4

APPROACHES
Political Economy

Sy aking ir imposible to believe any longer in an

ahole. the General Theory of Employment, Interestautomatic reconciliation of conflicting interests into a harmonious
and Money (1936) of Jobn Maynard Keynes brought
cie open the problem of choice and judgement that the neoclassicals had ou: into
iaeologies broke down. Econ07nics once more became political economy. managed to smother. The ideology to end
Robinson, cited in Gamble 1983: 64
Poirical Economy is not a fixed subject or discipline but a recurrent mode of
conceptualizing social life.
Vig 1985: 6
Poirical economy is the methodology of economics applied to the analysis of political behaviour and
institurions.
Weingast and Wittman 2006: 5
Economic interaction amongst people began with the
starred to produce a surplus. Since then, markets have invention of agriculture, and especially after agriculrure
become an integral part of human existence. The barter
sstem prevailed before the invention of money; however, money, which makes
the rise of cities and the merchant class market. Demand enduring storage possible, stabilised
arole for the state in order to deal with the market through automatically led to greater supply, and chis also meant
regulations. In the beginning, political economy was all
rmprehensive and was based on a larger number of disciplines. This was reflected in Smith's The Wealth of Narions
(1776), with which the modern period of economic thinking began. The
wih economic questions and the interdependence of politics and framnework within which the state deals
economics is called Political Economy.
In his History of Economic Analysis (1954),
Schumpeter defined political economyas an exposition of a
Curmprehensive ser of economic policies on the strength of certain unifying
principles of econormic Iiberalism and socialism (Gamble 1983: 64). This normative principles, such as the
25 an arena of normative philosophy and economics as a diferentiation of political economy
value free science can be traced to the origins of
political economy iself. As Vig (1985: 6) observes, 'to some extent it still holds,
fundarnenta! value questions about the proper role of the state and private markets since political economy raises
Critical evaluations of existing arrangements'. The Marxian critique of and often gives rise to
strucrure of critical political economy, whereas theories of microeconomic capitalismn continues to provide the basic
the frarnework of liberal bourgeois society; and as Myrdal (1969) says, nochoice and market equilibrium favour
value-free. The ideological moorings of seventeenh and cighteenth-cenurystudy of the social sciences can be
the two broad divisions of the political economy approaçh, as well as che liberalism and socialism provide
formulate the arguments (Weingast and Wituman 2006: 5). gencral philosophical framework to

THE DIFFERENCE BETWEEN THE OLD AND THE NEW

However, there are reasons for the contemporary interest in and revival of politica! economy ()Schere has been
a great deal of effort to study democratic countries, which are more adaptable chan
non-democratic regimes:
 Theoretical Foundations of Comparative Politics
(i) data and close observations arc casily accessible in democracies; (iii) political and economic comparisons
are more plausible for application in developed institutions of the advanced industrial democracies, racher
than the less stable arnd less institutionalised politics in the developing world (Weingast and Wittman 2006: 5);
(i) An added reason tor confining thc enquiry to advanccd capitalism is that large
comparisons are possible
today, unlike in the past (ibid.).
This has led to asituation where normative theories and presumptions can be
tirst, ot che casv accessibility of sophisticated tools and methodologies for quantitativeempirically tested because,
research; (second social
seientists are increasingly being trained in statistics and mathematics; and third, the increasing use of econometric
methods to political qucstions (Weingast and Wittman 2006: 7). With atl these recent developments,
longer possible to write political economy off as a field for amateur economists and moralists, through it is no
interest and the cross fertilization of disciplines it is now pressing forward at the mutual
research (ibid.).
boundaries of social science

POLITICAL ECONOMY AND INTERNATIONAL ECONOMICS AND POLITICS

The international economicstructure is of crucial concern to
political economy. International trade, finance and
the role of important players like the IMF and the World Bank are
critical as by their money power they exert
cOnsicerable influence and control over many nations. Their neutrality remains suspect as they are supposed
to benetht the host and key contributors, at the cost of
recipients who have to follow diktats such as structural
aciustments for domestic issues like inflation and unemployment. Such an indirect but crucial
Teares dependency and a lack of remote conrol
autonomy for the recipient nations (Frank 1980; Wallerstein 1974-89).
Contribution of Political Science to Political Economy
Traditionally, the field of political economy was dominated by economists and sociologists. But the
changing with the increasing role of the state in economic areas, even in situation is
economv. It has also to do with reasonableness. John Rawls (192 1-2002) had statedcountries committed to a free market
want to be equal at a subsistence and starvation level and that a that human beings do not
2nd specialisation, which can only happen when the prosperous society is to have both incentives
of cficiency, rationaliry and impersonality are government is efficient. In such a state, the Weberian values
indispensable. Zuckert (1985: 35-36) comments that 'democracy
defined as equality of condition-income, occupation,
bur fundarrnentally unfeasible'. In order to march influence and information is thus not merely inefhcient
1883-1946) always emphasised serious attention democracy with effhciency-which John Maynard Keynes
is to be paid to institutions, interest
bureaucracies and political parties. Pluralism and corporatism,twocrucial areas of groups, elections,
concern for political
are als o great interest to political economy. In
olcer and younger than Political Science. terms of its evolution, the political economy approachscientists,is both
Mat olela
ORIGINS OF POLITICAL ECONOMY
Bronowski and Mazlish (1960) acknowledge the impact of
scientific enquiry and its movement from the
Mediterrarncan, brouyht about by Galileo'storture, humiliation and
England, in comprehending the rise of Northern Europe and, imprisonment to Northern Europe, especially
This is also of crucial significance in
understanding the rise
commensurately, the decline of Southern Europe.
of
provided by writers on science, from Bacon to Locke, (who) slowly political economy. The background to this was
which scientihc laws, the laws of nature, were equated with the brought about an intellectual climate in
also wich an equally immutable moral law (Hill 1972: 89). As law of God, immurable, rational precepts and
both culture and science are Conditioned by
economic development and abundance, the climate for scientific enquiry led by
Newton was facilitated by the
 Political Fconomy 45

