The Relationship between Politics and Economics

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Political economy as a discipline had been abandoned hundreds of years ago and overtaken by Economics, but now with businessmen and politicians interacting more, its popularity has seen tremendous growth. Political Economy can be referred to as a study that defines how economics theories can influence the ideology of politics in a state.

Political economy is a major key factor in the creation and implementation of public policies as it directly influences economics, law and politics together with how different institutions come up with the different social systems and economic systems, which are based on capitalism, communism or socialism. Simply put, political economy is the management of a country or a state in relation to its economy.

According to Usher, economy is regarded as a major contributor to decisions making processes especially those that concern politics in matters including tariffs and taxes all which are run in accordance with the stipulated laws^[1]. He also states that the economic growth of a nation influences the nations political organization as much as it influences the nations economic conditions.

Today, political economy can be used to refer to some sections of a countrys economy that are influenced by politics and law or just the countrys whole economy being in relation to politics and law. Many economists explain that political economy is a study that combines how the supply of goods by markets influences the economic growth and how these markets rely on several other institutions in the society, institutions such as public administrations.

Most countries, such as Russia, China and the states at the Gulf region are known to use businesses as a mechanism of state power. It is known that most of the worlds biggest companies, like the oil companies are always run by the states. Mostly these companies are governed by political influences as well as some economic considerations. According to article written by Schumpeter, people concerned with businesses are bound to know that they should consider political risks while managing their businesses^[2].

Schumpeter elaborates with an example of Ahmed Ezz who was considered just about a month ago as the most influential business person in Egypt, controlling about 40 percent of the countrys steel production. Ahmed was also involved in the countrys politics as he was in the lead role of managing the ruling party and most of all he was considered as a very good friend to Hosni Mubaraks son who would be the heir to Hosni Mubarak.

Although this was the case before, the business man has now found himself in deep problems. During the resent protests which have successfully forcefully removed Hosni Mubarak from the presidency, Ezzys company headquarters were torched by the angry protesters, even his own guard felt he was a burden and dumped him.

Above all, Ahmed is undergoing investigations while his assets have been frozen and his travel arrangements have been restricted. All the companies which had invested in his companies have lost greatly and could have wasted their time and money in investing in his businesses.

Political instability of a country is likely to course havoc in the countrys economy. Countries experiencing political instability also affect the multinational companies, which have invested in branches or subsidiaries located in these countries.

For this reason, many of the governments around the world are coming up with ways of trying to ensure there are vigilant actions taken against crimes that mostly involve corruption. giving an example of the Obamas government which is trying to implement the Foreign Corrupt Practices Act as a way of fighting organized crimes like corruption cases and British Governments which introduced anti bribery measures to reduce crimes that result to due to corruption and many other governments like in Indonesia the executive personnels who assume what is regarded as local rule face a jail term and this is the same case to those in Thailand.

The article simply proves that politics go hand in hand with a countrys economic trend. In the article, the relationship between politics and economics offers a useful guide for theorizing experimenting in the fields of politics and economics. For example, it explains how an organization that has its goal set to improve that countrys economy should ensure that they take political issues as serious matters.

According to Wallenstein, Frieden and Golden, the study of political economy brings about questions of what relationships are there between politics and economics^[3]. In their book, both politics and economics relate to each other noting that all governments should have ways in which they are able to control their markets and provide legal and institutional measures on which the markets free enterprise will be dependent on.

According to the article, there is no market that can run entirely on its own and that all the market institutions contributing to the growth of an economy need to have extensive involvement and policy from the government. Many of the markets which end up facing economic problems rely on the government fully for help and for this reason it should be noted that a market economy cannot self-regulate itself, contrary to the capitalist thinking.

Bibliography

Schumpeter, David. Business people need to think harder about political risk. The Economist (2011). Web.

Usher, Dan. Political Economy. Malden, MA: Wiley-Blackwell, 2007.

Wallerstein, Michael, Frieden, Jeffrey & Golden Miriam. The political economy of inequality, unions, and social democracy. New York: Cambridge University Press, 2008.

Footnotes

Dan, Usher, Political Economy (Malden, MA: Wiley-Blackwell, 2007), 10.
David, Schumpeter, Business people need to think harder about political risk, The Economist (2011).
Michael Wallerstein, Jeffrey Frieden & Miriam Golden, The political economy of inequality, unions, and social democracy (New York: Cambridge University Press, 2008), 104-127.

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The Relationship between Politics and Economics

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