International Political Economy (IPE)

This article will focus on how globalization influences the international political economy. International political economy (IPE) evolved into an international studies approach as the result of the 1973 oil crisis and the breakdown of the Bretton Woods system. Many IPE researchers have highlighted the significance of the relationship between the economic and political factors in regards to international relations. The international economic system and the international political system work in unison. IPE is composed of a range of theoretical frameworks, and the foundations are established based on ideologies between states and markets.

Keywords Berlin Wall; Bretton Woods system; Capitalism; Cold War; Colonialism; Imperialism; International political economy; Liberalism; Marxism; Mercantilism

Management > International Political Economy

Overview

"Globalization has become a particularly fashionable way to analyze the changes in the international economy and in world politics. Advances in technology and modern communications are said to have unleashed new contacts and relationships among people, social movements, transnational corporations, and governments" (Woods, 2000, p.1).

The term, "political economy" is used to describe different events and situations in political science and international relations. Sometimes, the term is used to explain the "relationship between political systems and economic forces" (Devetak & Higgott, 1999).

Within the trend towards globalization, there are two aspects of change. The quantitative position has been around for a while, but the qualitative approach is fairly new. When referencing quantitative globalization, one is referring to an increase in trade, capital movement, investments, and interdependence. These concepts have been buzzwords since the 19th century. The most recent changes in globalization have occurred as a result of qualitative changes in international politics. These changes have occurred in the way people think and identify themselves and in the way states and firms perceive and pursue their goals.

There are three elements of globalization and they are interconnected. All three theories work together to provide different perspectives of globalization. The three elements are the expansion of markets, the transformation of politics, and the emergence of new social and political movements (Woods, 2000).

• The expansion of markets. This element highlights the "transformation of global economic activity. Technological change and government deregulation have encouraged the growth of transnational networks in production, trade, and finance" (Woods, 2000). Production refers to organizations such as multinational corporations who use advanced technology and new production techniques to promote their products across the world. Trade refers to an organization's ability to increase the quantity and speed of goods and services that are distributed around the world, increase the impact trade has on domestic economic arrangements, and strengthen a firm's ability to facilitate trade. Finance refers to the creation of a global financial system where a broad range of goods and services can be sold across the world in a timely manner.
• The transformation of politics. This element highlights a global political economy in which a country's borders become less important. If one were to compare the old system with the new system, the old system would be defined as the process of sovereign states working together based on the rules that they agreed upon. The new system is based on how political power and political activity work together across sovereign states (Held, McGraw, Goldblatt & Perraton, 1999). Global issues require sovereign states to make policies at levels above the individual level. Some of the issues that require a joint effort among nations are human rights, environment degradation and nuclear safety. Global warming and the armed weapons race are two such issues(Clapp & Helleiner, 2012; Wangler, Altamirano-Cabrera & Weikard, 2013).

With every good deed, some type of turmoil may be created. While the technological advances and cooperation of nations has been hailed as a positive step towards world harmony and growth, there are some negative aspects as such as transnational crime, weapons, drugs and illegal immigrants. Therefore, globalization requires new forms of regulation since individual states cannot overcome these issues on their own.

• The emergence of new social and political movement. Globalization not only affects the markets and states. It also affects people's lives. The new communication systems have produced a global culture. However, the effort to bring everyone together has not always been welcomed. For example, there are citizens in Russia and the Middle East who have rejected Westernization.

International political economy (IPE) evolved into an international studies approach as the result of the 1973 oil crisis and the breakdown of the Bretton Woods system. During the 1970s, scholars started to understand the importance and weaknesses of the economic base for the world order. Many IPE researchers have highlighted the significance of the relationship between the economic and political factors with regards to international relations.

Theories & Perceptions of the Global Political Economy

Many scholars have made contributions to the field of International Political Economy (IPE). Highlights of their contributions include:

Application

International Economics & International Politics = International Political Economy

The international economic system and the international political system work in unison. Economic partnerships are determined by political and diplomatic relationships and vice-a-versa. According to Spero (1990), political factors affect economic outcomes in three ways, and they are:

1. The political system shapes the economic system because the structure and operation of the economic system is determined by the structure and operation of the international political system.

