International political economy

International political economy (IPE) is the study that focuses on economic and
political issues and analyzes how political forces affect the market dynamics and
interaction of economics and politics in world affairs also analyzes the interaction
between domestic and international factors and the relationship between foreign
economic policy and the domestic political economy of a country and the states,
markets, and societies are involved actors in IPE. For example, The `markets’ of
the world economy are not like local street bazaars where all items are openly and
competitively traded and exchanged. The world economy is run by a system So
that’s why the global economy cannot be ruled by politicians much as they might
like to. Countries and the world market, local firms, and multinational corporations
which trade and invest within them are all constructed by norms, laws, layers of
rules, organizations, and even habits, and these features of the system are called
institutions. International political economy explains how institutions are formed
and how it impacts world politics.

GLOBALIZATION

Globalization has played a pivotal role in making the world together in such a way
that different states are cooperating and investing with each other in different
economic projects for their national interests and security. Globalization is a
process in which different states represent their states by coming up with trade in
the international market. This feature enhances the export rates of a state, which
will be further helpful for the prosperity of the state.

GLOBALIZATION HAS THREE ASPECTS

Internationalization explains the increase in negotiations or transaction among

states reflected in flows of trade, investment, and capital AND Inter-state
agreements on trade, investment, and capital, as well as by domestic policies
permitting the private sector to transact abroad facilitated and shaped by the
processes of internationalization.

The technological revolution describes the ways modern communications

(internet, satellite communications, high-tech computers) are done by
technological advances and this reduces the distance and location less important
factors not just for the government (including at local and regional levels) but also
for the calculations of other actors such as firms’ decisions to invest or in the
membership and activities of social movements.

Liberalization describes government policies like the dismantling of trade tariffs

and barriers, deregulation and opening of the financial sector to foreign investors,
and the privatization of state enterprises that reduces the role of state in economy.

If we talk about the history of globalization, we come to know that the Global
economy and economic system was bearing severe consequences after World war
1 in the form of the great economic depression. During the depression, the United
States was making its infrastructure strong by letting all the Europe, Asia, and
Africa down to the economic boom.

After World war 2, when different nation-states had emerged on the international
plate form with democratic and capitalistic ideologies. This provides political and
legal integrity, economic freedom, and social dignity within the states. Most of the
developed states seek prosperity in their economy under the umbrella of
Globalization, for instance, States like the United states, China, Russia, Mexico,
Brazil, Netherland, Portugal, Belgium, Chile, Canada, etc. But, there are also some
developing states like Asian, Middle Eastern, and African states who are working
on it to get economic prosperity by letting and introducing their products on the
international market.

Globalization has also some flaws and risks attached to itself which might not be
there for States security, but it is still very helpful in internationalization because it
brings the states closer to each other. If we see the world from the lens of anti-
globalization then it may harmful as it is before - In the early 20th century.

THE post-war economy

In the last phase of the second world war, the institutions and framework of the
world economy play an essential, productive role in the planning of the new
economic order. In 1944, policymakers meet at Bretton Woods in the United
States to find out how to resolve two very serious problems. First, they wanted to
secure the world from the Great depression again. In other words, they had to find
ways to form a stable global monetary system and an open world trading system.
Second, they rebuild the war-torn economies of Europe. At Bretton Woods, to
construct a new world economic order three institutions were planned.

The International Monetary Fund was established to form a stable exchange rate
system and vision of giving emergency help to countries facing a temporary crisis
in their balance of payments system.

The International Bank for Reconstruction and Development (IBRD and later
called the World Bank) was established to facilitate reconstruction and private
investment in Europe. The Bank was also charged for aid `development’ in other
countries, and later mandate became the main reason for its existence.
 IN 1947 The General Agreement on Trade and Tariffs (GATT) was signed and
became a forum for negotiations on trade liberalization.

BRETTON WOOD INSTITUTIONS: IMF AND WORLD BANK

In the aftermath of WW2, In 1946 IMF and WORLD BANK were established as a
result of the negotiation held at Bretton wood in the united state and their
headquarters are in Washington DC opposite each other.

these two Bretton wood structures still play a significant role in the betterment of
globalization. The main purpose of their creation during that era was to monitor
exchange rates and manage the balance of payment and promote international
monetary cooperation and prevent the repetition of disastrous economic policies
which lead Europe into the great depression of 1929-1939. Whereas IRBD which
is now known as the world bank was created to lend loans for the reconstruction
and redevelopment of Europe that was devastated because of war. The formal
existence of IMF came into being in 1945 when first time 29 countries signed an
Article of Agreement in which all member countries decided to keep their
currencies fix but adjustable to the US currency and have liquidity and the value of
the dollar was fixed to gold as $35 to the ounce.

