WEDNESDAY, JULY 25, 2012: The International Political Economy
Over time, interactions related to economic issues have become increasingly
important because many believe greater economic cooperation can be the
source of international peace and security (this argument was first made before
Barriers to trade and commerce were broken down by technology and
communications, making the world more interdependent.
The end of the Cold War was significant for the political economy because it
represented the prevailing of capitalism as former communist countries began to
turn to capitalism. It makes economic cooperation more possible and more
likely as states opened up their economies.
Political economy is the study of how politics impacts states and how economic
interests and developments impact the nature of politics (changing distributions
of wealth and power essential to international conduct).
The focus on the political economy is based on a fundamental debate about
what the relationship between the two spheres is. It is a debate over which of
the two is most important, which comes firsts, and which supersedes the other.
They are not isolated from each other and shaped each other in meaningful
There are three ways the relationship between economics and politics has been
1. Mercantilism—the domain of international politics is like for realists the
domain of conflict. The primary actors in the economic system are
states, which have their own interests of security, power, economic
dominance, and wealth. The fundamental interest of states is maximizing
their interest, which means all relations which other states will be
conflicting. States care about relative gains and think in zero sum terms.
This means politics dominates and determines economic policy.
2. Economic Liberalism is the dominant doctrine. Adam Smith made this
famous. This underlies the capitalist free trade global economy. They
believe national interest is essentially the same as the economic interest
in society. It argues that the pursuit of each state and material wealth is
not a zero sum or relative gains issue. They believe they are positive sum
or absolute gains, where everyone can gain together and everyone’s
economic interests can be met. This means there can be harmonious
relations. The logic is of comparative advantage (Adam Smith, David
Ricardo), which means specialization and trade makes everyone better
off. David Ricardo applied this to trade between countries, moving it
from the domestic level to the international realm (restricting
trade=wasting resources). Contrary to mercantilism, it would be better if economics superseded politics, and policy should be about protecting
3. Marxism—there is no harmony of interest between classes because they
all aim to maximize their class interest, which are all zero sum in nature
(the gain of one class is the loss of another). The ruling classes seek to
continue their ownership and control over the lower classes while the
working classes have an eventual incentive to overthrow the ruling class.
Economics drives politics because what class controls the economic
system determines the nature of the political system. They take this logic
from the domestic level and apply it to the international level. There are
similar class distinctions internationally- the wealthy countries with all
the power vs. the poor developing countries with natural resources and
cheap labour (North vs. South). Rich capitalism states seek to keep
getting richer and do this by exploiting the poor states. The poorer
countries seek to be in the higher levels of development when they own
capital, but find themselves to become perennial sources of raw
materials and little else (*dependency theory).
Global free trade: the assumption that free trade is good is a liberal notion. With
this assumption (the broad understanding in today’s international system), how
do we achieve this? Particularly in a world where some assert we are
functioning in a domain of relative gains. How dependent you are on another
state directly determines the amount of power they have on you.
Why do we have a free trade system when incentives aren’t necessarily there?
Hegemonic stabilities theory—the hegemon has an incentive to create a global
free trade economy, so it provides a support system for such an economy to
exist. A liberal international economy requires a dominant power to manage
and stabilize the system, and this power must see benefit in doing so. They have
an incentive because as the dominant economic force, it is most likely to profit
most from having a free trade global economy. Because it is wealthiest and
most powerful, it is also less worried about relative gains so can promote an
absolute gains system. The hegemon has an incentive because assuming
everyone is better off, the other states being satisfied means the hegemon’s
dominance can be maintained for longer. The hegemon uses its economic and
military power to provide public goods, which are necessary for the functioning
of a liberal free trade economy.
State trade policies: in reality states make choices between fr