IR3210

Undergraduate study in Economics,
Management, Finance and the Social Sciences
International
political economy
J.A. Morrison
IR3210
2023
This guide was prepared for the University of London by:
James Ashley Morrison, Associate Professor in International Relations, London
School of Economics and Political Science.
It draws on material in the previously published edition of the guide by Robert
Falkner, Professor in International Relations, London School of Economics and
Political Science.
This is one of a series of subject guides published by the University. We regret that
due to pressure of work the author is unable to enter into any correspondence
relating to, or arising from, the guide. If you have any comments on this subject
guide, favourable or unfavourable, please please communicate these through the
discussion forum on the virtual learning environment.
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International political economy
J.A. Morrison
IR3210
2023
Undergraduate study in
Economics, Management,
Finance and the Social Sciences
This subject guide is for a 300 course offered as part of the University of London‘s
undergraduate study in Economics, Management, Finance and the Social
Sciences. This is equivalent to Level 6 within the Framework for Higher Education
Qualifications in England, Wales and Northern Ireland (FHEQ).
For more information, see: london.ac.uk
Contents
Contents
Introduction............................................................................................................. 1
Online study resources.................................................................................................... 4
The examination............................................................................................................. 5
Acronyms used in IPE..................................................................................................... 6
Part I: Approaching IPE............................................................................................ 7
Chapter 1: States versus markets............................................................................ 9
1.1 Synopsis of chapter content...................................................................................... 9
1.2 Introductory: the ascent of IPE.................................................................................. 9
1.3 Going beyond the ‘three schools of thought’........................................................... 11
1.4 States versus markets: liberals versus republicans.................................................... 12
1.5 References cited..................................................................................................... 13
1.6 Reminder of learning outcomes.............................................................................. 13
1.7 Sample examination questions................................................................................ 13
Chapter 2: Mercantilist IPE.................................................................................... 15
2.1 Synopsis of chapter content.................................................................................... 15
2.2 Introductory: constructing mercantilism................................................................... 16
2.3 The security view.................................................................................................... 17
2.4 The economic view................................................................................................. 18
2.5 The company view.................................................................................................. 19
2.6 The developmental view......................................................................................... 20
Chapter 3: From Marx to Marxism........................................................................ 23
3.2 Introductory: situating Marx and Marxism............................................................... 24
3.3 Karl Marx............................................................................................................... 24
3.4 Marx’s materialism................................................................................................. 25
3.5 Marx’s historical materialism................................................................................... 26
3.6 The revolutionary telos............................................................................................ 26
3.7 Lenin’s interventions............................................................................................... 27
3.8 Modern Marxist views............................................................................................ 28
3.10 Sample examination questions.............................................................................. 30
Chapter 4: Feminist approaches to IPE................................................................. 33
4.2 Introductory: ‘Where are the women?’.................................................................... 34
4.3 Re-embedding ‘Homo Economicus’......................................................................... 35
4.4 Gender: ideational over material............................................................................. 36
4.5 Feminism ≠ women’s rights.................................................................................... 37
4.6 Feminist ≠ woman.................................................................................................. 37
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IR3210 International political economy
Chapter 5: System-level approaches to IPE........................................................... 41

5.2 Introductory: returning to the system-level.............................................................. 42
5.3 Hegemonic Stability Theory..................................................................................... 43
5.4 International Regime Theory................................................................................... 44
5.5 The neorealist critique............................................................................................. 45
Chapter 6: Sub-system-level approaches.............................................................. 49
6.2 Introductory: The 3 I’s............................................................................................. 50
6.3 The Corn Laws: a significant and useful case........................................................... 51
6.4 Interests................................................................................................................. 52
6.5 Ideas...................................................................................................................... 52
6.6 Institutions............................................................................................................. 53
Chapter 7: Development: classic perspectives...................................................... 59
7.2 Introductory: debating development........................................................................ 60
7.3 The importance of institutions................................................................................. 61
7.4 Liberal imperialism................................................................................................. 61
7.5 State-led development............................................................................................ 62
7.6 The crucial case of China........................................................................................ 63
Chapter 8: Development: critical perspectives..................................................... 67
8.2 Introductory: What are ‘critical’ perspectives?.......................................................... 68
8.3 Decolonising the global order................................................................................. 68
8.4 ‘Underdevelopment’ and Dependency Theory.......................................................... 69
8.5 Decolonising IR Theory............................................................................................ 71
Part II: Money and trade........................................................................................ 75
Chapter 9: Striking imbalances: where money and trade meet............................ 77
9.2 Introductory: the balance of payments.................................................................... 78
9.3 Achieving balance.................................................................................................. 78
9.4 The zero-sumness of global imbalances................................................................... 81
9.5 The sources of global imbalances............................................................................ 81
Chapter 10: The first era of globalisation and its demise..................................... 85
10.1 Synopsis of chapter content.................................................................................. 85
10.2 Introductory: conceptualising globalisation............................................................ 86
10.3 Explaining globalisation........................................................................................ 87
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Contents
10.4 The First Era of Globalisation in historical perspective............................................ 88

