Wake up, Krasner!

The World Has Changed

Author(s): Susan Strange
Source: Review of International Political Economy , Summer, 1994, Vol. 1, No. 2
(Summer, 1994), pp. 209-219
Published by: Taylor & Francis, Ltd.

Stable URL: https://www.jstor.org/stable/4177099

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 Review of International Political Economy 1:2 Summer 1994

THE NATURE OF INTERNATIONAL POLITICAL ECONOMY

We continue with our ongoing debate initiated in the first issue w

tions from Susan Strange and Peter Burnham. We repeat that the
stimulate debate and contributions are invited from readers.

Wake up, Krasner! The world has changed

Susan Strange
International Relations, London School of Economics and University of
Warwick

Once upon a time, there was a professor of international relations who

insisted, every year, on teaching the course on theory - and nothing else.
One day, a colleague asked him why. 'Easy, dear boy. If I teach theory I
don't have to read the newspapers or bother about current events. Last
year's notes are good enough.' By that time, of course, the notes were
yellow with age, and although the students dutifully took the course - it
was examined, after all - they found it excruciatingly dull.
Now, I know Krasner's students at Stanford don't find him dull. But I
do find that most - not all - of my colleagues who teach international
relations theory tend to suffer from some degree of myopia when it comes
to the world around them. They would rather fit the facts of life into
international relations theories than question the validity of the theories
to explain the nature, and the causes and consequences of change in the
world.
For that reason, because most of Krasner's ideas find an echo in many
places, even outside North America, I shall explain, as briefly and simply
as possible, why I think Krasner's theories of world politics no longer fit
the facts in the real world - and, therefore, why a new journal like this is
badly needed. What RIPE is trying to do, as I understand it, is to escape
the confines of international relations and to encourage exploration of the
larger world of international political economy. If it were not for this
worthy and admirable ambition, there would be no excuse for launching
yet another journal in international relations, of which there are already
quite enough. For while some of the existing journals do sometimes
publish work in political economy - Millennium is one notable example,
and International Organization is another - that is not their main focus.
And although IO (as we all know it) has had much good work in it, it does
not always stretch widely enough to encompass the changing world as I
see it, and as a lot of people much younger than I see it. Nor does it reflect
adequately the full range of opinions, either on content or on method,
that exists in that wider, non-American world. The same criticism applies

(?) S. Strange 1994 0969-2290

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 THE NATURE OF INTERNATIONAL POLITICAL ECONOMY

to both Bhagwati's Economics and Politics and World Economy. The f

is a journal of economic methods and theories applied to some restricted
issues of political economy. The latter is ideologically so skewed in favour
of liberal neoclassical views that it does not reflect either analysis or
research starting from a more radical, open-minded point of view.
Krasner spends some time pointing out that nothing is new under the
sun; that there have been similar phenomena - like international busi-
nesses and international banks - and similar situations and policy issues,
in earlier times. The fallacy is that while some things are not entirely new,
it is not true that nothing is new. Krasner's problem is not, perhaps,
myopia; it is that he does not notice changes, nor see the significance for
states and for world politics of changes that must be obvious to every one
of his students.
Let me explain. Anyone under 30, say, is more acutely aware than either
he or I of the accelerating pace of technological change. Products and
processes that were new in quite recent memory have already become
obsolete. Telex as a means of communication; black-and-white TV; or the
electric typewriter. The younger generations know that the world of work
and of wealth creation is changing faster in their times than it did in their
parents' times; and that the pace of change has already quickened in their
own experience and will probably accelerate even further. They cannot,
and do not, expect that job skills acquired now will last their lifetime.
It may not be immediately obvious to all, but this acceleration in
technological change is already affecting the world of states - Krasner's
realist model which seems to him, as it did to Bruce Miller and Hedley
Bull and as it still does to Ken Waltz, no different than that of Mac-
chiavelli's time. Technology is a major factor- I would say the major factor
- behind the internationalization of production, i.e. the production of
goods and services in more than one country and according to a global
strategy for selling on a world market. And the internationalization of
production is making more rapid changes than anything else in the
relative wealth of national economies, and thus in the stability of national
political systems and governments, and in their power and influence in
relations with other governments. In short, it is not international busi-
ness which is new. It is the extent of international business. 'In fact,' says a
recent UN report, 'the growth of cross-national production networks of
goods and services of some 35,000 transnational corporations and their
more than 150,000 foreign affiliates is beginning to give rise to an
international production system, organised and managed by transna-
tional corporations' (UN, 1993:5). Once this system of international
production, organized, managed and planned by firms, takes over and
comes to dominate the system of production for local national markets
under rules laid down by national governments, there is a fundamental
change in the economic base of the world of states, in the power and even

