The New Political Economy

zy zyxwvutsrqp zyxwvuts zyxwvuts zyxwv zyxwv Political Studies (1995), XLIII, 5 1 6 5 3 0 The New Political Economy ANDREW GAMBLE* Ziiiiwrsity qf Sheflcld Political economy has been an extremely diverse field of study, embracing a large number of different approaches and methodologies. The fading of old ideological and methodological disputes and the development of new intellectual agendas in response to far-reaching changes in the economic and political structures of the world system have created the possibility of a new political economy which promises a reconstruction of the field and the overcoming of the methodological division between economics and political science. Recent critiques of established literatures in international political economy. state theory, comparative government-industry relations, and public choice are contributing to a new paradigm. Drawing on recent developments in economics such as New Keynesianism it combines the historical and institutionalist analysis of structure with rational choice analysis of agency. As one of the oldest approaches in social science political economy has been rediscovered and redefined many times. The term currently embraces a large number of different methodologies and theoretical approaches, from rational choice models of political agency to institutionalist accounts of socio-economic structures. At first glance there seems to be little intellectual coherence. But there are some signs of change. The fading of old ideological and methodological battles and the development of new intellectual agendas in response to far-reaching changes in the ideological, political, and economic parameters of the world system have created the possibility of a new political economy, bringing together methodological and theoretical approaches which for too long have been kept apart. This new political economy spans several disciplines and many different literatures. Four of its key components in contemporary political science have developed independently as critiques of established literatures in international political economy (ipe), state theory, comparative government-industry relations. and public choice. This article will argue that these four critiques are increasingly convergent rather than divergent in their concerns, and that their methodologies can complement and inform one another. Although their intellectual origins are disparate. all are driven by dissatisfaction with existing theoretical accounts of state-economy relations, and a desire to rethink basic concepts like markets and states. The possibility of a new political economy research programme has emerged, in which the historical and institutionalist analysis of structure is combined with the rational choice analysis of agency, transcending old methodological disputes and fixed ideological positions. zyxwvutsrqp * I am grateful to Gavin Kelly, Richard Higgott, and Tony Payne for their help and suggestions. Poliltcdl Studlei Assw8arion 1995 Published by Blackuell Publishers. 108 Cowley Road. Oxford OX4 IJF. LIK and 238 Mam Street. Camhridge. M A 02142. USA I Review Article zyxw zy zyx 517 Such a new political economy would accept the two core assumptions that Caporaso and Levine in a recent survey of the field identify as the distinguishing characteristics of political economy. They argue firstly that political and economic processes and institutions are interlinked and should be studied as a complex and interrelated whole rather than as separate spheres; and secondly that a proper understanding of the politics requires giving special explanatory weight to economic structures and processes. Problems arise however in determining how to apply these principles. One way of giving due weight to economic structures and processes is to assume that they are ultimately decisive in shaping political outcomes.* Such a hypothesis risks reductionism, but some version of it has always been inherent in political economy as a distinctive method and approach. Caporaso and Levine’s solution is methodological. They argue that political economy involves the application of the methods and techniques of economics to the subject-matter of politics. The role of political science is secondary. Political science identifies the context in which individuals act while economics explains why they act as they do.3 This accurately reflects how political economy is now understood in many fields. The analytical techniques of economics are seen as offering the kind of precision and rigour which political science has failed to achieve in the past. Economics is regarded as supplying the basic tool-kit for all the social science^.^ The methods of economics will undoubtedly be central to any new political economy. But economics does not offer a set of neutral analytical techniques which can be applied to political phenomena. A new political economy needs to reconstruct many of the models of economics, by subjecting their assumptions and concepts to an institutionalist and historical critique. Separating context and explanation, structure and agency, preserves the dualism which has kept economics and political science apart. The biggest single task for a new political economy is to find ways of recombining institutionalist and rational choice explanations. Classical political economy was also distinctive as an approach because of its concern with policy and decision-making. It aimed not just to expIain how a particular politico-economic system worked, but how it might work and how it should work. Central to political economy has always been the appraisal of politico-economic systems and analysis of their relative advantages and disadvantages, and recommendation of the most appropriate institutions and structures for the achievement of policy goals,5 in particular in relation to welfare, distribution, prosperity, and growth. One of the consequences is that political economy has always been concerned with the state and with the analysis of the state both as agency and as structure. It is a problem-oriented field of study and deals with values as well as with the analysis of how ’ zyxwvuts zyxwvuts zyxwvuts I J. Caporaso and D. Levine, Theories of Political Economy (Cambridge, Cambridge University Press, 1992), ch. 1. See H. Ward, ‘State Exploitation, Capital Accumulation, and the Evolution of Modes of Regulation:a Defence of Bottom-Line Economisrn’,PSA Annual Conference, Leicester April 1993. Caporaso and Levine, Theories of Political Economy, p. 3 I . See P. Ordeshook, ‘The emerging discipline of political economy’in J. Alt and K. Shepsle (eds), Perspectives on Positive Political Economy (Cambridge, Cambridge University Press, 1990). See Charles Lindblorn, Politics and Markets: the World’s Politico-Economic Systems (New York, Basic, 1977). 