THE CURRENT CONTEXT

1
 What problems does political economy address?
What questions does it ask?

On what analytic foundations does it build?

M odern political economy provides an accessible approach to the study of

economic issues. It seeks to ‘illuminate the world in which we live so that we
may act in it intelligently and effectively’.1 This introductory chapter explains how
this ambition can be achieved. It suggests three ways of defining political
economy:

O in terms of the real-world problems on which it focuses

O in terms of how these problems are analysed
O in terms of the currents of economic thought from which it draws.

It also indicates how the pedagogy of modern political economy can counteract the
dwindling interest in the formal study of economics.

RELEVANCE TO REAL ECONOMIC PROBLEMS

Economic concerns beser us individually in our everyday lives—earning a living,

managing our incomes, and making decisions about spending and saving. They also
beset us collectively, generating political choices about how to balance economic
growth against environmental concerns, how much income to redistribute through
taxes and government expenditures, and how to deal with imbalances in international
trade and economic development, nationally and globally.
How these issues have been addressed in economic analysis and policy has been
strongly influenced by one particular economic theory—neoclassical economics,
which emerged in the late nineteenth century and is still the dominant economic
orthodoxy today. It stresses rhe beneficial effects of competitive markets as a means
of allocating economic resources. From the neoclassical viewpoint, the role of
government is, at most, that of an adjunct to the free-market economy. The
underlying view is that the capitalist economy is a stable, self-equilibrating
system.
A frequently recurring charge against this economic orthodoxy is that it is
unrealistic and that models of market exchange under competitive conditions fail to
illuminate the world in which we live. Such models, it is commonly said, prioritise
elegance over relevance. There is much in that criticism; however, the theoretical

3
 4 ECONOMIC PROCESSES AND PROBLEMS—THE CURRENT CONTEXT

models have a strong influence on economic policies in practice and they therefore
do have an awesome relevance, for better or worse. This has been particularly evident
in the last three decades. Orthodox economic reasoning has given rise to particular
policy prescriptions, such as the liberalisation of trade, the deregulation of financial
markets, and the privatisation of public enterprises. The proponents of these policies
seem relatively untroubled by the failure of the real world to exhibit the features
assumed in the abstract theories. It is as if the real world is being reconstructed in
the image of a particular economic theory. Either way, as a purely theoretical exercise
or, as a vulgarised version of that theory used for political purposes, conventional
economics has deep problems.2
Modern political economy seeks to break free of this straightjacket by directly
confronting the current political economic problems and policy issues. There is no
shortage of such concerns: the challenge posed by the power of multinational
corporations, the tension between economic growth and ecological sustainability,
the economic insecurity and inequality intensified by contemporary structural
economic changes, the proliferation of speculative financial activities and their
adverse consequences for economic stability and productivity, and the continuing
problems of promoting balanced economic and social development, especially in
poorer nations.
The immediate appeal of the political economic approach is its direct engagement
with these issues. A link is thereby established between studies in economics and
what is reported in the daily newspapers and on radio and television current affairs
programs. Simultaneously, links are created with other areas of study, such as
geography, history, social studies, political science, and industrial relations. Indeed,
this interdisciplinary character of political economy is one of its strengths. Real-
world phenomena do not fit neatly into boxes labelled ‘economic’, ‘social’, ‘political’,
or ‘cultural’. These categories have been constructed for academic convenience, and
the disciplinary divisions—between economics, sociology, and political science, for
example—can impede a full understanding. Political economic analysis is enriched
by drawing from these other disciplines. It leads towards a more holistic approach to
social science.

THE POLITICAL ECONOMIC QUESTIONS

Major explorations require an orderly procedure. In the case of political economy,

this means systematically interrogating each issue by posing questions such as

O What is happening?
O Why?
O Who gains? Who loses?
O Does it matter?
O If so, what can be done and by whom?

