THE NEW POLITICAL ECONOMY
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Professor Andrew Gamble, University of Sheffield.

Published As:- 

Andrew Gamble, ‘The New Political Economy’, Political Studies, Vol. 43, No. 3 (1995), pp. 516-30.

	As one of the oldest approaches in social science political economy is constantly being rediscovered and redefined.  It currently embraces a large number of different methodologies and theoretical approaches, from rational choice models of political agency to institutionalist accounts of socio-economic structures. The fading of old ideological and methodological battles has combined with changes in the ideological, political, and economic parameters of the world system and shifts in intellectual agendas to create the possibility of a new political economy, bringing together methodological and theoretical approaches which for too long have been kept apart.  
	This new political economy spans several disciplines and many  different literatures.  Four of its key components in contemporary political science have developed as critiques of established literatures - international political economy (ipe), state theory, comparative government-industry relations, and public choice. This article will argue that these four approaches are increasingly convergent rather than divergent in their concerns, and that their methodologies can complement one another. Although their intellectual origins are disparate, all are driven by dissatisfaction with existing theoretical accounts of state-economy relations, and a desire to rethink basic concepts like markets and states. The possibility of a new political economy research programme has emerged, in which the historical and institutionalist analysis of structure is combined with the rational choice analysis of agency, transcending the old methodological disputes and fixed ideological positions. 
	
The Classical Tradition

	One of the reasons for the survival of political economy as an approach in social science is that it refuses neat categorisation, and raises questions about the linkages between subject matters which specialised disciplines and methodologies try to keep separate.  Political economy does not however include everything. Its distinctive character rests on certain core assumptions about the definition of the political and the economic and the relationship between the two. 
	The first of these assumptions is that political and economic processes and institutions are interlinked and should be studied as a complex and interrelated whole rather than as separate spheres, even though politics and economics remain analytically distinct. 	A second assumption is that a proper understanding of the political requires giving special explanatory weight to economic structures and processes. One version of this argument is that political science identifies the context in which individuals act while economics explains why they act as they do. Another is that political economy explanations assume that economic structures and processes are ultimately decisive in shaping political outcomes.  
	A third assumption is that political economy is concerned with policy and decision-making. It aims not just to explain how a particular politico-economic system works, but how it might work and how it should work. Central to political economy has always been the appraisal of politico-economic systems and analysis of their relative advantages and disadvantages, and recommendation of the most appropriate institutions and structures for the achievement of policy goals, in particular in relation to welfare, distribution, prosperity, and growth.  One of the consequences is that political economy has always been concerned with the state and with the analysis of the state both as agency and as structure. It is a problem-oriented field of study and deals with values as well as with the analysis of how economic, political, and social systems work. It is able to draw on different disciplines and ask fundamental questions about the way in which contemporary industrial societies are organised and how they might be improved. 
	There have always been three key discourses in political economy; a practical discourse about policy, the best means of regulating and promoting the creation of wealth, and maximising revenue for the public household; a normative discourse about the ideal form which the relationship between the state and the economy should take; and a scientific discourse about the way in which a political economy conceived as a social system actually operates.
	These three discourses are interrelated and hard to disentangle, despite efforts at various times to do so. Adam Smith's pivotal role in the history of political economy was less to do with the originality of his theoretical insights than with his ability to combine all three discourses in an arresting new social vision.  He sought to identify the processes and the institutions which made societies prosper in order to improve public policy, so that it might be directed at dispelling illusions and removing obstacles to the promotion of the general good. 
	During the nineteenth century political economy became an enquiry into the iron economic laws which governed human societies independent of human will, but it never lost its prescriptive, policy oriented character. It was political economy because it was about improving government and the conduct of public policy in the light of a theory about the way the economy worked.  Marx's ambitious and unfinished critique of political economy challenged the assumptions of all three discourses in orthodox political economy - the normative, the policy-oriented and the scientific - but did not dispute the basic conceptualisation of the field. 

