Theories Of Political Economy

Liberal theories of political economy emerged in 18th and 19th century Britain in wake of the industrial revolution. Political economists such as Adam Smith and David Ricardo preached the virtues of government non-interference in the economy and free trade (O’Brien & Williams, 2016). This emergence was to challenge the dominance of economic nationalism in the sphere of government. In revolting against economic nationalism policies otherwise known as mercantilism, Adam Smith who is generally regarded as the founder of modern economics viewed the management and interference of government in the economy as a threat and argued that;

“The Statesman, who should attempt to direct private people in what manner they ought to employ their capitals,

Liberals uphold the idea of free market or free trade and are of the conviction that if individuals can freely engage in production, exchange and consumption it will result in a mutual benefit for all and argues that the market lies at the center of economic life. They see transnational corporations (TNC’s) as a positive force and believes that TNC’s bring advantages to both home and host countries as it represents an optimal mix of technology, managerial skills and capital. Although the market relations are not always optimal, they tend to argue that intervention in the market is most likely to produce suboptimal outcomes (O’Brien & Williams, 2016). As stated by Adam Smith (1964) in his book “The Wealth of Nations” the wealth of a nation will better be served by policies of free trade. Thus, the nature of the international economic relations is harmonious and the well-being of the world economy could only be achieved through the adoption of liberal policies in which the international economic relations is a positive-sum game. Smith argues that economic growth is a function of the extent of the division of labor, which is dependent on the scale of the market. Smith strongly opposed trade barriers such as import substitutions and tariffs established by economic nationalists

Unlike in economic liberalism, the key actor is the state rather than the individual. Economic nationalists argue on two main assumptions; first is the fact that the inter-state system is anarchical and therefore it is the duty of each state to protect its own interest. The second assumption is concerned with the primacy of the state in political life. In economic nationalists view, the state is the central instrument through which individuals can achieve their goals hence rendering the state an important actor in the domestic and international