0Political Studies Association, 1995 ’ 518 zyxwvutsrqp zyxwv zyxw Re view Article economic, political, and social systems work. It is able to draw on different disciplines and ask fundamental questions about the way in which contemporary industrial societies are organized and how they might be improved. Classical political economy comprised three key discourses; a practical discourse about policy. concerning the best means of regulating and promoting the creation of wealth, and maximizing revenue for the public household; a normative discourse about the ideal form which the relationship between the state and the economy should take: and a scientific discourse about the way in which a political economy conceived as a social system actually operates. These three discourses are interrelated and hard to disentangle without losing what gives political economy its distinctive intellectual character. Adam Smith’s pivotal role in the history of political economy was less to d o with the originality of his theoretical insights than with his ability to combine all three discourses in an arresting new social vision. He sought to identify the processes and the institutions which made societies prosper in order to improve public policy, so that it might be directed at dispelling illusions and removing obstacles to the promotion of the general good. During the nineteenth century political economy became an enquiry into the iron economic laws which governed human societies independent of human will, but it never lost its prescriptive, policy-oriented character. It was political economy because it was about improving government and the conduct of public policy in the light of a theory about the way the economy worked. Marx’s ambitious and unfinished critique of political economy challenged the assumptions of all three discourses in orthodox political economy - the normative, the policy-oriented and the scientific - but did not dispute the basic conceptualization of the field. zyxwv The Methodenstreit The unity of political economy and economics was broken during the marginalist revolution of the second half of the nineteenth century which created a distinct new paradigm and a new concept of value, and directed attention away from analysing the social basis of capitalism towards analysing how choices are made between alternative ends in conditions of scarcity. The change produced a controversy over methodology among German-speaking scholars at the end of the century. The chief protagonists were Karl Menger, founder of the Austrian school and one of the key theorists of the marginal utility theory and the subjective conception of value, and Gustav Schmoller, the leader of the German historical school and strong proponent of national political economy. The argument between the two schools focused on the appropriate method for explaining economic phenomena. The Austrians stressed that economic phenomena were universal rather than relative to particular historical contexts and needed to be analysed with the aid of deductive models. The Historical School argued that economic phenomena needed to be explained in relation to particular historical contexts, and therefore stressed the importance of institutions and culture. The clash was between a method which emphasized historical uniqueness and specificity against one that emphasized abstraction and generality. These different methods became a disciplinary chasm, because economics as a (~ Polirical Studies .Association. 1995 zyxwv zyxw Review Article 519 discipline followed Menger and Walras abandoning historical and institutionalist approaches to the new disciplines of economic history and sociology. The result was an enormous increase in the sophistication of economics as a set of analytical techniques, reinforced by the subsequent development of econometrics, but an increasing neglect of historical and comparative studies of economic institutions. These were studied by economic historians and sociologists, often divided from economists by their methodologies, their research agendas, and increasingly by the academic organization of universities. One attempt to bridge the divide, which has relevance to the project for a new political economy, was made by Joseph Schumpeter.6 He developed Weber’s conception of Sozialokonomik, which assumed that economics should be a political science, and that it was impossible to develop proper economic theories without considering the social, political and cultural conditions for economic activity. Schumpeter distinguished Sozialokonomik from political economy, a term he reserved for policy-oriented discourse: ‘by a system of political economy I mean an exposition of a comprehensive set of economic policies that its author advocates on the strength of certain unifying (normative) principles such as the principles of economic liberalism, (or) socialism’.’ Economic analysis by contrast was a science because it involved ‘the use of specialized techniques of fact-finding and of interpretation or inference’.8 The specialized techniques which the economist needed to employ were four: economic history; statistics; theory; and economic sociology. Although he discarded the term, Schumpeter’s research programme for Sozialokonomik is much closer to many modern forms of political economy than to economic analysis as it has developed. He argued that many of the fundamental errors committed in economic analysis were most often due to lack of historical knowledge, and insisted that a good economist needed a command of historical facts and historical method. The importance of economic history he stressed was that it was interdisciplinary, directed at uncovering institutional facts which were non-economic. The task of theory was to produce models which used simplifying schemata, ‘intended to portray certain aspects of reality and take some things for granted in order to establish others according to certain rules of p ro ~ ed u re ’But .