The main function of this institute was to maintain surveillance of the international
monetary system and keep a view of member states’ economic policies and
provide technical and financial assistance for the survival of that state and restrict
unnecessary sanctions for trade and promote free trade. The Marshall plan of 1948
was also in this context where the US invest 13 billion dollars to two dozen
countries of Europe for economic recovery and to promote free trade which was
also the reason for devaluing their currency in front of the dollar. This Marshall
plan helps Europe to revive their war-toned economies and enjoy rapid growth and
experience competing in trade and never experience economic depression again.

Even after the end of the Bretton wood system in 1971 when US president Nixon
suspend the convertibility of gold, IMF still works for the promotion of the
financial stability of states and gives them advice for stability and maintenance of
strong economies. It still provides short and medium-term loans to third-world
countries on quota contribution from its members.

Both IMF and IRDB have significant contributions to shaping the international
economic agenda. IRBD which is now known as the World Bank was also
established for the development of countries suffering from war. Due to these
institutes, the Adjustable exchange rate become successful during the 1950s-60s
which helped to revive the economies of Japan and Europe.
 The international bank for reconstruction and development

It was observed in the late century that with the help of loans, the inequality
between countries decrease because of the rapid growth of markets. The main aim
of IRDB was to reduce poverty and unemployment that were the outcomes of war
and provide technical and financial support, and implement reforms. As all the
European countries have destroyed infrastructure and a half or more of the
population was dead and injured. They needed technical and financial assistance
which was provided by these institutes. IRDB which become the world bank after
the fall of the Bretton wood system and came under the mandate of the united
nations still works for the reduction of poverty implements reforms and projects in
schools fights diseases worked to bring European countries together and promotes
free trade and industrialization. Till the board of governors of both institutes meets
with each other, give their views on the current international economy, and give
their suggestions,

Crises management:

Even after the collapse of the Bretton wood system, these institutes dealt with a
series of financial crises such as economic misalignment and systematic
vulnerabilities, for example, evinced in east Asia and Mexican economic crises and
financial disruption because of contagion across their borders and markets, the
most popular example is Russian debt default in the late 1990s. the success of IMF
and the world bank marked the decline of all fund-supported programs overall but
still, certain cases needed access to funding resources. so the funding role of these
institutes should be catalyzed with its limited resources but prolonged use of
funding is not the demonstration of success. IMF should prevent states from
becoming dependent on funding.

IMF acts more like a crisis manager as compared to a crisis resolver in the early
1980s during debt crises being in charge of concerted bank lending. But its role
shifted with time s countries take funding to resolve their financial issues on their
own. The other important initiative of IMF was private sector involvement [PSI]. it
is the official attempt to involve financial sectors in crisis management.

The other significant initiative that IMF started stated discussed was to establish an
international bankruptcy procedure for unsustainable sovereign debt [SDRM] in
late 2001 which made the PSI initiative more functional. In addition to finding
more significant initiatives for crisis management, another important challenge is
eradicating poverty. IMF and the world bank work hard together to stabilize the
economies of countries.

THE POST-WAR TRADING SYSTEM GATT AND WTO

In the trading system, under the auspices of GATT cooperation is rapidly growing.
However, in the 1970s, the gains that were made in reducing tariff barriers, among
industrialized countries were reversed by policies of `new protectionism. As each
country fought stagflation, many countries introduced new forms of barriers to
keep out the new competitive imports from successful developing countries. the
Multifiber Arrangement of 1973 is an example of new protectionism that put
restrictions on all textiles and imports from developing countries, blatantly
violating the non-discrimination principle of GATT.

The General Agreement on Trade and Tariffs (GATT) was an agreement signed in
1947 by an international trade organization. But Until 1994 a permanent trade
organization was not created and so for four decades, the interim GATT exist as
an arrangement among `contracting parties’ supported by a very small secretariat
present in Geneva and a minuscule budget. In reality, GATT was a forum for trade
negotiations, with many rounds of talks at their peak in the very successful
Kennedy Round of 1962-1967 where developments were made in the reduction of
trade barriers among industrialized countries. But GATT was powerless when
protectionism flourished in the 1970s, to stop the United States and European
countries from restricting trade (e.g. Multifiber Arrangement 1974 restricting
textile imports) and abusing the many exceptions and safeguards written into the
agreement. The other function of GATT is dispute settlement. The GATT was
replaced by the World Trade Organization as a result of the Uruguay Round (1986-
1994) talks. WTO was established on 1 January 1995, its functions include:

Handling WTO trade agreements

Trade negotiations forum

Control trade disputes

Analyze national trade policies

Technical help and training for developing countries

Cooperation with other international organizations.