First, to assess ‘What is happening?’ requires a basic stocktaking of the facts of

the matter. This is seldom straightforward, because elements of judgment are often
necessary in deciding which aspects are most important and which are relatively
 WHAT IS POLITICAL ECONOMY? 5

inconsequential. Then, the 'Why?' question shifts attention to the analysis of causal
factors—the forces, people, or institutions driving the political economic processes
in question. Next, taking stock of winners and losers requires careful study of how
the various participants in the economic drama are affected. The question ‘Does it
matter? then introduces more explicitly evaluative considerations. This provides the
link between the analysis oi problems and the discussion of responses, leading into
the final question about remedial policies and strategies. We are not simply passive
observers of political economic change: as active participants, our effectiveness
depends on how we address the strategic question of what can be done.3 Box 1.1
illustrates these five steps applied to globalisation.

BOX 1.1
GLOBALISATION
It is commonly asserted that our lives are now being radically changed by the integration
of economic activities on a global scale. Globalisation is said to be breaking down the
territorial boundaries that used to limit the opportunities (and threats) that we experienced.
According to this view, technological and economic changes are transforming society
and culture. We fail to adjust at our peril, individually and collectively.
Is this really so? Asking the five key political economic questions can reveal a more
sophisticated story.
First, to answer 'What is happening?' requires important distinctions to be made
between the globalisation of finance and trade, of culture, of environmental concerns,
and of human rights. Focusing on the globalisation of business activities, for example,
requires careful study of the changing patterns of international trade in goods and
services, international investment, and/or international finance (including the proliferation
of speculative activities).
Answering the question 'Why?' requires analysis of the drivers of change, including the
complex interactions between the forces external to nation states and the forces nurtured
within them. The influences of consumerism, technology, and government policies towards
hosting multinational corporations, for example, come into the spotlight.
The question 'Who gains; who loses?' is equally complex. The changing international
distribution of jobs and incomes is one important aspect. Large multinational companies,
seeking to take advantage of differential labour costs, have often relocated parts of
their manufacturing activities to developing nations. As a result, significant numbers of
workers in those countries have gained industrial employment previously unavailable to
them; however, although usually better paying than the traditional occupations, these
jobs are frequently associated with particular health and environmental risks. Whether
the industrialisation, often localised in enclaves called 'export-processing zones', has
trickle-down benefits for the rest of the society is also uncertain: it depends on how and
where the extra income is spent and on whether the companies pay significant amounts
of money in local taxes. Meanwhile, the employees in more affluent nations face pressures
for wage reduction in order to try to keep the local manufacturing businesses competitive,
or face unemployment if the firms go under.
 6 ECONOMIC PROCESSES AND PROBLEMS-THE CURRENT CONTEXT

Does globalisation matter? Certainly, the political economic changes have major social
and environmental implications. The advantages for consumers of being able to shop in
the global marketplace need to be balanced against the greater economic insecurity that
many workers face. The socially destabilising effects of changing patterns of economic
inequality demand attention. And the environmental impacts of worldwide sourcing of
raw materials, increasingly extensive transport, and use of non-renewable energy sources
are further sources of tension.
So, what is to be done? Is the capacity for national economic management
undermined by the greater mobility of capital? To what extent, and in which policy
fields, are governments able to shape the terms on which nation states engage with the
global economy? If governments are, indeed, losing their managerial capacity, to which
other institutions—local, non-governmental, or supranational—can we instead look to
control the processes of change? Can labour, environmental, or consumer movements,
for example, go global in order to counteract the globalisation of business and finance?
These are the kinds of big, strategic questions that globalising processes generate for
modern political economy.

CONTRIBUTORY CONCEPTUAL CURRENTS

Describing political economy as a means of understanding a changing world is a

down-to-earth beginning to our explorations. How these contemporary challenges
are addressed is the second defining feature of political economy. This is where the
contest of economic ideas enters the story. On any economic issue there are competing
explanations. So we must recognise, and understand, the competing currents of
economic analysis. We can then draw on the rich heritage of concepts that have been
developed to aid understanding of how the economy works. Among the different
schools of economic thought that have developed during the last two and a half
centuries, the following have most obvious relevance in the construction of modern
political economy.