One could see the influence of the international political system on the international economic system by reviewing the political developments during three periods of time in history. The three periods are (a) nineteenth-century imperialism, (b) post-World War II era of cold war between the Soviet Union and the Western free world led by the United States, and (c) the post-Berlin Wall demolition and demise of the Soviet Empire era (Phatak, Bhagat, & Kashlak, 2005).


Period 1: Nineteenth-century imperialism and
mercantilism were driven by two major political
factors: (1) the powerful nation-states in Europe
(i.e. the United Kingdom, France, Germany and
Holland) who had equal military power and (2)
nationalism practiced by these nation-states.
These countries encouraged their citizens to
practice and participate in activities which
enhanced national pride, national identity,
self-sufficiency, wealth and economic power.
Cooperative relations between nations were not
popular. Each country wanted to promote itself.
Both of these two factors led these nation-states
to pursue empire building, which encouraged
colonialism in Asia, Africa and Latin America.
The objectives of the nation-states were to
obtain raw material and minerals from the
colonies, process the goods into finished
products in their home countries, and market
the products in the colony markets. The
nation-states sought to accumulate wealth
and power so that their citizens could have
full employment at the expense of colonized
countries whose markets and production were
controlled by the nation-states.
The European nation-states divided the world
into parts that each controlled. The British
controlled most of western and southern Asia
and parts of Africa. The French controlled
Southeast Asia and northwest Africa. The
Dutch controlled Indonesia and parts of
Central and South America, and the Germans
controlled parts of Western Africa. Wars
broke out between the different nation-states
as each attempted to take control of the other's
territory. The British and French fought for
control of India, and the British and Dutch
fought for control over parts of Africa.
European imperialism determined trade and
investments. As a result, the political
system was controlled by colonialism and
empire building.
Period 2: As the imperialist system ended
after World War II, the United Kingdom's
dominance in the West came to an end. However,
two other superpowers emerged — the United
States and the Soviet Union. A new political
and economic system developed as the result
of the rivalry between these two countries.
The new political system was bipolar and
hierarchical. The United States led the West
and Japan. The Soviet Union led the Soviet
bloc in the East, which comprised of countries
behind the Iron Curtain. The developing countries
in the third world remained politically subordinate
to their colonial mother countries. The United
States and the Soviet Union battled in what was
known as the Cold War.
This political system determined the post-World
War II international economic system. There were
two different economic systems. The United States
and the West supported a capitalist system, which
encouraged free enterprise and free market economic
systems. The Soviet Union and the East supported a
Socialist/Marxist economic system, which called for
a centralized economy controlled by the government
where citizens were not allowed to have private property.
Period 3: There was another change in the late
1980s and 1990s as the post-World War II
international economic system crashed. Poland
and Hungary began to support a democratic state,
the Berlin Wall fell, and the Soviet Union broke
up. Countries that once supported the socialist
model began to embrace capitalism. Russia became
a democracy, and China, Vietnam and India opened
their markets to foreign investments and trade.

The Organisation for Economic Cooperation and Development (OECD) was founded in 1961, though its roots extend to an earlier Europe centered organization. Market based and West leaning, this partnership of thirty-four nations "closely mirrored major phases in the post-war international political economy" according to Clifton & Díaz-Fuentes (2011). In the twenty-first century, however, the OECD's dependence on Western countries may leave the organization out of step with non-Western powers.

2. Political concerns often shape economic policy because economic polices are frequently dictated by overriding political interests.

Internal political processes have a part in the determination of national economic policy. Economic policy is the outcome of the political bargaining process that is responsible for resolving the conflict over the outcomes preferred by different groups, each representing distinct and often conflicting interests. The overriding political and strategic interests of a nation help determine its international economic policy, which results in international economic policy becoming a tool to fulfill a nation's strategic and foreign policy objectives. International economic policy can sometimes be beneficial to MNCs, especially if it is being driven by political considerations.

3. International economic relations themselves are political relations because both types of interaction are processes by which state and non-state players attempt to manage their conflicts and cooperate to achieve common goals.

