Comparative Political Economy: State and Market

Comparative Political Economy: State and Market

A state is a political association with effective dominion over a geographic area - Comparative Political Economy: State and Market introduction. It usually includes the set of institutions that claim the authority to make the rules that govern the people of the society in that territory, though its status as a state often depends in part on being recognized by a number of other states as having internal and external sovereignty over it.

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As cited in Wikipedia, Max Weber’s influential definition of state is that organization that has a “monopoly on the legitimate use of physical force, within a given territory,” which may include the armed forces, civil service or state bureaucracy, courts and police. In relation to International Political Economy, the state is a political actor that has sovereignty and a number of characteristics, including territory, population, organization and recognition. Suffice it to say, the international political economy as a whole is governed by certain fundamental laws that operate more or less independently of the will of firms and individuals.

 State action on the other hand is the implementation and enforcement of the state’s program in relation to global economic and political arena. It plays a major role in the making or breaking of both local and international economy. Foreign economic policy is an example of the state action in relation to International Political Economy (IPE), another example is the implementation of laws and rules that governs the economy like taxes and exchange rates. These are evident on the state’s intervention on the local economy at hand.

Market is a social arrangement that allows buyers and sellers to discover information

 and carry out a voluntary exchange of goods or services. It is one of the two key institutions that organize trade, along with the right to own property. In everyday usage, the word “market” may refer to the location where goods are traded, sometimes known as a marketplace, or to a street market, as mentioned in Wikipedia.

Market is the method of allocating resources using prices as the central mechanism. At the base of all modern economics is the general assertion that, within certain carefully specified

parameters, markets operate in and of themselves to maintain balance between supply and demand. But such markets are only abstract models, which are rarely reproduced in the real world. Examples of market actions are the global currency markets that have cost some government to lose of control over their national interest rates.

No state is autonomous of international economy. The state relies on both domestic support and international sources of supply in order to meet their security needs. In this angle,  a strong competition exists in the market arena. This dynamic is sometimes called the struggle between the state and the working class.  In the context of International Political Economy, state and market are to be in harmony and complementary in its constant interaction.

The issue of whether the market and state is conflictual is viewed differently by IPE scholars. In practice, if the state is weak and economically challenged, the weaker is its influence on the international economic interplay in the global arena, or vice versa.

 Liberals assert that a fundamental harmony of interests exists between, as well as within, countries in the international economy. Liberals also believe that governments should manage the international economy in much the same way as they manage their domestic economies. Governments should establish rules and regulations – “international regimes”, to govern exchanges (in currency and goods) between different countries

Some IPE scholars see the state and the market as separate and have antagonistic

dynamic. Ha Joon Chang said that, “no markets have ever emerged spontaneously, and state intervention has always played a crucial role in the development of individual market or market system with the exception of Hong Kong… .the process of industrialization would have been delayed without at least some periods of heavy state involvement.”

In order to resolve the tension between the state and market, Hegemony’s theory has to be considered and if needed applied. In an excerpt from an article What is International Political Economy?  hegemony is defined as the rich and power state that undertakes to supply goods to the international system in the form of stable money, security, and a system of  free trade that can be shared by all and that, in fact work best when widely shared. The underlying principle is that, if the international community prospers, the hegemony state prospers too. This theory argues that the world system is prosperous when the hegemon exists to organize the international economic and political system and coordinate the provision of public goods (Vesseth 8-9).

In relation to International Political Economy, the logic of the state and the market are distinct. The way this relationship is viewed has a considerable impact on how the prospects for change in the structures—the normative and material underpinnings—of world order are to be understood. A final and decisive step has to be taken in accepting that, in empirical and conceptual terms, the state and the market are part of the same, integrated system of governance: a state–market system that operates simultaneously through the competitive pressures of the market and the political processes that shape the boundaries and structures within which that competition takes place.

Works Cited

Chang, Ha Joon. “ Breaking the Mould: An Institutionalist Political Economy Alternative to the Neoliberal Theory of the Market and the State,”  Journal of Developing Areas

http://muse.jhu.edu/demo/journal_of_developing_areas/v037/37.1basher02.html

Veseth, Michael.  An excerpt from the article “What is International Political Economy?” p. 8-9

Wikipedia. “Market.”  Retrieved on 20 October 2007 at http://en.wikipedia.org/wiki/Market

Wikipedia. “State”  Retrieved on 20 October 2007 at http://en.wikipedia.org/wiki/State

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