Classical political economy

Scholars such as Adam Smith and David Ricardo wrote about economic affairs when
capitalism was emerging from feudalism to become the dominant economic system
in Western Europe. Although the economy then looked very different from today’s—
with less sophisticated production and transport technologies, and smaller businesses
that usually served only local markets—Smith’s and Ricardo’s insights into economic
interests and political processes are of enduring relevance. The notion of an economic
system producing goods and services surplus to what is required for social
reproduction remains valuable. Understanding how that surplus may be expanded—-
whether through trade and an increasingly complex division of labour, for
example—is central to the analysis of economic growth. Understanding how the
surplus is generated also leads to an explanation of how incomes are distributed—
among capitalists, workers, and landowners, for example. Classical political economy
is generally held to have conservative political implications, but the underlying
conceptions of economic production, distribution, and economic growth can be
 WHAT IS POLITICAL ECONOMY? 7

given a progressive, modern twist. The emphasis on the troublesome issue of land
and land ownership, ignored by much economic theorising over the last century, is
particularly important.

Marxist economics
Marxist economics also warrants careful consideration. Its roots are in the tradition
of classical political economy, but it provides a quite different, more critical,
interpretation of capitalism. It emphasises the basis of the capitalist economy in
particular property relations, class structures, and the relentless drive for capital
accumulation. Marxist economics posits the exploitation of labour as the source of
the economic surplus. From that springs class conflict and the potential for radical
political economic change. The tenets of Marxist economic analysis that underlie
this view (such as the labour theory of value, the theory of surplus value, and the
explanation of recurrent economic crises) need to be critically re-evaluated to test
their applicability to the modern economy. These are, quite properly, focal points for
debate about the relevance of Marxism today. Generally, though, the holistic
character of Marxian political economy and its emphasis on the conflicts and
contradictions driving economic change has evident resonance in the current context.
Globalisation, for example, can be interpreted from this perspective as the drive by
capitalist business interests to break through the constraints on capital accumulation
imposed by national boundaries.4

Institutional economics
Institutional economics is another tradition that also has much to offer modern
political economy. It emerged from the German historical school of the nineteenth
century and flourished in the twentieth century, partly as a reaction to what is
considered to be the unrealistic abstractions of orthodox economic theory. Its leading
exponents, from Thorstein Veblen to J. K. Galbraith, have persistently emphasised
the need to come to terms with the changes in institutional form associated with the
ongoing development of capitalist economies. The focus is on economic evolution.
Distinctive themes are the growth of big business, transnational corporations, the
influence of trade unions, and the varied governmental economic activities that
occur in different nations. Although coming from politically diverse positions, the
institutional economists have provided powerful ideas for shaping economic reform.5
The potential for more extensive interventions by the state to alleviate the inequality
and instability of free-market capitalism is a particular focus.

Keynesian economics
In this context Keynesian economic analysis also has continuing importance.
John Maynard Keynes was probably the most significant economist of the twentieth
century. He explained why capitalism cannot guarantee full employment, and
identified the necessary remedial policies at a time when more conventional economic
prescriptions had demonstrably failed. He showed that the economy did not function
simply as the aggregation of economic markets and that, without enlightened
government intervention, unemployment would recur. So, too, would the problem
of inflation. Orthodox economists subsequently sought to graft a mechanistic
 8 ECONOMIC PROCESSES AND PROBLEMS—THE CURRENT CONTEXT

interpretation of these Keynesian insights on to their economic theory in order to

produce a ‘neoclassical synthesis’.6 However, splicing together a microeconomics
emphasising market freedoms and a macroeconomics emphasising the necessity of
government intervention was bound to lack coherence, both analytically and
politically. The assault by monetarists and other new classicists on Keynesian
economic interventionism during the last quarter of a century has produced a more
consistent capitalist free-market ideology. But it takes us back to pre-Keynesian
economics and spurns the practical insights that Keynes made. As post-Keynesians
remind us, there is much in the original work of Keynes about the inherent
instability of a monetary economy and about policies conducive to long-run
expansion of productive capacity that is worth rescuing/ Here is another important
current of economic analysis flowing into modern political economy.

Neoclassical economics
The role of neoclassical economic theory is more problematic. As already noted, it
has been the dominant economic orthodoxy. As such, it needs to be carefully
understood. But much of the impetus for modern political economy comes from the
quest for an alternative. One approach is to consider neoclassical economics
pragmatically, as a possible source of contributions to the modern political economist’s
tool kit. Some elements within neoclassical economics—such as the analysis of
externalities and the measurement of demand and supply elasticities—can be
salvaged for this purpose. However, the problem is that neoclassical theory also
embodies a distinctive ideology—presenting a particular image of a free market
capitalist economy serving societal preferences. These orthodox economic ideas are
better understood when treated comparatively with classical, Marxist, institutional,
and Keynesian views. This is the essence of the liberal educational principle applied
to the study of economic issues.