The Methodenstreit

	The unity of political economy and economics was broken during the marginalist revolution of the second half of the nineteenth century which created a distinct new paradigm and a new concept of value, and directed attention away from analysing the social basis of capitalism towards analysing  how choices are made between alternative ends in conditions of scarcity. The change produced the Methodenstreit among German-speaking scholars at the end of the century.  The chief protagonists were Karl Menger, founder of the Austrian school and one of the key theorists of the marginal utility theory and the subjective conception of value, and Gustav Schmoller, the leader of the German historical school and strong proponent of national political economy. The argument between the two schools focused on the appropriate method for explaining economic phenomena.  The Austrians stressed that economic phenomena were universal rather than relative to particular historical contexts and needed to be analysed with the aid of deductive models. The Historical School argued that economic phenomena needed to be explained in relation to particular historical contexts, and therefore stressed the importance of institutions and culture.
	The clash was between  a method which emphasised historical uniqueness and specificity against one that emphasised abstraction and generality. These different methods became a disciplinary chasm, because economics as a discipline followed Menger and Walras abandoning historical and institutionalist approaches to the new disciplines of economic history and sociology. The result was an enormous increase in the sophistication of economics as an analytical technique, reinforced by the subsequent development of econometrics, but an increasing neglect of historical and comparative studies of economic institutions. These were studied by economic historians and sociologists, often divided from economists by their methodologies, their research agendas, and increasingly by the academic organisation of universities. 
	One attempt to bridge the divide, which has relevance to the attempt today to create a new political economy was made by Joseph Schumpeter. Although not a mainstream member of the Austrian school he was a pupil of Bohm-Bawerk, but was also close to Max Weber, and managed to be both a heterodox and a mainstream economist. He developed Weber's conception of Sozialokonomik, the idea that economics was or should be a political science, and that it was impossible to develop proper economic theories without considering the social, political and cultural conditions for economic activity.
	Schumpeter's conception of Sozialokonomik is set out in The History of Economic Analysis. He confined political economy quite strictly to a policy-oriented discourse: "By a system of political economy I mean an exposition of a comprehensive set of economic policies that its author advocates on the strength of certain unifying (normative) principles such as the principles of economic liberalism, (or) socialism". Economic analysis by contrast was a science because it involved the use of specialised techniques of fact-finding and of interpretation or inference".  The specialised techniques which the economist needed to employ were four: economic history; statistics; theory; and economic sociology.  
	Although he discarded the term, Schumpeter's research programme for Sozialokonomik was much closer to many modern forms of political economy than to economic analysis as it has developed.  He argued that many of the fundamental errors committed in economic analysis were most often due to lack of historical knowledge, and insisted that a good economist needed a command of historical facts and historical method. The importance of economic history he stressed was that it was interdisciplinary, directed at uncovering institutional facts which were non-economic. The task of theory was to produce models which used simplifying schemata, "intended to portray certain aspects of reality and take some things for granted in order to establish others according to certain rules of procedure". But he also argued that there was a role for another type of theory (economic sociology) which was concerned with generalised, typified, stylised economic history, employing concepts such as private property and government regulation in order to investigate the social institutions which are relevant to economic behaviour. 
	Schumpeter presented Sozialokonomik as an alternative to the policy-oriented and normative focus of classical political economy, but also as a solution to the Methodenstreit, offering a bridge between the warring camps which would allow both methodologies a place within economic analysis.  As such it was never very successful. Mainstream economic analysis steadily stripped out all institutionalist and historical analysis from its theoretical models. The two camps of the Methodenstreit became entrenched in academic disciplines, and economics and politics were increasingly treated as separate spheres, which needed to be analysed in quite separate ways Schumpeter posthumously was to have more success in making politics an economic science than he was in making economics a political one.
	The lack of interest shown by economists in the tradition of classical political economy,  integrating policy appraisal, normative prescription, and scientific analysis, and the failure of the alternative project of Sozialokonomik did not however dispense with the need either for a scientific or a normative political economy. The need became more pressing in the era of the extended state. The interrelation between politics and economics became more rather than less apparent as the scope and scale of public involvement in the economy increased, as did the need for principles to determine the new policy agendas for an increasingly interventionist state. Keynesianism became a new policy-oriented political economy which filled this need.  Its analysis and prescriptions were based on the identification of market failure at the macroeconomic level which made necessary a new role for the state. 
	Keynes however did not challenge the microfoundations of neoclassical economics, in particular the assumption that individuals have fully formed preference functions prior to their involvement as citizens in politics and public life. The institutionalist and historical analysis behind Keynesianism was meagre.  Keynes' importance lay elsewhere.  He provided one of the most influential policy discourses for the era of national economic management. But he did not challenge intellectually the separation of economics and politics, and in time both the Keynesian policy programme and the intellectual paradigm came under fire.
	In the 1950s and 1960s political economy was defined either in Schumpeterian fashion as a particular set of normative principles and policy criteria, as in liberal political economy or Keynesian political economy, or was employed to refer to various alternative social science paradigms, in particular Marxism, whose adherents had never accepted the division of social science into separate disciplines, and various kinds of institutionalist economics, sociology and political science. In the 1970s and 1980s Keynesianism came under sustained assault from monetarist economists  for its understanding of how the macro economy worked. The New Right broadened the attack into a general critique of the assumptions underlying the policy and institutional prescriptions of Keynesianism. The argument of market failure was turned around into an argument about government failure. What was required was not more government, as Keynesianism had suggested, but less.  
	The ascendancy of New Right thinking in the 1970s and 1980s gave a spur to the development of public choice and the application of economic modes of reasoning to analysis of political phenomena. It also helped reintroduce political economy into policy debate by attacking the established orthodoxy and suggesting an alternative policy regime and an alternative ideal for organising the political economy. These intellectual changes were one response to the need for reassessment forced on policy-makers by the changes in the world system highlighted by the collapse of the Bretton Woods financial order, and the increasing difficulties which all governments were experiencing in managing the large public sectors and responsibilities of welfare capitalism. Trends towards the globalisation of trade, production, and culture were undermining the world of relatively closed national economies and sovereign nation-states which had been the dominant pattern throughout most of the twentieth century, and many of the ideologies and institutions of that era were becoming discredited.

