Key Terms/Glossary
- Bourgeoisie - a term that refers to the upper middle classes, who often own most of a society’s wealth and means of production.
- Capitalism - also referred to as free market capitalism, is a political-economic system where individuals and private entities are able to own land and capital needed to produce goods and services.
- Command and control - defined as a type of political economy where the government owns most, if not all, means of production in a society.
- Communism - where the state, usually dominated by one party, is in complete control of the political economic system, including all property.
- Comparative advantage - refers to the goods, services or activities that one state can produce or provide more cheaply or easily than other states.
- Comparative political economy (CPE) - defined as the comparison across and between countries of the ways in which politics and economics interact.
- Competition - occurs when industries, economic firms, and individuals vie to obtain goods, products and services at the lowest prices.
- Cultural Revolution - a socio-political and economic movement that sought to expel capitalists and promote the Communist ideology.
- Democratic socialism - seeks democracy not just in the political sphere but in the economic sphere as well.
- Economic growth - the process by which a country’s wealth increases over time.
- Economic liberalism - defined as a political economic ideology that promotes free market capitalism through deregulation, privatization and the loosening of government controls.
- Economic nationalism - defined as attempts by a state to protect or bolster its economy for nationalist goals.
- Economic structuralism - defined as a political economic system wherein the working class must be protected from exploitation of the capital owning class, but on an international scale.
- Economies of scale - the ability to “produce goods at a lower average cost”
- Fair competition - in capitalism affirms that industries will work to maximize their output and minimize costs to compete with similar industries, forcing the market to provide competitive options to consumers.
- Fiscal policy - collectively refers to a country’s systems of taxation, spending, and regulation.
- Great Leap Forward - a plan which asked the Chinese people to spontaneously increase production in all sectors of the economy at the same time.
- Import-substitution industrialization (ISI) - refers to a country's attempt to reduce its dependence on foreign companies through increased domestic production.
- Inflation - defined as a general increase in prices, usually within a given time.
- Informal sector - also known as the informal economy, is that part of the economy consisting of people producing goods and providing services outside of regular employment.
- International political economy (IPE) - defined as the study of political economy from a global perspective or through international institutions.
- International trade - defined as the exchange of goods, services, and activities between countries.
- Laissez-faire - defined as a type of political system where the government chooses not to interfere or intervene in its national economy.
- Market - defined as the exchange of goods and services within a given territory.
- Marxism - defined as a political economic system wherein the means of production are collectively owned by workers, not privately owned by individuals.
- Mercantilism - defined as a political economic system which seeks to maximize a country’s wealth through increasing exports and limiting imports.
- Monetary policy - defined as the actions taken by a state’s central bank to affect the money supply.
- Non tariff regulatory barriers - restrictions on trade not involving a tariff or a quota.
- Private goods - defined as an economic resource which are acquired or owned exclusively by a person or group.
- Property - defined as a resource or commodity that a person or group legally owns.
- Property rights - defined as the legal authority to dictate how property, whether tangible or intangible, is used or managed.
- Protectionism - defined as policies protecting a country’s domestic industry through subsidies, favorable tax treatment, or imposing tariffs on foreign competitors.
- Public goods - defined as goods and services provided by the state that are available for everyone in society; are nonexcludable and nonrival in nature.
- Purchasing Parity Power (PPP) - a metric used to compare the prices of goods and services to gauge the absolute purchasing power of a currency.
- Quotas - limits on the number of foreign goods coming into a country.
- Recession - defined as two consecutive quarters (three months) of declining economic activity.
- Regulation - defined as rules imposed by a government on society.
- Self-interest - the means through which individuals can act on their own behalf to make choices that benefit themselves.
- Sin taxes - taxes levied on a product or activity that are deemed harmful to society.
- Social democracy - defined as a political and economic system that favors heavy market regulation to achieve a more equal society.
- Social market economy - is a socioeconomic system that combines principles of capitalism with domestic social welfare considerations.
- State capitalism - where a high level of state intervention exists in a market economy, usually through state-owned enterprises (SOEs).
- Statism - defined as a political economic system where the government often takes on an enterprising role, usually through a state.
- Tariffs - taxes imposed on imported foreign products with the purpose of making those products more expensive
- Taxation - defined as the process of a government collecting money from its citizens, corporations, and other entities.
- Versailles Treaty - treaty which ended the first World War.
- Wealth distribution - defined as how a country’s goods, investments, properties, and resources, or wealth, are divided amongst its population.
- Zero-sum game - a situation where one person, or entity, gains at the equal cost of another.