~ he also argued that there was a role for another type of theory (economic sociology) which was concerned with generalized, typified, stylized economic history, employing concepts such as private property and government regulation in order to investigate the social institutions which are relevant to economic behaviour. Schumpeter presented Sozialokonomik as an alternative to the policyoriented and normative focus of classical political economy, but also as a solution to the Methodenstreit, offering a bridge between the warring camps which would allow both methodologies a place within economic analysis. As such it was never very successful. Mainstream economic analysis steadily stripped out all institutionalist and historical analysis from its theoretical zy zyxwvu zyxwvuts zyxwvu zyxwvutsrq A valuable recent study of Schumpeter’s work is R. Swedberg, Joseph A. Schumpeter: his Life and Work (Cambridge, Polity, 1991). J. A. Schumpeter, History of Economic Analysis (London, Allen and Unwin, 1954), p. 38. Schumpeter, History of Economic Analysis, p. 7. Schumpeter, History of Economic Analysis, p. 15. 0Political Studies Association, 1995 ’ * 520 zyxwvuts zyxwvu Revieu Article models. The two camps of the Methodenstrt2it became entrenched in separate academic disciplines, and economics and politics were increasingly treated as separate spheres, which needed to be analysed in quite separate ways. Schumpeter posthumously was to have more influence in making politics an economic science than he was in making economics a political one. The lack of interest shown by economists in the tradition of classical political economy, integrating policy appraisal, normative prescription, and scientific analysis, and the failure of the alternative project of Soziulfikonornik did not however dispense with the need either for a scientific or a normative political economy. The need became more pressing in the era of the extended state. The interrelation between politics and economics became more rather than less apparent as the scope and scale of public involvement in the economy increased, as did the need for principles to determine the new policy agendas for an increasingly interventionist state. Keynesianism developed as a policyoriented political economy which filled this need. In the 1970s and 1980s Keynesianism came under sustained assault from monetarist economists for its understanding of how the macro economy worked. New Right theorists broadened the attack into a general critique of the assumptions underlying the policy and institutional prescriptions of Keynesianism. l o The argument of market failure was turned around into an argument about government failure. The ascendancy of New Right thinking and policy agendas in the 1970s and 1980s gave a spur to the development of the public choice school and the application of economic modes of reasoning to the analysis of political phenomena. It also helped reintroduce political economy into policy debate by attacking the established orthodoxy and suggesting an alternative policy regime and an alternative ideal for organizing stateleconomy relations. These intellectual developments were one response to the changes in the world system highlighted by the collapse of the Bretton Woods financial order, and the increasing difficulties which all governments were experiencing in managing the large public sectors and responsibilities of welfare capitalism. But other responses are now emerging. The quickening pace of the trends towards a global economy and culture and the collapse of the communist system in Europe marked the effective ending of a phase of the world system which since 1914 has been dominated by various forms of national protectionism. That system was state-centric, both domestically and internationally. Its weakening gave new strength to those, like the world system theorists. who had long argued that explanatory priority should be given to the interactive processes of a unified world economy rather than the internal workings of states. International Political Economy (ipe) Such a perspective has involved the development of a theory of the global political economy which challenges key assumptions in mainstream international political economy. The bulk of the literature in ipe is American, and the zyxwvut zyx l o N. Barry, The New Righr (London, Croom Helm, 1987); D. Green, The New Righl: the Counter-Revolution in Political, Economic. and Social Thought (Brighton. Wheatsheaf, 1987); D. King, The New Right: Politics. Markers, ond Cirizenship (London, Macmillan, 1987). < Political Studies Asswiation. 1995 zyxwv zy zyx Review Article 52 1 approaches which have predominated have applied models of rational action to explain the behaviour of states. Building on an older specialism, the political economy of international relations, which recognized that economic objectives were of increasing importance for states alongside power and security, ipe took as its focus the exploration of the relationship between power and wealth," and specifically the relationship between states and markets. l 2 Geoffrey Underhill notes that for theorists as different as Robert Gilpin and Immanuel Wallerstein the fundamental problematic of ipe is the interaction of a transnational market economy with a system of competitive states.13 One of the key issues raised by this problematic is how economic and political order in the world system is created and sustained. It had a particular American focus. Richard Higgott argues that most scholarship in ipe over the last two decades has focused on the question of US hegemony in the global order.14 In the hegemonic stability literature, prompted initially by Charles Kindleberger's seminal analy~is,'~ provision of state functions for the world economy was conceptualized as a public good which is provided either because the dominant state calculates that it is in its own strategic interest to act as the hegemon (the neo-realist account), or because the complex interdependence of the world economy changes the nature of states' interests, and gives them reasons to support the creation of international institutions (the liberal account) . Both neo-realist and liberal accounts of hegemony follow traditional realism in treating the political and economic spheres as self-contained, and states as distinct and unified entities with the capacity to pursue particular objectives.l6 The main alternative to these actor-centred explanations was the structuralist perspective of dependency theory, which argued that the economic structures of the global capitalist economy were decisive in affecting outcomes in the global economy rather than the intentions of state actors." More recently however a new perspective has begun to emerge, which provides a critique of the mainstream American ipe literature,'* influenced in particular by the work of Wallerstein, Strange, and Cox." It rejects the zyxwvut zyx ' I For recent surveys of ipe see G. Underhill, 'Conceptualizing the changing global order' in R. Stubbs and G. Underhill, Political Economy and the Changing Global Order (London, Macmillan, 1994); and R. Higgott, 'International political economy' in J. Groom and M. Light (eds), International Relations: a Handbook of Theory (London, Pinter, 1994). l 2 R. Gilpin, The Political Economy of Internarional Relations (Princeton, Princeton University Press, 1987). l 3 Underhill, 'Conceptualizing the changing global order', p. 21. l4 Higgott, 'International political economy', p. 160. I s C. Kindleberger, The World in Depression (London, Allen Lane, 1970). R. 0. Keohane and J. S. Nye, Power and Interdependence (Boston, Little, Brown, 1977); R. 0. