1. POLI 214 Introduction to Comparative Politics
Session 5 POLITICAL ECONOMY
Lecturer: Dr. Maame Adwoa A. Gyekye-Jandoh
Contact Information:

2. Session Overview Overview
This session brings us to a study and analysis of political economy, the various components of political economy, and introduces students to four political economic systems and discusses the criteria for comparing these systems.
At the end of this session, students should be able to define political economy, name and distinguish the different components of political economy, and discuss the four political-economic systems.

3. Session Outline
The key topics to be covered in this session are as follows:
Topic One: The Various Components of Political Economy
Topic Two: Political-Economic Systems: Liberalism and Social Democracy
Topic Three: Political-Economic Systems: Communism and Mercantilism

4. Reading List
Chapter 4 of Recommended Text – Essentials of Comparative Politics (2007) by Patrick H. O’Neil.
Adam Smith. (1980). Essays on Philosophical Subjects. Indianapolis: Liberty Classics.
Edward Bernstein (1961). Evolutionary Socialism: A Criticism and Affirmation. New York: Schocken.
Friedrich List. (1966). The National System of Political Economy. New York: Kelley.
United Nations Human Development Report. undp.hdr.org

5. The various components of political economy
Topic One
The various components of political economy

6. What is Political Economy?
Political economy is the study of how politics and economics are related and how their relationship shapes the balance of freedom and equality. It is a subject which makes it possible to understand the interactions between the political institutions of any given country and the economic institutions that have been put in place to enhance the wellbeing of the citizens.
A healthy balance between the set of institutions ensures the prosperity as well as the freedom of the citizenry. To a large extent, the political ideology of a country has a direct relationship and reflection on the form and nature of the system of economy practiced in the country.

7. What is Political Economy?
The nature of the economies of countries under the former Soviet Union bloc (USSR) was inherently different from that of countries under the Western Capitalist bloc during the Cold War. However, China has been one exception where the interactions between political institutions and economic institutions do not have any direct impact on the nature of the economy. A communist political system in China does not prevent the economy from being run as an open economy.

8. Components of Political Economy
The political economy of a country is made up of various components. Below are some of the major components that one may see in any given country.
Markets: In economics, markets are the interactions between the forces of supply and demand.
It is a mechanism as well as an avenue for the allocation of resources in the country. The forces of demand and supply determine the prices of goods and services in the country.
The significance of markets in a political economy is that it creates opportunity for prices of goods and services to be determine by the people rather than a government or politicians fixing prices in the country.
Property: The concept of property in political economy refers to the right to own goods and services as well as the right to intellectual property. It also includes the responsibility of governments to guarantee and protect the right of citizens to own property.

9. Components of Political Economy
Public goods: Public goods are goods and services provided by the state or governments for the benefit of all citizens. Unlike property, which is a private entitlement, public goods are goods owned by the state and put at the disposal of all citizens to benefit. Examples include roads; water; safety and security; education etc.
Taxation: Taxation is a very significant component of political economy. It is the means by which the state collects the funds to pay for public goods and services. Every government depends on taxes to provide basic public goods for the citizens.

10. Components of Political Economy (contd.)
Other components of political economy include:
Social Expenditures
Money, Inflation, and Unemployment
Regulations
Trade
According to O’Neil (2007), the most basic “building blocks” of political economy are markets and property.
States oversee how goods and services are produced, and delineate basic economic rights and restrictions. States also intervene in the market when the private sector cannot or should not provide or control certain things, and this leads to states’ provision of public goods and other social expenditures (O’Neil, 2007, p. 88).

11. Political Economy
Note that different states have taken radically different approaches to the ideal relationship between the state and the market, resulting in a variety of distinct political-economic systems around the world.

12. Sample Questions
Explain the concept of Political Economy in your own words to a friend.
Why must there be a healthy balance between the political and economic institutions in a country?
Explain briefly three components of political economy.