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 WAKE UP, KRASNER! THE WORLD HAS CHANGED

possibly the legitimacy of the state (ulius, 1990; Drucker, 1989; Dunning,
1992).
It is the accelerating rate of technological change which is bringing
about this fundamental shift. Firms of all kinds, in all sectors of business,
are obliged to sell on a world market as well as locally because the rate and
nature of technological change do not allow them to do otherwise. For,
since the technology that becomes obsolete today has itself become
obsolete more quickly than the technology which it replaced, there has
been less time to earn income from it. And because each new technology
is more capital intensive - more costly to install - than the one it replaces,
the need to earn income quickly in order to amortize the corporate debts
incurred is made still more imperative. That is why not just American,
European and Japanese firms are engaging in international production,
but also Korean, Brazilian, Indian, Taiwanese and many other firms all
over the world.
These firms have now become partners (or protagonists if you think
partners too cosy a word for it) in a trilateral system of transnational
diplomacy. Governments are obliged, as never before, to bargain with
firms for their economic success and survival, simply because it is the
transnational enterprises that have control over the technology, the
privileged access to capital, and the established entry to rich markets that
states need, and must have. And firms now have to bargain and make
strategic alliances with other firms - again because of the accelerating
pace and rising costs of technological change. So government-to-
government diplomacy - the stuff of foreign policy analysis - is now only
one side of this triangle of politico-economic bargaining (Stopford and
Strange, 1991: 22). In the study of international political economy, there-
fore, the other two sides of the triangle are just as important in deciding
all the who-gets-what questions basic to the study of any kind of politics.
This is not as radical a departure from the evolutionary path of theory
in political and economic science as it might seem. For the international-
ization of production, pushed by technological advance, only continues
and carries one stage further a debate which began in the eighteenth
century in France with the physiocrats and in Britain with Adam Smith.
Both were concerned about how the state could stay powerful and secure
by making sure that the economy prospered. Both began to enquire what
created the wealth of nations and how that wealth could be increased.
Agriculture, said Quesnay; free trade and the division of labour, said
Smith and the classical political economists who followed his lead;
protection and the active intervention of the state, said Friedrich List and
Alexander Hamilton; state ownership and control over the means of
production, said Marx, Lenin, and all the socialist Fabians and even New
Deal social democrats; countercyclical intervention and demand man-
agement when capitalists lost their animal spirits, said John Maynard