Aowering ot the glass and paper industry in Britain. This new scientific attitude was all-pervasive, with attention
focused on preserving acurate tecords, the balance of rade, public revenuc and expenditure, mortality rates
of plagucs dnd lite insurance.
In this evolution. Sir William Petty (1623-87), who contributed immenscly to the devclopment of political ,
arithmeric. is aknotleadgod as the father of political economy. He developed the art of reasoning with the help
of igures relating o governmental expenditure and administration. His advocating of free rein to different
ivrnsot indiv idual sclt-interest served as the precursor to the later development of laissez faire economic theory.
He considered the maintenance of a high degree of employment to be the duty of the state, and advocated
the roquirement of labour for production as the main determinant of exchange value. As Tawney observes,
'the contenporary progress of economic thought fortified no less the mood which glorified the economic
iTus (126: 157). He also adds chat the development of economics in England was different from chat in
Gemany and France. In Germany, it flowed from public administration and in France, from philosophers
ad important celebrities. But in England, continues Tawney, 'with the exception of Pety and Locke, its most
eminent pracitioners were business men, and the questions which excited them were those neither of production
nor ot social organization, but of commerce and finance-che balance of trade, tariffs, interest, currency and
Tedit' (ibid.: 160).

POLITICAL ECONOMY AND THE SCOTTISH ENLIGHTENMENT

In che eighteench centuy, in a more definite form, political economy emerged as a precursor to modern e
economics, political science and sociology. It was irst consolidated in cighteenth-cencury England as abranch /t
of moral phlosophy as part of the Scotish Enlightenment (1740-90). Scodand was traditionally allied to
Ernce, and England was its enemy. However, against the background of three rebellions, a union berween
England and Scotland took place in 1707. The major worry of Scottish thinkers was the future of the poor,
backward, stagnant Scottish economy when integrated into a common market with England, a world-class
drnamic economy. Scorland was sandwiched berween a prosperous England and an impoverished Ireland.
In the context of the French Enlightenment, Scotland, which had a long association with France, shared the
spirit of France's age of reason and because of this emphasis on the rationalist spirit, a new kind of sceptical
and urilitarian philosophy developed under the infuence of David Hume (1711-76). But unlike the French
Enliehtenment, which had a broad canvas, the chief concern of Scottish Enlightenment was economic growth
and rapid development, international trade and the emergence of an urban, commercial,
post-1707 Scotland.
bourgeois sociery in
The central task of the moral philosophy of Scottish Enlightenment was toarnalyse
of human greed and acquisitiveness. Bernard de Mandeville the socieral consequences
(1670-1733)
vices lead to substantial public benefit, that virtuous simplistic behaviour on propounds the thesis that private
the part of an individual does
not lead to any social benefit, and that private virtue need not be
idealised as it
good. Hume linked the question of private morality with a utilitarian calculus. does not lead to any public
is vice. He showed little concern at the rise of Pleasure is virtuous and pain
corruption and its eftect on morality under capitalism. He
was confdent that a moral code for individuals would rise
interpreted virtue in the moral sense of providing the greatestsubsequently.
good to the
Francis Hutcheson (1694-1746)
greatest number, and considered
pain unnarural. Srnith reconciled these different
strands
invisible handof God to control human passions. He also
by bringing in the concepts of moral
sympathy and the
within a larger historical pattern. This scheme of the stages brought in the concept of stages of economic growth
by Mar. Smith, along with Adam Ferguson of human history was followed both by Hegel and
as the key factor in the expansion of (1723-1815), propounded the theory of the division of labour
commerce, Montesquieu linked commerce to civilised behaviour,
mutual stake in perpetuating prosperity. Smith in his with a
masterpiece, The Wealth of Nations, gave industry and
 Theoretical Foundations of Comparative Politics

danufacturing aspecial position of honour. Ferguson, in his Essay on Image 4.1: Karl Marx (1818-83)
be History of Civil Society (1792), noted the incteasing specialisation
sf professions that detbase the lovwer ranks of commercial society,
vhich seem to thrcaten the upper raks with imincnt moral
orruption. To check this trend. he advocatcd a rcrcation of the
uncient classical ideal ot virtue, to be calulated by the militia and
he citizens. Machiavelli also championcd ivic virtuc, but his
'Ssential wnern Vas not with cononmics or social change. But
iume's and Smith s percepions are difterent as they arc shaped by
he emegene of conmercial society, which makes new demands
an inscituions: (a linmiting the burden of government to defence,
idministation of justice and execution of public woks; and
.boadning che political participation of citizens.
The broad tramework of these Enlightenment thinkers centres
n e0nomi lite. Thev were not interested in devcloping a theory of
mdern state (as attempred later by Hegel), but were concerned
a7E disecing che institucional settings crucially related to economic Source: https://commons.wikimedia.
ie hin this broad franmework that gave primacy to economics, org/wiki/File:Karl_Marx.jpg.
he re.ated vet vital questions of political 1ife--for instance, the
rivate divide and the question of political liberty--came to the fore. Hiume and his associates creared
his ae discipline of political economy. It examined questions relating to economic life and growth, seen as
kev concerns of socia sience. Smith subsequently reinforced the fact that an ordinary wage labourer in Britain
o: Holland was much better-off han an American Indian King.
This tradition of analysing economic arrangements as they affect life dominates the writings of Smith.
S. Mil and Marx. However, the late nineteenth and early twentieth centuries saw the rise of distincr
scientifc disciplines like economics, sociology and political science. With increasing specialisations and detailed,
specific enquiries. the social sciences were compartmentalised, and different independent perceptions evolved
Routh 1975).