Modern political economy

Modern political economy is not a return to the economic ideas that prevailed before
neoclassical economics became dominant. Focusing on the conditions for the broad
progress of the economy and society is certainly more in tune with the classical
tradition than with the narrower, neoclassical focus on market equilibrium. However,
modern political economy also draws on the currents of economic thought that have
been developed by subsequent scholars, including Joseph Schumpeter, Joan Robinson,
Nicholas Kaldor, Michal Kalecki, Paul Sweezy, and Gunnar Myrdal, as well as
Veblen, Galbraith, and Keynes. Institutional, Keynesian, and post-Keynesian ideas
thereby exert a strong contemporary influence. A common theme is the desire for a
down-to-earth approach that addresses real political economic problems and makes
values explicit.
Political economy is the study of the economy from a social science perspective.
There is an increasingly pressing need to extend the subject to also embrace
environmental concerns. Perhaps the greatest challenge for us in the twenty-first
century is to reconcile the economic with the ecological. There are some relevant
concepts that can be drawn from existing economic analyses for this purpose.
Neoclassical economists, for example, commonly concede that external diseconomies
 WHAT IS POLITICAL ECONOMY? 9

of production and consumption (externalities) are sources of recurrent market failure.

This leads them to advocate policies of extending private property rights to
environmental goods so that their use can be controlled through the price system.
Other social scientists reject this add-on to market theory, arguing instead for a
fundamentally different ‘ecological economics’.x That means seeking not only to
build on, but also to transcend, the legacy of existing currents of economic analysis.
A similar stance is appropriate in relation to other contemporary challenges, such as
the concerns with gender inequalities, work-life balance, and the political economy
of human rights. Creative application of existing currents of thought within political
economy has to be blended with continued reformulation of the discipline.

BOX 1.2
STUDYING ECONOMICS OR
POLITICAL ECONOMY?
It appears paradoxical that, at a time when economic issues are of such importance in the
world, there has been widespread decline in student enthusiasm for studying economics.
Reorienting the discipline towards modern political economy, as suggested here, does
not necessarily arrest or reverse that decline. At the secondary school level, the fall in
enrolments in economics courses, and the corresponding growth in subject areas such
as business studies, has a complex explanation that goes beyond the concerns of this
introductory chapter. However, to the extent that the aversion to studying conventional
economics is partly the product of its supposedly dry subject matter, the political economic
approach offers a potentially engaging alternative. This approach is capable of stimulating
more interest and enthusiasm than the more conventional economics syllabus. Studying
political economy is not easy; indeed, the emphasis on competing currents of economic
thought and their association with rival political philosophies adds complexity to the
subject. But this engagement with controversial issues creates more intellectual excitement
than the narrow, seemingly technical, treatment of orthodox economic analysis.
The link between political economy and current affairs, as discussed in newspapers,
and on radio and television, is also more explicit. There is less requirement than in
orthodox economics courses and textbooks for the suspension of disbelief. Students do
not have to switch off from the world around them as they watch elaborate theories being
constructed with little evident connection to observable phenomena in the real world. In
political economy, the point of the analysis can usually be seen more clearly and directly.
There are theories to be studied, of course, but their relative plausibility can be discussed
with reference to real-world observations. Moreover, there is plenty of scope for students
to develop links between their own personal experiences and the broader concerns of
political economy. Case studies (of particular firms or industries, of cities and regions, of
industrial disputes, of unemployment problems, or of the winners and losers resulting
from different government economic policies, for example) can be a useful vehicle for this.
For all these reasons, the approach of political economy should have substantial appeal
for students who are interested in how they fit into the world around them, and how they
might contribute to changing it for the better.9
 10 ECONOMIC PROCESSES AND PROBLEMS—THE CURRENT CONTEXT

CONCLUSION

There is considerable continuity in the economic activities in which people engage—

using natural, human, and manufactured resources to produce goods and services,
and distributing the fruits of those endeavours according to the relative economic
power of the participants. There is also considerable change, particularly in the
present period of rapid technological innovation, global integration, and structural
economic adjustment. In political economic analysis, a similar dualism exists—
continuity comes from building on the existing corpus of economic knowledge, but
change comes through adapting and extending it to deal with the evolving character
of real political economic problems. The present time is one in which the need for
creative political economic thinking is imperative.

