The interactions between power and economic phenomena may provide an appealing focus for political economy.

However, the obstacles to constructing political economy on a foundation of power should not be underestimated. These obstacles are especially difficult if economics is interpreted as market behavior (one of the definitions of economics in Chapter 1).

Markets are closely related to the idea of choice among freely contracting individuals. Markets are impersonal, dispersed structures of buyers and sell­ers operating independently of one another in pursuit of private goals. The number of actors is large, opportunity costs are never so high as to create strong influence networks, and no collusion exists. This view of economics - as tied to markets - deprives it of power in two ways. First, since agents face an environment characterized by voluntary choice, and since from the agents’ standpoint many things are given - factor prices, technology, the distribution of endowments, and wants - there is very little to decide and a very limited range of strategic behavior. Second, no single agent has enough economic capability, in terms of capital, labor, goods, to influence any other agent. Of course, any agent may refuse to contract with another or may withdraw resources previously contracted. But here the damage done is strictly limited to the loss of the benefit derived from the exchange. A cannot hurt B more than it can help B, and withholding a benefit is not seen as power so long as alternatives for B exist.

If these properties are accepted as defining the market, economic behavior easily becomes the analysis of mutually improving exchanges. This connection is fostered by a central measure of economic welfare in neoclassical theory: the Pareto-optimality criterion. An exchange is said to be Pareto-superior to existing arrangements if it makes someone better off without making anyone worse off. If parties to the exchange are not coerced, and if the exchange is fully specified to include all relevant actors and goods, then the exchanges will be, ex ante at least, mutual improvements.

The Pareto-optimal standard and the neglect of power come together and reinforce one another. They are initially separate and focused on different issues; yet they connect and make each other stronger. The Pareto criterion draws our attention to cases where, by definition, no one is made worse off. If this is so, we have removed an important component of power relations, namely the threat of being worse off. In a market, one may be denied op­portunities to improve, by being refused an attractive job, for example, but the floor beneath - the lowest point to which one can fall - is the status quo ante. The collusion between the Pareto criterion and the focus on voluntary choice reinforces the neglect of power.

For defenders of market capitalism, power does not and should not exist in the market. Its appearance is not desired; it is something to be forestalled. For critics, the power within (and of) markets is “merely” opaque. In Gal­braith’s terms, the market is both “an effective solvent - and concealment - of the power of industrial capitalism” (1983:119). The opacity of market power is not accidental; it is essential; or at the least very helpful, to the ideological support of capitalism.

Nothing is so important in the defense of the modern corporation as the argument that its power does not exist - that all power is surrendered to the impersonal play of the market, (pp. 119—20)

In a free market economy, individuals enter into relations (exchange) vol­untarily. The free market eliminates authority-based allocation, coercive forms of labor, and so on. By replacing authority with voluntary contract, the market economy seems to eliminate power. In a sense, the market is designed to free individual initiative and self-interest while assuring that choice replaces coercion. When we think of the market in this way, the terms “economy” and “power” repel each other. And, if we link the notion of political economy to the exercise of power in the economy, we make political economy problematic.

Yet, especially in recent years, the term “political economy” has been used by a variety of authors to connote the link between markets and power. Thus, Robert Keohane asserts that “wherever, in the economy, actors exert power over one another, the economy is political” (1984:21). Even more forceful statements than this characterize the work of some radical economists who insist that the economy (particularly the capitalist market economy) is a “system of power.”

Clearly, what we term here power-centered approaches to political economy challenge a central claim of economic theory. In so doing they also pose a difficult problem for themselves. How can a system of voluntary relations between freely contracting and independent persons be a system of power? We address this question in the present chapter.

Whether correct or incorrect in their assessment of the market, power­centered theories force us to come to terms with one of the most fundamental questions we could raise about market economies. In dealing with this ques­tion, much depends upon our interpretation of the term power. The concept has a number of meanings (see Lukes, 1986) and the success we might expect to have in connecting power to market economy will depend critically on which meaning we consider most appropriate. We begin, then, with a brief summary of interpretations of power.