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton, Princeton University Press, 1984); S. Krasner, International Regimes (Ithaca, Cornell University Press 1983). See also S. Krasner, 'International political economy: abiding discord', Review of International Political Economy, 1: 1 (1994), 13-9. " A. Hoogvelt, The Third World in Global Development (London, Macmillan, 1982); A. Brewer, Marxist Theories of Imperialism (London, Routledge, 1990). I 8 C. Murphy and R. Tooze (eds), The New International Political Economy (Boulder CO, Lynne Riener, 1991). I 9 I. Wallerstein, The Capitalist World Economy (Cambridge, Cambridge University Press, 1979); I. Wallerstein, The Modern World System (New York, Academic, 1974); S . Strange, States and Markets (London, Pinter, 1988); R. Cox, Production, Power, and World Order (New York, Columbia University Press, 1987). 0Political Studies Association, 1995 '' zyxw zyxwvuts zyxwvu 522 zyxwvutsrq zyxwv zyxw Re viebi, Article 'billiard ball' model of the international system presented by realist theory. But it also rejects the rather rigid and determinist structuralist accounts of dependency theory. It seeks to give equal weight to both structure and agency rather than concentrating on one to the exclusion of the other. Immanuel Wallerstein's world system theory and the neo-Gramscian perspective of Robert Cox have been two of the most innovative and productive influences on this alternative ipe. Both seek to define historically the structures which are expressed through political agency, rather than assuming that structures are fixed. They disagree about how the socio-economic structure is reproduced and the relative weight to be attached to different factors. Wallerstein places the emphasis on economic factors and sees the dynamic between structure and agency deriving from the tension between the global interdependence of the world economy and the political fragmentation of the state system.20 The Gramscian analysis stresses the importance of the role of ideas in creating a transnational ideological hegemony.2' Stimulated by these alternative perspectives new theories of the global political economy have challenged the central assumption of the realist paradigm, the conception of states as unified actors with discrete purposes and policies, acting in a world that in its fundamental structure does not change.22 In its place is the conception of a rapidly changing global economic order which shapes economies and livelihoods in all areas of the world.23 The key relationships in this order are no longer national but transnational, so that a perspective which is based on the agency of nation-states is inadequate to explain social change. In world systems theory the capitalist world economy is posited as the entity through which change occurs rather than individual statesocieties. As Peter Taylor puts it: 'the starting point of world systems analysis is eliminating the privileged position of the state and its associated national society in how we think about social change'.24 This entails a new view of the state and how it is constructed as an agent. Understanding the nature of the world economy becomes crucial therefore to understanding the nature of the state. The former has been a particular concern of institutionalist economic^.'^ Instead of treating the international economy primarily as an arena of exchange it conceives it as a global business system owned or controlled by transnational corporations. It is composed of a multitude of interlocking institutional structures which includes firms and trade associations as well as government bodies. Such an approach allows the utilization of the rich literature in institutionalist-organizational economics, including the evolutionary economics associated with Geoff Hodgson amongst others. and the French regulation school. 'O zy zyxwvu zy zy zyxwvuts zyxwvut C. Chase-Dunn. Glohul Formutiont Srructirrc~sn/ the World-Economy (Oxford, Blackwell, 1989). 'I S. Gill and D. Law, The Global Political Economl. (Brighton, Wheatsheaf, 1988); S. Gill, 'Historical materialism, Gramsci, and international political economy', in Murphy and Tooze, The Ne,r. Inrerriational Polirical Econonir, pp. 51-75. -- One sign is the establishment in 1994 of a new journal, The Review of International Political Economj,, edited by Ash Amin, Barry Gills. Ronen Paian and Peter Taylor. l 3 'Editorial: forum for heterodox international political economy', The Review of lnternationrrl Political Economy, 1: 1 (1994), p. 3. 4 ' Gills and Palan (eds), Transcending rhe State-Global Divide: a Neo-srructuralisr Agenda in Internaiional Relations (London, Rienner 1994). p. 109. 'j G. Hodgson, Economics and Institutions (Cambridge, Polity, 1988). 7, :1 Political Studies Association, 1995 Review Article zyxw 523 Barry Gills and Ronen Palan in a recent survey of the field argue that there needs to be an analytical shift away from analysing state-nations toward analysing the governing processes of state and societal transformation. These processes are occurring globally and are experienced at many levels, There is a regional and sectoral dimension to the process as well as the more familiar processes occurring on a world scale. Such a perspective integrates the study of the local with the study of the global, the domestic with the external, and denies that conceptually or empirically it is any longer valid to consider social change as though it was taking place in sealed compartments. The concept of a global political economy provides an organizing framework, within which middle-level and micro theories can be developed to explore the interaction between the inter-state system and the world economy; for example, what kind of political coordination is required and under what conditions is it provided; the nature and extent of US decline; the trend towards regional blocs; the political structures appropriate to a world economy; the imbalances between North ,and South and within regions; and the impact of environmental and technological issues on the global political economy.26 Theorizing the global political economy in terms of agency and structure is a key challenge for the new political economy. The work has