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Institutionalist political economy, also known as institutional political economy or IPE, refers to a body of
political economy Political economy is the study of how economic systems (e.g. markets and national economies) and political systems (e.g. law, institutions, government) are linked. Widely studied phenomena within the discipline are systems such as labour m ...
, thought to stem from the works of institutionalists such as
Thorstein Veblen Thorstein Bunde Veblen (July 30, 1857 – August 3, 1929) was a Norwegian-American economist and sociologist who, during his lifetime, emerged as a well-known critic of capitalism. In his best-known book, ''The Theory of the Leisure Class'' ...
, John Commons,
Wesley Mitchell Wesley Clair Mitchell (August 5, 1874 – October 29, 1948) was an American economist known for his empirical work on business cycles and for guiding the National Bureau of Economic Research in its first decades. Mitchell was referred to as Thor ...
and
John Dewey John Dewey (; October 20, 1859 – June 1, 1952) was an American philosopher, psychologist, and educational reformer whose ideas have been influential in education and social reform. He was one of the most prominent American scholars in the fi ...
. It emphasizes the impact of historical and socio-political factors on the evolution of economic practices, often opposing more
rational Rationality is the quality of being guided by or based on reasons. In this regard, a person acts rationally if they have a good reason for what they do or a belief is rational if it is based on strong evidence. This quality can apply to an abili ...
approaches. In the political sense, this implies the influences actors like the state have on socio-economic practices and the shaping of institutions via political decision-making. Relevant variables for the study of political institutions include the structures that indicate voting rules, the political system, preferences and ideological leanings of leaders.


Overview

The institutionalist political economics perspective builds upon core theories from
institutional economics Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behavior. Its original focus lay in Thorstein Veblen's instinct-oriented dichotomy between technology on the on ...
and further apply them to the field of contemporary
political economy Political economy is the study of how economic systems (e.g. markets and national economies) and political systems (e.g. law, institutions, government) are linked. Widely studied phenomena within the discipline are systems such as labour m ...
.
Wesley Mitchell Wesley Clair Mitchell (August 5, 1874 – October 29, 1948) was an American economist known for his empirical work on business cycles and for guiding the National Bureau of Economic Research in its first decades. Mitchell was referred to as Thor ...
originally differentiated the institutionalist approach to economics from previous schools of economic thought by emphasizing its focus on the cumulative process of evolutionary change in economics. Contemporary theorists further expand this definition by emphasizing the effects of the historical shift from the classical system of
laissez-faire ''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups. A ...
capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private pr ...
to contemporary or
neoliberal Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
capitalism in the current international economic society, in which various
institutions Institutions are humanly devised structures of rules and norms that shape and constrain individual behavior. All definitions of institutions generally entail that there is a level of persistence and continuity. Laws, rules, social conventions a ...
are major actors. The institutional basis of the rights-obligations structure classically assumed of the market is also examined. This includes processes deciding how legitimate actors and legitimate objects of exchange are determined. At their core, proponents of this school of thought maintain that economics cannot be divorced from the social and political context since the market itself is an institution, which is to say is politically constructed. In this sense institutionalist political economists place themselves in opposition to
neoclassical economists Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
who assert that the market is an autonomous, apolitical domain. They also differ from proponents of the
new institutional economics New Institutional Economics (NIE) is an economic perspective that attempts to extend economics by focusing on the institutions (that is to say the social and legal norms and rules) that underlie economic activity and with analysis beyond earlier ...
perspective in that institutions are viewed as being able to fundamentally shape the individual rather than as merely placing constraints on the theoretically pre-defined and unchanging individual.


Actors

J. R. Commons had discussed how institutions were the result of past choices made on the individual level. These choices then decide the structure in which the institutions operate, and how they enable and constrain market actors. The element of evolution returns by institutions changing in terms of workability, marking his pragmatist influence on the subject. Commons therefore separates himself from other institutionalists by implementing this notion of workability, absent in Veblen. The political implications here mainly effect the way in which political parties interact with private collectives in which parties maximize power and collectives maximize their own organisational efficiencies. Here reasonability is decisive for outcome according to Commons. The political dimension of these institutions lies in the way they exercise control over individual action, along with formal and informal rules and customs. An important aspect of actors within institutional approaches is their potential for morally grounded decision making, which marks a difference from rational approaches. Institutionalist approaches often consider situations in which actors act against their predicted most profitable way of action. This is where institutionalists argue that concepts like habit evolution via institutions come in. Institutionalist accounts have been used to criticize neo-liberal accounts, as it is the institutions that influence how certain actions are understood. The assumption that maximizing profits is the main goal behind incentive-making is widely held in many paradigms, including regulation theory and comparative political economy. This distinction between actors is therefore important for identifying institutional approaches.


Institutionalist economics in political case studies

Studies of developmental states, countries with recent, fast economic development, have identified common traits that can be classified as institutional. Some of these institutionalist characteristics include elite- and bureaucracy-led intervention and weak civil society, all with the intent of creating institutions that are designed to further bolster economic and human developmental performance. The way states actively participate in the creation of institutions is therefore object of study, and how they might accomplish the structural changes within the institutions that are necessary to bring about economic development, downplaying the role of the free market. Case studies of states have identified traits belonging to institutionalist theory, such as historical influences on present situations and socio-political contestation over policies. In a study of Latin American countries economic underperformance has been linked to institutional durability, due to established elites clinging onto arrangements detrimental to national resources. In addition, dominance of these elites has been linked to their relative organizational strength, compared to the weak national elites of various Latin American countries.


See also

*
Constitutional economics Constitutional economics is a research program in economics and constitutionalism that has been described as explaining the choice "of alternative sets of legal-institutional-constitutional rules that constrain the choices and activities of econom ...
*
Institutional economics Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behavior. Its original focus lay in Thorstein Veblen's instinct-oriented dichotomy between technology on the on ...


References


External links


Breaking the Mould: An Institutionalist Political Economy Alternative to the Neoliberal Theory of the Market and the StateTaking capitalism seriously: towards an institutionalist approach to contemporary political economyInstitutionalism as an Approach to Political EconomyT. Veblen: Why is Economics Not an Evolutionary Science?T. Veblen: The Beginning of Ownership
{{DEFAULTSORT:Institutionalist Political Economy Political economy économie institutionaliste sv:Institutionalism