13. Political-economic systems: Liberalism and social democracy
Topic Two
Political-economic systems: Liberalism and social democracy

14. Liberalism
Liberalism is a political–economic system which advocates the limiting of state power in favour of greater freedom for the individual and the market. Adam Smith is the father of economic liberalism with his strong support for the market mechanism and ownership of property.
Liberalism is the central principle of capitalist nations where the economic system is based on private ownership and free markets. Liberalism encourages laissez–faire where the economy is allowed to operate freely without the interference of the state.

15. Social Democracy
Social democracy is a political economic system which embraces some elements of liberalism but also advocates for a role of the state in ensuring that the wealth of the nation is distributed equitably.
Unlike liberalism which discourages state intervention, social democrats believe that unchecked economic development produces great inequality. State intervention ensures that the nation’s wealth is not concentrated in the hands of a very few group who takes advantage of market forces.
One way that social democrats ensure equality in the distribution of the nation’s wealth is by taxing the rich to provide social amenities for the poor.

16. Liberalism and Social Democracy
Liberalism and social democracy are two opposing political economic systems practiced in most countries in the twenty-first century.
Whereas economic liberalism encourages free market economic systems where the state’s influence is reduced to a minimum, a social democratic political-economic system encourages a much greater role for the state to ensure equal distribution of economic resources.

17. Questions to Consider Questions to consider:
Discuss at least three differences between Liberalism and Social Democracy.
What are two advantages and two disadvantages of a Liberal political-economic system?
What benefits can citizens derive from a Social Democratic political-economic system?

18. Political-economic systems: communism and mercantilism
Topic Three
Political-economic systems: communism and mercantilism

19. Communism
Communism is an economic system which seeks to eliminate the role of market forces and private ownership of property. It encourages collective equality at the expense of individual freedom.
Under communism, the state is the sole factor determining the distribution of economic wealth to the citizens. The notion of the invisible hand of market forces is totally eliminated. Every economic activity is controlled and managed by the state.
Karl Max is considered the foremost advocate of communism. He stated that private property ownership and the free market system cannot truly serve the needs of society as a whole, but the interest of a few privileged classes in society. Cuba and the former Soviet Union are examples of countries that have run the communist system.

20. Mercantilism
Mercantilism is a political economic system where the wealth of the nation is used for national power. It is a system which is less concerned about individual freedom or collective freedom, but puts much emphasis on how the domestic economy can be used as an instrument for empowering the state in its position in the international system.
In a mercantilist system, the state uses its political power to gain control over resources and markets and makes sure that it eliminates competition in the process. A good example of mercantilism was the British colonization of some African countries. The resources and markets of these countries were used to empower Britain, and their economies were forced to trade with Britain alone, without any competition.

21. Communism and Mercantilism
Communism and Mercantilism are two major political-economic systems which are diametrically opposed to free market economic principles. Whereas communism undermines market forces and private ownership of property, mercantilism encourages state dominance of the economy and elimination of competition.

22. Conclusion of Session 5
In this session, we have discussed the fact that there are several components of political economy, which help countries strive to achieve the important goals of individual freedom and collective equality.
Political economy is an understanding and analysis of the complex relationship between politics and economics, as well as the balancing of the relationship to provide freedom, security and prosperity for citizens. The various major components of political economy include market forces, public goods, property ownership, social expenditures and taxation.
We have also examined four political-economic systems that have been dominant in different countries over time.
The next session will look at the criteria for comparing political-economic systems, the United Nations Human Development Index, and the future of political economy.

23. References
Chapter 4 of Recommended Text – Essentials of Comparative Politics (2007) by Patrick H. O’Neil.
Adam Smith. (1980). Essays on Philosophical Subjects. Indianapolis: Liberty Classics.
Edward Bernstein (1961). Evolutionary Socialism: A Criticism and Affirmation. New York: Schocken.
Friedrich List. (1966). The National System of Political Economy. New York: Kelley.
United Nations Human Development Report. undp.hdr.org