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IPE seeks to advance knowledge of how political institutions, processes, and actors
influence economic interactions, and conversely, how economic institutions,
processes, and actors affect political interactions. IPE scholars examine the role of
domestic drivers in shaping global politics as well as the influence of global drivers
on domestic politics. Substantive issues this section focuses on include international
and regional regimes, private authority structures, welfare policies, social and
environmental policies, monetary and exchange rate policies, global integration,
international trade, international development and equity, international finance,
multinational corporations, NGOs, and corporate social responsibility. We encourage
theoretical and methodological diversity, and welcome conceptual as well as
empirical contributions.
The growing prominence of IPE is one result of the continuing breakdown of boundaries
between economics, politics, and other social science disciplines. Increasingly, the most pressing
problems that scholars and policy-makers confront are those that can best be understood from a
multidisciplinary, interdisciplinary, or transdisciplinary point of view. IPE pulls down the fences
that restrict intellectual inquiry in the social sciences so that important questions and problems
can be examined without reference to disciplinary borders.
IPE is the study of a problmatique, or set of related problems. The traditional IPE
problmatique includes the political economy of international trade, international finance, North-
South relations, transnational enterprises, and hegemony. This problmatique has been
broadened in recent years to issues raised by globalization and climate change.
Yet scholars and policy-makers often think about International Economics without much
attention to International Politics and vice versa. Economists often assume away state interests
while political scientists sometimes fail to look beyond the nation-state. Two noteworthy Cold
War era exceptions to this rule stand out: economist Charles Kindleberger's work on hegemony
and political scientist Kenneth Waltz's attempt to integrate economics into politics in his path-
breaking book Man, the State, and War.
Dramatic events in the 1970s made plain how tightly international economics and politics were
intertwined. The oil embargoes of the 1970s and the breakdown of the Bretton Woods monetary
system were key events in IPE's development as a field of study. Moreover, subsequent events
such as the Third World debt crisis, the fall of communist regimes, the rise of the Newly
Industrialized Countries (NICS), the expansion of the European Union, and the financial crises in
Mexico, Russia, and East Asia made showed that simple divisions between state and market,
domestic and international, and politics and economics were no longer tenable. An increasingly
complex world required a complex approach to analysis, which IPE provided.
IPE in the 1970s and 1980s was centered in the International Relations community and took the
form of the analysis of what was called in book titles and course catalogues "The Politics of
International Economic Relations" or "The Political Economy of International Relations." In this
period, five sets of questions dominated the agenda: international trade, international finance,
North-South relations, MNCs, and the problem of hegemony. A sixth concern globalization
was added to the list in the 1990s. Since the 2000s, IPE has devoted significant attention to
global threats and crises, including climate change and worldwide financial instability.
International Trade
Politics and Economics approach international trade from different points of view using
completely different analytical frameworks. The problem is that states think in terms of
geography and population, which are the relatively stable factors that define its domain, while
markets are defined by exchange and the extent of the forward and backward linkages that derive
therefrom. The borders of markets are dynamic, transparent, and porous; they rarely coincide
exactly with the more rigid borders of states. A few markets today are even global in their reach.
When trade within a market involves buyers and sellers in different nation-states, it becomes
international trade and the object of political scrutiny.
International trade has always been at the center of IPE analysis and is likely to remain so in the
future. It is a mirror that reflects each era's most important state-market tensions. In the Cold
War, for example, international trade was simultaneously a structure of US hegemony and a tool
of East-West strategy. In the 1980s and 1990s, trade through regional economic integration was a
tool to consolidate regional interests. With the advent of globalization and the creative economy
powered by information technologies, trade in intellectual property rights became me a
controversial IPE issue.
International Finance
International Finance presents the second set of problems that have traditionally defined
International Political Economy. The IPE of International Finance includes analysis of exchange
rate policies, foreign exchange systems, international capital movements, and international
financial institutions such as the World Bank and the International Monetary Fund. Seemingly
technical aspects of international finance often hide profound political implications, a fact that
has attracted scholars such as Susan Strange and Benjamin J. Cohen to this field. Political
scholars may hesitate to engage in this analysis because of the necessity to master difficult
theories and arcane terminology, but there is no riper area for IPE analysis. Some issues of
current importance in IPE studies of finance include: political struggles over how to respond to
the post-2007 global financial crisis; how the complexity of financial markets affects economic
stability; and debates over how states should regulate financial markets.
Hegemony
The theory of hegemonic stability was arguably IPE's most important contribution to Cold War
international relations theory. A hegemon is a powerful state that supplies public goods to the
international system. These public goods include stable money, security (such as freedom of the
seas), and a system of free trade that can be shared by all. Providing these public goods is costly,
but the hegemon gains even if it disproportionately bears the expense alone. If the world system
prospers, the hegemon necessarily prospers as well. In fact, this provision of public goods may
be a strategy to secure or extend the hegemon's dominant position.