KEY POINTS
O Political economy addresses real-world concerns in a way that emphasises the
connections between economic problems, social structures, and political processes.

O There is a rich heritage of economic thought from which modern political economy
draws—particularly, but not exclusively, classical political economy, Marxist economics,
institutional economics, and Keynesian economics.

O Neoclassical economic analysis also needs to be carefully considered because of its

major influence on orthodox economic theory and government policies. The challenge
for political economy is to go beyond critique to the formulation of effective
alternatives.
 Who makes economic decisions?
What is the current political economic context in which those decisions are made?
What are the principal political economic challenges we face?

M any people come to the study of economics expecting that it will offer
guidelines for getting rich. They are usually disappointed to find that it is
about how the economic system works, rather than how the system can be worked
for personal advantage. The former may help the latter, of course, in that people are
likely to make more astute financial decisions if they know about the economic,
social, and political forces shaping the business and financial environment.
Concurrently, it is also to be hoped that a better understanding of how the economy
works and what the sources of economic problems are will stimulate more concern
with remedial policies and strategies to achieve better social outcomes.
Generally, it is not an unreasonable expectation that the study of economics should
serve the needs of intelligent citizens who wish to make sense of the world around them.
It is an expectation that, currently, is both in sharp focus and difficult to satisfy. This is
because the current era is one of economic uncertainty, a time when individuals have to
cope with major changes to their material circumstances, often with little understanding
of what is driving those changes and the potential for a change of direction.

THE ECONOMIC CONTEXT: RISK AND UNCERTAINTY

We live in exciting if unsettling times. Dramatic changes in technology are

transforming the way goods and services are produced and, particularly, the way
information is transmitted. The barriers once imposed by the tyranny of distance
and national boundaries, though still significant, are being eroded. This process has
cultural and political, as well as economic, dimensions, but its most notable feature
is the growing economic power of transnational corporations. Some of these
companies have budgets larger than national economies.1 Understandably, many
individuals feel dwarfed and powerless in these circumstances. The capacity of the
democratic institutions within nation states to exercise control over the enormously
powerful private corporations is under challenge; in many cases, governments do not
even seem to have the will to exercise such control.
Meanwhile, the nature of work is also rapidly changing. A significant proportion
of the potential workforce is excluded from making a direct, productive contribution,
even when economic growth is taking place. Solving this problem of persistent
 12 ECONOMIC PROCESSES AND PROBLEMS—THE CURRENT CONTEXT

unemployment is one of the continuing political economic challenges. For those

who are in work, the emphasis is now increasingly on casual, part-time, or contract
employment. In the advanced industrial nations the number of manufacturing jobs
relative to service-sector jobs continues to shrink. More women are in the waged
workforce, but the overall allocation of household tasks according to gender has not
changed correspondingly. The proportion of older people in the population continues
to grow, albeit slowly, posing the challenge of developing appropriate mechanisms
for intergenerational income transfers. The capacity of governments to manage these
and other processes of income redistribution is impaired by their reluctance to raise
taxation to generate the necessary revenue.
Increased income inequalities, within and between nations, are a predictable
feature of these circumstances. They repeatedly undermine the conditions for
effective cooperation in seeking solutions. The presence of glaring economic
inequalities within a nation is not conducive to the cooperative behaviour necessary
for the simultaneous achievement of higher productivity and social cohesion. Similar
problems exist on an international scale. Imbalances of trade and debt between rich
and poor countries accentuate the long-established problem of economic inequality.
Some of the poorer nations, most notably China and India, have achieved impressive
economic growth rates in the past two decades, but others, especially in sub-Saharan
Africa, have been slipping even further behind.
Meanwhile, in the wealthier nations the economic exuberance of the 1990s and
early 2000s has been replaced with a more troubled economic outlook. The
capitalist system has always been prone to a cyclical pattern of boom and bust, so
the prospect of economic recession remains a recurrent fear. Even more worrying
for the long term, because of the constraints imposed by the physical environment,
is the increasingly unsustainable character of economic growth on a global scale.
How to harmonise economy, society, and ecology most effectively is a question to
which there is, as yet, no agreed answer.
It is not surprising that many individuals feel overwhelmed by these developments
and problems. Therein lies the twin challenge for political economy: to analyse the
underlying forces and to posit some effective solutions.

