Page 51 - Global Political Economy_Understanding The International Economic Order

CHA PTER T WO
nomic analysis, the explanation of economic policies is primarily the
province of political economy. Because each mode of analysis is lim-
ited by its assumptions, both should be utilized to improve under-
standing of the dynamics of the world economy.

The Nature of an Economy
Whereas economists regard an economy as a market composed of
impersonal economic forces, specialists in political economy interpret
it as a sociopolitical system populated by powerful actors. Such con-
ceptual differences distinguish the study of economics from that of
international political economy (IPE).
The neoclassical economic interpretation is that the economy is a
market or a collection of markets composed of impersonal economic
forces over which individual actors, including states and corpora-
tions, have little or no control. As former New York Times economic
commentator Leonard Silk has described it, for economists the econ-
omy is nothing more than a collection of flexible wages, prices, inter-
est rates, and similar forces that move up and down allocating re-
sources to their profitable use as buyers and sellers rationally pursue
their own interests. 21 Such an economic universe is a self-regulating
and self-contained system composed solely of changing prices and
quantities to which individual economic actors respond. Economic
actors are assumed to be “price-takers” who seek to maximize, or at
least satisfy, their private interests as they respond to changes in rela-
tive prices or to changes in economic constraints and opportunities.
The political economy interpretation used in this book defines the
economy as a sociopolitical system composed of powerful economic
actors or institutions such as giant firms, powerful labor unions, and
large agribusinesses that are competing with one another to formulate
government policies on taxes, tariffs, and other matters in ways that
22
advance their own interests. And the most important of these pow-
erful actors are national governments. In this interpretation, there are
many social, political, or economic actors whose behavior has a pow-
erful impact on the nature and functioning of markets. This concep-
tion of the economy as an identifiable social and political structure
composed of powerful actors is held by many citizens and by most
social scientists other than professional economists.

21
New York Times, 26 March 1980, D2.
22
Ibid.
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