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 THE NATURE OF INTERNATIONAL POLITICAL ECONOMY

Keynes (Heilbroner, 1953; Roll, 1949). (Clearly, students of IPE should all
take a course in the history of political and economic thought.)
But from Quesnay to Keynes, all these writers were assuming that the
governments of nation-states were the managers of national economies,
and that they had the power to guide and control the economic develop-
ment of the country. National economies were linked only by trade and
by investment, and through the exchange rates of their respective na-
tional currencies. All that is now the old reality. The new reality is that the
system of states is overlaid by a highly integrated, incompletely regu-
lated, rapidly growing - but consequently somewhat unstable - world
economy (Drucker, 1989). There is a tension between the principle of
national self-determination and the principle of openness in the world
economy which is the core problematic of international political econ-
omy. That coexistence of a political system founded on the principle - or
myth - of national autonomy and an economy founded on the principle
of free movement of capital, technology and goods and services (but not
labour) is the origin of all the debates to which Krasner refers about
international regimes and cooperation.
To argue, as I do, that structural change in production especially, but
also in finance, is changing the nature of the relation between states, is
not to say that states are obsolete, or that multinationals are replacing
them. It is only to say that these structural changes in the international
political economy are changing the character of the state and of the state
system - and changing them rather rapidly and fundamentally.
Krasner's own current work on sovereignty since the Treaty of West-
phalia shows clearly - as does his article for this journal - that the nature
of the state and the concept of sovereignty have been undergoing
constant change. Sovereignty in France after the revolution did not mean
the same as it did under Louis XIV; nor in England before and after the
Glorious Revolution of 1688. The rights that the state claimed and the
responsibilities it acknowledged to its citizens and to others were not the
same in Gladstone's time in Britain as they were in Harold Wilson's. He is
aware, evidently, that the concept of sovereignty in inter-state relations
is, and always was a myth. It was a myth especially convenient for
international lawyers, for whom it resolved the clash between principles
of justice accepted within states and principles of justice applied be-
tween states. Krasner does not seem to understand why structural change
has both changed the concept of sovereign rights and duties within the
state, and has changed the realities of state autonomy in the international
system. That is not surprising if you start from the assumption that the
basic structure of the international system does not change.
If, however, you start as do other political economists - and geogra-
phers and sociologists - from the assumption that the structures do
change, then the change in the nature of states from, say, the seventeenth

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 WAKE UP, KRASNER! THE WORLD HAS CHANGED

to the nineteenth century is easily explained by the combined forces of

change in the knowledge and the production structures. The change in
the realm of ideas - the Enlightenment, the liberal doctrines of the rights
of people against monarchs, against priests and against a privileged
aristocratic class - both limited the rights and extended the respon-
sibilities of government. And change in the production structures, first of
agriculture and then in manufacturing, imposed new demands on gov-
ernment at the same time as providing new sources of revenue.
Meanwhile, structural change was also altering the nature of interna-
tional relations. Industrialized states become more powerful; their mili-
tary power and their economic demands allowed the extension of
empires and the development of new sources of food and raw materials.
Structural change in finance and the creation of credit added to the
asymmetries of power in the world system (Feis, 1964).
Contrary to Krasner, I believe structural change is continuing to alter
the role of states both within national societies and between them, and to
alter both very substantially. Change in the four primary structures of
finance, production, security and knowledge (ideas and their communi-
cation systems) are slowly but surely eroding the power of states to
provide for their own security from attack; to intervene to correct slumps
and unemployment; to determine the value of currencies at home and
abroad; to raise revenue by taxing enterprises; to demand military
service from conscripts; to satisfy the welfare needs of citizens.
The United States has experienced this erosion. The error of the
declinist school of American scholars lies in assuming that if the US has
lost power, some other state must have gained it (Gilpin, 1987; Keohane,
1984; and many others). The facts suggest that this zero-sum idea is far
too simple. The US government has lost power mainly to the market- and
the loss has been largely self-inflicted. In order to make the rest of the
world safe and welcoming to American capitalism, successive US gov-
ernments have broken down barriers to foreign investment and pro-
moted capital mobility, have destroyed the Bretton Woods agreements,
abused the GATT with unilateralist Trade Acts; deregulated markets for
air transport and finance; frustrated attempts to strengthen the Law of
the Sea. And even this list is not exhaustive. All these political decisions
by the US have promoted structural change in the world economy, and
from many of them the US government has shared with others a deterio-
ration in the legitimate authority of the state over the economy.
In the international political economy, the same structural changes are
increasing the asymmetries of power between states and are making the
fundamental problems of economic management more and more intract-
able. Everyone is aware, at last, that the pretensions of the Group of Seven
to manage problems of the world economy are hollow. Krasner says the

