Introduction to Political economy 1.pptx

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1. Political Economy

2. Politics: It is a branch of social science that refer to the set of activities associated with making decisions in groups or other forms of power relations between individuals such as distribution of resources and status . How the behavior of people controlled by use of regulations and power. Economics: Economics is a social science that studies how people interact and make efficient allocation of limited resources to achieve maximum satisfaction of society wants.

3. Political economy: Definition 1. Political economy is an interdisciplinary branch of the social sciences that focuses on the interrelationships among individuals, governments, and public policy. 2. Political economy is a branch of economics that studies production, trade, and their relationship with law and the governmental policies. 3. It is used to describe the policies set by governments that affect their nations 'economies. 4. The political economy seek to understand how history, culture, and customs impact an economic system. As any economic theory is a methodology that is adopted as a means of directing the distribution of limited resources in a way that is beneficial for the greatest number of individuals. 5. Hence, the term political economy is widely used to describe any government policy that has an economic impact.

4. Global political economy studies how political forces shape global economic interactions. Therefore, the main concern of political economy is to determine the relationship between governments and individuals, and how public policy affects society

5. Understanding Political Economy Political economists study how economic theories such as capitalism, socialism, and communism work in the real world. Socialism: This type of political economy promotes the idea that the production and distribution of goods and wealth are maintained and regulated by society, rather than a particular group of people . Socialism aims to bridge the gap between rich and poor, where one or more individuals don't have the majority of power and wealth . (Norway, Sweden, and Denmark)

6. Main Features of Socialism Higher-income tax on high-earners Creation of National health care system – free at the point of use Nationalisation of key industries, such as coal, electricity and gas. Creation of welfare state with minimum income guarantee for the unemployed. Labour market reforms, such as greater protection for trade unions. Expansion of free education Socialism emphasises equality of opportunity, using the state to redistribute income from the highest earners to others. But, it does not insist on equality, only aiming for equality of opportunity. Democratic socialism combines both public sector intervention with private sector enterprise. Traditionally socialist parties may want to nationalise key public sector industries (which are natural monopolies), but private firms are free to operate in the free market. Rather than control individual firms, the state implements rules to avoid the exploitation of workers and consumers. Socialism allows private property and private ownership, but it may place a certain tax on wealth and inheritance to redistribute opportunity and wealth.

7. Communism: Communism was a theory developed by Karl Marx, who felt that capitalism was limited and created a big divide between rich and poor. He believed in shared resources, including property, and that production and distribution should be overseen by the government . (China, Cuba, Russia, North Korea)

8. Main Features of Communism: Communist economic and political theory was developed by Karl Marx. He developed the concept of a ‘Dictatorship of the Proletariat’ arguing that the working class should rule in the interests of the people, and ignore democratic norms. Marx also advocated for a revolution to overthrow capitalism and create a new economy where industry was owned and managed by the government rather than private individuals. In practice, the Soviet Union did achieve a new kind of economy through the 1917 revolution. Lenin and then Stalin also cracked down on individual liberty and removed all forms of democracy. An overriding aspect of the Communist society was the lack of individual liberty and freedom. In the Communist Soviet Union, the state became all-powerful in managing the economy, setting targets, deciding what to produce and how to produce. It left very little if any role for the price mechanism and free markets.

9. Capitalism: Capitalism: This theory advocates profit as a motive for advancement. The aim behind the idea of capitalism is that private individuals and other actors are driven by their own interests—they control production and distribution, set prices, and create supply and demand. A capitalist economic system is characterized by private ownership of assets and business. A capitalist economy relies on free-markets to determine, price, incomes, wealth and distribution of goods. It is argued that inequality is essential to encourage innovation and economic development. Equality, Ownership, Efficiency, Unemployment, Price controls,

10. An Approach to study Political Economy Interdisciplinary studies: The interdisciplinary approach draws on sociology , economics, and political science to define how government institutions , an economic system, and a political environment affect and influence each other. International political economy: Also known as global political economy , this approach analyzes the link between economics and international relations. It draws from many academic areas including political science, economics, sociology, cultural studies, and history. The international political economy is ultimately concerned with how political forces like states, individual actors, and institutions interact with global economic issues.

11. Political Economy Behavior Political economists are very interested in gains and losses incurred with the implementation of a certain policy. It gives them an idea as to which groups support the policy and which groups don’t. They also examine how individuals increase their utility by participating in political activity . Capital and labor are used to influence political processes and generate policy outcomes with the most benefit. The political behavior of an economy is shaped by :

12. Political Economy Behavior 1. Interests They include the interest of individuals and groups who are able to use their power to influence policy. Individuals in government tend to promote their own economic and political interests that will help them retain power. People outside the government are often more concerned with the outcome of the economic policies implemented . 2. Institutions There are political institutions which set rules & Constitution and define how leaders are chosen and how a new policy can be implemented. Institutions help structure incentives facing individuals and groups within the economy.

13. The Relationship between Economics and Politics Economics is concerned with studying and influencing the economy. Politics is the theory and practice of influencing people through the exercise of power, e.g. governments , elections and political parties. In theory, economics could be non-political. An ideal economist should ignore any political bias or prejudice to give neutral, unbiased information and recommendations on how to improve the economic performance of a country. Elected politicians could then weigh up

14. Economics needs political support If you study economics, you can make quite a convincing case for Agricultural Tax – a tax which makes farmers pay the full charge on total revenue earned in a year. But it remained very heavily defeated in a referendum. As an economist, you would like to see more congestion charging because it makes economic sense. But , what can make ‘ sense’ to an economist can be politically unpopular .  Privatization of Public Institutions  GOP Tax Cut Policy

15. Who runs the economy – Politicians or economists? Another issue with economics is that some criticise the subject for prioritising economic growth and maximisation of monetary welfare. Some argue that the aim of society is not to maximise GDP – but to maximise happiness, the environment and being satisfied with what we have. Therefore, a politician from an environmental background may disagree with the whole premise behind macro-economics. It is not just about the best way to promote economic growth. But, whether we should be aiming for economic growth in the first place. That is a political issue too.