Political economy (PE) analysis is concerned with the interaction of political and economic processes in a society: the distribution of power and wealth between different groups and individuals, and the processes that create, sustain and transform these relationships over time.
PE analysis elucidates how power and resources are distributed and contested in different contexts, and provides insights into underlying interests, incentives, rules and institutions. Such analysis can support more effective and politically feasible development strategies, ensure more realistic expectations of what can be achieved, and help outline the risks involved. It can contribute to better results by identifying the main opportunities and barriers for policy reform and how donors can use their programming and influence to promote positive change.
The use of PE analysis in development is a relatively recent phenomenon, beginning in the early 2000s. Prior to this, theory and practice largely ignored political and social context. Policies and programmes were planned and implemented in a technical manner, based on the presumption that expertise and aid was sufficient to generate growth. The failure of development interventions to produce expected results led to a growing awareness among donors that politics, ‘political will’ and local context matter to development.
In order to gain a better understanding of these issues, donors have developed various tools for political and social analysis. The local context is considered the basis for analysis, policy and programming, rather than relying on an international blueprint. Sida’s Power Analysis and DFID’s Drivers of Change (DOC) are flexible, broad, macro-level approaches that look at actors, relationships, structures and institutions at formal and informal levels. They seek to determine how power is distributed and exercised and what factors are likely to ‘drive’ or impede poverty reduction. Both approaches situate donors as political actors themselves. The Dutch Strategic Governance and Corruption Analysis (SGACA) builds on the experience and knowledge of Sida’s and DFID’s approaches. It aims to provide a more structured and systematic framework and to better promote the operationalisation of analysis.
Alongside these developments, the World Bank designed a comprehensive approach for Poverty and Social Impact Analysis (PSIA). It aims to help governments and the World Bank anticipate and address the possible consequences of policy interventions on the well-being of various stakeholder groups, given social and political contexts. It incorporates varying levels of analysis – macro (country context), meso (policy implementation) and micro (policy impact). At the macro level, it draws on tools such as power analysis and drivers of change. The World Bank has built on its PSIA work in order to provide further guidance on how to address issues of political economy in policy reform. Most recently, it has introduced a Problem-Driven Governance and Political Economy (PGPE) framework to strengthen the operational relevance of PE analysis.
While political economy approaches adopt different analytical lenses and methods, there are commonalities in their strands of thinking and general features. The following commonalities have been outlined referencing in particular Sida’s power analysis, DFID’s drivers of change, the Dutch SGACA and the World Bank’s PGPE framework:
- Emphasising the centrality of politics.
- Downplaying the normative and instead trying to understand country realities and to ground development strategies in these.
- Identifying underlying factors that shape the political process (local history, society and geography).
- Focusing on institutions to determine the incentive frameworks that induce patterns of behaviour.
- Recognising that development agencies are political actors.