International economic relations may be viewed as the outcome of the political process involving the management of conflict and cooperation over the acquisition of scarce resources among the various members of the political system in the absence of a centralized world government. Both international and political interactions range from conflict to cooperation. The conflict among the members of the political system may be rooted in a struggle for greater power and national sovereignty. National sovereignty is associated with national wealth. A country that is not independently wealthy becomes dependent on others and loses some of its national sovereignty. Therefore, most countries seek wealth in a political system, and the pursuit of this goal in the presence of scarce resources frequently leads to conflict among the system members.

Viewpoint

Models of International Political Economy

IPE is composed of a range of theoretical frameworks, and the foundations are established based on ideologies between states and markets. "The key difference between competing theoretical claims in IPE relates to the normative position that scholars adopt on the preferred mix of values to be embedded with the state-market nexus" (Murphy & Tooze, 1991, p. 2). Strange (1988) categorized these values into four domains, which were security, prosperity, freedom and justice. The preferred combination of these values differs according to the theoretical beliefs of the scholar (Watson, 2005).

Conclusion

There are positive and negative attributes of globalization. States, markets and other groups work together to ensure that policies and practices to promote globalization are in place. Although some forms of state sovereignty have been minimized, new areas of power and competition have surfaced. These include regional organizations, international agencies, and competition among currencies. Some groups are embracing the Western value system, whereas others are identifying alternative identities and values.

Terms & Concepts

Berlin Wall: From 1961-1989, the obstruction that kept East Germans from accessing West Berlin; acted as a sign of the Cold War an its division of East and West Germany.

Bretton Woods agreement: "A 1944 agreement made in Bretton Woods, New Hampshire, which helped to establish a fixed exchange rate in terms of gold for major currencies. The International Monetary Fund was also established at this time" ("Bretton Woods agreement," 2007).

Capitalism: Economy which is run and determined through a free market system. The means of production within such a system are distributed by private or corporate organizations.

Cold War: Specifically refers to the aggression and discord between the United States and Soviet Union following World War II; more generally refers to political and military tension that does not evolve into a war.

Colonialism: National control over a foreign dependent.

Imperialism: Practice of furthering a nation’s reach by acquiring new territories or exerting political strength over other nations.

International Political Economy: A social science and historical perspective that analyzes international relations in combination with political economy. It is about the consequences on an international level of the interaction between the state (politics) and the market (economics).

Liberalism: The philosophy of international political economy that emphasizes the role of markets in maximizing aggregate social welfare. Liberalists argue that market surpluses do not exist over time and that attempts to achieve them interfere with efficient production and consumption, stifling welfare.

Marxism: A major school of thought that views international relations as a struggle between rich and poor classes rather than as a contest between national governments and national states.

Mercantilism: The philosophy of international political economy that emphasizes the role of state power in obtaining advantageous trading arrangements for states. It presumes that states should aggressively seek to maximize exports and to minimize imports.


Legend for Chart:
A - Scholar
B - Contributions


Past IPE Scholars

A: David Ricardo
B: Ricardo is one of the most influential classical economists who
focused on standardizing economics. His most famous work was
Principles of Political Economy and Taxation, and was known
for his theories of wage and profits.

A: Barrington Moore
B: Moore, an American political sociologist, is the author of Social
Origins of Dictatorship and Democracy: Lord and Peasant in the
Making of the Modern World. He studied various societies (with
democratic, fascist and communist regimes), focusing especially
on how industrialization and agrarianism mix to create different
results. In his work, he highlights the effects of the liberal
democratic, the fascist, and the communist on change, especially
as it relates to the time at which industrialization occurs as well
as the state of the social structure at that time.

A: John Rawls
B: Rawls was an American philosopher, and considered one of the most
important English-language political philosophers of the 20th
century. He was a proponent of liberalism. One of his most famous
works was Political Liberalism where he introduced the idea of an
overlapping consensus and public reason.

A: Milton Friedman
B: Friedman was a prominent American economist who strongly supported
capitalism based on a laissez-faire approach. The fields of
macroeconomics, economic history and statistics were all greatly
influenced by Freidman. In his book, Capitalism and Freedom, he
argued that political and social freedom rely upon diminished
government regulation in a free market.