10.5 M ercantilist resurgence and the pleas of the commercial liberals........................... 89
10.6 References cited................................................................................................... 90
10.7 Reminder of learning outcomes............................................................................ 90
Chapter 11: The post-war global system............................................................... 93
11.1 Synopsis of chapter content.................................................................................. 93
11.2 Introductory: The ‘Anglo-American’ liberal international order................................ 94
11.3 From the gold standard to the dollar order............................................................ 94
11.4 The creation of the GATT...................................................................................... 96
11.5 Trade liberalisation under the GATT and the rise of the ‘new protectionism’........... 97
11.6 Reminder of learning outcomes............................................................................ 99
Chapter 12: The (r)evolutions of the global trade regime.................................. 103
12.1 Synopsis of chapter content................................................................................ 103
12.2 Introductory: regimes for trade............................................................................ 104
12.3 From the creation of the WTO to the Doha Round............................................... 104
12.4 The Doha Round difficulties................................................................................ 106
12.5 America first....................................................................................................... 106
12.6 References cited................................................................................................. 107
12.7 Reminder of learning outcomes.......................................................................... 108
12.8 Sample examination questions............................................................................ 108
Chapter 13: The rise of regionalism and preferential trade agreements (PTAs).111
13.2 Introductory: grappling with regionalism............................................................. 112
13.3 Explaining regionalism........................................................................................ 113
13.4 The European Union........................................................................................... 114
13.5 Regionalism in the Americas............................................................................... 115
13.6 Regionalism in Asia............................................................................................ 116
13.7 P TAs, the multilateral trade regime and increasing trade-scepticism..................... 116
Chapter 14: International regimes to the rescue? High hopes for global monetary
governance.......................................................................................................... 119
14.2 Introductory: after Bretton Woods....................................................................... 120
14.3 The World Bank and international aid.................................................................. 120
14.4 The Washington Consensus and beyond.............................................................. 121
14.5 F alse-starts: the failed Multilateral Agreement on Investment.............................. 122
14.6 International regimes and development today..................................................... 123
Chapter 15: The financial system: from crisis to crisis........................................ 127
15.2 Introductory: approaching financial crises............................................................ 128
15.3 The IMF and international debt crises.................................................................. 129
15.4 M
anaging financial crises: the 1997 Asian crisis and the 2008 global crisis.......... 130
15.5 The eurozone and its crises................................................................................. 132
iii
Chapter 16: The trajectory of the global monetary order................................... 135

16.2 Introductory: global money................................................................................. 136
16.3 The US dollar...................................................................................................... 137
16.4 The euro............................................................................................................. 138
16.5 The renminbi...................................................................................................... 139
16.6 Conclusion......................................................................................................... 140
Part III: The frontiers of IPE................................................................................. 145
Chapter 17: Global environmental politics......................................................... 147
17.2 Introductory: bringing the environment into IPE................................................... 148
17.3 Differing perspectives on environmentalism......................................................... 148
17.4 Early history of international environmental politics............................................. 150
17.5 From the 1992 Rio ‘Earth Summit’ to the 2002 Johannesburg Summit and beyond... 151
17.6 The concept of sustainable development............................................................. 152
Chapter 18: Climate change................................................................................ 155
18.2 Introductory: the challenge of climate change..................................................... 155
18.3 Initial international responses............................................................................. 157
18.4 The Paris Agreement and after............................................................................ 158
Chapter 19: Globalisation and policy autonomy................................................. 161
19.2 Introductory: globalisation today......................................................................... 162
19.3 Globalisation and its discontents........................................................................ 163
19.4 Globalised markets versus welfare states............................................................ 165
Chapter 20: Multinational corporations and the state....................................... 169
20.2 Introductory: Will MNCs rule?............................................................................. 170
20.3 M
ultinational production and foreign investment in a global economy................. 170
20.4 The rise of the global firm and the evolution of the welfare state......................... 171
20.5 Power shift? State–firms relations in flux............................................................. 172
20.6 G
overning global firms: national and international rules...................................... 174
iv
Introduction
Introduction
The up-to-date course syllabus for IR3210 International political economy

can be found in the course information sheet, which is available on the
course VLE (virtual learning environment) page. This subject is concerned
with the interface between international economics and international
politics. When researching international affairs, economists usually focus
on the international economy, while international relations scholars tend
to concentrate on matters political. In recent decades, however, a new
focus has arisen in both these disciplines – and among their practitioners –
on the many ways in which politics and economics are interlinked. Indeed,
the study of international political economy (IPE) is predicated on the
assumption that in order to understand patterns of interaction and change
at the global level, we need to look at both international politics and
economics in an integrated manner.
This subject guide provides an introduction to IPE. To be sure, the
emphasis is on the politics of international economic relations. You
can expect to deal with issues related to trade, finance, production,
environment and development. But we will not examine just economic
theory. Instead, you will engage with the International Relations
concepts, ideas and literatures on the economic relations among states
and between states and non-state actors (such as firms, societal groups
and international organisations). The focus will therefore be on the
political problems that arise as a consequence of the increasing density of
international economic relations. Knowledge of economics is an advantage
but not a requirement.
Aims
The aim of this course is to promote understanding of:
• the interaction between politics and economics in international
relations
• the sources of continuity and change in IPE
• the challenges faced by states in the context of global economic
integration and fragmentation.
Learning outcomes
At the end of this course, and having completed the Essential reading and
activities, students should be able to:
• demonstrate an understanding of the processes of global integration
and fragmentation in international politics and economics
• reveal the sources of continuity and change in IPE
• demonstrate an appreciation of the history of thought in IPE
• distinguish between, and critically evaluate, different theoretical
approaches to IPE
• explain the different roles of states, international organisations, and
non-state actors in the politics of international economic relations
• show an understanding of the economic challenges facing states in
their foreign policy.
1
Employability outcomes
Below are the three most relevant skill outcomes for students undertaking
this course which can be conveyed to future prospective employers:
1. complex problem-solving
2. leadership
3. creativity and innovation.
How to use this guide

