The Nature of Development Economics
Traditional economics is concerned primarily with the efficient, least-cost allocation
of scarce productive resources and with the optimal growth of these
resources over time so as to produce an ever-expanding range of goods and
services. Traditional neoclassical economics deals with an advanced capitalist
world of perfect markets; consumer sovereignty; automatic price adjustments;
decisions made on the basis of marginal, private-profit, and utility calculations;
and equilibrium outcomes in all product and resource markets. It assumes economic
“rationality” and a purely materialistic, individualistic, self-interested
orientation toward economic decision making.
Political economy goes beyond traditional economics to study, among other
things, the social and institutional processes through which certain groups
of economic and political elites influence the allocation of scarce productive
resources now and in the future, either for their own benefit exclusively or for
that of the larger population as well. Political economy is therefore concerned with the relationship between politics and economics, with a special emphasis
on the role of power in economic decision making.