions of host societies.
It seems likely and necessary that safety, fairness and closure issues as discussed in political science must come to some consensus if a 15x gap in valuation of developed vs. developing world lives is to be ultimately closed. Historically, people whose individual lives or life-sustaining natural ecoregions were undervalued in a particular political economy have tended to revolt and disrupt governance systems. The mainstream critique of a rational political economy, as Thomas Homer-Dixon writes in his book The Ingenuity Gap, is that:
- The challenges we face converge, intertwine, and often remain largely beyond our understanding. Most of us suspect that the "experts" don't really know what's going on and that as a species we've released forces that are neither managed nor manageable.
Hypothesis for a local economy
The radical critiques, of course, vary and will continue to vary, as there is little agreement beyond some of the most basic of the terms above. Pending global agreement on terms in political science, ecology and economics, it seems that political parties contending to impose their views in a representative democracy are the way that political economy issues will be settled among we humans.
An extreme view is thus that political economy does not exist, that the above is entirely subjective, and political economy cannot in practice be separated from political science - a common view among those pursuing anarchism, or extreme localism, wherein no commons would be acknowledged or managed globally.
- Mill, contents, "The Principles of Political Economy"
- Ricardo, contents, "The Principles of Political Economy and Taxation", 1817
- "Reviving Local Economies", Wes Nickerson, 1996
- Thomas Homer-Dixon, "The Ingenuity Gap"
- IPEnet - International Political Economy network
- Journal of Political Economy
- Contributions to Political Economy