This subject guide consists of twenty substantive chapters, which follow
this introductory chapter. It is best to work through each chapter as a
single topic. You would then have one chapter per week for twenty weeks.
This guide is no more than an introduction to some of the key issues,
theories and questions concerning the politics of international economic
relations. It should not be seen as a substitute for careful study of the
various books and articles listed under Essential reading and Further
reading at the head of each chapter. It is through these works that your
understanding of the subject will be broadened and deepened.
The guide provides a starting point for thinking through this material. It
will be up to you to craft the intellectual framework that works best to
help you organise your studies. Its chief purpose is to stimulate further
enquiry and promote precise and systematic thought.
You are encouraged to read as broadly as possible. For each topic, you
should read at least the Essential reading at the head of the chapters. Most
of the items are journal articles and chapters in books. A few of them,
however, are whole books which should be read, whenever possible, from
start to finish. Internet links are provided for most chapters to guide you to
some of the most important websites on each topic.
Activities are included in each chapter to help you to deepen your studies,
guide further reading and generally encourage you to engage with the
material in novel ways. Some of these activities point you to relevant
reading material that expands specific sections of the guide. Others require
independent study either of further reading or of internet sources. A list
of learning outcomes is provided for each chapter to enable you to assess
your progress. Unless otherwise stated, all websites in this subject guide
were accessed in May 2023. We cannot guarantee, however, that they will
stay current, and you may need to perform an internet search to find the
relevant pages.
Reading lists rationale

It is worth saying a few words about the ways in which the course reading
lists have been built. There is far more valuable scholarship and material
in our field than could possibly fit into a course, even a large, ambitious
course such as this one. At the same time, there are many materials that
are, or have been, important to the field that might have little (or even no)
substantive merit. For instance, the domain of global political economy and,
indeed, the field of IPE have both been shaped by assumptions, arguments
and policies that are racist, misogynistic, Eurocentric, ableist, classist, etc.
The colleagues who have developed this course over the years have agreed
that it is important to confront these ideas and practices directly. This
means grappling with materials that you will find to be wrong – both
positively wrong and normatively wrong. As such, the assignment of
certain materials does not, in any way, constitute an endorsement of those
materials. Similarly, the omission of certain materials does not necessarily
constitute an objection to those materials.
2
Introduction
In addition, we have tried to make the course materials as diverse,

rich and varied as possible. Happily, many of the materials are directly,
explicitly, at odds with one another. No person could possibly agree with
everything on the reading list. This is a strength of the reading list.
Nobody will tell you what conclusions to draw about the difficult,
important questions that power this course. But you can – and should –
seek to understand the course materials as much as possible. You should
also seek to understand why you do or do not agree with the conclusions
they proffer. Throughout, you will be challenged to sharpen your beliefs,
to make your positions clear, and to consider alternative perspectives. We
believe that this will broaden and deepen all who join us in the course.
Essential reading
The following textbook is recommended as the core reading for the
subject as a whole. It covers most of the ground in the study of IPE, and
candidates may wish to purchase a copy to have it to hand all the time:
Ravenhill, J. (ed.) Global political economy. (Oxford: Oxford University Press,
2020) 6th edition [ISBN 9780198820642].
You are advised to read this book as an introductory background text,
ideally before embarking on a more focused reading of individual chapters
covered in this subject guide. In case you cannot get hold of the book by
Ravenhill, the following textbook is an alternative suggestion:
O’Brien, R. and M. Williams Global political economy: evolution and
dynamics. (London: Bloomsbury Academic, 2020) 6th edition
[ISBN 9781352009507].
Detailed reading references in this subject guide refer to the editions of the
set textbooks listed above. New editions of one or more of these textbooks
may have been published by the time you study this course. You can use
a more recent edition of any of the books; use the detailed chapter and
section headings and the index to identify relevant readings. Also check
the VLE regularly for updated guidance on readings.
Last, you should review at least one major, internationally-oriented
newspaper every day. Perhaps the most useful would be the Financial Times,
but The Wall Street Journal and The New York Times are also rather good.
It would also be wise to keep up with a weekly such as The Economist. By
‘read,’ this means reviewing the paper and then diving deeper into articles
on topics of greater interest (such as climate change agreements, WTO
negotiations, possible financial crises, etc). This is probably the best way
to connect the course materials to current events. It is best to review the
newspaper itself (in paper form or on the newspaper’s website). You should
not simply collect links via social media or news aggregators.
Further reading
Please note that as long as you read the Essential reading you are then free
to read around the subject area in any text, paper or online resource. In
general, the more widely you acquaint yourself with the literature, the better.
You will need to support your learning by reading as widely as possible and
by thinking about how these principles apply in the real world. To help you
read extensively, you have free access to the virtual learning environment
(VLE) and the University of London Online Library (see below).
Other useful texts for this course include:
Gilpin, R. Global political economy: understanding the international
economic order. (Princeton, NJ: Princeton University Press, 2001)
[ISBN 9780691086774].
3
Gilpin, R. The challenge of global capitalism: the world economy in the

