Page 53 - Global Political Economy_Understanding The International Economic Order

CHA PTER T WO
turns to scale in which economic actors who desire to replace an older
and less efficient institution or business firm with a newer and more
efficient one can do so without any overwhelming difficulty. How-
ever, the established institution or business firm may enjoy economies
of scale (and hence lower costs) merely as a consequence of having
established itself in the market ahead of potential rivals. An existing
institution may also have gained a legitimacy and a powerful constitu-
ency whose interests it serves. Thus, even though the potential effi-
ciency of the new institution or business firm may be much greater
than the efficiency of the existing institution or business firm, the
“barriers to entry” are too great to accomplish a change. In the eco-
nomic universe of political economists there are many inefficient eco-
nomic institutions and oligopolistic businesses that result from ran-
dom events and irrational decisions.
The study of political economy requires integration of these two
fundamentally different meanings of “economy.” Both the neoclassi-
cal and the political economy interpretations of economic activities
are necessary and important ingredients in the effort to understand
how the economy functions. Impersonal markets and powerful actors
interact to produce those economic and political outcomes of interest
to students of political economy. The study of political economy re-
quires an understanding of how markets work and how market forces
affect economic outcomes as well as an understanding of how power-
ful actors, of which the nation-state is by far the most important,
attempt to manipulate market forces to advance their private inter-
ests. The science of economics, as it has been developed by genera-
tions of professional economists, possesses highly useful analytical
tools and a rich body of theoretical insights (or as economists prefer,
models) for understanding markets. The scope of economic science,
however, is too limited and its theories much too abstract for the
purposes of international political economy. The strength of political
science lies in its broad emphasis on the “realities” of the universal
struggle among human beings, groups, and states for power and posi-
tion. Its weakness lies in the intuitive nature of its methods and its
limited theoretical foundations.
The study of political economy and international political economy
requires an analytic approach that takes into account economics, po-
litical science, and other social sciences. It must incorporate the many
economic, political, and technological factors that determine, or at
least influence, the nature and dynamics of the international econ-
omy. Yet, such an approach will undoubtedly always be limited in its
explanatory, and certainly in its predictive, powers. There is simply
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