JUNE 18, 2023

INTERNATIONAL
POLITICAL ECONOMY
The Return to the 70s
In the 1970s, countries all over the world used Keynesian economics to govern

(Yergin, 2008). Keynesian economics advocates for high government spending and

lots of price regulation. This policy is quite similar to economic nationalism, which

encourages state management of the economy (Gilpin, 1987).

Another aspect of economic nationalism used during the time was the prioritization

of the state's interests and the use of the economy to further those interests (Gilpin,

1987). Saudi Arabia, which followed this policy, retaliated to the United States'

support for Israel in the Yom Kippur War by leading Arab members of OPEC to

stop supplying oil to the U.S., causing the international price of oil to quadruple

(Hayes, 2023).

Due to the energy crisis this created and Keynesian policies causing budget deficits

from high spending, many nations experienced high unemployment and inflation

during this time, eventually culminating in a global recession (Nielsen, 2023).

Keynesian standard policy was to decrease unemployment by raising inflation, but

because inflation was already high, governments did not know how to fix the

situation.
Also happening before and during this time, many undeveloped countries,

including newly independent African colonies, were trading resources with

industrialized countries in exchange for manufactured goods, which according to

economic nationalist and Marxist philosophy, made them overly dependent

(Gilpin, 1987). In the 1970s, this proved to be accurate as the recession meant

those countries which had previously bought raw resources stopped buying,

tanking their economies (Lancaster, 1983).

In response, many of those countries started adopting economic nationalist and

Marxist policies, with the most notable example being a coup in Ethiopia leading

to a new Marxist government (Widmer, 2021).

Back in the West, the recession meant that starting in the 1980s, many developed

countries stopped believing in Keynesian economics, instead switching to the

Austrian school of economics, also known as economic liberalism (Yergin, 2008).

Economic liberalism encourages free trade and uses assumptions about humans to

prove that trade benefits everyone, although not necessarily equally as Marxism

points out (Gilpin, 1987). Adopting these policies helped the world overcome the

recession (Yergin, 2008).

However, as stated previously, trade was why many undeveloped countries'

economies collapsed during the recession. Perhaps it was the economic nationalist

policies of that time leading developed countries to use trade to benefit at the

expense of undeveloped ones.

However, under economic liberalism, undeveloped countries again benefited much

less than their developed trading partners (Gilpin, 1987). This fact caused a further

shift to economic nationalist and Marxist policies in the Global South which

pointed out the inequalities in trade as a problem (Gilpin, 1987).

Fast forwarding to the 21st century, there has been a significant increase in the

number of free trade agreements (WTO, 2023). There was AfCFTA established in

2018 by members of the African Union, the United States–Mexico–Canada

Agreement created in 2018, and many, many others. In addition, many nations

joined existing free trade areas, with the European Union almost doubling its

membership with 13 new members.

However, as seen from the names of these agreements, they are all regional

agreements (WTO, 2023). Despite the increase in free trade, it seems like nations

are trending away from economic liberalism towards economic nationalism, albeit

with individual nation-states working together for a group of nations' interests.

This trend has only worsened with the start of the pandemic and the 2022 invasion

of Ukraine began (Constable, 2022). The weakened global economy during Covid-

19 has meant that nations are looking to protect local industries with trade

protections to avoid suffering the effects of another global recession.

Meanwhile, the invasion of Ukraine and similar events have resulted in sanctions

(including trade restrictions) against what is seen as the offending nation, similar to

the earlier mentioned OAPEC response to U.S. support for Israel (A.P., 2023).

These sanctions, while a policy shift from economic liberalism on their own, also

result in further political divides between nations resulting in additional sanctions.

In the case of the Ukraine invasion, the United States and its allies have enacted a

wide variety of harsh sanctions on Russia (A.P., 2023). The United States has then

pressured other nations to do the same, even going as far as to enact sanctions on
foreign companies merely trading with Russia with a focus on Chinese companies

in retaliation for China's support of Russia. These examples of political interest

driving the economy show that economic nationalism is back on the rise even with

trade being more ubiquitous than ever.

In addition, the availability of quick worldwide communication has meant that

people are more aware than ever of the inequalities caused by free trade and

sanctions (Jeffries, 2012; Shankar, 2022). This occurrence has led to an increase in

the popularity of Marxism which accurately describes this issue (Jeffries, 2012).

Back in the past, while the 1970s were a period of economic nationalism, the

1980s saw the rise of economic liberalism as a replacement for economic

nationalism in the West and the spread of Marxism elsewhere.

In addition, we can see that throughout the entire time, developed countries were

taking advantage of undeveloped ones, as pointed out by economic nationalist and

Marxist philosophy.
Meanwhile, in the present day, even as more free trade agreements are established

between nations worldwide, there has been a shift towards economic nationalism

not for individual nations but groups of nations both to protect local industries

from the effects of a global recession and because of an increasing political divide

between nations.

This shift has coincided with people developing an increased awareness of the way

the benefits of trade are unevenly distributed even inside a nation, which Marxism

describes.