21st century. (Princeton, NJ: Princeton University Press, 2018)
[ISBN 9780691092799].
Grieco, J.M. and G.J. Ikenberry State power and world markets: the
international political economy. (New York; London: W.W. Norton, 2002)
[ISBN 9780393974195].
Spero, J.E. and J.A. Hart The politics of international economic relations.
(South Melbourne; Belmont, CA: Wadsworth Publishing, 2009) 7th edition
[ISBN 9780534602741].
Walter, A. and G. Sen Analyzing the global political economy. (Princeton:
Princeton University Press, 2008) [ISBN 9780691139593].
For those interested in the history of IPE, the following book provides
an excellent overview of the sub-discipline’s historical evolution and the
academic debates that have shaped this field of study:
Cohen, B.J. International political economy: an intellectual history. (Princeton:
Online study resources

In addition to the subject guide and the Essential reading, it is crucial that
you take advantage of the study resources that are available online for this
course, including the VLE and the Online Library.
You can access the VLE, the Online Library and your University of London
email account via the Student Portal at: https://my.london.ac.uk
You should have received your login details for the Student Portal with
your official offer, which was emailed to the address that you gave
on your application form. You have probably already logged in to the
Student Portal in order to register! As soon as you registered, you will
automatically have been granted access to the VLE, Online Library and
your fully functional University of London email account. If you have
forgotten your login details, please click on the ‘Forgot password’ link on
the login page.
The VLE
The VLE, which complements this subject guide, has been designed to
enhance your learning experience, providing additional support and a
sense of community. It forms an important part of your study experience
with the University of London and you should access it regularly.
The VLE provides a range of resources for EMFSS courses:
• Course materials: Subject guides and other course materials
available for download. In some courses, the content of the subject
guide is transferred into the VLE and additional resources and
activities are integrated with the text.
• Readings: Direct links, wherever possible, to essential readings in the
Online Library, including journal articles and ebooks.
• Video content: Including introductions to courses and topics within
courses, interviews, lessons and debates.
• Screencasts: Videos of PowerPoint presentations, animated podcasts
and on-screen worked examples.
• External material: Links out to carefully selected third-party
resources.
• Self-test activities: Multiple-choice, numerical and algebraic
quizzes to check your understanding.
4
Introduction
• Collaborative activities: Work with fellow students to build a body

of knowledge.
• Discussion forums: A space where you can share your thoughts
and questions with fellow students. Many forums will be supported by
a ‘course moderator’, a subject expert employed by LSE to facilitate the
discussion and clarify difficult topics.
• Past examination papers: We provide up to three years of past
examinations alongside Examiners’ commentaries that provide guidance
on how to approach the questions.
• Study skills: Expert advice on getting started with your studies,
preparing for examinations and developing your digital literacy skills.
Note: Students registered for Laws courses also receive access to the
dedicated Laws VLE.
Some of these resources are available for certain courses only, but we
are expanding our provision all the time and you should check the VLE
regularly for updates.
Making use of the Online Library

The Online Library (https://onlinelibrary.london.ac.uk) contains a huge
array of journal articles and other resources to help you read widely and
extensively.
To access the majority of resources via the Online Library you will either
need to use your University of London Student Portal login details, or you
will be required to register and use an Athens login.
The easiest way to locate relevant content and journal articles in the
Online Library is to use the Summon search engine.
If you are having trouble finding an article listed in a reading list, try
removing any punctuation from the title, such as single quotation marks,
question marks and colons.
For further advice, please use the online help pages (https://onlinelibrary.
london.ac.uk/resources/summon) or contact the Online Library team
using the ‘Chat with us’ function.
The examination
Important: the information and advice given here are based on the
examination structure used at the time this guide was written. Please
note that subject guides may be used for several years. Because of this
we strongly advise you to always check both the current Programme
regulations for relevant information about the examination, and the VLE
where you should be advised of any forthcoming changes. You should also
carefully check the rubric/instructions on the paper you actually sit and
follow those instructions.
The examination for this subject is a formal three-hour written
examination in which you will be required to answer three questions from
a list of ten. The Examiners’ commentaries are usually made available
online from mid-September. The Examiners’ commentaries contain valuable
information about how to approach the examination, and you are strongly
advised to read them carefully.
Remember, it is important to check the VLE for:
• up-to-date information on examination and assessment arrangements
for this course
5
• where available, past examination papers and Examiners’ commentaries

for the course which give advice on how each question might best be
answered.
Acronyms used in IPE