THE MARGINALISATION OF POLITICAL ECONOMY

Apart from this separation of individual social science disciplines, there was anocher important reason why
mainstream Western social scientistrs ignored the questions of political economy. Political sciencists ignore
economic development and economic policies, considering them the problems of the post-colonial societies oË
Asia and Africa after World War II. In the West, steady economic growch and affluence within che framework
of a neo-Keynesian consensus is taken for granted. The advanced capitalist democracy is supposedly stable:
theories espousing the end of ideology and convergence posited that both advanced capiralism and developed
socialism were areas where fundamental problems of cconomics had been solved. This led to che rise of the
behavioural novement, and attempts to cxplain the sociological and psychological roots of partisan voting and
similar political activiries.
With enphasis on the pluralis nature of advanced capitalisn1 and the interplay ot interest group politics,
cconomic questions have been relegated to secondary inportance. Sinultaneously, che atribution of Western
capitalism as post-industrial and post-material has distanced social wicnce research trom key political
economy questions. Wih large areas of consensus amongst political parties and decision-makers, economic
policy options within the political process have been teduced to aminimum, exempliied by Lipset's famous
a_sertion that politics has become boring. The issues that dominate are whether metal workers ought to get
Political Economy 47

a nickel more an hour, or whether the price of nickel ought to be raised. These may be important, but are
hardly the grounds to stimulate ideological debate. Since the fundanental political problems of the industrial
revolution have been solved, it has spelled the 'end of domestic politics for those intellectuals who must have
utopias or ideologies to motivate them intopolitical action. The ideological issues dividing the left and right
has been reduced to a lide more or less of governmental ownership and economic planning (Lipset 1964:
290: 1973: 406).

REVIVAL OF POLITICAL ECONOMY

However, this apparent tranquillity of the social sciences with the indifference to political economy questions
an obreak in the late 1960s with the onset of the Vietnam War, and the subsequent student unrest in
many developed capitalist countries. The 1970s and 1980s saw an unexpected revival of political economy. In
the 1970s, advanced capitalist countries faced agreat deal of stagnation, inflation, unemployment and economic
iiculties because of the decision of the Organization of the Petroleum Exporting Countries (OPEC) to
raise the price of oil fourfold. This adversely affected all non-petroleum exporting countries, especially che
developing ones, but the impact was felt more in the West as one of the major reasons for the spectacular
post-World War II recovery of Western Europe was the supply of cheap oil from the Middle East (West Asia).
As a consequence of these factors, economic issues regained central focus within the social sciences. There was
also a realisation that economic problems could not be understood in isolation from other social realities; no
One discipline is capable of finding satisfactory answers and as such, the interdisciplinary nature of political
economy was advocated.

THE NATURE OF POLITICAL ECONOMY

However, the subject of political economy is varied and can be termed an umbrella ideology. It is a normative
area of study where the laws of physics do not operate. It deals with many important aspects, such as the
market, property, the intricate problem of supply and demand, and the selecçon of priorities and consequent
allocation of resources. The questions of a minimum wage and labour welfare to tackle the problem of organised
versus unorganised labour, the formal and informal markets, and the world economic system all come under
the purview of political economy. The priorities and limits of social expenditure, that is, whecher to spend
more on education or on medical aid for the poor and the aged, taxation, money supply, infiation, corruption,
tructure of the stare, regulation, competition and the comparative advantage of trade and commerce, natural
resources and human resources are all components ot political economy.
As it coverssuch a wide variety of subjects, political economy is neither a rigid nor afixed subject of study. It
is acontinuous process of comprehending the many linkages that compose economic life. Its relative importance
shrinks and broadens at different times and in different places. For instance, US society is often described as
apolitical, with minor contradictions and a near total approval of capitalism with a Calvinistic spirit. But even
in the US, following the depression, there has been a great deal of debate about political economy, which
ultimately led to the passage of the New Deal legislations, and a compromise with many essential presumptions
of traditional American capitalist values. Political economy, to a very large extent, is an expression of economic
belief systems, like the contemporary supporters and critics of globalisation.
In spite of this primacy of value preferences in political economy, some key variables are present in all the
different formulations, for example the question and nature of human equality, growth, impact of scientifc
inventions and discoveries, change in the world system (che rise and fall of fascism and communism), the
emergence of post-colonial societies, and che emergence of the newly industrialising countries of East and
Southeast Asia and China, which is why the cwenty-irst century is said to belong to che Asia-P'acitc region.
 Theoretical Foundations of Comparative Politics

Another key aspect of political economy is the critical dissection of prevailing ideologies and thought processes.
Within the larger interlinking of cconomy and polity, some key characteristics manifest themselves in the
following manner:
(a) Political economy as a disciplinc is both normative and empirical. It combines the
speculative perceptions
of an ideal economic arrangement with an emphasis on hard empirical facts. This combination began
with Smith and continued with contemporary commentators like Friedman. Both the defenders and
critics ot apolitical-econonmic arrangement follow the same pattern. In political economy, facts do
not alwas spcak tor thenselves but are interpreted to carry a particular meaning. For instance, when
Marx savs chat 100vears of capitalism had done more wonders than all the preceding civilisations put
tOgether. he is trying to interpret the impact of capitalism in civilisational terms and speculate on the
liberating role plaved by capitalism in the normative sense. However, when he derails the intricacies of
contemporary economicfacts, including surplus value, he is interpreting the facts in aparticular nanner
to build his thesis.