A: John Maynard Keynes
B: Keynes was a British economist known for Keynesian economics, and
he had a major influence on modern economic and political theory as
well as government fiscal policies. Keynes is remembered for his
stance on interventionist government policy, which highlighted how
governments can ameliorate the negative effects of recessions,
depressions and booms through fiscal and monetary policies.

A: Susan Strange
B: Strange is of great importance to the study of international
political economy. Some of her books include "Casino Capitalism,"
"Mad Money," "States and Markets" and "Rival States and Rival
Firms." Strange worked to better integrate international politics
and international economics within academia. She was famous for
the term, "structural power"; her 80’s argument against the
theory of American Hegemonic Decline.

A: Karl Marx
B: Marx was a Prussian philosopher, political economist, and
revolutionary. Although his work covered a broad range, he was well
known for The Communist Manifesto. His most notable work was
being the co-founder of Marxism, author of The Communist Manifesto, and his work on historical materialism and the
alienation and exploitation of the worker. Marx believed that
capitalism would be replaced by socialism which would bring about
communism.




Contemporary IPE Scholars

A: Robert Putnam
B: Putnam is a political scientist and professor at Harvard
University, and is recognized for his two-level game theory.
This theory asserts that the only way for international treaties
to be successful is to also ensure domestic benefits. His most
famous and controversial work, Bowling Alone, purports that
since the 1960s, the United States has seen a degradation of
civic, social and political life. Two different forms of social
capital – bonding capital and bridging capital have been
developed by Putnam.

A: Helen Milner
B: Milner is a political scientist who writes on issues related to
international political economy with a focus on international
trade, the connections between domestic politics and foreign
policy, globalization and regionalism, and the relationship between
democracy and trade policy.

A: Amartya Sen
B: Sen is an Indian economist and philosopher. In 1998, Sen won the
Nobel Prize for Economics as a result of his work on famine, human
development theory, welfare economics, the underlying mechanisms
of poverty, and political liberalism. One of his most famous
publications was Poverty and Famines: An Essay on Entitlement
and Deprivation.

A: Jagdish Bhagwati
B: Bhagwait is an economist famous for his defense of free trade
against the critics of globalization. One of his notable
publications includes In Defense of Globalization.

A: Theda Skocpol
B: Skocpol is an American sociologist and political scientist at
Harvard University. She is known as an advocate of the
historical-institutional and comparative approaches in sociology,
and her "state autonomy theory" in political science. Her work has
been linked with the structuralist school, and she supports the
concept of social revolutions. She believes the role of
international forces is important, especially their influence on
the state and social structures of a given society.


Legend for Chart:
A - Philosophy
B - Beliefs


A: Liberalism
B: Focuses on how the regulatory authorities of the state allow
individuals "to establish systems of exchange that operate on the
basis of free will." It is assumed that individuals can organize
the demand and supply sides of commodity markets, which would
create a coherent economic structure. A Panglossian position is
desired, and occurs when the people equate free will with a
prosperous order based on market exchange.

A: Marxism
B: Challenges the liberalism view. Marxists argue that as long as
wealth is generated by a capitalist economy, individuals will never
have free will. Rather, they are subordinates of the system. Wealth
is linked to surplus value extraction, which requires the public
authority to exploit the people in order to generate production.
The system only works for a few people — the elite.
Distributive justice is not possible in a market that does not
advance the majority.

A: Feminism
B: Focuses on the exploitation of a capitalist economy. However, their
focus is not on class. It's on gender assumptions. Feminism
supporters assert that women should be able to fully participate in
the economy without constraints of a male dominated economy. In
addition, they should receive equal pay for equal work.

A: Mercantism
B: This philosophy does not agree with the three positions listed
above. These followers do not focus on the social systems
established to create wealth. Their position is that "wealth
creation is a means, not an end." Scholars support strategies
that "strengthen the capacity of a state through a dynamic and
successful economy." Their major position is that (1) strong states
are the only entities that can provide security for their citizens
and (2) only secure societies can introduce a legal framework that
allows for justice claims to be rectified in a fair and objective
manner. "Economic management is subordinate for the preservation
of existing state structures."

