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Approaches to International Political Economy

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Approaches to International Political Economy

One can notice that different International Political Economy (IPE)[1] approaches which have been used to discuss the changes in IPE during the pre modern and modern period. Different approaches to IPE are: Liberal tradition, Mercantilist tradition, and Marxist tradition. The Liberal approach gives importance free trade and the voluntary trade contacts between different economies depending on their resources and economic needs. The Mercantilist approach is totally different from the liberal approach as the mercantilists stress the need for competition between the states which results in one state emerging superior than other states.

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The Marxist approached believed that world economy consists of capitalistic competition and the conflict between the capitalist and the working class. The capitalists are always in search of profits and in order to achieve this they force other economies to accept domination of the capitalistic economies. Within the Marxist tradition dependency theory[2] is used to explain the difference between the core and the periphery.

[3] The economic strength of underdeveloped countries depends on their international relations. These different approaches give different explanations for the emergence of gap between the rich and poor countries and the nature of international relations which affect the world economies. The dependency theory provides the best explanation regarding the international economic relations. [4]

In America, the scholars have used the neo utilitarian ideas which refer to the use of economic concepts to explain political developments. This approach argues that the members of world economy are aware of their role which is necessary to improve their economic position. Here the scholars used the term ‘rational choice’. Another approach which is a part of rational choice is the institutionalist approach which tries to study the role of the institutions in improving the economic position of a country. Another approach to IPE is the neo Gramscian approach which is more radical than rational choice because this approach highlights the factors such as politics, law, culture, and knowledge which influence the economic policies. The main aim of the dominant economies is to maintain their hegemony. [5] There has been emergence of new approaches to IPE such as: institutionalist, political economy, and neo Gramscian approaches. According to institutionalists in the world economy there is cooperation between countries for their mutual benefit. The political economists believed that competition among the interest groups affect the economic policies of the state. Neo-Gramscians stress on competition between capitalistic economies which try to preserve their hegemony in the IPE.[6]

International Political Economy was not given much importance till the 1970s when there was the emergence of protectionist measures by the developed countries. This compelled the various countries to study the relationship between the different economies of the world.[7] After 1970 the scholars realised that there was a need for the discussion of the IPE through their publications. Richard Cooper discussed the need for greater interdependence between the various economies. After 1970 there was meeting between the representatives of North and South economies. There was also the growth of diplomatic relationship between the USA, USSR, and China leading to the emergence of interest in IPE. The scholars propounded the dependency theory to discuss the attempt of the North countries to determine the economic policies of the South countries. With these developments IPE obtained greater importance in the international relations.[8] IPE emerged as an important subject of study because the US dominant economic position was challenged by the underdeveloped economies.

In the modern period there was the introduction of the Bretton Woods system which refers to the acceptance of the international trading powers that the exchange rates would depend on the dollar gold standard. However, in 1971 the US government decided not to continue the Bretton Woods system as the government initiated the protectionist measures by increasing the import duties. The scholars debated whether this showed the sign of decline of US hegemony or the inability of a single country to monitor the dollar gold standard. This also showed the power of the United States to determine the rules of the international economy and change those rules as per its requirements.[9] After the Second World War the international institutions were created to promote cooperation between the world economies. However due to the emergence of cold war it was not possible to implement these ideas. During 1970s the developed countries tried to introduce protectionist measures which annoyed the developing economies that tried to establish the New Economic Order. Significant changes in the world economy can be noticed with the end of the cold war and trade agreements between the different countries. [10]

During the post second world war period the developed countries introduced the trade agreement proposals such as GATT and WTO. Through GATT the dominant countries such as the USA tried to impose their economic motives on the subordinate powers as all the economies could not profit from this arrangement. In 1995, WTO replaced GATT as the WTO was expected to provide greater security to the developing economies.[11]

In the modern period, the different countries have depended on the rich countries for the supply of the required products. This has resulted in the concentration more than fifty percent world manufacturing in the 1990s in the countries such as USA, Japan, and Germany. This led to the difference between the North and the South. Only labour intensive industries were found in the developing economies. [12]