International Political Economy

	One of the most important requirements of a new political economy is a theory of the world system capable of taking account of the quickening pace of the trends towards a global economy and culture, and major structural shifts, such as the collapse of the communist system in Europe.  These mark the effective ending of that phase of the world system which since 1914 has been dominated by various forms of national protectionism. That system was state-centric, both domestically and internationally. Its weakening requires giving priority once again to the interactive processes of a unified world economy rather than the internal workings of states. 
	Within international political economy a critique of the dominant realist approach in international relations has developed, influenced in particular by the work of Wallerstein, Strange, and Cox. International political economy emerged as a distinct field within the international relations literature in the 1970s and 1980s. It supplanted an older specialism, the political economy of international relations, which had extended the dominant realist paradigm by acknowledging that economic objectives were of increasing importance for states alongside power and security. International political economy broadened the theoretical reach of this literature by taking as its focus the relationship between states and markets. The problem of world order and the possibility and desirability of one state providing hegemony became a key focus, prompted by Charles Kindleberger's seminal analysis. 
	The dominant perspectives in ipe in the 1970s were shaped by realism, which entailed a particular view of states as distinct and unified entities with the capacity to pursue particular objectives. They were actor-centred explanations of the global economy. Neo-realist and liberal perspectives were a modification of the realist approach, because they broadened the concept of the interests which the state could pursue to embrace the institutions that could promote world order. But they remained firmly within realist assumptions about the nature of states. The main alternative to this view was the structuralist perspective of dependency theory, which argued that the economic structures of the global capitalist economy were decisive in affecting outcomes in the global economy rather than the intentions of state actors. 
	All these perspectives presupposed the kind of international system which had existed during most of the twentieth century. The originality of the new ipe lies in its questioning of this assumption. It directs its critique primarily at the "billiard ball" model of the international system presented by realist theory.  But it also rejects the rather rigid and determinist structuralist accounts of dependency theory. The new ipe is characterised by an attempt to develop a theory which gives proper weight to both structure and agency rather than subsuming one under the other.  Immanuel Wallerstein's world system theory and the neo-Gramscian perspective of Robert Cox have been two of the most innovative and productive influences on this alternative ipe. Both seek to define the structures which shape political agency.  They disagree about how the socio-economic structure is reproduced and the relative weight to be attached to different structures.  Wallerstein places the emphasis on economic factors, particularly the structure of the world system whose dynamic comes from the tension between the global interdependence of the world economy and the political fragmentation of the state system.  The Gramscian analysis stresses the importance of the role of ideas in creating a transnational ideological hegemony. 
	A significant research community has been forming around the perspective of the new international political economy. A new Journal, The Review of International Political Economy was launched in 1994, edited by Ash Amin, Barry Gills, Ronen Palan, and Peter Taylor. Gills and Palan have also separately sought to identify the main themes of the new ipe in a recent edited collection where they give it the label of neo-structuralism. 
	What is common to all branches of the new ipe is a desire to break with the realist paradigm, and therefore with the conception of states as unified actors with discrete purposes and policies. Central to the new perspective as the editors of RIPE explain is the globalization thesis: "The creation of a global economic order has come to represent the defining feature of our age, as a major force shaping economies and livelihoods in all areas of the world."  They list six aspects of globalization; financial markets, technology, corporations, economic diplomacy, culture, and geography.  In all these areas they argue the key relationships are no longer national but transnational, so that a perspective which is based on the agency of nation-states is inadequate to explain social change.  They criticise previous approaches in ipe for its focus on the study of trade and competitiveness issues as predominantly issues between independent nation-states.