The theory of hegemonic stability holds that the world system is most prosperous when a
hegemon exists to organize the international political and economic system and coordinate the
provision of international public goods. Periods of Dutch (1620-72), British (1815-73), and U.S.
(post-1945) hegemony are commonly cited as evidence of this link between hegemony and
prosperity. When hegemony breaks down, however, the international system falls into disorder
and conflict, with the resulting decline in peace and prosperity. One can think of the theory of
hegemonic stability as a theory of U.S. Cold War economic statecraft, with the Bretton Woods
system and the Marshall Plan its clearest manifestations.
Some scholars argue that hegemony is a self-defeating and therefore temporary condition. While
the hegemonic state bears the burdens of organizing the international system and supplying
public goods, free-rider states prosper and increase the burdens on the hegemon. At some point
the hegemon finds itself over-committed and unable to bear the costs of the system it has created.
Either it begins to put domestic interests over its international obligations or it becomes too weak
to honors its widespread commitments. Britain's decline in the late 19th century and early 20th
century is an example of this dynamic. The Iron Curtain's fall in 1989 can also be seen as the
implosion of Soviet hegemony over Central and Eastern Europe.
Hegemony is a state-centered concept that includes security as a critical element, but that draws
upon the analysis of international trade and international finance to provide a richer and more
complex explanation of the rise and fall of great powers. One important question in IPE today is
whether China will challenge U.S. hegemony and threaten the liberal international order. Another
is whether Germany will move to establish itself as a hegemon within the European Union.
North-South Relations
The Cold War analysis of less-developed countries (LDCs) was focused on the East-West bipolar
alliances and the place of LDCs in geopolitical strategy. LDCs were strategic pawns in the Big
Power Cold War game. As international trade and international finance were increasingly used to
expand and strengthen the Cold War alliances (especially but not exclusively on the western
side), IPE scholars pursued the impact of economic relations generally on LDCs. Or, in the terms
associated with Immanuel Wallerstein, they probed the relationship between Core and Periphery.
Multinational Corporations
With the end of the Cold War, analysis of MNC behavior quickly spread to issues well beyond
their role in Cold War geopolitics. The rise of Asias newly-industrializing countries and the
increasing globalization of production and finance spurred research on the role of MNCs in the
allocation of capital and the control of technology. It became apparent that some MNCs
undertook business strategies that were not obviously in the interest of their home country. The
distinction between home country and host country also grew less clear. All countries are now
host countries in the sense that all countries compete for capital, technology, and jobs in the
global market.
IPE scholars have increasingly directed their research towards developing an IPE of Global
Value Chains (GVCs). GVCs are complex networks that link independent businesses into a
coordinated production and distribution process. New information technology allows firms to
coordinate their activities to an extent that was previously possible only within a large enterprise,
thereby facilitating the expansion of GVCs. Companies like Nike, Apple, and Wal-Mart
coordinate vast GVCs; they focus on design, marketing, logistics, and retailing. Much of the
actual manufacturing of products has been outsourced to independent firms in countries such as
China, Vietnam, and Malaysia. The IPE of global value chains challenges our understanding of
both markets and states and represents an advancing frontier of IPE research.
Globalization
The globalization problmatique is quite different from the traditional state-centered concerns of
International Relations, which is one reason some IPE scholars consider IPE a distinct academic
discipline, not just a sub-field of International Relations. As a process driven by the global
expansion of production and finance, globalization forces us to look at the interrelationships
between politics, business, culture, technology, the environment, and migration, to name only the
most obvious areas.
At the heart of the globalization problmatique is the question of the state. Many scholars argue
that the nation-state is increasingly incapable of dealing with global issues and has lost
significant power relative to other actors in the global economy. For example, MNCs can easily
move capital from one country to another, and this mobility has allowed them to reduce the taxes
they pay.
Globalization has forced IPE scholars to search for new theories to explain complex global
interactions. One of the most recent theories is constructivism, which focuses on the power of
ideas to shape how states and institutions perceive and respond to global problems. An outgrowth
of this perspective is literature on how globally-coordinated groups of non-state, non-business
actorscalled transnational advocacy networkshave been able to convince governments to
care more about problems such as human rights and environmental destruction.
It is clear that globalization has generated an array of social and environmental problems that
demand the attention of IPE scholars. Growing economic inequality has had profound effects on
the quality of democracy and social stability. The rise of China and the creation of the euro
currency have reshaped geopolitics. Most importantly, globalization has helped produce serious
threats and crises that states and international institutions seem incapable of controlling, such as
global warming, financial turmoil, and refugee flows. The challenge for IPE is to develop
theories and concepts that help us make sense of what is now truly a global political economy.
