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What is Political Economy Analysis?

Asking the right question

From Brazil to Indonesia; on issues from food production to mineral extraction, companies constantly wrestle with the challenge of getting things done in complex and difficult situations. The ‘business as normal’ processes of political engagement clearly don’t work, and a new approach is needed: welcome to the world of political economy analysis (PEA). 

Traditional processes of political engagement – lobbying, for example – often fall short in emerging economies because they fail to reach below the surface of what goes on. They fail to engage with the much more complex – and often rather messy way – in which power is wielded, or understand that ‘normal’ is very far from anything we in the developed world might expect.

What PEA does is do dig deep into the nuts and bolts of how power and authority affect economic choices, and to use this understanding to inform how one should go about getting things done. Whilst the term ‘political economy analysis’ might sound rather academic, the process is in fact a ruthlessly practical one. The aim is not to create a dry analytical analysis, but to develop an understanding of the realities of a location, which can inform how actually to get things done. It is a process used by development institutions such as the World Bank (the PE process of which was developed by the author of this paper) and explores three key dynamics: 

Incentives: Who are the key stakeholders, be those individuals or groups, who have an influence or interest in what is going on? And what makes them tick – what do they really want?

Institutions: What political and other institutions and networks affect the way in which these actors interact with one another? Some of these may be formal ‘political’ institutional arrangements; others may be more informal and opaque.

Events: What contextual factors impact on the way in which these actors and structures work at the moment? How might changes in this context lead to increasing tensions, or to a situation where change can more readily be put in place? 

To date, this is not an approach that has been widely used by the corporate sector. This is what The Frontier Practice exists to do.

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