5 Politicl economy is policy-oriented, but cannot be termed abranch of policy analysis. Political economy
has a practical aspect-recommending policy preferences within the larger ideological preference-which
makes it both amacro and micro-based discipline. Theclassic example of such initiatives can be traced
back to the Fabian Society pamphlets, which dealt with particular problems of Great Britain's economic,
social, cultural and political issues within alarger framework of Labour Party programmes. Similarly, the
Adan Smith Institute is che think-tank or the British Conservative Party. In India, during the initial
rears of planning, the contrasting framework of policy formulation followed the Fabian collectivistic
model with state-directed import substitution, which Chakravarti Rajagopalachari (1878-1972) within
liberal economics opposed, terming it the permit-licence-quota-raj. In contrast, the ambit of policy
sciences is much more restricted and specific.
(c) Political economy incorporates both structural and behavioural levels of analysis. The basic questions
peraining to social, political, cultural and economic structures constitute the essential framework of
political economy. Questions concerning a weak or a strong state, order and isorder, a soft or effective
state are important considerations for political economy. But the question of leadership, levels of consensus
in society, levels of social discipline and motivation are also emphasised by political economy.
d) Emphasis is placed on both international and national political economies. Political economy incorporares
boch as an integral part of study, as one is not comprehensible without the other. Increasingly, political
economy is paying more attention to international players like multinational corporations and international
fnancing agencies like the International Monetary Fund (IMF) and the World Bank. Wallerstein speaks
of a world capitalisticsystem within which is a rise and fall of national economies. The emphasis on an
integrared study received further impetus after the collapse of the Soviet economic management, which
followed a highly secluded economic structure. In contrast, the economies that were integrated with che
West, namely the Newly Industrialised Countries (NICs) of Souch Korea, Taiwan, Hong Kong and
Singapore, did very well and now China, with its integration, has achieved spectacular results. However,
the question of desirable levels of integration or isolation continues to be hotly debated in political
cconomy.
(e) Political economy has a critical dimension. With marked value preferences, political economy reflects
heavily on the critical dimension of enquiry. Itdoes not lead to a Kuhnian consensus and like political
theorising, it continues with many alternative paradigms, more in the nature of a zero sum game. The basic
reason for this is that much of contemporary political economy is derived from the value orientations of
the age of ideologies of the eighteenth and nineteenth centuries,within the larger categories of liberalism
and socialism.The same tradition continues today with che incorporation of new issues like sustainable
development and environmentalism, making the issues more complicated and sophisticated.
Political Economy 49

The larger frameworks of political economy can be classified under the following categories: Liberalism;
Mercantilism: Communism: Social Democracy; and Developmental state. Two other frameworks for analysing
political economy, namely Anarchism and Fascism, have been relegated to history and are rarely referred to in
contemporary debates of political economy.

Liberalism
Laski (1936) described Liberalisn more as a moodthan adoctrine. It took shape in England in the late seventeenth
sentury. Eal liberalism,. from the late seventeenth to the carly cighteenth centuries, was essentially libertarian
in outlook. It was based on the idea of plenty and a rough parity of individuals, both in the enjoyment of
reedom and ownership of property. Liberalism defends both private property and the market as these encourage
competition and innovation, and only the critical areas of defence and education are to be the responsibility of
the state. Early Liberalism defended alimited state with little regulation of market and property, and supported
capitalist. asistem of production based on private ownership and market. The state should provide for social
goods onlv in criical areas such as education.
The essential framework of liberal political economy was provided by Smith in Wealth of Nations, in which
he porrrayed a realisticpicture of economic operation in the context of the increasing internationalisation of
commerce and industry, and the role of the government in managing the complex interplay of trade, commerce,
governmental regularion, economic well-being and growth. For economic development, there is no need for
he presence of an all-powerful leviathan; on the contrary, what is needed is a limited government with least
interference in an individual's political and economicfreedom. He considered an average individual responsible
enough to rationally control his own behaviour and interests, and look after his own well-being. He advocated
the rwin principles of market and the institution of private property, the sanctity of which was first established
in Europe through Roman law. He dealt at length with the questions of harnessing individual initiative and
entrepreneurship to the furthest possible extent. To achieve the optimum capacity of each individual, he advocated
alimited government with che possibility of maximising individual autonomy. He rejected a parernalistic, top
down policymaking process; legislation would be limited to defence, maintenance of law and order, protection
of labour and the provision of public goods, leaving the rest to the individual.
Smith placed tremendous faith in the capacity of the individual, and therefore regarded elaborate regulatory
mechanisms as stifling individual initiative and enterprise. He supported competitive capitalism and provided
numerous examples of innovation that ordinary entrepreneurs make in their daily work. Private ownership and
free markers are the essential pre-requisites for the successful operation of an economic order. He remarked,
'littde else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace,
casy taxes and a tolerable administration of justice all the rest being brought about by natural course of things'
(Smith 1980: Loa). His philosophy of free trade and free market was ultimately to be regulated by the Invisible
Hand. However, although he advocated a limited government, he also wanted an effective government that
would guarantee laws to protect labour and provide for health and education.
Smith laid down the essential framework of a liberal economic order that remains relevant till date. Along
with Locke and Montesquieu, he exerted a seminal influence in all subsequent economic formulations. The
US Constitution is the first modern constirution to sanctify Smith's recommendation (following Locke and
Montesquieu) of a limited government, with state power restricted bymeans of checks and balances. Montesquieu
pointed to the importance of commerce and the need for social balancing to achieve the desired equilibrium
between politics and economics. This tradition of liberal economics continued till Marshall, and che US,
Canada, UK, Australia and New Zealand are the best examples of countries that followed che prescription of
limited government.
However, within this broad liberal economic framework are many innovations to tackle crises. One such
example is the Keynesian revolution after the Depression of 1930. The depression dealt a shattering blow to che
 Tbeoretical Foundations of Comparative Politics