APEC Asia-Pacific Economic Cooperation
ASEAN Association of South East Asian Nations
CACM Central American Common Market
CARICOM Caribbean Common Market
COP Conference(s) of the Parties (to the UNFCCC)
CSR Corporate Social Responsibility
EEC European Economic Community
EMS European Monetary System
EMU European Monetary Union
ECSC European Coal and Steel Community
EU European Union
FDI Foreign Direct Investment
FSC Forest Stewardship Council
FTAA Free Trade Area of the Americas
GATT General Agreement on Tariffs and Trade
GDP Gross Domestic Product
IBRD International Bank for Reconstruction and Development
ILO International Labour Organization
IMF International Monetary Fund
IPE International Political Economy
IR International Relations
ISI Import Substitution Industrialisation
ITO International Trade Organization
MAI Multilateral Agreement on Investment
MEA Multilateral Environmental Agreement
MFN Most-Favoured Nation
MNC Multinational Corporation
NAFTA North American Free Trade Agreement
NATO North Atlantic Treaty Organisation
NGO Non-Governmental Organisation
NIC Newly Industrialising Country
NTB Non-Tariff Trade Barrier
OAS Organization of American States
OECD Organization for Economic Cooperation and Development
PPP Purchasing Power Parity
RTA Regional Trade Agreement
SDT Special and Differential Treatment
TRIMS Trade-related Investment Measures Agreement
TRIPS Trade-related Aspects of Intellectual Property Rights
UK United Kingdom of Great Britain and Northern Ireland
US United States
UN United Nations
UNCED United Nations Conference on Environment and
Development
UNCHE United Nations Conference on the Human Environment
UNCTAD United Nations Conference on Trade and Development
UNEP United Nations Environment Programme
UNFCCC United Nations Framework Convention on Climate Change
WSSD World Summit on Sustainable Development
WTO World Trade Organization
6
Part I: Approaching IPE
Part I: Approaching IPE
7
Notes
8
Chapter 1: States versus markets
1.1 Synopsis of chapter content

This chapter provides a broad overview of the relationship between states
and markets, or politics versus economics. It surveys how this question has
been approached in the past and can be approached today.
1.1.1 Learning outcomes

By the end of this chapter, and having completed the Essential reading and
activities, you should be able to:
• describe the ascent of IPE as a field
• identify the ‘three schools of thought’ in IPE, as well as the advantages
and disadvantages of organising the field in those terms
• elaborate the differences between, and among, ‘liberal’ and
‘republican’ perspectives on IPE.
1.1.2 Essential reading

Strange, S. ‘International economics and international relations: a case of
mutual neglect’, International Affairs 46(2), 1970, pp.304–15.
Strange, S. States and markets. (London: Bloomsbury Publishing, 2015)
[ISBN 9781474236928]. Part I.
Queen Elizabeth I. ‘Speech to the troops at Tilbury.’ 1588.
Queen Elizabeth I. ‘The golden speech.’ 1601.
Hobbes, T. Leviathan. (London: 1651) [ISBN 9781439297254]. Part I, Chapter
XIII, ‘On the natural condition of mankind’.
Locke, J. Second treatise of government. (London: 1689). Chs VIII-IX.
Smith, A. The wealth of nations. (London: 1776) Bk IV, Ch. 2
Smith, A. The wealth of nations. (London: 1776) Bk IV, Ch. 9, Sec 50-52.
1.13 Further reading

Heilbroner, R.L. The worldly philosophers. (London: Penguin, 2000) 7th
edition [ISBN 9780684862149].
Sally, R. Classical liberalism and international economic order: studies in theory
and intellectual history. (London: Routledge, 2002) [ISBN 9780415757171].
Kegley, C.W. (ed.) Controversies in international relations theory: realism
and the neoliberal challenge. (Basingstoke: Palgrave Macmillan, 2002)
[ISBN 9780333638019].
Dunn, J. Economic Limits to modern politics. (Cambridge: Cambridge University
Press, 2011) [ISBN 9780511559174].
Keohane, R.O. and J.S. Nye Power and interdependence. (Boston: Longman,
2012) 4th edition [ISBN 9780316489362].
1.2 Introductory: the ascent of IPE

In a world as interdependent as ours, the study of international politics
cannot ignore the economic dimensions of international relations. Indeed,
it is hard to imagine any important issue on the international agenda,
from international security to development and climate change, that is
disconnected from the global economic order. The concept of security
now encompasses questions not only of military defence but also those
of securing the supply of natural resources and energy, food security and
human security. Development in the poorest countries of Africa, Asia
and Latin America depends as much on domestic political reform as on
9
creating a supportive international trade and investment environment.

And combating environmental threats such as climate change calls not
only for international political cooperation but also for changes in the
socio-economic basis of the world’s industrial systems.
The economic and political fate of nations can no longer be discussed
in isolation: the place of every nation in the global web of economic
exchanges and political relations must also be considered. Technological
change and global commerce have brought societies closer together.
Business is conducted on a global scale, with multinational companies
maintaining production facilities in several countries and goods being
traded across the globe. Capital markets respond almost instantly
to market signals in faraway continents. And international travel,
communication and electronic media have allowed for an unprecedented
level of social and cultural exchange. The world of politics has
had to respond to these dramatic changes, as economic and social
interconnectedness has created both opportunities and challenges for
governments and the societies they represent. The way in which political
leaders deal with these global issues will determine to a large extent
whether societies benefit or lose out from increasing interdependence.
The discipline of International Relations (IR) has taken on the challenge
of global economic integration by shifting the focus firmly to the political-
economic nexus in international affairs. These days, the study of IPE is a
well-established field in its own right. But this was not always the case.
As the Cold War dragged on, the study of foreign policy and international
politics slowly became divorced from the study of international economics.
In a famous article published in 1970, Susan Strange lamented this
‘mutual neglect’ between the two fields. Strange herself went on to remedy
the situation, becoming one of the pioneers in the then largely ignored
field of IPE. Her foundational text States and markets, first published in
1988, is still considered a classic text in our field.
As the Cold War ‘ended,’ Francis Fukuyama declared that the ‘end of
history’ had arrived. This was ‘not…an “end of ideology” or a convergence
between capitalism and socialism,’ he argued, ‘but…an unabashed victory
of economic and political liberalism. The triumph of the West, of the
Western idea, is evident…in the total exhaustion of viable systematic
alternatives to Western liberalism.’ (Fukuyama, 1989, p.3) Fukuyama
was not wrong that the Soviet Union and its Eastern European empire
had collapsed in part because the communist economic system could
not keep up with the economic and technological advances achieved in
the West. Then, as the Soviet domination faded, the countries of Eastern
Europe reformed their economies and steadily integrated them into the
world economy and the European Union. Around the world, developing
countries embraced the model of the liberal market economy during
the 1990s, thus giving further impetus to the ongoing process of global
economic integration. The world, it seemed to many observers, had
embarked on a large-scale process of change and integration that became
known as ‘globalisation.’ Even the 2008 Global Financial Crisis did not
slow this transformation.
Yet, the years since 2016 have seen a shift – in many ways and in
many places. The UK and the US, which had done so much to advance
globalisation previously, pivoted. The UK voted to leave the European
Union; and the US elected Donald Trump, who campaigned as a vigorous
sceptic of the global order. At the same time, Vladimir Putin’s Russia
became resurgent. And Xi Jinping’s China steadily constructed the
components that are meant to become a serious alternative to the Anglo-
10
American international order. Meanwhile, across the Global South, one

