Just had an interesting workshop on power centered approaches to political economy today, so thought it'd be interesting to write a quick summary of it. This approach emphasise the importance of power in economic relations. To an extent, it uses methods closer to political science to study an object which is traditionally economic. While power is obviously a contentious concept, the implications of such an approach for the validity neoclassical theories are quite important.
If power is conceptualised as the 'transformative capacity' of agents or their ability to affects other agents' behaviours, then the recognition that agents have power undermines the assumption that economic actors are price takers (i.e.: have no influence on prices) as well as the assumption that they 'voluntarily' agree to exchanges on the market.
If that is the case, this in turn implies that transactions do not in the 'worst case scenario 'make agents at least as good as if they didn't participate in the market. It also suggests that the price may be the result of forces that do not result in an efficient allocation of market outcomes. Thus, from this perspective, markets are neither necessarily efficient in their allocation nor in the joint maximisation of agents' utilities (i.e.: supposed to capture their well being).
Where does power arise? Monopolies and Oligopolies are obvious market candidates for power to be located and even neoclassical economics recognises the problems that arises in such cases, not least with respect to the potential inefficiencies that generate. But this extends to many other spheres such as labour-capital relations and hierarchical structures of firms themselves.
Indeed, if power is understood as the ability to affect actors preferences and readings of both their own interests and the problems in the system in which evolve, then it also becomes clear that financial institutions detain such power and that this prevents our societies from taking appropriate actions: we (and our governemnts) are neither able to read the situation appropriately nor to understand our interests in the fundamental reform of the financial system.
In fact, Galbraith made that point eloquently concerning the corporation almost 30 years ago: "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" (1983: 119).
Thus, this approach represents an important contribution to the field of political economy and entails important insights for the current regulatory failures of financial markets. While strong in its critical potential, however, this approach is not without conceptual or methodological problems. This last point raises perhaps the biggest criticism of this approach, namely its parternalism, as it assumes that most actors' subjective assessments are biased, while some external theorist is best able to assess people's objective interests for them.
This is a huge topic, so I think a few references are in order:
Caporaso and Levine "theories of political economy" (chapter 7)
Galbraith "the anatomy of power"
Max Weber "Protestant ethic and the Spirit of Capitalism"
Frank Knight "on the history and method of economics"
Ronald Coase "The nature of the firm"
Alchian and Demsetz "Production, information costs, and economic organisation"