only just begun. Our ignorance about the way in which the world political economy works and how it is changing is formidable. One problem is to identify which agents and which structures are most important for outcomes. The growth of what David Held calls interconne~tedness~~ implies radical changes to the meaning of state sovereignty and the conception of the state as an actor. In addition to the regulative intelligence of states, the regulative intelligence of international agencies and transnational companies needs increasingly to become a focus for research. What some of the new approaches in ipe have been very useful in doing is shaking our faith in the conception of the state as a unitary national actor. But they also overthrow the idea that there are national markets or national economies, and remind us of an old political economy insight that markets are not natural phenomena but have to be politically constructed and politically maintained. This is also true for the global political economy. The state remains the centre for any explanation in political economy, and what is required is to enrich our understanding of political agency through incorporating into models of political economy the institutionalist and historical insights into the structures that are expressed through agency. Understanding states as rational agents does not contradict the understanding of states as institutional structures but requires it. zyxw State Theory The problem of theorizing the relationship between agency and structure without collapsing one into the other has been at the heart of recent state zy zyxwvu 26 See the special issue on ‘Globalization’, Government and Opposition, 28: 2 (l993), particularly the contributions by Roger Williams, David Held and Anthony McGrew, John Dunn, Richard Higgott, Michael Moran, and Ghita Ionescu. 27 D. Held and A. McGrew, ‘Globalization and the liberal democratic state,’ Government and Opposition,28: 2 (1993), 261-85. 0Political Studies Association, 1995 524 zyxwvutsrq zyxwv zyxw Reviert. Article theory, and has made it an important influence on new theories of the global political economy. One key strand of this critique came out of the Marxist tradition. The rejection of reductionist and determinist standpoints which treated the state as an instrument of the dominant class made possible the theorization of the relative autonomy of the state, without abandoning the basic political economy assumption that the state cannot enjoy an absolute autonomy. Three key approaches have been the regulationist, capital logic, and strategic relational, which through such journals as Capiral and Class and New Left Review have been engaged in debates over flexible specialization, Fordism and post-Fordism, political strategy and economic crisis, hegemonic projects, and regimes of accumulation.28 These new approaches freed Marxism from the sterility of orthodoxy and developed theories which have created important new ways of understanding the state. The regulationist school’s concepts of regimes of accumulation and modes of regulation focuses attention on the conditions that are necessary for stable reproduction of an economic system.” The extent to which such regimes are established through national political processes or through global economic, security, and cultural forces becomes a key issue, as does the vulnerability of established regimes or models of capitalism to the processes of globalization. The stress on national political processes in the Gramscian tradition and in the regulation school might seem to clash with the idea of a global political economy. But the strategic relational theory of the state associated with Poulantzas and Jessop30 manages to combine the insights of the Gramscian and regulationist schools into the specificity of national state formation with an appreciation of the wider global context in which that formation takes place. In this way the political economy foundations of both approaches are preserved. The strategic relational theory is sometimes criticized as too formal and abstract, but its power as a research programme has been demonstrated by Jessop’s own work on Thatcherism,” and a stream of other research influenced by the approach is beginning to emerge.32 This Marxist tradition is complemented by some important developments in sociology and geography, particularly the work of Anthony G i d d e n ~ His .~~ structuration theory emphasizes the duality of structure, the mutual dependence of agency and structure, and rejects the concept of structure as constraint. For Giddcns structure is both enabling and constraining. Social ’* zyxwv zyxwvuts zyx zyx R. Jessop, State T/ieorj. Putting Capitalist Sttrtes in their Place (Pennsylvania, Pennsylvania University Press, 1990). ‘9 M. Aglietta. A Tlleorj, of Capitalist Regulation (London. NLB. 1979); A. Lipietz, ‘Towards global Fordism’, New Left Ravtew, 132 [ 1983). 33 47. Jessop, S I U I PTheory; R. Jessop. The Capitalist State (Oxford, Martin Robertson, 1982); N. Poulantzas. Stare, Power. Socralisni (London. Verso. 1978): R. Jessop, Nicos Poulantzas: Marxist Theory and Po/irica/ Struteg?. (London, Macmillan, 1985). 3’ R . Jessop, K . Bonnett. S. Brornley and T. Ling, Thatcherism: a Tale of Two Nations (Cambridge, Polity, 1988). 32 See for example D. Marsh, ‘Explaining Thatcherism: beyond uni-dimensional explanation’ in P. Dunleavy and J . Stanyer (eds). C‘onremporarj. Political Studies 1994 (Political Studies Association, I994), pp. 803-27, and Colin Hay, ‘Structural and ideological contradictions in Britain’s post war reconstruction’, Capital and Class, 54 (1994), forthcoming. ” A. Giddens, Central Prohlerns in Socia/ Theory: Action, Strurture, and Contradiction in Soeiul Analysis (London, Macmillan 1979). ’” i: Political Studies Association. 1995 Review Article zyxwv zy 525 systems can be analysed both as the product of the strategic conduct of agents (which brackets institutions), and as a set of institutions which reproduce the system (which brackets action).34 Neither by itself is sufficient. Structuration theory has been an important influence upon several theorists of the global political economy, such as Philip C e r n ~Its . ~reconceptualization ~ of the relationship between structure and agency provide a useful framework for exploring the traditional problems of political economy. Giddens himself has pursued this, most notably in The Nation-State and Violence, which identifies four dimensions of state power crucial in understanding contemporary political economy.36 A further characteristic of this new state theory which provides a bridge between it and theories of the global political economy is its awareness of the social structures of time and space. The processes of globalization necessarily involve a regional and local dimension.37As Scott Lash and John Urry put it ‘global processes presuppose certain local configuration^'.