Summary
Section #8.1: What is Political Economy?
Political economy is a social science that considers and analyzes the various economic theories (like Mercantilism, Free Market Capitalism / Liberalism, Marxism / Economic Structuralism), practices, and outcomes either within a state, or among and between states in the global system. Consideration of political economy can be traced back to the work of Plato and Aristotle, though the most modern initiation can be attributed to the work of Adam Smith in his Wealth of Nations. Overall, comparative politics would be lacking if it neglected conversations and scholarship relating to political economy, as many political outputs and outcomes are inherently tied to economic structures and ideologies.
Section #8.2: Political Economic Systems
Political economies also vary in how they are implemented, with a major variable being the role of the state in its economy. In some political economy systems, the state is much less involved, referred to as laissez-faire, which translates from French as ‘let it be’. At the other end of the spectrum are states that have complete control of an economy. There are four main political economic systems, including Mercantilism (Economic Nationalism), Free Market Capitalism (Economic Liberalism, Marxism (Economic Structuralism), and Socialism (Social Democracy). These political economic systems can result in different outcomes which affect both citizens and the state at large in significant ways.
Section #8.3: Comparative Case Study - Germany and China
Germany and China have different economic systems, but both play prominent roles in the global community as major exporters. When countries are large exporters, they can experience similar problems despite their very different economic systems. Both China and Germany’s political leaders need to constantly and carefully balance the domestic concerns of their economies alongside their global “customers” who depend on their exports. If the global “customer” base fails, or switches trade partnerships, China and Germany’s economies will be unable to thrive. Beyond this, relying on exports leaves states vulnerable to the economic conditions of those they trade with; if a state is no longer able to afford the product or buy the good, the exporter will struggle.
Review Questions
- The field of political economy is concerned with:
- International organizations like the World Bank and the International Monetary Fund
- The relationship between political and economic policies.
- International monetary policies and domestic fiscal policies.
- Comparative advance and the balance of trade.
- Which theory in this chapter credits capitalism, globalization and international trade with contributing to poverty in developing countries?
- Economic Liberalism
- Economic Realism
- Economic Nationalism
- Economic Structuralism
- Which option below best describes the concept of comparative advantage?
- Countries compete by trying to produce all items and products within their own country, working to decrease reliance on imports.
- Countries compete by trying to outsource all production, working to increase reliance on imports.
- Countries cooperate economically, encouraging countries to produce what they are most efficiently and cheaply able to produce relative to other countries.
- None of these is correct.
- Which theory described in this chapter argues that once economic inequalities are apparent, they have a tendency to become self-perpetuating?
- Feminism
- Economic Liberalism
- Mercantilism
- Economic Structuralism
- What is Autarky?
- A situation where countries trade freely with each other.
- A situation where a country does not trade with other countries.
- A situation where a country is only able to trade with a few countries.
- A situation where countries work to destabilize other economies.
Answers: 1.b, 2.d, 3.c, 4.d, 5.b
Critical Thinking Questions
- What contributed to the rise of political economy as a field of academic study? Describe the factors involved and discuss implications for future research and study.
- What lessons can we learn from the responses to the COVID-19 pandemic about the importance of political economy?
- There are a number of different belief systems about the appropriate role of government in economic affairs. How do these beliefs manifest in practical terms? Consider the application of these different belief systems in the context of energy and environmental policies.
- The effects of changes in climate and the environment can impact countries in uneven and, arguably, unfair/inequitable ways. To what extent do various economic systems respond or react to these inequalities/inequities? Are some economic systems more able to handle environmental and climate shifts? If so, how?
Suggestions for Further Study
Journal Articles
- Acemoglu, Daron, Simon Johnson and James Robinson/ [2001] “The Colonial Origins of Comparative Development: An Empirical Investigation” American Economic Review, 91, 1369-1401.
- Rodrik, Dani. [1997] “Sense and Nonsense in the Globalization Debate.” Foreign Policy 107: 19-37.
- Valenzuela, J. Samuel and Arturo Valenzuela. [1978] “Modernization and Dependency: Alternative Perspectives in the Study of Latin American Underdevelopment.” Comparative Politics 10:4 (July), pp. 535-557.
- Books
- Piketty, T. [2017] Capital in the Twenty-First Century. The Belknap Press of Harvard University Press.
- Spero, J. E. [1990] The Politics of International Economic Relations. St. Martin’s Press, Inc.
- Stilwell, F. [2011] Political Economy, the Contest of Economic Ideas. Oxford University Press; 3rd Edition.