snitalist order, placing a question mark over the cntire framework of the free market. Keynes recommended
rare intervention, which led to the New Deal legislations in the US and to the inauguration of the welfare state
vith che help of the Beveridge report of 1944 in Britain to tide over the crisis the Depression had brought
about. Keynesianism accepts that the political problem of humankind has to combine three things: economic
efficiency, social justice and individual liberty. By the middle of the 1920s, Keynes realised that Leninism was
out to historically destrov capitalisnn; that fascism had sacrificed democracy to save capitalism; and che option
left to hinm was to savedemocracy by adapting capitalism through the control of expenditureand demand, rather
than ownership and supply by the state. Focusing on aggregate demand defuses class struggle since vigorous
demand leads to high profits and full employment with rising wages. The key issue was employment. Since
the market by itself fails to provide for a full utilisation of resources, the state ought to step in to manage the
economy. If the economy grows too fast, the total amount of people's spending could be reduced through
higher taxes. cutting down public spending and making it harder to borrow money, thereby slowing down
che boom. In the case of recession, wich goods unsold, factories closing down and people losing their jobs, the
remedies would be to cut taxes, increase government spending and make the process of acquiring credit easier,
as chis would increase the demand for goods. This means there would be a need for more factories and more
workers to fulfl demands. Through these measures, it would be possible to break out of the cycles of boom
and slump and replace them with steady economic growth and permanent full employment. For Keynes, these
measures civilise and humanise the market, ensuring welfare and equality of opportunity, as the state would
remove the disadvantages imposed by social circumstances Afer World War II, advanced capitalism was largely
governed by Keynesian consensus ill it was challenged by the rise of the New Right, spearheaded by Hayek
in Britain and Friedman in the US.
In the meantime, Rawls' A Theory of Justice (1971) provided a new blueprint for a liberal political and
economic order. Accepting the continuous growth model of traditional liberalism, it emphasised the need to
elevate the worst-off while accepting inequality as agiven. Like traditional liberalism, he accepted the primacy
of liberry, bur also emphasised equity, efficiency and stability as necessary for a well-ordered society.
The 1970s also saw the rise of neo-liberalism after the coup that overthrew the social democratic president
of Chile, Allende. This plank, drawn mainly from the Chicago school led by Friedman, advocated limited
gOvernmental regulation, low taxation and limiting social expenditure. Free market and not democracy was
advocated. Friedman later defended his assertion by arguing that subsequent events and the restoration of
democracy in Chile proved that a free market ultimately ensures freedom. In today's world, Singapore is an
anomalous example as it is one of the freest economies, but imposes severe restrictions on individual political
and civil rights. If Friedman is correct, then Singapore will become more liberal. So wll China, with its fast
growing economy and expanding middle class.
Communism
The core idea of communism is collective equality and not individual freedom. It was first established in Russia
in 1917, and then extended toEastern Europe, China, Cuba, Vietnam, and a few other countries after World
War II, with stress on fullemployment, universal state-sponsored education,elimination of a privileged economic
class (which is inevitable in capitalism) and people's democracy, with only non-antagonistic contradictions
surviving. The communist philosophy rejected in toto the twin institutions of free market and private property
as providing human liberation and a truc basis of an egalitarian democratic order. Private property leads to
the domination of a few over the vast property-less mulitude, and an increase in this divide would lead to a
revolution resulting in the abolition of property, which in reality means state control over property. Similarly,
the market would be climinated as all kinds of private transactions would be banned. This is a toral negation
of Smith's formulation of the invisible hand of the market and an acceptance of ahighly centralised decision
Political Economy 51