BOX 2.1
ECONOMIC DECISIONS
Our day-to-day lives involve many economic decisions. Most of these are fairly small-scale
and short-term and of no apparent significance to anyone beyond our immediate family
and friends. In the aggregate, they shape the economic environment in which we live. Some
such decisions, illustrating our various social and economic roles, are described below.

O As students, we are investing in our economic future as well as—hopefully—pursuing

personal development. How much education we undertake and how many qualifications
we acquire are likely to have a bearing on our future economic opportunities.
O As consumers, we make daily decisions about which of the sometimes baffling array of
products we will buy with our disposable income. We also make decisions, if only by
default, about how much we are prepared to forgo the immediate gratification of
consumption in order to accumulate personal savings.
 THE PERSONAL IS POLITICAL ECONOMIC 13

O As workers, we are faced with constrained choices about the jobs we seek and the
hours we work. We also have to make periodic decisions, individually or collectively,
about the strategic stance to take in negotiations with our employers about wages and
conditions of work.
O Meanwhile, business decision-makers make their own strategic decisions about
employment and wages payments. They also periodically review the methods they use
for producing goods and services, how much they will invest in new production facilities,
the prices they will charge for their products, and their sales promotion practices.
O Speculators continually review their portfolio of assets, deciding what to buy and sell
according to their judgments about future price movements and the possibility of
capital gains. When media commentators refer to how 'the markets' respond to
economic news or government policy initiatives, it is the behaviour of these speculators
to which they are referring.
O Banks decide about making loans to their clients, usually according to set guidelines.
They also make decisions about the interest rates offered to depositors and charged
to borrowers. The margins between these borrowing and lending rates are a principal
source of banks' profits, and so they are kept under continual review.
O Government ministers, especially those in key departments such as Treasury and
Finance, also make frequent adjustments to economic policies. They do so in response
to changing economic conditions in national and global markets, and to political
pressures (including the speculative sentiments of the markets). These public policy
positions are also significantly influenced by prevailing economic theories.

MICRO DECISIONS: MACRO OUTCOMES

There is a link between micro personal choices and macro social choices. Individuals’
economic decisions affect and are affected by broader political economic forces. Indeed,
it is reasonable, as a first approximation, to see what is happening in the economy as a
whole as the outcome of the sum of individual decisions. So, whether the economy is
functioning well or not—whether the overall conditions are buoyant or stagnant, for
example—is the result of whether the numerous interdependent decisions mesh
effectively. There is, of course, much scope for inconsistency, conflicts of interest, and
contradictory elements.
As political economists, we can step back from the minutiae of individual choices
and short-term decisions to see the bigger picture. This can help us understand the
political economic structures that shape and constrain our options. It can also help to
reveal the forces operating to change the context within which individual economic
decisions are made.

THREE TRILOGIES

A simple device for considering some basic political economic principles is shown in
figure 2.1 on the next page. This is taxonomic in character, emphasising classification
rather than explanation. It draws attention to some tensions that arise between
various types of economic arrangement.2
14 ECONOMIC PROCESSES AND PROBLEMS—THE CURRENT CONTEXT

