Power positive
Three issues with political economy analysis, one possible improvement
Political economy analysis (PEA) has become an essential tool when designing and implementing ambitious change projects in the development field, in anti-corruption, with regard to the energy transition and in many other places. Yet as they have been rolled out in practice[1] PEAs often don’t quite seem to reach their full potential. I argue in the following that they often fall a bit short on three interrelated counts. Let me be very clear at the outset: what follows is a) a somewhat simplified account that flags some broad tendencies, but does not do justice to what is a very diverse and rich landscape of approaches and analyses; b) it is not a blanket criticism of the methodology as such or of a particular group of practitioners, but a reflection on some patterns of practice that I am as much gravitating towards as many others, nudged by related habits, remits and contextual constraints. So here we go.
Putting the econ back into political econ analysis
PEA has lost sight of the “economic” part of the term. It typically focuses on the political dimension but does not spend sufficient effort on unpacking the economic dynamics that have a significant impact on economic interests, rents and the political preferences that flow from it. To exaggerate somewhat: commodified political economy analysis relies on simple industry classifications to infer the interests of industries and firms within them. Conventional energy companies are then put into the category of opposing aggressive climate policies while the opposite is done with companies active in the renewables sector. The remaining task is then to switch to the political side and figure out which sector wields more political influence and presto: we have a handle on the political economy of the transition situation in a specific country. This is admittedly an oversimplification of the work that is being done and some of the political analysis is often very in-depth and excellent, working through ownership structures, political connections, media linkages, configurations of political coalitions etc. Yet all the granularity and expert in-depth digging is trained on the political side. Meanwhile we know from lots of research that political risks and economic interests vary widely not just across sectors but also across firms within a specific sector. Political risk is dominated by firm- not industry-specific factors (Hassan et al. 2019; Mui et al. 2024). Different technological properties and production functions (Kim et al. 2016) , cost structures (Delmas et al. 2016; Kennard 2020), business models and product differentiation (Kim 2017), value chain positions (Zhang 2023), locations (Green et al. 2022; Walker/Vasi 2024), country of origin (Bucheli /DeBerge 2024), firm sizes (Hillman et al. 2004) etc. all lead to very idiosyncratic economic profiles and thus to very different political interest even if companies belong to the same sector or look very similar from the outside. What’s more, there is also one important dynamic that is being overlooked on the political side, even by many academic students of corporate lobbying. Very often even companies with rather similar attributes can develop very different policy positions because their stance is positional, i.e. directly influenced by how specific policies affect their competitors and peers. Here an example: polluting firms might opt to favor anti-pollution policies as long as these policies hurt their competitors more because those competitor have in relative terms a higher pollution footprint due to different technologies etc. If the expected gains from taking market share from a more affected competitor outweigh the costs to ones own business these firms might become unexpected champions of progressive policies or at least not leverage their influence to obstruct them (Kennard 2000; Niczyporuk 2024). A conventional political economy analysis is not able to pick up on these nuances and will thus yield an incomplete, probably unhelpful and potentially misleading account.
One more concrete example may further illustrate this point: many observers were quite baffled that Elon Musk, whose main wealth is vested in Tesla stock could publicly support a phase out of electric vehicle (EV) subsidies in the US. Wouldn’t it hurt him the most? Well, on closer inspection Tesla seems to have a much better cost curve than its competitors in the US and would be able to much better weather a reduced or entirely revoked subsidy, a move that would most likely push some major competitors out of the market, shore up Tesla’s market dominance, and reduce the prevalence of specific leasing models for EVs that Tesla disfavours (Renshaw 2024; Bushey 2024; Ferris 2024). So reducing EV subsidies could benefit Tesla quite significantly, or in Musk’s own comment on the situation: “I think it would be devastating for our competitors and for Tesla slightly” (Ferris 2024). But this stance would not be obvious from a less granular PEA that does not look under the hood of specific business models.