making process, cxpected to rationalise economic decision-making that would in turn benefit che entire sociery
and do away with the problems of a market cconomy.
Convinced about a highly centralised decision-making process as the defining characteristic of communism,
Lenin distinguished Marxism from Anarchism on thc grounds that while the former believes in centralisation.
che latter emphasises decentralisation. However, this highly centralised decision-making process could not
compete with the decentraliscdmarket with regard to efficiency or innovation, reminding us of Popper's sucinct
observation, 'who plans the planners'. The monolithic state and acommand economy led to ineficiency. highly
lopsided and wasteful decisions, shortage, rationing of essential food items, stagnation, ecological destruction, low
productiviv. non-comperitiveness, and adeclining GrossNational Product (GNP) from 4.9per cent in 1966-70
to per cent in 1981-85. There was stagnation in coal and steel production. Agricultural production, too,
was below the plan level. Offcially, statistics are not available since 1980 with regard to grain production, but
it was estimated to bec a mere 1.8 per cent in 1981-85. Rationing in important food items was introduced in
some Soviet cities in the late 1970s and carly 1980s. The death rate, which was 6.9 per 1,000 in 1964, rose to
10.3 in 1980. Thelife expectancy of men and women declined from 67 to 62 years and from 76 to 73 years,
respertively. Soviet Union was the only industrialised country to experience such a decline. There was a steep
rise in the infant mortality rate. 'By the early 1980s it was obvious that the Soviet Union was failing to make
the transition from afairty primitire stage of economic development based on exports of primary products into
: modern Western-based economic system' (Elliott 1991).
The isolationist economic policies pursued by communist states with the aim of self-sufñciency and
independence led to a GNP of less than 25 per cent; their export was merely 14per cent of che world's share.
This resulted in these states being left outof prevailing trends towards internationalisation of the production
process. The three important components of modern business organisation--increased efficiency, product
quality and consumer choice-did not become a part of socialist culture, and remained che exclusive preserve
of capitalism. The inconvertibility of their currencies aggravated their lack of competitiveness. Galbraith pointed
to chis lack of comperitiveness and adapability inmeeting new requirements and challenges: 'Capitalisn in
is original or pristine form could not have survived. But under pressure it did adapt. Socialism in its original
form and for its first tasks did succeed. But it failed to adapt (cited in Hague, et al. 1992: 417).
This, coupled with the success stories of the East Asian Tigers (see Chapter 16), made the communist
model unartractive. The spectacular success of the Asian NICs proved that economic liberalism allowed late
modernisers to catch up with the others within a short span of less than two generations. Their hardships
arnd privations seem more bearable when compared with the large-scale social terror unleashed by the former
communist regimes (Fukuyama 1992: 41-42). Khrushchev's promise that the USSR would overtake che
West remained an empry one. In a comparative perspective, the communist regimes, as opposed toliberal
dernocracy, lacked resilience, adaptability and the capacity to respond to and absorb societal and technological
changes, thus beconing in the process a dinosaur. Moreover, with che emergence of a commercial world,
military alliances and adventures look both illegitimate and unproftable. Theformer Sovier Union atained
rough armarnents parity with the United States, bur lagged behind in terms of economic power. Japan occupied
the second position. The former Soviet Union lagged behind in technology, a act taken note of by Andrei
Sakharov (1921-89), who commented that all important innovations and discoveries had originated in che
West since World War II. 'Socialism was incapable of moving fully into, let alone generating, the new hi-tech
econumy, andwas therefore destined to falleven further behind ... it failed to achieve the mass production of
Consumer goods' (Hobsbawm 1990: 21).
The worldwide failure of Marxist-Leninist Communism was also due to a fallacious and erroneous
Oeption of the marker. The mistakes can be categorised as anthropological and economic (Roos 1990: 6).
Ihe anthropological mistake was to presume, as Marx did, that the 'law of history' dictated a fundamental
antagonism between capital and labour. "The dream of socialism with a human face will always be a dream: it
 52
Theoretical Foundations of Comparative Pol
is based on a mistaken view of
man' (ibid.: 16).
measures, trade union activities and labour welfareDemocratic
laws have
institutions and culture, extensive social secu
of the proletariat. The economic improved the position and working conditic
mistake was compounded by continuing to view
in its carly phase of development, ignoring the capitalism as it had exis
idea of a free market solely governed by the structural changes that took place subsequently. Moreover,
principle of profit,
Smith, the guru of laissez faire and the market, granted to the state which the Marxists attacked, was a myth. E
of justice and thc protection of every three duties: (a) defence, (b) administratic
member of society, and (c) maintenance of public works and publ
institutions, which meant universal public education, public health and labour
of the last two functions he 'offered an laws. Thus, within the am
intellectual framework for a generous and
compassionate governme
consistent with a competitive market economy' (Meyerson 1989: 67).
Ernesto 'Che' Guevra (1928-67), an advocate of planning, could
within the Soviet economy as carly as 1964. comprehend the
He advocated a combination of economic problems of stagnatio
or what he called the law of value'. This planning with marke
suggested the need to accept complexity if economic regulation
were to be effective, and also indicated a willingness to check results against what was happening
(Blackburn 1991: 216). elsewher
The starting point is to calculate the socially necessary labour required to
overlooked is the fact that socially necessary labour is an economic andproduce a given article, but what has been
historical
not only on the local (or national) level but in world terms as well. concept. Therefore, it changes
Continued technological
competition in the capitalist world, reduces the expenditure of necessary labour and therefore lowers advances, a result of
product. A cdosed society can ignore such changes for a certain time, but it would always the value of the
have to come back to these
international relations in order to compare product values. If a given
without developing new and accurate formulas to replace the old ones,society ignores such changes for a long time
it will create internal interrelationships that
will shape its own value structure in a way that may be internally consistent but
the tendencies of more highly developed technology (for example in steel and would be in contradiction with
plastics).
reverses of some importance, and, in any case, would produce distortions in the law ofThis would result in relative
value on an international
scale and making it impossible to compare economies (Che, cited in Blackburn 1991:
215-16).
Nove contended that the bureaucracy's dominant role within communist
relying on markets and commodity production, for that would encourage societies could be reduced by
(Nove 1983: 227-28). The Yugoslavian leader Ante Markovic participation and self-management
socialism could not solve the problems of either effhciency or political(1924-2011)
democracy.
admitted that contemporary
Economic failure undermined
the legitimacy of an already unpopular political system in the former Soviet Union.
Social Democracy
This is an off-shoot of Marxism, and questions some of its basic
under the banner of Fabian socialism in 1884 and in Germany,presuppositions. In England, it was consolidated
it was spearheaded by the Social Democratic
Party (SPD). Ferdinand Lassalle (1825-64) was the first theorist to think in
using it for the welfare of the people. The framework of social terms of reforming the state and
democracy
formulation than Marxism was provided by Eduard Bernstein (1850-1932). as a better and more acceptable
deterministic and ideological, he points out that many Marxist predictions likeRejecting Marxism as rigid,
increased pauperisation of
the poor, the disappearance of the middle class, and the
widening gulf between
place. In the altered situation, the working class would be better-off if they rich and poor had not taken
worked within the instirutions of
parliamentary democracy.
In the background of the realisation of universal
franchise in the late nineteenth century, social dem0cracy
combined both liberal and communist values and accepted
ranks with Marxism with its rejection of violent both private property and market economy. It broke
revolutionary
democracy and socialism simultaneously. To maintain social transformation and its insistence on realising
equilibrium, the state intervenes to create positive
 cal Economy 53