‘populist’ after another rode the anti-globalisation wave into power. By the
early 2020s, the post-war global economic order was facing the biggest
challenges it had seen since its inception in the 1940s.
Long gone are the heady days of the 1990s when commentators
envisioned an unabashed victory of globalisation, a world of states
subordinated by global market forces. Political economy – the study of
the interaction of states and markets – has never been more relevant. This
course will equip you with the most essential tools – the theories and some
of the key empirics – needed to deepen and enlarge your understanding of
our global system now and in the coming years.
1.3 Going beyond the ‘three schools of thought’

What is the nature of the relationship between states and markets
– between politics and economics? There is no single answer to this
question. But it may be useful to bundle different types of answers into
various groupings.
Often, scholars in IPE distinguish between three schools of thought, three
‘–isms.’ These are liberalism, mercantilism, and Marxism. In this three-
way split, liberals tend to think that markets can – and perhaps should
– triumph over states. Mercantilists think the reverse. And Marxists
reject the state–market dichotomy in favour of a focus on class conflicts
(e.g. between the bourgeoisie and the proletariat).
This is a reasonable way to organise the different ways of thinking
about this question. And it is worth knowing this shorthand as it is often
employed (simplistically) across the IPE discipline.
These labels, however, may do more harm than good. Like all labels, they
carry baggage and often prove misleading. More important, they are just
too simplistic. Each of these three ‘–isms’ hosts a rich and varied array
of perspectives. Often the disagreements within these ‘schools’ are just
as sharp as are the battles between them. One cannot do these bodies
of scholarship justice by boiling them down to just a few mere slogans.
Last, there are more than just these three approaches to IPE! What of
feminist approaches? What of post-colonial approaches? What of ‘green’
approaches?
In this course, we will move beyond the simple ‘three schools’ approach
to IPE. We will dive deeply into those types of approaches. But we will
also stretch to consider additional approaches, including those ‘critical’
approaches that have garnered so much attention in recent years.
The remainder of this chapter considers simply the question of
states versus markets. It offers an alternative set of responses to that
foundational question.
Activity 1.1
What is typically the relationship between states and markets? What do you think ought
to be the relationship between the two?
You should discuss your answers with fellow students in the online forum in the course
virtual learning environment.
11
1.4 States versus markets: liberals versus republicans