	One of the undoubted strengths of the new ipe is that it starts from a critique of realist approaches in mainstream international relations, but also draws on two other key bodies of literature - the world systems critique of modernization theory, and the institutionalist critique of neoclassical economics. Peter Taylor sees world system theory as positing the world system or the capitalist world economy as the entity through which change occurs: "We cannot understand social change by focusing on the dynamics of any one state-society, because such change can only be comprehended as part of a larger whole...The starting point of world systems analysis is eliminating the privileged position of the state and its associated national society in how we think about social change." Taylor argues however that this approach does not mean that states become unimportant; they are still at the centre of most analyses of social change. But it does mean that the states are seen as a consequence rather than a cause of the system. 
	Defining the nature of this system has been a particular concern for institutionalist economics. Instead of treating the international economy as an arena of exchange it conceives it as a global business system owned or controlled by transnational corporations. It is therefore composed of a multitude of interlocking institutional structures which includes firms and trade associations as well as government bodies. The insights of a range of institutionalist approaches, including the evolutionary economics associated with Geoff Hodgson, and the French regulation school can be integrated into the analysis.  The key point however is that the concept of agency is no longer identified exclusively with the state. The aim of the new ipe is to go beyond the nation-state in creating a theoretical framework for the investigation of social change. Gills and Palan define the new common agenda as an analytical shift away from analysing state-nations toward analysing the governing processes of state and societal transformation which are occurring globally. 
	The consequences of these trends towards a global economy are experienced at many levels. There is a regional and sectoral dimension to the process as well as the more familiar processes occurring on a world scale. Such a perspective integrates the study of the local with the study of the global, the domestic with the external, and denies that conceptually or empirically it is any longer valid to consider social change as though it was taking place in sealed compartments. Gills and Palan define the neo-structuralist agenda as  "an overall transformative process wherein all states and societal forces are constantly being transformed through participation in the world system as a whole in terms of their fundamental characteristics and structure."
	Such a vision is bold and exciting, but runs the risk of becoming overgeneralised and imprecise, underplaying the significant differences and imbalances which still characterise the world system. At its best however what it provides is not a theory as such but an organising framework, within which middle-level and micro theories can be developed to explore  the interaction between the inter-state system and the world economy; for example, what kind of political coordination is required and under what conditions is it provided;  the nature and extent of US decline; the trend towards regional blocs; the political structures appropriate to a world economy; the imbalances between North and South and within regions; and the impact of environmental and technological issues on the global political economy.  
	The new ipe raises very large questions for analysis, but it is beginning to produce a framework within which those questions can be addressed. The need for it reflects the extent of our ignorance about the way in which the world political economy works and the pace at which it is changing. One problem is the identity of the agents, and the identity of the structures that are most important for the outcomes. The growth of what David Held calls interconnectedness implies radical changes to the meaning of state sovereignty and the conception of the state as an actor. Instead of studying the regulative intelligence of states, the regulative intelligence of international agencies, and transnational companies may need to become the focus.  The state is still central to the research agenda of the new ipe but it is no longer conceived as a unitary actor. Political agency has rather to be understood in the context of the complex structures of investment, finance, production, innovation, and trade.  Knowledge of all of them remains fragmentary.   