Lrights. Individual initiative is balanced within a framework of collective equality. Although public ownership
evitable in any kind of economic management, state ownership in social democracy is more extensive
n compared to liberal democracies. However, it rejects a free market economy as it leads to intolerable
alities and polarisation of society. To meet this challenge, it emphasises the need to moderate capitalism
guarantee basic rights to every citizen. There is an overriding emphasis on social solidarity as evident from
manifesto of the Party of European Socialists, which states: 'for socialists and social democrats, a modern
nomy can only be developed inclose cooperation with social partners. We know that economies are stronger
en societics are just. The poverty of some diminishes the lives of all who live in a divided society.' The state
VSa crucial role in ameliorating economic injustice, which means quite a bit of state control in economic
airs. It also means that in many areas of social welfare, like healthcare, education and mass transit, che state
an obligation to its citizens. The monetary situation is strictly controlled by the state, with overriding
Dwers given to the central bank. Alhough competition is encouraged, the economy is regulated to ensure
at domestic jobs and businesses are not afected. State ownership exists in many sectors of the economy, for
ample large industries, steel, automobile production and banking, and there is governmenral regulation of
ae professional fees charged by doctors and lawyers. The general slogan of social democracy is 'yes' to market
Conomv and a 'no' to market society.
Acommon element in social democratic systems is the use of 'neocorporatism', a system of policymaking
nvolving the state, labour and businesses. It rejects the combative relationship between labour and business
and instead emphasises consensus by creating a limited number of associations that represent a large segment
af business and labour. For example, the German Federation of Trade Unions comprises 11 different trade
unions and more than eight million workers. The confederation of German Employers' Associations includes
nearly every large and medium-sized employer in the country. These associations are recognised by the stare as
legitimate representatives of.their members, and together these associations and the state decide on important
economic policy matters such as wages, compensation, taxation and unemployment.

Mercantilism
Mercantilisn was the economic system of the major trading countries for three centuries, from the sixteenth
to the eighteenth. It believed that national wealth and power are best achieved by increasing exports and
accumulating precious metals, especially gold and silver. The focus of mercantilism was on the needs of the
state; it was less concerned with individual freedom or collective equality, unlike liberalism, social democracy
and communism. National power is paramount. Mercantilist states concentrated on their position within the
international systerm and believed that economic weakness undermined national sovereignty. They considered
wealth crucial to political power and believed that wealth should be directed towards national ends. Friedrich
List's (1789-1846) National System of Political Economy (1841) is considered a classic in mercantilism.?
Mercantilism supersedes the medieval feudal order and was first manifested in the Italian city states at che
time of Renaissance, like Bologna, Florence, Genoa, Milan and Venice. These were successful centres of trade
and generated unprecedented fortune. A good example is the Medici family who were part of the patrician
class and not the nobility, and acquired enormous wealch chrough banking and commerce in the thirteenth
century, and subsequentdy political infuence in che fourteenth. However, because of alack of unity wichin the
Italian nations and intense rivalry between city states, chis localised mercantilism was shortr-lived. Apassionate
clamouring for Iralian uniication is reflected in Machiavelli's writings.
Under mercantilism, the political and social elite came from the merchant class. Western Europe-Holland,
France and England-also practised mercantilist policies successfully, ill the laissez faire economic system
proved more stable than mercantilist policies. Mercantilism is based on azero sum theory which leads to both
religious and commercial wars, resulting in huge expenditures because of the growing costs of the army and
the civil government. The clamour for gold is based on its universal demand as amedium of exchange for any
54 Theoretical Foundations of Comparative Politi

other commodity. It imposes foreign trade, giving it precedence over domestic trade, as well as severe sta
control over the ecónomy. Corporations and tradingcompanics were established and severe regulations inpos
on production with the aim of producing high quality goods at low costs in order to be competitive in th
toreign marker. The trading nations formalised treaties to secure cxclusive trading privileges for their commerc
which subsequently resulted in colonial expansion with exploitation benefiting the mother countries. The mos
succesful mercantilist nation is England, through navigation and wars, it destroyed the commerce of Holland
its chicf rival. England also benefited from its skilled industrial population and existence of a large shippin
industry. However, mercantilism had other economic problems as well,which restricted its benefit even to th
moher country, such as the over-supply of money which resulted in high inAation. Mercantilisn dechned wic
the onset of industrialisation and laissez faire-ism.