^^ They argue that the stable national structures of organized capitalism are being displaced by global information and communication structures, which are introducing new conceptions of time and constructing new social spaces. As a result ‘contemporary global order is ... a structure of flows, a decentred set of economies of signs in space.’39 Understanding this new global order requires analysis of the different signs and spaces which constitute it, and the uneven development within it. Access to the new information and communication structures is very unequal, so many groups become trapped in spaces from which older forms of regulation and protection associated with organized capitalism have been withdrawn. This conceptualization of how the global political economy is structured returns to the long-standing concern of political economy with problems of distribution and welfare, but does so in a way which acknowledges how the global processes have fundamentally transformed the context of public policy and the efficacy of national programmes. zyx zyxwv Government-Industry Relations These developments in state theory have parallels within the literature on government-industry relations, where there has been a reaction again against state centric explanations, particularly against attempts to characterize the policy stances of states in terms of a single institutional principle such as corporatism, or in terms of a national or industrial culture. Instead the state itself and its relationships with the economy have been disaggregated. New tools of comparative analysis of the relationship between the state and the zyxwv zyxwvuts zyxwvutsrqponm zyxwvut zyxwvut Giddens, Central Problems in Social Theory, p. 95. P. Cerny, The Changing Architecture of Politics: Srructure, Agency and the Future ofthe State (London, Sage, 1990). 36 The four he identifies are surveillance, means of violence, capitalist enterprise and industrial production. A. Giddens, The Natiun-State and Violence (Cambridge, Polity, 1985). There are interesting parallels with Susan Strange’s identification of four dimensions of structural power: security, production, finance, and knowledge. Susan Strange, States and Markets (London, Pinter 1988). 37 D. Harvey, The Condition of Post-Modernity (Oxford, Blackwell, 1989). 38 S. Lash and J. Urry, Economies of Signs and Space (London, Sage, 1994), p. 9. 39 Lash and Urry, Economim of Signs and Sprre, p 4. 34 35 Q Political Studies Association. 1995 526 zyxwvutsr zyxwv Revien, Article economy have been developed, emphasizing the need for partial and sectoral rather than macro explanations of state-economy relation^.^' By connecting with other political science literatures on policy communities and policy networks4' it has opened the way for new kinds of political economy research into the institutions and processes which characterize contemporary extended ~tates.~' The research agenda of government-industry relations has traditionally been historical, comparative, and institutionalist, focusing on institutional determinants of economic performance, and therefore on policy-making and institutional effecti~eness.~~ Much of the work in this area analyses particular issues in government-industry relations, tracing the history of specific institutions and policies. But there are also some broader theories concerning the nature of modernization and the factors that determine the relative economic performance of different economies. The fundamental research question is why there should be such variation between the way in which different national economies and different economic sectors and different regions perform. Why do such differences arise, and what prevents them being overcome? The underlying assumption of many previous studies of governmentindustry relations is that the world economy consists of units which can be compared at a meso level of analysis. The framework of the world system is taken as given in order to focus analysis upon the performance of these units. Traditionally these have been state-economies or state-societies, as in the classic analyses of Shonfield or Dyson.@ The regulative intelligence implied by the existence of states creates boundaries and data for discrete phenomena which could form the basis for comparisons. In the era of national protectionism and a stable world order it made sense to compare the performance of different states, tracing the differences between them to structural differences in culture, social structure, and institutions. This assumption has been challenged from two directions - firstly from theories of the new global political economy which emphasizes the fluidity and indeterminacy of all national boundaries; and secondly from theories of policy networks and the core executive, which have disaggregated the state as an actor, and emphasized the variation between sectors and institutions within states, which make it very hard to generalize about the existence of particular kinds of 'national states' or even national models of c a p i t a l i ~ m .Several ~~ different models of capitalism may be found in the same national space zyxw zyxwvu zyxwvutsr zyxwvuts zyxwv zyxwv S. Wilks and M . Wright (eds). Conipuratiw Goiertiiiie~it-Iti~iii.str~~ Relations: Western Europe, The L'niretl Stotes. Japan (Oxford, Oxford University Press. 1987). " For example, J. J. Richardson and A. G. Jordan. Goivrning under Pre.awre (Oxford, Martin Robertson, 1979); R . Rhodes. Bejond We.trminster arid Whitehall (London, Unwin Hyman. 1988); M . J. Smith, Pressure. Power, und Polic?. (Brighton. Harvester, 1993). " Two of the most interesting recent books in this field are Cerny, The Changing Architecture of Politics, and Smith, Pressure, Power. mid Policy. 43 See for example W. Grant. Business and Politics in Britain (London, Macmillan, 1993); P. Hall, G o w n i n g the Econonix: the Politics o f Strite Interiwrion in Britain und France (Cambridge, Polity, 1986); Keith Middlemas, Power. Cornpetition mid t / i e State, 3 Volumes (London, Macmillan, 1986, 1990, 1991). A. Shonfield, Modern Capitalism (Oxford, Oxford University Press, 1965); K. Dyson, The State Tradition in Western Europe (Oxford, Martin Robertson, 1980). 45 S . Wilks and M . Wright, 'States, sectors. and networks', in Wilks and Wright, Cornpurative Government-Industry Relations, pp, 215-3 13. c Poltrical Studies Association. 