State Theory

	The problem of theorising the relationship between agency and structure without collapsing one into the other has been at the heart of recent state theory, and has made it an important influence on the new ipe. One key strand of this critique came out of the Marxist tradition.  The rejection of reductionist and determinist standpoints which treated the state as an instrument of the dominant class made possible the theorisation of the relative autonomy of the state, without abandoning the basic political economy assumption that the state cannot enjoy an absolute autonomy. Three key approaches have been the regulationist, capital logic, and strategic relational, which through such journals as Capital and Class and New Left Review have been engaged in debates over flexible specialisation, Fordism and post-Fordism, political strategy and economic crisis, hegemonic projects, and regimes of accumulation.
	These new approaches freed Marxism from the sterility of orthodoxy and developed theories which have created important new ways of understanding the state. The regulationist school's concepts of regimes of accumulation and modes of regulation focuses attention on the conditions that are necessary for stable reproduction of an economic system. The extent to which such regimes are established through national political processes or through global economic, security, and cultural forces becomes a key issue, as does the vulnerability of established regimes or models of capitalism to the processes of globalization. 
	The stress on national political processes in the Gramscian tradition and in the regulation school might seem to clash with the perspective of the new ipe.  But the strategic relational theory of the state associated with Poulantzas and Jessop manages to combine the insights of the Gramscian and regulationist schools into the specificity of national state formation with an appreciation of the wider global context in which that formation takes place. In this way the political economy foundations of both approaches are preserved.  The strategic relational theory is sometimes criticised as too formal and abstract, but its power as a research programme has been demonstrated by Jessop's own work on Thatcherism, and a stream of other research influenced by the approach is beginning to emerge.
	This Marxist tradition is complemented by some important developments in sociology and geography, particularly the work of Anthony Giddens, whose structuration theory has been an important influence upon several of the writers in the new ipe, such as Philip Cerny. Cerny defines structuration as "the process of continuing interaction between agent and structure, in which structures which are generally constraining can also change and be changed in certain conditions" The key link once again is a theory which attempts to reconceptualise the relationship between structure and agency and applies it to some of the traditional problems of political economy.  Some of Giddens work, most notably The Nation-State and Violence offers a theorisation of the state which stresses four dimensions of state power.
	A characteristic of this new state theory which provides a bridge between it and the new ipe is its sensitivity to the social structures of time and space. The processes of globalization necessarily involve a regional and local dimension.  As Scott Lash and John Urry put it "global processes presuppose certain local configurations". They argue that the stable national structures of organised capitalism are being displaced by global information and communication structures, which are introducing new conceptions of time and constructing new social spaces. As a result  "contemporary global order is ... a structure of  flows, a decentred set of economies of signs in space."   Understanding this new global order requires analysis of the different signs and spaces which constitute it, and the uneven development within it. Access to the new information and communication structures is very unequal, so many groups become trapped in spaces from which older forms of regulation and protection associated with organised capitalism  have been withdrawn.  
	This literature returns to the long-standing concern of political economy with problems of distribution and welfare, but does so in a way which acknowledges how the global processes have  fundamentally transformed the context of public policy and the efficacy of national programmes. 