The scholars have also discussed the various aspects of globalisation which include issues such as: internationalisation, technological revolution, deterritorialisation, and liberalisation. Internationalisation refers to the increase in the economic relationships between the states with reference to import and export of goods. Technological revolution implies the emergence of new technology such as computers and internet which have reduced the geographical barriers between the countries. Liberalisation has reduced the role of the state in the economic relationship between the economies.  Globalisation has been supported and opposed by various scholars. Some scholars believe that globalisation increases inequality between the countries and social groups.[13] Regarding globalisation process, it is argued that it has both positive and negative impact. It has facilitated the economic and technological relationship between the various countries. Negatively it has reduced the role of the state as the state cannot completely regulate the economic affairs such as trade transaction and investment of capital. The private agencies are allowed to frame their own rules regulating their economic activities. However, some scholars who have based their studies on the developed economies, do not agree with the view that globalisation has taken away the powers from the state. Globalisation has different impact on different countries of the world creating the difference between strong states and weak states. The strong states such as the USA determine the rules of international economic relations. The states such as China and Iran have been able to protect a few sensitive sectors while the weak states have accepted the orders of the strong states. [14] Due to the Asian crisis the Asian countries such as Thailand, Malaysia, and Korea approached IMF which imposed severe conditions on these countries. Malaysia introduced strategies of controlling the capital market. Scholars have debated regarding the intention of IMF imposing its conditions on the Asian countries which suffered from the economic crisis. This showed the differentiation between rule making states and rule taking states. Some scholars have questioned the differential attitude of IMF towards different economies of the world depending on their economic strength.[15] The stronger states are not much affected by globalisation because they can formulate the rules controlling their economy. On the other hand the weaker states do not have many options while implementing the liberalisation process imposed on them by the greater powers.[16]

The institutionalists believe that globalisation would benefit both the strong states and weak states as they agree to cooperate with each other. However, the realists argue that it may benefit only the strong states because they look for relative gains from the trade agreements with other countries. This has resulted in anti globalisation movements against the institutions.[17] Globalisation process is managed by the international institutions such as WTO, IMF, and World Bank. However, they take care to protect the interest strong member states. The realists argue that the weak states have every right to protest against globalisation because the international agencies do not protect their interest.[18] Globalisation has challenged the interest of both strong states and weak states. The latter have tried to protect their interest by joining the regional trading institutions as they do not believe that the international institutions such as IMF would protect their economic interests.[19]

The scholars have emphasised the economic aspect of globalisation.[20] There is close relationship between politics and economics as they affect each other. The international institutions such as IMF and World Bank have analysed the economic aspect of globalisation. The social movements have criticised globalisation as they are perceived as the main reason for economic problems such as unemployment.[21] Economic globalisation was promoted by the international agencies such as Bank for International Settlements, WTO, OECD, UNCTAD, and World Bank Group. They have concentrated on their functions related to trade and finance.[22] This has resulted in the different transactions such as open boarder and cross boarder transactions. Some scholars believe that economic globalisation is not a new phenomenon when it is compared to internationalisation which existed even in the ancient period. However, other scholars have supported open boarder transaction feature of economic globalisation as it has resulted in opening the economies to other economic players of the world. This has led to differentiation between international trade and global trade. Open boarder transactions have emerged due to the liberalisation process found in the different economies of the world that has resulted in the transition from internationalisation to globalisation. The trade agreements have reduced the tariffs on the trade transactions between different countries.[23] Along with cross boarder trade transaction there has been the introduction of measures to encourage direct investment in the foreign economies. This has resulted in the emergence of capital investments in the form of foreign direct investment (FDI). Such investments are encouraged by the deregulation legislations introduced by the states. In spite of this one can notice the existence of capital controls in many countries which try to protect particular sensitive sectors.[24] The sceptical scholars did not find anything new in the globalisation process while the globalists believed that this process would lead to the emergence of global world economy as it changed the social relations. Globalisation could overcome the problems such as geographical distance between different regions.[25] This process resulted in the emergence of global trade. With this there was the emergence of concepts such as transborder production and global sourcing. The global companies have used the different rules of the countries to their own advantage. [26] With the emergence of globalisation, the global companies could simultaneously sell their products in different parts of the world. A classic example of the invasion of the global brands was the Russian market after the emergence of market reforms in 1994. [27]

 In order to attract global factories the different countries have established economic zones. Another important aspect of globalisation was the emergence of global finance. This has resulted in the process of ‘dollarization’ which refers to the replacement of the local currency by the US dollar as the prominent currency used for financial transaction. This has resulted in the foreign exchange trading as the people belonging to different countries involve in the foreign exchange trade transaction by the use of their computer and internet medium. The IMF introduced Special Drawing Right (SDR) which is the conversion of the computerised currency into money. [28]There has been the emergence of transworld banking which refers to the transworld deposits, transworld money lending, and transworld fund transfer. Euro currencies have been recognised as important example of transworld deposits. These currencies are not regulated by the laws of the nations. One can notice the emergence of transworld securities as the investors are allowed to invest their money in the bonds and shares of any country. There has been the emergence of euro equity issues which are sold in the different stock exchanges of various parts of the world. The people belonging to any country now can participate in the remote stock trading by taking advantage of the financial position in the different countries of the world.[29] Globalisation has contributed to the emergence of transworld derivatives which implies that financial trader can invest money in the derivates in the stock markets of different countries. This has resulted in the network that linked different stock markets of the world. The negative changes in the major stock markets can affect other stock markets of the world.[30] One can notice continuity and change in economic globalisation. The impact of globalisation on all the countries is not the same. Transborder trade and finance have been found in the regions like East Asia, North America, and Western Europe. They are found mostly in the wealthy and urban regions. This has resulted in the gap between the North and South economies.[31]

