KOGI STATE UNIVERSITY, KABBA

Department of Public Administration

Question 1: Five Basic Concepts of Political Economy

Political economy is the study of how economic activity and political power work

together in a society. The field began with classical thinkers such as Adam Smith and David

Ricardo, who studied how nations create and share wealth, before Karl Marx gave the subject a

more critical meaning by focusing on class and ownership. The following five basic concepts run

through most political economy thinking.

Production

Production is the process of creating goods and services by combining land, labour, and

capital with available technology and skill. Marx (1867) described the way a society organises

production as its mode of production, and argued that this mode shapes the rest of society,

including politics and law. Liberal thinkers such as Smith (1776) emphasised how production

grows through specialisation, what he called the division of labour, and free exchange. A critical

view, however, asks not only how much is produced but who controls the means of production,

such as land, machines, and money. In Nigeria, for example, crude oil production is largely

controlled by the state and multinational companies, raising the same question of who controls

production and who benefits from it.

Distribution

Distribution refers to how the wealth created by production is shared among different

groups, usually as wages to workers, profit to owners of capital, rent to landlords, and tax to the

government. Ricardo (1817) studied how this share is divided among landlords, capitalists, and
workers. Marx went further, arguing that under capitalism this distribution is unequal because

workers produce more value than they are paid in wages; he called the unpaid portion surplus

value, which capitalists keep as profit. Debates in Nigeria over minimum wage and over how oil

revenue should be shared between the Federal, State, and Local governments are modern

examples of distribution conflicts.

Exchange

Exchange is the buying, selling, and trading of goods and services, usually through

markets and using money. Liberal economists see the market as a fair and efficient way for

people to exchange what they have for what they need. Critical political economists disagree,

pointing out that exchange between unequal partners, such as a rich country and a poor country,

or an employer and a worker, often benefits the stronger side more; this imbalance is sometimes

called unequal exchange.

Consumption

Consumption is the final use of goods and services to satisfy human wants and needs.

Classical economics generally assumes that individuals make free and rational choices about

what to consume. Critical political economy argues instead that consumption is shaped by

income level, social class, and advertising, so people do not all consume freely or equally; a

wealthy family and a poor family do not face the same range of real choices.

Power (Class and the State)

Power is the ability to control economic resources and the machinery of government.

Marx and Engels (1848) argued that the state in a capitalist society mainly protects the interest of

the class that owns capital, which they called the ruling class. Liberal and pluralist scholars

disagree, arguing that a democratic state can balance the interests of different groups, including
workers, business owners, and the wider public, through elections, courts, and the rule of law. In

Nigeria, the relationship between government, organised labour such as the Nigeria Labour

Congress, and big business in shaping policies like fuel pricing illustrates this struggle over

economic power.

Question 2: The Theory of Economic Structuralism and Rational Choice Theory

Economic Structuralism

Structuralism in political economy holds that large economic and social structures, rather

than the free choices of individuals, are what mainly decide economic outcomes. These

structures include the global economic system, the class structure within a country, and the

relationship between richer and poorer nations. The theory grew out of the work of the Latin

American economist Prebisch (1950), and was later developed further by Frank (1967) and

Wallerstein (1974) into what became known as dependency theory and world-systems theory.

The central argument is that poorer countries, often called the periphery, remain poor not

simply because of internal weakness, but because of their position within the wider world

economic structure. The periphery mostly exports cheap raw materials and imports expensive

finished goods from richer countries, the core; this pattern, again, is the unequal exchange

already mentioned above, and it keeps wealth flowing toward the core. Nigeria's continued

dependence on exporting crude oil while importing refined petroleum and manufactured goods is

commonly explained using this structuralist reasoning. Critics of structuralism argue that it gives

too little credit to the choices and policies made by leaders within developing countries

themselves, pointing to countries that grew rapidly despite a similar structural starting position.

Rational Choice Theory

behaviour. It assumes that individuals, whether voters, politicians, or bureaucrats, act rationally,

meaning they choose whichever option gives them the greatest personal benefit at the lowest

personal cost, based on the information available to them. Downs (1957) used this approach to

explain how voters and political parties behave, while Olson (1965) used it to explain why large

groups often struggle to act together for a shared goal, a problem now known as the collective

action problem, since an individual can often enjoy a benefit without personally contributing

toward its cost, what Olson called free-riding.

A central idea behind the theory is methodological individualism: the view that social and

political outcomes should be explained by starting from individual decisions rather than from

large structures alone. For example, a Nigerian politician may support a popular but costly

subsidy programme mainly because it helps win votes, even where economists consider it

harmful in the long run, because winning office is the politician's rational, self-interested goal.

Critics such as Simon (1957) argue that real people do not have perfect information or unlimited

time to calculate the very best option, so they rely instead on what he called bounded rationality.

Others, closer to the structuralist position, argue that rational choice theory pays too little

attention to history, culture, and power structures that shape what choices are even available to

an individual in the first place.

Comparing the two theories

Structuralism focuses on the large systems and structures that shape a person's or a

country's economic position, while rational choice theory focuses on the small, everyday

decisions of self-interested individuals. The two are not necessarily opposites; many scholars
now treat them as complementary, since structures can be understood as setting the boundaries

within which individuals then go on to make their own rational, self-interested choices.

References

Downs, A. (1957) An Economic Theory of Democracy. New York: Harper & Row.

Frank, A. G. (1967) Capitalism and Underdevelopment in Latin America. New York: Monthly

Review Press.

Marx, K. (1867) Capital: A Critique of Political Economy, Volume I. Hamburg: Otto Meissner.

Marx, K. and Engels, F. (1848) The Communist Manifesto. London: Workers’ Educational

Association.

Olson, M. (1965) The Logic of Collective Action. Cambridge, MA: Harvard University Press.

Prebisch, R. (1950) The Economic Development of Latin America and Its Principal Problems.

New York: United Nations.

Ricardo, D. (1817) On the Principles of Political Economy and Taxation. London: John Murray.

Simon, H. A. (1957) Models of Man: Social and Rational. New York: Wiley.

Smith, A. (1776) An Inquiry into the Nature and Causes of the Wealth of Nations. London: W.

Strahan and T. Cadell.

Wallerstein, I. (1974) The Modern World-System. New York: Academic Press.