Broadly, there are two types of answers to the question of states versus
markets: liberal and republican. This is a question of priorities. Liberals
believe that the whole purpose of politics is to enable our economic
pursuits. Republicans are those who believe that economics must be made
to serve politics.
These are the basic answers to the question of states versus markets. We
use these terms – ‘liberal’ and ‘republican’ – because they broadly map
onto a dichotomy, discussed at length by intellectual historians, that
has persisted across centuries. But they are simply labels – shorthand
to capture these particular positions. It is important to note that these
particular labels are not necessarily linked to formal political parties. So,
‘republican’ ≠ ‘Republican,’ and ‘liberal’ ≠ ‘Liberal’ or ‘Liberal-Democrat.’
And, as ever, different actors might use these labels differently, perhaps
even adopting a label for themselves with a meaning that is contrary to the
labels as we use them here.
Among liberals, there is a sharp disagreement about the proper role
of states in the market. On one side, those whom we might call ‘right
liberals,’ believe that most state intervention is suboptimal. This includes
scholars like Adam Smith and Milton Friedman as well as policy makers
like Maggie Thatcher and Liz Truss. As Ronald Reagan announced
upon taking office, ‘[G]overnment is not the solution to our problem;
government is the problem.’ (Reagan, 1981)
On the other side, we have those whom we might call ‘left liberals.’
John Locke remains one of the exemplars. Locke famously explained the
origins of government thus: ‘The great and chief end…of Mens uniting
into Commonwealths, and putting themselves under Government, is
the Preservation of their Property.’ (Locke, 1690, section 124) But Locke
fretted about the many instances of what we today call market failure, for
example the underprovision of public goods; the problematic (‘tragic’?)
use of the commons; and underemployment. Locke believed that markets
generally worked brilliantly. But in his writings and work as a policy
maker, he averred that the right kind of political interventions could
enable markets to work better. Of course, this position is shared by many
‘left-wing’ liberals these days. This includes scholars like Joseph Stiglitz
and Paul Krugman as well as policy makers like Barack Obama and
Jacinda Ardern.
This is also a critical cleavage among republicans. There are those like
Thomas Hobbes and John Mearsheimer who argue that markets depend
upon security and, as such, economics must ultimately serve politics. This
is a descriptive statement about that which is believed to be tenable.
Other republicans issue this as a normative prescription. For instance,
Aristotle insisted that the market ought to be kept in its place, lest it
distract humans from fulfilling the higher call to political life. The same
sort of call was issued by Queen Elizabeth I in rousing her soldiers to
defend England from the Spanish armada. John F Kennedy’s stirring words
in his 1961 inaugural address also spring to mind: ‘ask not what your
country can do for you. Ask what you can do for your country.’ (Kennedy,
1961) In these contexts, such sentiments are often viewed as noble.
But it is crucial to add that such has often been put into the service of the
cruellest and most heinous of regimes. Indeed, the subordination of the
market by the state was a cornerstone of fascism a century ago.
12
This is a stark reminder that these questions truly matter. They deserve our
most careful analysis and vigorous engagement. As Susan Strange wrote
in States and markets, ‘What we have to do, in short, is to find a method of
analysis of the world economy that opens the door of … choice and allows
more pragmatism in prescription …’ (Strange, 1993, pp.16–17). This shall
be our enterprise in the units that follow.
Activity 1.2
Consider the various views we have discussed on the relationship between states and
markets: (a) left liberal; (b) right liberal; (c) republican; (d) something else. Now, choose
four politicians you find interesting. Consider their position on an IPE policy issue that is
important to you. On that basis, how would you categorise each? Into which group would
you place yourself? Please briefly explain your choices.
1.5 References cited

Fukuyama, F. ‘The end of history?’, The National Interest. Summer(16)
1989, pp.3–18
Kennedy, J.F. Inaugural address. January 1961.
Reagan, R. Inaugural address. January 1981.
1.6 Reminder of learning outcomes

Having read this chapter, and completed the Essential reading and
• describe the ascent of IPE as a field
• identify the ‘three schools of thought’ in IPE, as well as the advantages
and disadvantages of organising the field in those terms
• elaborate the differences between, and among, ‘liberal’ and ‘republican’
perspectives on IPE.
1.7 Sample examination questions

As this chapter offers a broad overview of the field, it is unlikely that the
examiners will ask questions specifically about this material. Instead, the
work done here can be incorporated (in part) into any or all of the other
examination questions.
13
Notes
14
Chapter 2: Mercantilist IPE

Once considered to be outmoded, mercantilist approaches have become
quite relevant again. This chapter presents those approaches.

• identify the origins of ‘mercantilism’ as a set of approaches to IPE and
as a style (or mode) of foreign economic policy
• explain the security rationale for mercantilism and produce useful
examples of that rationale shaping practice
• explain the economic rationale for mercantilism and produce useful
• explain the developmental rationale for mercantilism and produce
useful examples of that rationale shaping practice.

Mun, T. England’s treasure by forraign trade. (London: Macmillan, 1895 [1664])
Chapters, 2, 4, 8, 21.
Cary, J. Essay on the state of England. (Bristol, 1695) [ISBN 9789354943768]
pp.48–51; pp.130–141.
Bonaparte, N. ‘The continental system.’ 21 November 1806.
Grieco, J., R. Powell, and D. Snidal ‘The relative-gains problem for international
cooperation’, The American Political Science Review 87(3) 1993, pp.727–43.
Gowa, J.S. Allies, adversaries, and international trade. (Princeton, NJ: Princeton
University Press, 1994). [ISBN 9780691044712] Chapters 1 and 3.
Baldwin, D.A. Economic statecraft. (Princeton, NJ: Princeton University Press,
2020) New edition [ISBN 9780691204420] Chapter 5.
Gomes, L. Foreign trade and the national economy: mercantilist and classical
perspectives. (Basingstoke: Macmillan, 1987) [ISBN 9780333424889].
Helleiner, E. ‘Economic nationalism as a challenge to neoliberalism? Lessons
from the 19th Century’, International Studies Quarterly 46(3) 2002,
pp.307–29.
Anderson, S. ‘Economists say “economic nationalism” is economic nonsense’
Forbes, 25 February 2017.
Beddoes, Z. M. Steve Bannon debate at The Economist #OpenFutures festival.
The Economist, 15 September 2018.
Blyth, M. and E. Helleiner ‘The global roots of neomercantilism’, The Rhodes
Center Podcast. 8 April 2022.
2.1.3 Further reading