Manufacturing and financial activities have been dominated by only a few countries. The states have been trying to exert their control on the economic transactions to assert their rights. [32] There has been continuation of the cultural diversity of the countries although the participants in economic globalisation do not give much importance to their national identity. The economic globalisation has not succeeded in destroying the state structure although there have been a few modifications in its functioning.[33]

These details prove that there has been creation of difference between different countries due to the ability of some countries to create more wealth than the others. Such rich countries have established their domination over other countries. [34] This study has suggested that among the different approaches to the analysis of IPE, one can use the dependency theories which explain the relationship between different economies of the world. This study has proved that globalisation process has created economic inequality between North and South countries as the richer countries such as the USA were able to dominate the world economy. They dictated the rules of the subordinate countries which were compelled to accept these rules of globalisation process. There was the emergence of new concepts such as transworld production, transworld securities, transworld trade and so on. This removed the distance barrier between different countries and provided opportunity for the economies to exploit the markets in the other countries.

Bibliography

Burch, Kurt, and Denemark, Robert, A. (eds.) Constituting International Political Economy. Lynne Rienner Publishers: Colorado, 1997.

Clark, Barry. Political Economy A Comparative Approach. Greenwood: Westport, 1998.

Crane, George T. and Amawi, Abla. The Theoretical Evolution of International Economy. Oxford University Press: Oxford, 1997.

Lavigne, Marie. International Political Economy and Socialism. Cambridge University Press: Cambridge, 1991.

Mahler, Vincent A. Dependency Approaches to International Political Economy A Cross National Study. Columbia University Press: Columbia, 1980.

Scholte, Jaan Aart, “Global Trade and Finance”, The Globalization of World Politics An Introduction to International Relations, 2004.

Tetreault, Marie Ann, Denemark, Robert A, Thomas, Kenneth P., and Burch, Kurt. (eds.). Rethinking Global Political Economy. Routledge: London, 2003.

Woods, Ngaire, “International Political Economy in the Age of Globalisation”, in John Baylis and Steve Smith, The Globalization of World Politics An Introduction to International Relations, 2004.

[1] Kurch Burt and Robert Denemark, Constituting International Political Economy. Lynne Rienner Publishers: Colorado, 1997.
[2] Vincent Mahler, Dependency Approaches to International Political Economy A Cross National Study. Columbia University Press: Columbia, 1980.
[3] Marie Lavigne, International Political Economy and Socialism. Cambridge University Press: Cambridge, 1991.
[4] Ngaire Woods, “International Political Economy in the Age of Globalisation”, in John Baylis and Steve Smith, The Globalization of World Politics An Introduction to International Relations, 2004.  pp. 332-333.
[5] Woods, p. 335-336; Barry Clark, Political Economy A Comparative Approach. Greenwood: Westport, 1998.
[6] Woods, 337.
[7] Woods,  p. 330; George Crane and Abla Amawi, The Theoretical Evolution of International Economy. Oxford University Press: Oxford, 1997.
[8] Woods, p. 331.
[9]  Woods, P. 328.
[10] Woods, p. 330.
[11] Woods, p. 329.
[12] Jan Aart Scholte, p. 614.
[13] Woods, 338.
[14] Woods, pp. 339-340.
[15] Woods, p. 341.
[16] Woods, p. 342.
[17] Woods, p. 343.
[18] Woods, p. 344.
[19] Woods, p. 345.
[20] Marie Ann Tetreault, Robert A. Denemark, Kenneth Thomas P., and Kurt Burch (eds.) Rethinking Global Political Economy. Routledge: London, 2003.
[21] Scholte, p. 600.
[22] Scholte, p. 601.
[23] Scholte, pp. 602-603.
[24] Scholte, p. 604.
[25] Scholte, p. 605.
[26] Scholte, p. 606.
[27] Scholte, p. 607.
[28] Scholte, pp. 608-609.
[29] Scholte, pp. 610-611.
[30] Scholte, p. 612.
[31] Scholte, pp. 613-614.
[32] Scholte, p. 615.
[33] Scholte, p. 616.
[34] Scholte, p. 617.

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Approaches to International Political Economy. (2016, Jul 07). Retrieved from https://graduateway.com/approaches-to-international-political-economy/

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