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 THE NATURE OF INTERNATIONAL POLITICAL ECONOMY

fundamental problems of international politics and international politi-

cal economy are enduring (1994: 13). I do not disagree - although I do
think the list of fundamental problems is much longer than it used to be -
global warming, deforestation, the depletion of species on land and sea,
the consequences of the private trade in drugs and in arms, the fragility
of the banking system, to give just a few obvious examples. But the point
he misses is that while in the past many of these political issues could be
solved within the state system, where power and authority was concen-
trated and clear, they now have to be solved - or, more often, left unsolved
- in an international political system in which authority is widely
dispersed and not always very clear. Within the state, whether it was
autocratic, democratic, theocratic, whether it was a tyranny, a monarchy
or a republic, mattered less than that decisions taken within each state
could be effectively implemented and did not spill over substantially
onto the lives of others, nor materially affect the decisions taken in other
states.
So much for the signal failure to recognize or acknowledge the realities
of change. Krasner's other big failure, in my opinion, is in the assessment
of theoretical perspectives. Not only does he see the major perspectives or
paradigms as totally incommensurable, and mutually exclusive, he
judges realism and liberalism to be in better, more durable shape than
Marxism and what he calls societal approaches. In the first place, I think
the perspectives are only mutually exclusive if you take the narrowest,
most ultramontane, most dogmatic interpretation of each of them. A
more oecumenical approach makes it possible to develop a dialogue and
a mode of cooperation at least on certain issues. This is true of religious
matters when a more open-minded debate occurs between, say, Jesuits,
Islamic liberals, Buddhists and Lutherans. It is also true of issues of world
politics. Some mix of the insights of realism, liberalism and radicalism is
pragmatically possible on some questions (Strange, 1991).
The other point of disagreement is more substantial. 'Marxism and
societal approaches,' says Krasner, 'are in much more trouble than
realism and liberalism' (1994: 15). His reason is not so much the collapse
of the home and proclaimed citadel of Marxism, the USSR, as that
dependency theory has been, he says, discredited throughout the de-
veloping world. Here government after government has done spectacular
U-turns from national protection and state ownership of the means of
production towards privatization and liberalization. I do not dispute the
U-turns but I think the explanation for them is actually better found in
'societal approaches' than in either realism or liberalism.
The point is important enough for the future development of work in
international political economy to be worth explaining. The reason for
the U-turns, for the wholesale adoption of market-oriented economic
policies in China, India, Turkey, Brazil, etc. lies, again, in structural

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 WAKE UP, KRASNER! THE WORLD HAS CHANGED

change in technology, production and finance and beliefs. In the face of

the demand of people for the better life they believe themselves - or at
least their children - no less entitled than the rich to enjoy, governments
can only survive by raising living standards at least for a vocal middle-
income class. Economic growth comes with capitalization of industry
and agriculture. It requires the cooperation of foreign-owned firms
(FOFs) that have the access to capital, the technology and the market
distribution systems without which it is impossible to earn the foreign
exchange to capitalize and develop other sectors of the economy. To forgo
that cooperation means falling behind rival states in the competition for
world market shares. It is not that the IMF dictates policy changes. It is
that the changing reality of the world economy makes policy change
imperative for survival. Quite often the IMF has been welcomed, pri-
vately if not publicly, just because it legitimized policy changes which
the government wanted to make anyway. The consequence is that the
socialist alternative does not exist any more because it precludes bargain-
ing with FOFs and wealth-creating policies directed toward a world
market economy. Opting out of the world market economy is no longer
an option.
That is what dependency means today. For better or worse, we are all
dependent on the market economy, tied to its weaknesses and its
volatilities as well as to its strengths. And while some state and non-state
authorities have power to manage, restrict, exploit or profit from
branches of the world market, others do not. The dependency is there
even when it is, so to speak, self-inflicted; it is less acceptable when the
operations of any specific market - for textiles, say, or semiconductors -
are imposed by others.
So, although I profess to be a Marxist no more than I profess to be a
liberated woman - the two are both woolly and self-defined categories - I
rather think the reverse of Krasner's dictum on theory is true. 'Societal
approaches' - radical, critical analyses of change and the exercise of
power in the global political economy - are unlikely to atrophy, as he
suggests. On the contrary, they will grow and develop, and will do so all
the faster as the perceived shortcomings of the system multiply. After all,
the characteristic feature of Marxist and Gramscian analysis is the atten-
tion given to the material interests of classes behind the facade of
government and to the bargains between social groups that sustain the
power of government. Both ideas still resonate with many people, and
not only in developing countries. Both are valid starting points for
answering Ibn Khaldun's basic IPE question- 'how and why things are
as they are' - as either realism or liberalism (Lacoste, 1984).
Liberalism and realism, meanwhile, are both in serious, long-term
trouble, though it may not seem so from the comfortable stability of the
Stanford scene. Let us take liberalism first. The word itself is ambiguous.