Developmental State
This is a tem used by Johnson while referring to the governmental system that Japan pioneered from th
mid-1920s, and which was later emulated by other NICs. The term has been used with greater frequency
since the 1980s. The emphasis is on rapid industrialisation, with the state assuming responsibility for deciding
narional growth priorities accompanied by policies pertaining to taxation and subsidies, helped by apowerfa
economic bureaucracy insulated from democratic/parliamentary and other political interests. An elite core of
technically rained members supports the bureaucracy. The state aims to bring about consensus and cooperation
berween the public sector, private entrepreneurs and other domestic interests. Like social democracy, it advo cates
total or parrial stare ownership of specific industries; however, it focuses less on welfare as compared to social
democracy. As pointed out by Hobsbawm, the 'industrializing countries today develop in the context of strong
labour movements and social world powers, which make the idea of industrializing without any provisions for
social security or trade unionism politically almost unthinkable' (1990: 21).
Adevelopmental state is driven by the urgent need to promote economic growth and industrialise in order
to 'carch up' either economically or militarily, or both, in order to ward off competition or threat in a global
or regional context. While critics have questioned the capacity of the state to set proper priorities and achieve
che target, they have failed to provide an alternative. With capitalism being inherently weak and without state
intervention, the basic infrastructure for capitalist expansion and productivity becomes impossible to conceive.
Successful developmental states are Japan, South Korea and Taiwan.

CONCLusION
Political economy is a hotly contested subject. The wide and divergent views prove that unanimity is
practically imposible. However, in the practical application of the various models the rwentietch century
witnessed, there was a keen contest and rivalry between three different forms of economic management:
liberal capitalism, fascism and communism. Fascism, which arose after World War I and was characterised by
brutal political, economic and social experiments, ended with World War lI. As Nolte observed, fascism was
conditioned by the specificities of the economic conditions created by the Great Depression. The communist
movement, with is theoretical framework provided by Marx and Engels, took into account nineteenth-century
capitalisn in Western Europe. It consolidated itself first in the former Soviet Union after overthrowing the
repressive Czarist regime, and then expanded in East and Central Europewith the exception of Yugoslavia -at
the end of World War II with Soviet help.- Subsequently, it spread to China, North Korea and Vietnam.
However, the collapse of communism and the disintegration of the Soviet Union brought communism to an
inglorious end in 1991, 70 years after its establishment in l917. The unpredicted but inevitable collapse of
the Marxist regimes is as significant as the fall of the Roman Empire. The colapse came about as a
result
of its internal contradictions. Fukuyama (1992) proclaimed the triumph of liberal
democracy over is rivals
 tical Economy
55
he end of history, meaning the end of the ideological debate that began with the contrasting views of
gel and Marx.
Understanding the process of cconomic change is the major aim of political economy. This process depends
che intention and perception of the players. North pointed out that the process of
che most part a deliberate process shaped by the perceptions of the actors about the econormic change is
consequences of these
ions (2005: 12). In the contemporary post-communist world, there is a larger consensus evolving
Se process of economic change. According to North, there are four basic around
requirements for
onomic order: () a shared belief structure about the legitimate ends of government and the pursuing
a sound
rights of citizens;
constirutional limitations on governmental powers at decision-making; (ii) aclear definition of property
nesonal rights:; and (iv) credible commitment of the state to protect these rights against severe curtailment
nd abuse by public officials (ibid.: 15).
Wchin his larger conceptual framework, the alternative models of poliical economy conditioned by
eographv, resources and sizewould likely move towards increased refinement, with schemes for practical solutions,
rearer elite agreenment and consensus. Within the parameters of political economy, grand alternative
proposals
re unlikely in the contemporary world dominated by technology and quick change. Against the background of
the collapse of the highly centralised authoritarian regimes, both of the left and the right,
political economy is
ikely to move towards solving actual problems as the Fabians did-they called it 'Gas and water socialism'-or
what Popper termed piecemeal social engineering, in opposition to highly centralised planning.

NOTES
1. The irst, efficiency, was a bitter lesson learnt from World War I and the Great
Depression. This led to the
second lesson, namely social justice, where social liberals learnt that humane concerns as
underlined by Leonard
Hobhouse (1864-1929) and John Dewey (1859-1952) could not be relinquished. The third, individual liberty,
is the most enduring and is the legacy of J. S. Mil. It states that liberty is as
important as social security.
2. According to List, the prosperity of a nation depends not upon the wealth it
has amassed but upon its ability
to develop 'productive forces' that would create wealth in the future.
Productive forces are not those that
create material products, but scientific discoveries, advances in technology,
provision of educational facilities, the maintenance of law and order, an eficient improvements in transportation,
public
sustaining self-government. List contrasts the economic behaviour of an individual with that administration
and
of a nation, noting
that while an individual's concern lies with his personal interests, the nation is
the whole. Therefore, according to List, a nation must first responsible for the needs of
develop its own agricultural and manufacruring
processes sufficiently before it can fully participate in international free trade. He recognised the existence and
power of nationalism, and that a unified and harmonious world could not be achieved till
individual nations
reached sufficient levels of development to avoid being overwhelmed by the already
Smith the starting point of his analysis; however, the slump in Germany followingdeveloped nations. List made
the collapse of Napoleon 's
continental system led him to revise his views on fiscal policy. He opposed the cosmopolitan
contemporary economical system and the absolute doctrine of free trade in harmony with thatprinciple in the
principle, and
instead developed the infant industry argument as enunciated by Hamilton. He gave
idea and insisted on the special requirements of each nation prominence the national
to
degree of its according to its circumstances, and especialy ne
development.