Government-Industry Relations

	These developments in state theory have parallels within the literature on government-industry relations, where there has been a reaction again against state centric explanations, particularly against attempts to characterise the policy stances of states in terms of a single institutional principle such as corporatism, or in terms of a national or industrial culture. Instead the state itself and its relationships with the economy have been disaggregated. New tools of comparative analysis of the relationship between the state and the economy have been developed, emphasising the need for partial and sectoral rather than macro explanations of state-economy relations. By connecting with other political science literatures on policy communities and policy networks it has opened the way for new kinds of political economy research into the institutions and processes which characterise contemporary extended states.
	The research agenda of government-industry relations has traditionally been historical, comparative, and institutionalist, focusing on  institutional determinants of economic performance, and therefore on policy-making and institutional effectiveness.  Much of the work in this area analyses particular issues in government-industry relations, tracing the history of specific  institutions and policies. But there are also some broader theories concerning the nature of modernisation and the factors that determine the relative economic performance of different economies. The fundamental research question is why there should be such variation between the way in which different national economies and different economic sectors and different regions perform. Why do such differences arise, and what prevents them being overcome ? 	
	The underlying assumption of many previous studies of government-industry relations is that the world economy consists of units which can be compared at a meso level of analysis. The framework of the world system is taken as given in order to focus analysis upon the performance of these units.  Traditionally these have been state-economies or state-societies, as in the classic analyses of Shonfield or Dyson. The regulative intelligence implied by the existence of states creates boundaries and data for discrete phenomena which could form the basis for comparisons. 
	In the era of national protectionism and a stable world order it made sense to compare the performance of different states, tracing the differences between them to structural differences in culture, social structure, and institutions. This assumption has been challenged from two directions - firstly from the ipe analysis of globalization which emphasises the fluidity and indeterminacy of all national boundaries; and secondly from theories of policy networks and the core executive, which have disaggregated the state as an actor, and emphasised the variation between sectors and institutions within states, which make it very hard to generalise about the existence of particular kinds of "national states" or even national models of capitalism.  Several different models of capitalism may be found in the same national space.
	The impact of a research programme encompassing detailed sectoral and institutional studies is profound. It entails a thorough revision of the ideal types which have been used to drive much of this literature, including concepts like the developmental state or Michel Albert's simplified two models of capitalism - the Rhine model and the American model.  The ideal type method remains an important analytical tool, but needs careful handling. The concept of a national economy for example was always an abstraction, developed initially for practical reasons to assist economic management. During the national protectionist era of the last seventy five years it focused attention upon national differences in economic performance and behaviour. The explanation of these differences encouraged the use of ideal types based on political culture, political institutions, or models of capitalism. A particular ideal type is set up as the standard against which the actual phenomenon under investigation is judged. 
	The general flaw in much of the literature about national competitiveness is that the ideal types employed rely too heavily upon cultural factors which are assumed to be embodied in institutions and reflected in economic performance. Ideal types will continue to be used, because broader comparisons will always be sought. The idea of models of capitalism is too useful to be simply discarded. What both the ipe and the government-industry relations literature suggests is that it needs to be reconstructed.  There may be important differences in the way capitalism is organised throughout the world, but differences in national culture is not their main source. A more complex picture of the way in which sectors and regions and firms and cultures are now connected within the global economy has begun to emerge. 
	There are clearly some important points of convergence between the new ipe and the new comparative political economy. Some of the most interesting recent work in political economy has begun to integrate the two literatures.  Particularly notable is the work of Phil Cerny who has developed a theory of the competition state, to explore how political agency is being re-defined by the new international economic structures. Cerny argues that an understanding of state theory and of the history of political structures requires both comparative and international analysis and a synthesis of both levels. 
	Another example is the work of Esping-Andersen.  His detailed empirical research into welfare state regimes has produced a classification of three models of welfare capitalism, which have different characteristics and different trajectories of development as a result of different political coalitions and experiences of nation-building.  In seeing a particular institutional complex - the welfare state - as the key factor in differentiating models of capitalism, Esping-Andersen continues an important tradition which flows from Schumpeter's early work on the tax state through James O'Connor and Ian Gough. 
	
