Page 117 - Global Political Economy_Understanding The International Economic Order

CHA PTER F IVE
lations. They facilitate understanding of a world economy character-
ized by discontinuities, disequilibria, and profound shifts over time in
the global distribution ofwealth and hence ofpower. The world de-
scribed by the new theories is one ofsimultaneous divergence and
convergence among national economies, one in which governments
can and do play a crucial role in economic affairs and in which tech-
nological innovation is a central feature. Although the new theories
have certainly not displaced conventional neoclassical economics,
they do challenge many ofits assumptions and policy prescriptions,
and in some cases have led to modification ofneoclassical principles.
For this writer, the new theories provide important insights into the
dynamics ofboth domestic and international economies.
Stressing the importance in economic affairs of history, geography,
and sociopolitical institutions, the new theories complement the in-
sights and analytic techniques ofa state-centric approach to political
economy. They do, ofcourse, have limitations and do not provide us
with a complete understanding ofeconomic change. As these new
theories either modify or complement mainstream neoclassical eco-
nomics, I shall begin my discussion with an examination ofseveral
important limitations ofneoclassical economics as a tool for under-
standing the dynamics ofthe global economy.

Change and Neoclassical Economics

Because neoclassical economics does not consider history and geogra-
phy when explaining economic affairs, it has limited applicability to
comprehension ofthe functioning of the economy over time and
across space. Indeed, neoclassical theory generally ignores the changes
in economic, political, and other social structures that inevitably re-
sult from economic growth. The discipline’s focus on equilibrium ac-
tually inhibits understanding ofthe role of economic forces in the
evolution ofthe economy.
Neoclassical analyses provide neither a history ofthe economy nor
an explanation ofits evolving nature. However, without a history of
the growth process and its effects on the power and interests of major
actors, it is hardly possible to understand the dynamics ofthe world
economy. Furthermore, neoclassical economics does not add a great
deal to comprehension ofthe geographic distribution ofeconomic
activities within and across national economies, the evolution oftrad-
ing patterns, or the spatial development ofthe economy. Although
neoclassical economists believe that the territorial distribution ofeco-
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