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 THE NATURE OF INTERNATIONAL POLITICAL ECONOMY

Political liberalism means the freedom to express opinions, to participate

in policy making - democracy, in short. Economic liberalism means the
freedom to respond to demand and supply at a market-determined not an
administered or manipulated price. Two quite different things. You can
have a market economy functioning under political tyranny. You can
have a democracy determined on protectionism, cartels for all, state
systems for pensions, hospitals, schools etc. Most actual national systems
in any case are compromises with both political liberalism and economic
liberalism. And in international relations, Doyle's finding that de-
mocracies rarely fight each other is by no means unambiguous, as he
himself admits. There are more democracies among the rich than among
the poor. Democracies can be brutally and irrationally aggressive, and
often are - the Boer War, Vietnam, Panama, the Falklands. It is just as
likely that the rich fight each other more rarely these days because they
are more aware that competition for market shares is more important for
their survival than competition for territory, and that national interests
can be better and more economically served by bargaining than by
battling.
But there is an even more fundamental flaw in the logical of liberalism
and realism. It is that each is antithetical to the other; and neither is
logically consistent. Economic liberalism legitimizes the open world
market economy. It approves the free movement of money, technology,
energy and goods, and the free sale of services, but is not consistent when
it comes to the free movement of labour. Immigrants can be sent home. It
argues that the untrammelled pursuit of individual and corporate profit
produces the greatest good for the greatest number, and therefore is not
only more efficient but is more justifiable - except to would-be immi-
grants. It ignores the critical radical observation that market economies
carry with them an inherent downside risk of uneven growth - a
tendency to recurrent slumps - and an inherent downside tendency to
accentuate income disparity between the rich who get much richer faster
and the poor who stay poor.
Realism, on the other hand, legitimizes the division of world society
into nearly 180 separate states, each claiming legal sovereignty and
pretending to political autonomy. Realist theory, starting from the as-
sumption of states as unitary actors, is inconsistent in according each of
the 180 states equal status while acknowledging that this does not
translate into equal power or equal autonomy over their respective
destinies. The legitimized existence of states, meanwhile, directly con-
flicts with the need to provide the minimal framework of security, stable
and clear laws, and a system for their administration that the market
economy requires. What Krasner calls the cooperation problem arises
precisely out of this clash between the legitimacy of the liberal economy
and the legitimacy of the liberal polity.

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 WAKE UP, KRASNER! THE WORLD HAS CHANGED