A: Ecology
B: Ecologists share the same concern for security issues as
mercantists, but in a different way. Ecologists highlight the
environment as a security issue, and they believe the process of
international economics management should not take place on a
national level. Rather, it should be in line with global interest
which promotes protecting the earth's shared ecosystem. The economy
is the focus of environmental issues. Prosperity is based on
production systems that view nature as a commodity.

A: Neo-Gramscian
B: Focus on the impact of market ideology in the structuring of
everyday life. This philosophy has Marxist origins, and
highlights both the exploitative nature of capitalism as well
as the strategic use of the state's practice of putting
capitalist production above justice. Market ideology emphasizes
the economy’s roll in creating a basis on individual material
identity and the individual’s sense of where they fit into
society (i.e. worth is based on economic position). Since
capitalism is the acceptable view of the majority, it becomes
hard for individuals to use alternative forms of defining self.
There is a sense of status quo and no challenge to the way the
market operates.

A: Post-structuralism
B: Also focuses on the ideology of everyday life. However, they do not
believe that the economy provides a material basis of every day
life. Neo-Gramscians highlight the institutional coherence that
capitalist production has on society, but post-structuralists do
not believe that an institutional unity exists. Rather, emphasis
should be placed on the analysis of how identities are formed
through the normalization of economic viewpoints. The state is
unable to sustain conditions that lead to a prosperous or just
society because such a condition does not exist. The objective of
post-structuralists is to understand how states evaluate economic
ideologies and determine their feasibility for everyday life.

Bibliography

Bretton Woods agreement. (2007). Retrieved May 14, 2007, from Investopedia.com. http://investmenthouse.investopedia.com/terms/b/brettonwoodsagreement.asp

Clapp, J., & Helleiner, E. (2012). International political economy and the environment: Back to the basics?. International Affairs, 88, 485-501. Retrieved October 31, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=73794019&site=ehost-live

Clifton, J., & Díaz-Fuentes, D. (2011). The OECD and phases in the international political economy, 1961–2011. Review of International Political Economy, 18, 552-569. Retrieved October 31, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=69870659&site=ehost-live

Devetak, R., & Higgott, R. (1999). Justice unbound: Globalization, states and transformation of the social bond. International Affairs, 75, 483-500. Retrieved May 14, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=20220683&site=ehost-live

Held, D., McGraw, A., Goldblatt, D., & Perraton, J. (1998). Global transformations: Politics, economics and cultures. Cambridge: Polity Press.

Murphy, C., & Tooze, R. (1991). Introduction. In Craig Murphy & Roger Tooze (Eds.), The new international political economy. London: Lynne Reener.

Phatak, A., Bhagat, R., & Kashlak, R. (2005). International management. New York, NY: McGraw-Hill/Irwin.

Spero, J. (1990). The politics of international economics relations (4th ed.). New York, NY: St. Martin's Press.

Strange, S. (1988). States and markets: An introduction to international political economy. London: Pinter.

Wangler, L., Altamirano-Cabrera, J., & Weikard, H. (2013). The political economy of international environmental agreements: a survey. International Environmental Agreements: Politics, Law & Economics, 13, 387-403. Retrieved October 31, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=89806038&site=ehost-live

Watson, M. (2005). Foundations of international political economy. New York, NY: Palgrave Macmillan.

Woods, N. (2000). The political economy of globalization. New York: St. Martin's Press.

Suggested Reading

Bucur, C. (2006). Foundations of international political economy. Journal of International Relations & Development, 9, 216-219. Retrieved May 14, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=21518856&site=ehost-live

Dickins, A. (2006). The evolution of international political economy. International Affairs, 82, 479-492. Retrieved May 14, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=20743645&site=ehost-live

Ikes, A. (2006). The international political economy of making consumption sustainable. Review of International Political Economy, 13, 340-358. Retrieved May 14, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=20504468&site=ehost-live

Thurston, C., & Bowen, K. (2011). U.S. domestic politics and international political economy: an introduction to the special issue. Business & Politics, 13, 1-4. Retrieved October 31, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=70050389&site=ehost-live