1995 zyxwvu zy zyxwvut zyxwvut Re view Article 52 7 The impact of a research programme encompassing detailed sectoral and institutional studies is profound. It entails a thorough revision of the ideal types which have been used to drive much of this literature, including concepts like the developmental state or Michel Albert’s simplified two models of capitalism - the Rhine model and the American The ideal type method remains an important analytical tool, but needs careful handling. The concept of a national economy for example was always an abstraction, developed initially for practical reasons to assist economic management. During the national protectionist era of the last seventy five years it focused attention upon national differences in economic performance and behaviour. The explanation of these differences encouraged the use of ideal types based on political culture, political institutions, or models of capitalism. A particular ideal type is set up as the standard against which the actual phenomenon under investigation is judged. The general flaw in much of the literature about national competitiveness is that the ideal types employed rely too heavily upon cultural factors which are assumed to be embodied in institutions and reflected in economic performance. Ideal types will continue to be used, because broader comparisons will always be sought. The idea of models of capitalism is too useful to be simply discarded. What both the theory of the global political economy and the government-industry relations literature suggests is that it needs to be reconstructed. There may be important diffepcnces in the way capitalism is organized throughout the world, but differences in national culture is not their main source. A more complex picture of the way in which sectors and regions and firms and cultures are now connected within the global economy has begun to emerge. There are clearly some important points of convergence between theorists of the global political economy and these new approaches in comparative political economy. Some of the most interesting recent work in political economy has begun to integrate the two literatures. Particularly notable is the work of Phil Cerny who has developed a theory of the competition state, to explore how political agency is being re-defined by the new international economic s t r ~ c t u r e sCerny . ~ ~ argues that an understanding of state theory and of the history of political structures requires both comparative and international analysis and a synthesis of both levels. Another example is the work of Esping-Andersen. His detailed empirical research into welfare state regimes has produced a classification of three models of welfare capitalism, which have different characteristics and different trajectories of development as a result of different political coalitions and experiences of natio n -b ~ ild in gIn .~ ~seeing a particular institutional complex the welfare state as the key factor in differentiating models of capitalism, Esping-Andersen continues an important tradition which flows from Schumpeter’s early work on the tax state through James O’Connor and Ian G o ~ g h . ~ ~ ~ z zyxwv zyxw M. Albert, Kapitalismus versus Kapitalismus (Frankfurt, Campus, 1992). Cerny, The Changing Architecture of Politics. 48 G . Esping-Andersen, The Three Worlds of Welfare Capitalism (Cambridge, Polity, 1990). 49 J. A. Schumpeter, Die Krise des Steuerstaates (Graz, Leuschner und Lubensky, 1918; J. OConnor, The Fiscal Crisis of the State (New York, St. Martin’s, 1973); I. Gough, The Political Economy of the Welfare State (London, Macmillan, 1979). 0Political Studies Association, 1995 46 47 528 zyxwvutsr zyxw Revieits Article Public Choice The final element in the emergence of a new political economy is the least developed but is also perhaps the most crucial to its success. The greatest danger in any new paradigm in political economy is that it ends up on one side or the other of the old Methodenstreit, defining itself in opposition to the methods and assumptions of either economics or political science. The real challenge is not to provide yet more ahistorical economic models of political behaviour, or non-deductive historical descriptions of institutions, but to develop adequate microfoundations for political economy by providing actor-centred explanations which make realistic assumptions about the structures and institutions through which agency is expressed. In the last thirty years the public choice school has become prominent by applying economists’ methods of abstraction and deduction to model political behaviour and to derive testable theories. Much of the public choice school has been associated with neo-classical economics, its models of general equilibrium and its preference for laissez-faire policy solutions. But as a methodology there is no reason why one kind of economic analysis should be the only paradigm employed or why public choice should be linked with only one political programme. Many political scientists remain resistant to public choice models because of the crudity of the assumptions. But there are other alternatives. The Austrian analysis rejects the static general equilibrium approach of neo-classical economics, placing the emphasis instead on markets, entrepreneurs, and the distribution of kn~wledge.~’Another is the application of New Keynesian analysis which has emerged as the main critique of the monetarist and laissezfaire macro-economics which have dominated policy thinking and economic analysis during the last two decades. New Keynesianism is different from mainstream Keynesianism and from post-Keynesianism because it constructs its argument from microfoundations.” It offers new ways of understanding how markets operate and how states and markets interact. It rejects key assumptions of traditional economic models, arguing instead that markets d o not automatically clear, and that there can be multiple equilibria rather than a single general equilibrium, generated by spillovers, strategic complementarities, information asymmetries, and wage and price rigidities resulting from the way in which markets are organized and agents choose to act. Co-ordination problems within markets and how they are resolved become central for understanding market outcomes. From a New Keynesian perspective asymmetries of information and power are not incidental but inherent features of markets and need to be incorporated into economic models for understanding politics. By rethinking the nature of institutions from an economic perspective it offers bridges between the ’(’ zy zyxw zyxwvutsrq zyxw zyxwv A. Shand, The Capitalist Alrernariw an Introduction to Neo-Austrian Economics (Brighton, Wheatsheaf. 