International Political Economy
Chapter Summary
I. Introduction
II. The Evolution of the International Economy: Clashing Ideas and Practices
The era from the late Middle Ages to the end of the eighteenth century saw a
number of key changes in technology, ideas, and practices.
o The exchange of good and people tied the colonies and the home
states together.
Adam Smith wrote of the idea that human are rational and self-interested.
o Radicals argued that the state would support the owners of wealth.
o The holders of capital must expand their markets and the capitalist
system until it embraces the entire world.
After the end of World War II, we enter the most recent phase of
internationalization
o The 1930s saw the spread of harmful beggar thy neighbor policies
that shut off international trade
o At the end of World War II, the goal was to create a new system that
could prevent the disaster of the 1930s.
1. Open trade
2. Free flow of capital
1. Open markets
2. Free trade
3. A high proportion of the World Bank funding has been used for
infrastructure development
Nondiscrimination in trade
3. Most of the work was carried out over the course of eight
negotiating roundseach round progressively cutting tariffs and
addressing new problems, such as intellectual property rights.
International Finance
o Critics from all perspectives realize that some states have more
difficulty attracting private investment than others.
o The Asian financial crisis of the 1990s illustrates the possible outcomes
of the globalization of finance.
International Trade
o For various reasons, leaders may want to protect their home markets.
o The final GATT round, the Uruguay Round, covered new items such as
services, intellectual property, and agriculture.
o Domestic groups and NGOs in many countries feel that the WTO is
usurping the decisions and degrading the welfare of individuals and is
undermining labor and environmental standards.
International Development
o The Doha Round has bought out some of the differences between the
developed North and the developing South.
o The World Bank has changed its orientation over time without
undermining its commitment to liberal economics. In the 1990s,
sustainable development, an approach to economic development
that incorporates concern for renewable resources and the
environment, became part of the banks repertoire.
o While the IMF was not originally charged with development, it realized
that many countries seemingly temporary balance of payments
problems were actually long-term structural problems.
o Until the 1990s the Soviet Union and its allies were not members of the
Bretton Woods organizations. The demise of the Soviet Union gave the
IMF an active role in helping former Soviet and Soviet satellite
countries make the transition to capitalist economies
o As the IMF has implemented these programs the line between the IMF
and the World Bank has become blurred. A broad consensus has come
to exist regarding the viability of the market-oriented policies and
political pluralism as the foundation for economic development.
o Yet the important question is, with economic globalization, are benefits
being distributed fairly?
The triumph of economic liberalism is not without its critics, both tradition
critics of the theory of liberalism and the critics of particular policies.
Radicals argue that international regulation was necessary to limit the power
of MNCs. The New International Economic Order (NIEO) and the Group of 77
represent examples of these ideas, attempts to make the international
economy more favorable to least developed countries (LDCs).
The WTO has also become a lightning rod for domestic groups from many
countries. They feel that the WTO is usurping local decisions and degrading
the welfare of individuals.
o Integration was predicated on the notion that the larger market with
the free movement of goods and services would permit economies of
scale, opportunities for investment, and growth.
o The overall results have been positive, with the growth of all types of
economic transactions across state borders. There is broad consensus
that European integration has resulted in greater trade creation and
positive welfare.
o Aside from the CAP, most economists agree that the openness of the
European markers has not only benefited Europeans but has become
compatible with the goals of the multilateral global system.
2. The driving force in NAFTA is not political elites but MNCs that
seek larger market shares.
o Individuals who feel that economic decisions were beyond their control
have resulted in antiglobalization movements at WTO, World Bank, and
IMF meetings around the world, as well as the guerilla movements in
Mexico opposed to NAFTA.
o The Asian financial crisis in the late 1990s highlighted the problem of
too much capital flowing out of the region. Many countries were unable
to adjust to this rapid withdrawal, and thus exchange rates
plummeted, individuals lost their jobs as companies went bankrupt,
and stock markets fell.
1. The movement of labor: The EU adopted the goal, but it has not
occurred. This has resulted in a flood of illegal aliens seeking
better paying jobs in EU countries. This has led to a new market
in illicit labor, trafficking in people, including women and
children.
2. The rise of illicit markets: this can include the illegal movement
of arms, money, drugs, human organs, endangered species, and
protected intellectual property.
o The crisis has led to calls for reform of the system, including reform of
the intergovernmental regulatory arrangements.
o The G20 has emerged as a major player in the crisis, but the G20 may
prove too large for macroeconomic coordination.
o The crisis has also weakened the power of MNCs in the international
system.
o What remains to be seen is how the crisis will affect economic
globalization.