Necessary diversity instead of monoliths
Second and closely related to the above, a finite number of paid consulting days and the need to serve clients with easily digestible, unambivalent insights lead to a rather undifferentiated treatment of aggregate actors and their interests — not just for business, but also when it comes to THE government, THE opposition, THE civil society etc.). This often results in a pol-econ map of a a sector, a political community or a city that is rather one-dimensional, made up of fairly homogenous actor groups and an under-differentiated interest matrix that looks rather locked-in, amenable only to a very limited number of intervention points.
From stuckness to opportunity
Third, closely related to the first two criticisms and perhaps most importantly PEs end up generating an astute explanation of why things are the way they are and — often implicitly but quite conclusively — why they most likely will not change. They carry out a scan of the status quo, of the distribution of power, the matrix of interlocking political and economic interests and the logics of preservation-oriented operations and motivations that all but render “the now” inevitable and a future with change close to untenable.
Rejigging PEA: towards more of a political opportunity analysis
What to do?
My suggestion would be to re-orient PEA towards or at least complement it with a sort of political opportunity analysis. What’s missing are a focus on the cracks in the system, the dynamics that manifest for example:
- as cognitive dissonance, cross-pressured motivations, ambivalent values at individual level;
- as organizational paradoxes and glitches, strategic ambiguities and contradictions, interpretative flexibility and institutional interstices at meso level; and,
- as the adaptability, fluidity and highly differentiated, nested nature of aggregate agents and also as well-known systems properties of tipping points and punctuated equilibria at macro level.
In short, what is missing in everyday political economy analysis is the creative, yet grounded consideration of where change can come from and lead to — a political economy analysis of the possible — or better: a political opportunity analysis that considers the possibility and reality of altered and evolving interest matrices.
From this vantage point of particular interest are for example pockets of effectiveness, positive outliers, levers and nudges for change. More in focus should also be the nascent rearrangement of economic rents when novel technologies arrive (see the first point on bringing economics back in). And more attention is required for the evolution of norms when majorities shift, identities evolve and new sense-making pathways open in the context of more plural, older and polarized societies. These are all dynamics that power the constant reweaving of interest overlaps and of interfaces for novel coalitions.
Getting started in a balanced way
“There is a crack, a crack in everything — this is how the light gets in” (Leonard Cohen).
A first step to nuance and future-orient PEA could be to convene a diverse set of experienced political economy practitioners to excavate inspiring examples from existing analyses and experience. We could then seek to develop some kind of organizing framework for these snippets and insights as a possible basis to build a more systematic approach to a political opportunity analysis that can enrich and complement conventional PEA approaches.
The challenge with all this nuancing is that we might end up with a very laborious, resource-intensive exercise that may yield a “perfect” and thus perhaps quickly outdated snapshot of a particular point in time. Due to the inherent information richness and probably a high level of ambiguity in its insights, such an analysis might also quickly overwhelm practical decision-makers and thus remain underused. The former can be mitigated by keeping an eye on dynamics and trends that reach a bit further into the future and may thus protect against rapid obsolesce. The latter requires a careful calibrating of nuance, and usability by for example weeding out insignificant actors and relationships, while at the same time bearing in mind that a oversimplified analysis is insufficiently useful in the first place.
The ultimate motivation would be to make PEA more action-oriented, more useful for change agents and transformation projects for whom this type of pol econ analysis is usually commissioned. The challenge is to design and do political economy analysis without sending it further down on either a path towards performative, box-ticking due diligence for sign off and funding or towards a PhD-like meandering mega analysis that looses its potential users along the way. Right now the pendulum though seems to swing more towards the former and bringing more nuance in seems just right.
[1] This note refers to the type of policy-oriented, practical PE analysis not to its siblings in academia that are much more varied and meandering reaching all the way back to even pre-Marxian analyses of the political x economic nexus of power and interests in modern economies.
References
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