1984); W. Grass1 and B. Smith (eds), Austrian Economics (London, Croom Helm, 1986). New Keynesianism can be approached through H . Garretson, Keynes, Coordination, and Beyond (Aldershot, Edward Elgar, 1992). See also R. Cooper and A. John, ‘Co-ordinating coordination failures in Keynesian models’, Quurferly Journal qf Economics, 103: 3 (1988), 41-63; J. Stiglitz and A. Weiss, ’Credit rationing in markets with imperfect information’, American Economic Revien,, 71 (1981) 393-410. ’’ I Political Studies Association. IWS zyxwv zyxw Review Article 529 institutional-organizational school in economics and game theory,52as well as between economic explanations of institutions and the comparative government-industrial relations literature, state theory and theories of the global political economy.53 It is the most exciting development in economics for a considerable time because it offers the possibility of the social sciences coming together again around a new political economy research programme rather than continuing to drift apart.54 Political science itself has begun to make an important contribution to this literature through the new public choice school associated with amongst others Patrick Dunleavy, Hugh Ward, and Keith D ~ w d i n g In . ~ seeking ~ to develop a critique and an alternative to the dominant models the new public choice is able to draw on a number of highly influential applications of economic reasoning to politics, including those of Schumpeter, Mancur Olson, Fred Hirsch and Albert Hirschman. Patrick Dunleavy has produced an extensive critique of existing models of budget maximizing models of bureaucratic behaviour, developing an alternative bureau shaping model, which proposes that rational bureaucrats concentrate on developing bureau-shaping strategies designed to secure high status and agreeable work tasks, within budgetary constraints shaped by the existing and potential shape of the agency’s activities.56His theory challenges the dominant New Right explanation of the public sector and the behaviour of public sector agents developed by theorists such as Niskanen. What emerges from Dunleavy’s model is the possibility of a comparative research programme which, using the tools of rational choice analysis, would investigate the application of the new public management and the ‘hollowing out’ of the state in many different political systems throughout the global political economy. Another example is the work of Hugh Ward, who has begun to develop a theory of political change to explain how state and market agents respond to conditions of economic crisis, how policies are adjusted and within what limits, and how crisis avoidance strategies come to be proposed and implemented. Developments in state policy and in the market follow a path of co-evolution in which each helps define what is to count as a successful adaptation, and by this means a dominant adaptation emerges which sets the parameters within which all agents have to The research programme of the new public choice seeks to develop new theories by criticizing the restricted assumptions of existing public choice zyx zyxwvuts zyxwvut zy zyxwvutsr zyxw zyxwvut 52 See the very interesting review of recent work on institutions in economics by Shaun Hargreaves Heap, ‘Institutions and (short-run) macroeconomic performance’, Journal of Economic Surveys, 8: 1 (1994), 35-56. 53 The possibilities that are opening up can be seen in the work of Hugh Ward, Patrick Dunleavy, and Philip Cerny, and also in some of the new ‘positive political economy’, such as D. North, Institutions, Institutional Change and Economic Performance (Cambridge, Cambridge University Press, 1990), and Alt and Shepsle, Perspectives on Positive Political Economy. 54 A possibility seen from a different angle by Mancur Olson in ‘Toward a unified view of economics and the other social sciences’, in Alt and Shepsle, Perspectives on Positive Political Economy. 55 Keith Dowding, Political Power and Rational Choice (Aldershot, Edward Elgar, 1991); Patrick Dunleavy, Democracy, Bureaucracy, and Public Choice (Brighton, Wheatsheaf, 1991). 56 Dunleavy, Democracy, Bureaucracy. and Public Choice, ch. 7. 57 Ward, ‘State Exploitation, Capital Accumulation, and the Evolution of Modes of Regulation’. See also the discussion by David Marsh, ‘Explaining Thatcherism: beyond uni-dimensional explanation’. 0Political Studies Association, 1995 530 zyxwv zyxw Review Article models.s8 The liberation of public choice from a laissez-faire straitjacket has important implications for political economy, since rational choice techniques can supply the microfoundations which many schools of political economy have lacked in the past. Many political scientists fear economic imperialism, and an attempt to replace all historical and institutionalist methods of analysis with deductive models. Some of the advocates of the new positive political economy encourage such an approach. But there is no reason why the old methodological divide between historical and deductive method in economics has to be reproduced in political science. Political economy can utilize a toolkit of methods as Schumpeter recommended to construct better models with more realistic assumptions. What political scientists should be questioning are the assumptions of public choice models not the use of such models. Just as New Keynesians are currently questioning many of the assumptions of mainstream economic models in order to develop better theory, so political scientists can contribute to the development of a new comparative institutionalist political economy which is based on a theory of rational action which does not deny but incorporates institutions and structures into its explanations. The new political economy that is currently emerging is interesting precisely because it is methodologically diverse, can make links between many disparate literatures and approaches, and is prepared to make use of both institutionalist and rational choice analysis to make sense of the profound changes in the global economy and the state system which are currently taking place. It is also comparative, policy-oriented, and not confined to the analysis of one level of the global political economy. It offers the best hope of emerging from some of the intellectual and policy straitjackets of the recent past. zyxwv zyx ’* One of the starting points for the development of a new public choice is the concept of preferences See G Kelly and M. Harm, Rethinking Preferences in Public Choice, paper delivered to the PSA Conference, York, April (1995) ( zyxwvutsrqponm Political Studies Association 1995