Public Choice

	The last element in the toolkit of the new political economy is the development of adequate microfoundations by providing actor-centred explanations which make realistic assumptions about the structures and institutions within which agents operate.  The most developed models available are those of the public choice school which has achieved prominence in the last thirty years by applying the economists' methods of abstraction and deduction to model political behaviour in order to derive testable theories. 
	Much of the public choice school has been associated with neo-classical economics, its models of general equilibrium and its preference for laissez-faire policy solutions.  But as a methodology there is no reason why one kind of economic analysis should be the only paradigm employed or why public choice should be linked with only one political programme. The Austrian analysis which rejects the static general equilibrium approach of neo-classical  economics, placing the emphasis instead on markets, entrepreneurs, and knowledge, is one significant alternative. Another is the application of New Keynesian analysis which has emerged as the main critique of the monetarist and laissez-faire macro-economics which have dominated policy thinking and economic analysis during the last two decades. 
	New Keynesianism is different from mainstream Keynesianism and from post-Keynesianism because it constructs its argument from microfoundations. It offers new ways of understanding how markets operate and how states and markets interact. It allows the incorporation of new assumptions, for example that markets do not automatically clear, that there can be multiple equilibria rather than a single general equilibrium, that as a result there may be significant spillovers and strategic complementarities resulting from the way in which agents choose to act, and that therefore co-ordination problems within markets and how they are resolved are central for understanding market outcomes.  From a New Keynesian perspective asymmetries of information and power  need to be incorporated into economic models for understanding politics. It promises to build bridges between institutionalist economics and game theory, as well as the comparative government-industrial relations literature, state theory and international political economy. It is the most exciting development in economics for a considerable time because it offers the possibility of the social sciences coming together again around a new political economy research programme rather than continuing to drift apart. 	
	Political science itself has begun to make an important contribution to this literature through the new public choice school associated with amongst others Patrick Dunleavy and Keith Dowding.  In seeking to develop a critique and an alternative to the dominant models the new public choice is able to draw on a number of highly influential applications of economic reasoning to politics, including those of Schumpeter himself, Mancur Olson, Fred Hirsch and Albert Hirschman. Patrick Dunleavy has produced an extensive critique of existing models of budget maximising models of bureaucratic behaviour, developing an alternative bureau shaping model, which proposes that rational bureaucrats concentrate on developing bureau-shaping strategies designed to secure high status and agreeable work tasks, within budgetary constraints shaped by the existing and potential shape of the agency's activities.    His theory challenges the dominant New Right explanation of the public sector and the behaviour of public sector agents developed by New Right theorists such as Niskanen. What emerges from Dunleavy's model is the possibility of a comparative research programme which, using the tools of rational choice analysis, would investigate the application of the new public management and the 'hollowing out' of the state in many different political systems throughout the world economy.
	Another example is the work of Hugh Ward, who has begun to develop a theory of economic crisis and political change to explain the how state and market agents respond to conditions of economic crisis, how policies are adjusted and within what limits, and how crisis avoidance strategies come to be proposed and implemented. Developments in state policy and in the market follow a path of co-evolution in which each helps define what is to count as a successful adaptation, and by this means a dominant adaptation emerges which sets the parameters within which all agents have to work. 
	The liberation of public choice from a laissez-faire straitjacket has important implications for political economy, since rational choice supplies the microfoundations which political economy often lacks.  Many political scientists fear economic imperialism, and an attempt to replace all historical and institutionalist methods of analysis with deductive models. Some of the advocates of the new positive political economy encourage such an approach. But there is no reason why the old methodological divide between historical and deductive method in economics has to be reproduced in political science. Political economy can utilise a toolkit of methods as Schumpeter recommended to construct better models with more realistic assumptions. What political scientists should be questioning are the assumptions of public choice models not the use of such models.  Just as New Keynesians are currently questioning many of the assumptions of mainstream economic models in order to develop better theory, so political scientists can contribute to the development of a new comparative institutionalist political economy by utilising some of the insights that come from deductive models, game theory, and rational choice.
	The new political economy that is currently emerging is interesting precisely because it is methodologically diverse, can make links between many disparate literatures and approaches, and is prepared to make use of both institutionalist and rational choice analysis to make sense of the profound changes in the global economy and the state system which are currently taking place. It is also comparative, policy-oriented, and not confined to the analysis of one level of the world system. It offers the best hope of emerging from some of the intellectual and policy straitjackets of the recent past.