Neoclassical vs. political economy

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Introduction

Neoclassical theory and political economy are the two theories that try to explain the economic attributes and some of the inherent factors that affect economic outcomes. The ‘Unlevel playing Fields’ is intended to deliver two main purposes with the aim of describing the wage inequality, gender inequality and unemployment in the economy. It also highlights the issue of racial discrimination that affects the African American women while providing a close analysis of the political economy and the neoclassical economics. The analysis and the narration can be considered to be effective in providing an understanding of the two accounts (Gilpin, 2011). The book continues to provide elaborate accounts of the experiences of women and the minority groups in the industry. The paper provides an account of neoclassical economics and political economy through a comprehensive evaluation of the ‘Unlevel Playing Field’ chapter 3 to 8 that exemplarily covers issues on gender inequality, discrimination, and racial profiling.

Background

The chapters 3 to 8 are mirror images of each other where chapters 3, 4 and 5 provide analysis and the accounts of the neoclassical model of economics. The chapters outline the basic tenets of the neoclassical model, places of occupation and the wage models. Additionally, the chapters show the discriminatory aspects of the minority groups through the mode of treatment and wage inequalities. The other chapters that follow 6, 7 and 8 also show the same outcomes through an analysis of political economy. These chapters provide an insight into the political economy through historical accounts of the wage inequality and discrimination in the labor market in the US. The two segments of the book show how the US economy is engulfed in discrimination of the minority groups through labor markets analysis where the two eventually provide a common ground for the two approaches.

Neoclassical Economics

The neoclassical theory is the theory that explains the steady manner in which a steady growth rate of the economy can be achieved through the three main driving forces that include, labor, technology, and capital. This theory supports the idea that an equilibrium function of the economy can be achieved through variations of capital and labor in the production function. This theory also seeks to support the idea that technological growth in the economy can help influence the economic growth positively through improved output and better production techniques (Stilwell, 2011). This idea is based on the fact that economic growth cannot progress with minimal progress in technological advancement.

The neoclassical economists tend to support the fact discrimination and the barriers to competition tend to hinder economic growth. These theorists support the idea that economic growth is influenced by aspects of perfect competition. Through perfect competition, there are no individuals who can influence the prices or the market generally. The neoclassical view supports the idea that once competition stems from the market, there is improved productivity as it acts as an incentive for all the workers participating in the economic activities. Perfect competition economies ensure that workers can receive similar wages. In the case where black males and females are remunerated less than their equivalent white males and females then this can be considered as discrimination.

For instance, Robert Higgs provides a descriptive analysis of the slanted economic progress after slavery was hindered by racism in the US. There was violence against the blacks that was perpetrated by the unions, government and the Southern communities. The economic growth comparison of the northern region and the south were different after the abolishment of the slave trade. The blacks who migrated north were able to improve their skills and conditions which made the markets more competitive. The discriminatory rules were still there but were less severe compared to the south (Hillman, 2013). The markets improved while the general economy in the north thrived. The blacks who were in the South faced immense discrimination and led to poor output in the labor markets.

Regarding the issue of discrimination and the manner in which it affects economic growth, Herbert Hill states that trade unions limit the access to diverse skilled labor. The trade unions hinder competition in the labor market since the employers are limited to acquiring the employees through the trade unions. The trade unions have always been major sources of job segregation and discrimination. For instance, in the earlier years of the 20th century, the American Federation of Labor actively campaigned for the segregation of the blacks in job positions in the companies. The union organized strikes against the companies that hired black labor in the US. However, the case was reversed in 1935 when the Congress of Industrial Organizations was founded. The organization had policies that encouraged solidarity among the black and the white workers. The organization later faced setbacks when the American Federation of Labor was merged with the Congress of Industrial Organizations where the merged organization started to exclude themselves from the civil rights struggles in the 1950s and 1960s.

The neoclassical economists tend to argue that markets should operate under perfect competition since it is the best incentive for people to produce at their best.  Competitive markets allow for effective utilization of labor and standardization of wages in the market. The classical economists mainly weigh their opinions towards laissez-faire in the government policies. In the case where there is an aspect of discrimination, this creates an imperfection in the market and affects the competitive edge in labor provision. In such instances, the markets may experience income inequality and the neoclassical economists tend to support the idea that government intervention would help role the perfect towards perfect competition. Efficiency in the industry improves as the division of labor improves.

Inefficiency of Discrimination

Neoclassical economists usually try to support the idea of the differences that exist amongst individuals since it creates a diverse world of preferences and tastes in the consumer goods leading to perfect market conditions. This leads to a situation where the producers concentrate on identifying the products that are highly desired by the consumers and the most economical way of producing these products. To ensure this happens, the producers need to higher personnel that is highly talented and skilled but at the same time at an affordable wage rate. The neoclassical economists state that once discrimination roots itself in the labor market, there are many biased ways of hiring the personnel desired for the right positions. Discrimination is where people are selected based on things such as gender, ethnic backgrounds, and religion among others. It leads to inequity and unfair opportunities in the market which kills the trade-off between efficiency and equity.

The neoclassical economists argue that inequality of discrimination is clearly manifested in unequal employment opportunities and unequal pay. The aspect of inefficiency is mainly shown through job positions. When qualified people are barred from holding certain jobs in the industry then this is an aspect of inefficiency. Those who fall under the discriminatory bracket tend to have lower income levels while they end up acquiring the commodities at very expensive prices. Discrimination limits economic growth since there is no motivation in the economy for the participants. For instance, they argue that the inequality that results from competitive markets acts as a strong motivator since it generates the incentives to save, work, invest and also locate jobs where one is most productive. Discrimination in the job industry only leads to economic vices for instance where low wages for some compared to others, higher rates of underemployment and unemployment.