Far from easing, this tension is likely to get more and more acute if
things go on in the same way. The more the world economy is integrated,
the greater the problems of economic management and policy coordina-
tion among the individual states; the less the equality of autonomy
among them and therefore the legitimacy of both the market system and
the state system; and the more demanding the responsibilities asked of
hegemonic powers. No wonder the American public quails before a task
and a responsibility that get steadily not less but more difficult with every
year that passes. If we despair - and I am coming close to despairing - of
the possibility of a return to benevolent, system-preserving use of
hegemonic power (as opposed to the malign, self-interested, un-
enlightened exercise of American hegemonic power that has charac-
terized the last quarter-century) then the prospect is bleak indeed. If
American leadership is lacking and international policy coordination on
all matters of real substance fails, then we can expect either a collapse of
the market economy for lack of proper acceptable management, or a
strategic retreat into national economies under national control - the sort
of U-turn that is only conceivable after an economic catastrophe far worse
than any we have ever experienced.
I have one last, big point of difference with Krasner's perception of
realism and liberalism. It concerns their heuristic power, and thus their
value as guides to scholarly research and analysis. For my part, realism as
he defines it is far too narrow. It ignores not only Drucker's but many
other 'new realities', some of which I have tried in a small way to
highlight (Drucker, 1989; Strange, 1987; Stopford and Strange, 1991; UN,
1993; Pirages, 1977).
As to liberalism, he claims that it has developed two powerful lines of
argument. One is Doyle's correlation of peace with democracy, which I
have already discussed. The other is liberalism's contribution of coopera-
tion theory, adapted from economics, as an explanation of change in
international political economy. As Krasner rightly says, cooperation
theory uses and is based upon game theory and rational choice - analytic
techniques that have exploded in the economics profession over the last
decade. I cannot agree that they are heuristically powerful and I regret
their uncritical and wholesale adoption by so many scholars in interna-
tional relations, especially in America. There is far too much hidden
subjectivity in the choice of games as analogies to real life, and far too
much subjectivity in the definition of rationality - even of bounded
rationality. The result is phoney science, not social science. And it has too
often been used as the vehicle and a justification for American ideology,
political and economic. Moreover, at the very moment when some realist
scholars like Krasner are hastening to ape the economists, a lot of
economists are going in the opposite direction, by breaking out of the old

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 THE NATURE OF INTERNATIONAL POLITICAL ECONOMY

conceptual constraints of neoclassical notions of equilibrium and eco-

nomic rationality. Some of them are looking to organization theories and
institutional economics for enlightenment. Others are returning to eco-
nomic history - by its nature a multidisciplinary study of political
economy - to illumine certain current policy problems (Nove, 1993; Bell
and Kristol, 1981). Still others are drawing on their expertise in manage-
ment economics and corporate strategy to explain the interaction be-
tween the competition of enterprises and the competition of states
(Porter, 1990; Ohmae, 1988; Inoguchi and Okimoto, 1988; Tyson, 1992).
While neither Krasner nor I would agree with some of their conclusions
on policy matters, there is no questioning their realism in matters of
international business and national industrial policy.
To sum up, the economists' escape to history, to institutions and to the
study of firms suggests to me this is no time to be looking to more abstract
economic theories and economic methodologies to solve the research
problems of international political economy. Why yearn to inhabit a half-
deserted house? I understand very well Krasner's bewilderment at the
complexities of international political economy, even his envy of simpler,
more parsimonious theoretical explanations of complexity. But while I
share the first, I think the second is fruitless and therefore self-deluding.
Better catholic complexity than protestant parsimony!
Seriously, though, I would plead with my old friend to re-examine his
realist assumptions about the units of analysis and the central problem-
atic of international political economy. It becomes much more interesting
to teach, to research and to write about when you drop the idea that states
are the units of analysis and that war is the main problematic of the
international system. The whole point of studying international political
economy rather than international relations is to extend more widely the
conventional limits of the study of politics, and the conventional con-
cepts of who engages in politics, and of how and by whom power is
exercised to influence outcomes. Far from being a subdiscipline of
international relations, IPE should claim that international relations are a
subdiscipline of IPE. With the end of the Cold War, Krasner and other
realists should feel freer to think whether the who-gets-what questions
cannot also include (as Marx advised) social classes, and other social
groupings like firms or professions, generations (as demanded by the
demographers and the environmentalists), gender (as demanded by
women's studies) and species of life (as demanded by the geographers
and the ecologists). It is no longer enough to see the preservation of order
as the only legitimate value for political aspirations. Nor is order simply
to be seen as the absence of inter-state wars. The world out there is not
only changing, the realities of change are much more exciting than
realists realize.

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 WAKE UP, KRASNER! THE WORLD HAS CHANGED

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