FIGURE 2.1 Three trilogies: institutions, spatial scales, and systems

 THE PERSONAL IS POLITICAL ECONOMIC 15

The first diagram depicts the relationship between market, state, and community.
It shows the three different ways in which economic activity can be organised. Goods
and services may be produced for exchange in the market. Many are. Alternatively, the
production and distribution of goods and services may be organised by a central
coordinating agency. Usually, the state then becomes the economic manager. As such, it
may be responsive to the wishes of the society through democratic processes, or it may
be authoritarian in character. The third possibility is that the production and distribution
of goods and services directly serves community needs. Community provision involves
people producing goods and services for themselves and their neighbours, and benefiting
from reciprocal relationships/ The community may be quite small—perhaps just a
household—or it may comprise a larger group of people whose voluntary cooperation
results in purposeful economic activity without the need for markets or a state.
These three different ways of providing for our material needs and wants
normally coexist in any society, but their relative weight can vary enormously,4 and
there are recurrent tensions on the margins between them. Figure 2.1 illustrates
these boundary tensions in terms of the balance between public and private sectors
of the economy, the choice between voluntary and government welfare provision,
and the extent to which social life is structured by market processes.
The second trilogy concerns the spatial scales at which economic activities can be
organised and coordinated. Local production can be for local consumption. Much is.
National coordination of productive activity is also commonly attempted. The
markets for some products are nationwide, and governments usually try, more or less
successfully, to manage national economies. The global dimension is becoming
increasingly important, however, as global markets, and even some embryonic forms
of a global state, have developed. How these three spatial scales are articulated and
how best to strike a balance between them are key issues. As suggested in the second
diagram in figure 2.1, these concerns manifest in challenges to national sovereignty,
the development of global cities, and regional tensions. Here is a gentle reminder of
the importance of the spatial dimension in political economy. All economic activity—
indeed, all of life—takes place in both time and space, so we need analytical structures
that pay due attention to these coordinates of our behaviour.5
The third trilogy shown in figure 2.1 depicts the relationship between economy,
society, and ecology. Economic activities always depend on certain social and
ecological preconditions—the availability of labour and natural resources, for
example—and they have major social and environmental consequences. Political
economy must necessarily focus on these connections. It must show how the balance
between economic, social, and ecological concerns is affected by the relationships
between market, state, and community, and between local, national, and global
scales of economic organisation. In practice, balance is seldom achieved, and the
resulting contradictions are manifest in ongoing concerns about distributional
equity, ecological sustainability, and the quality of life.
The three trilogies shown in figure 2.1 draw attention to social choices. Do we
want our economic arrangements to be mainly market-oriented, increasingly global
in character, and prioritising the pursuit of economic growth? Would we prefer a
greater emphasis on the state, on planning national economic development, and on
social and/or environmental goals? Or would we prefer more focus on the role of the
 16 ECONOMIC PROCESSES AND PROBLEMS—THE CURRENT CONTEXT

community and localised forms of political economic organisation? What

combination of arrangements would be most desirable? How can we seek to achieve
that outcome? These are fundamental questions facing us all as citizens. They are
issues that political economy seeks to illuminate.

CONCLUSION

As individuals, we all participate in the political economic drama. The personal is

political economic. However, our roles in the drama are not predetermined. As
actors, we can improvise, even tear up the script. So, it helps to know what is going
on and what our options are, individually and collectively. We need an understanding
of the political economic possibilities.
So, what are the major challenges facing us as political economists now? We
must try to understand the economic institutions and the structures of political
economic power that shape our lives, for better or worse. We have to understand the
forces driving economic change and shaping the political priorities and possibilities.
More than that, we have to identify what can be done to produce political economic
futures more in keeping with our individual and collective needs and aspirations.
We need, for example, to understand the capabilities and limitations of markets
as means of organising and integrating economic activities. We need to explore
appropriate economic roles for community and government that are desirable and
feasible in an increasingly global political economic context. We need to devise the
most effective means for securing economic progress, and balancing concerns about
economic efficiency with social justice and ecological sustainability. And we need to
evaluate alternative strategies for the pursuit of greater economic security, stability,
and equity.
To address these concerns we must look beyond the short-term, day-to-day
economic decisions we make as consumers, workers, investors, or business managers.
We need to deepen our understanding of the political economic forces shaping our
lives.

KEY.PQ1NTS
O Political economy emphasises the context within which an array of individual decisions
are made—decisions about the production of goods and services, work and wages,
consumption choices, savings and investment, and economic and financial
management.

O Economic activities can be organised in different ways, involving various combinations

of market, state, and community decision-making. They can be organised at various
scales: local, national, or global. The nature of these arrangements has a major bearing
on the social and ecological impacts of economic activities.

O The current political economic context features substantial uncertainty and risks.