The Political Economy

This economic view argues that people tend to be irrational and highly calculating. People are usually considered to be parts of groups that and these groups where they belong determine whether one gets a fair shot in the labor market or not. Since birth, people are perceived to belong to certain groups and the playing field is unleveled. The argument that the political economy puts forth is that one may have the ability and has the opportunity to work hard and become a star in their respective teams but these teams are not exposed to equal resources as other teams that have players of an equal ability. The political economists analyze the economy based on four main C’s that include; context, conflicting interests, collective behavior, and change. Through these four C’s the political economists examine the society and distinguish their views from those of the neoclassical economists.

Further, the political economists focus on three other divisions that help inform their economic issues such as wage inequality and discrimination. These three divisions include race, class, and gender where these divisions are the main contributors to the different forms of oppression that are experienced in the economy. The political economists try to analyze why the divisions persist in the labor market and the economy generally despite them being inefficient, immoral and unfair. To explain this, they try to analyze the role that competition in the market can play. The political economist’s argument is that behavior is usually not only individual but it is social as well. Individuals are members of social groups and the behavior that individuals portray what they value, and conversely, the groups are affiliated to value. The ‘political’ term is incorporated into the political economist’s argument since social groups in the society are related to each other through uneven resource distribution and unequal power. The core argument that underlies is the fact that the whites have been perceived to hold power over the blacks while men have been considered to be the superior gender over women.

Context

The aspect of context is brought up by the political economists to help elaborate on how the economy operates since a limited focus on competition and markets cannot help. However, the incorporation of a broader view of the context of the economic decisions would help. Context tries to explain that history influences the present and broadens to that customary beliefs impact on the social behavior in the economy (Schabas, 2009). Some of these customary beliefs can, for instance, be illustrated through if women have the right to work outside homes. Other aspects are the institutional configurations in the economy such as the government’s role and other ideologies on wealth and consumption. The segment of context helps explain how social values and ideologies impact on the economy through inefficient resource distribution and unequal rights in employment.

Collective Behavior

Collective behavior is mainly contested to be the argument between social influences of individuals from the behaviors borrowed from groups. Political economists tend to oppose the argument put forth by the neoclassical economists by arguing that individuals cannot entirely be considered to be the basic units of analysis since their interests, tastes, judgment, knowledge and their actions are products of the social experiences and exposures. The actions that individuals portray are usually self-centered but the self-centeredness is mainly based on context. The political economists put into context the analogy of players in a group who know the outcome before engaging in further progress. However, this analogy needs to be put into context and emphasize on the aspects through which people can jointly influence and alter the economic outcomes.

The political economists argue that people generally exist in webs of relationships and instead of focusing individuals the political economists concentrate on the relationships that sustain the individuals and the role that the collective groups play in the motivation and influence of the economic outcomes and behaviors. Additionally, by analyzing the groups, the political economists state that it is easier to understand the source of power inequality in the society since it is only groups that can be in a position to influence power in the economy and not individuals. The political economists tend to state that individuals cannot entirely alter the power in the society but through groups, they can easily bring about inequality in resource distribution and access.

Conflicting Interests and Change

The political economists describe conflicting interests through an analysis of events that may occur in the economy. However, to provide a precise analysis and explanation, the political economists find the most appropriate means of providing an explanation is through the conflict between capitalists and workers. The capitalists want the workers to provide their best input into the industry while providing the minimum wages to capitalize on their profit margins. On the other hand, the workers want the highest wages that they can derive from the industry. Conflicting interests end up destabilizing the economy through things such as strikes and go-slows when the workers need a substantial remuneration. Perfect competitive markets may provide an even ground for the workers and the employers but also comes with a few setbacks. The capitalists may eventually find it health to move their production activities to regions with cheaper labor. This leaves most of the workers with minimum wage and the capitalists eventually realize that the laid-out workers cannot afford the products.

Change is the final result in an economy engulfed in collective behavior and conflict. The political economists argue that collective behavior in economies that have conflicts leads to struggles that concurrently result in change. The presence of unequal power in the society leads to conflict that generates the change. In economies that have inequality, conflict is inevitable and so changes. The inequality is perceived to affect groups and not individuals; it, therefore, becomes a collective effort by the group to drive change.

Conclusion

The four C’s of the political economist provide a sufficient guideline for understanding how the society reacts to aspects of social inequality and discrimination. The neoclassical economists are also valid in their argument since the two theories intertwine on the fact that groups comprised of individuals who are the intrinsic units to the manner in which the social outlay is set (Logan & Molotch, 2007). The two theories provide sufficient and convincing arguments and can be deemed to be reliable. The political economists only lay much emphasis on the detail that defines the economic outcomes and how social inequality and discrimination may result.

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  1. Gilpin, R. (2011). Global political economy: Understanding the international economic order. Princeton University Press.
  2. Hillman, A. L. (2013). The political economy of protection. Taylor & Francis.
  3. Logan, J. R., & Molotch, H. (2007). Urban fortunes: The political economy of the place. Univ of California Press.
  4. Schabas, M. (2009). The natural origins of economics. University Of Chicago Press.
  5. Stilwell, F. (2011). Political economy: The contest of economic ideas. OUP Catalogue.
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