Smith, A. The wealth of nations. (London: 1776). Bk IV, Ch. 1, 2.
Levi-Faur, D. ‘Friedrich List and the political economy of the nation-state’,
Review of International Political Economy, 4(1) 1997, pp.154–178.
Viner, J. Essays on the intellectual history of economics. D.A. Irwin (ed.)
(Princeton: Princeton University Press, 1991) [ISBN 9780691630656].
Chapter 4: ‘Power versus plenty as objectives of foreign policy in the
seventeenth and eighteenth centuries’; Chapter 8: ‘The Intellectual History
of Laissez Faire’; Chapter 11: ‘Mercantilist Thought’.
Mearsheimer, J.J., ‘The false promise of international institutions’, International
Security 19(3) 1994–95, pp.5–49.
15
Oh, S. ‘From history to strategy: Jacob Viner’s ‘power versus plenty’ (1948) in
international context’, Global Intellectual History 6(6) 2021, pp.909–930.
Bown, C. and K. Wolf ‘National security, semiconductors, and the US move to
cut off China’, Trade Talks Episode 170: 2 November 2022.
Chang, H-J. Kicking away the ladder?: development strategy in historical
perspective. (London: Anthem Press, 2002) [ISBN 9781843310273].
Chapter 1.
Krasner, S.D. Defending the national interest: raw materials investments and
American foreign policy. (Princeton, NJ: Princeton University Press, 1978)
[ISBN 9780691021829].
Mayall, J. Nationalism and international society. (Cambridge: Cambridge
University Press, 1990) [ISBN 9780521389617].
Helleiner, E. ‘The diversity of economic nationalism’, New Political Economy
26(2) 2021, pp.229–38.
Yu, F-L.T. ‘Neo-Mercantilist Policy and China’s rise as a global power’,
Contemporary Chinese Political Economy and Strategic Relations 3(3) 2017,
pp.1043–XV.
Kim, S.E. and J. Yang ‘Who votes for free trade and when? geopolitics as
the source of legislative preferences on free trade agreements’ Review of
International Political Economy 2022, pp.1–28.
Kim, S.E. and Y. Margalit. ‘Tariffs as electoral weapons: the political geography of
the US–China trade war’, International Organization, 75(1) 2021, pp.1–38.
2.2 Introductory: constructing mercantilism

What, precisely, is ‘mercantilism’? Much is at stake in our definition of
‘mercantilism.’ This is the case partly because the term itself was created
by its greatest critics – the liberals, in general, and Adam Smith, in
particular. Prior to Smith’s The wealth of nations (1776), the thinkers and
practitioners whom we today call ‘mercantilists’ would have simply called
themselves ‘political economists.’ This is because building a ‘mercantile
system’ was the norm across the major European powers.
The systems themselves were deep and broad. There were extensive laws
to manage trade and commerce, including prohibitions, monopolies, tariffs
and subsidies. States also transformed and extended their regulations
of finance and banking. Some of these regulations traced their origins
to religious injunctions against usury. But others were designed to keep
up with the rapidly developing financial system. In order to build up
their fleets – which could be used in war as well as in commerce – many
European states passed various ‘Navigation Acts,’ which privileged their
own shipping enterprises in trade. Last, but most important, developing
large commercial empires became the norm across Europe. Initially, these
took the form of militarised colonial companies (such as the East India
Company and the Royal Africa Company). But authority tended to be
absorbed by the states themselves over time. The Europeans also created
settler colonies (such as Australia).
As one would expect, the underlying motivations driving these enterprises
were numerous. So, too, were the rationales advanced. The ‘mercantilist’
literature was – and remains – rich and diverse.
But, for rhetorical purposes, Adam Smith flattened this complexity to
a simple, two-step explanation. First, there was cupidity. Those special
interests – that is merchants and manufacturers – who stood to gain the
most from mercantilism had captured their governments and foisted this
mercantilist system upon their countries (and the world). Second, there
was stupidity. Policy makers and the public acquiesced to these unwieldy
and often violent systems because they did not know any better. Like
16
King Midas, Smith argued, they had conflated wealth with money and
now foolishly sought to achieve trade surpluses so that they could amass
precious metals (like gold and silver).
As a practical matter, Smith proved remarkably adept at persuading
policy makers to experiment with (laissez-faire liberal) alternatives to
mercantilism (Morrison, 2012). Intellectually, Smith was even more
successful. In the western liberal tradition, ‘mercantilism’ became almost
synonymous with ‘alchemy’ – and regarded as equally baseless.
Yet, mercantilism refuses to go away. Of course, the shifts of 2016 brought
a veritable ‘return to mercantilism,’ especially in the United Kingdom
and the United States. But, across the world, across the centuries, policy
makers have continued to implement mercantilist policies. Moreover,
many serious thinkers have derived powerful insights from mercantilist
approaches to IPE. In this chapter, we will explore the various rationales
for mercantilism – past and present – from several distinct views.
Activity 2.1
Did there exist a robust ‘school of thought’ that was ‘mercantilism’? If so, what were its
essential principals? If not, how – and why – was it constructed?
virtual learning environment
2.3 The security view

The security rationale for mercantilism is the most familiar and the easiest
to understand. It is also probably the most substantively significant and
the hardest to dispatch.
The starting point is that security-minded policy makers do not see all
goods and services as equally significant. Instead, they are compelled to
classify production into those that can be used to make war (and provide
defence) and those that cannot. There is a difference, after all, between
manufacturing steel and growing sugar. Thus, to avoid becoming dependent
for security on other powers, many states manipulate markets so as to
(artificially) support industries vital to national defence. This is especially
true for post-colonial countries who have often had their industry stifled and
who are especially sensitive to losing their foreign policy autonomy.
Despite his overt repudiation of mercantilism, even Adam Smith
acknowledged the veracity of this logic. He cast the Navigation Acts,
designed to promote the UK’s Merchant Navy, as ‘the wisest of all the
commercial regulations of England.’ After all, he wrote, ‘defence…is of
much more importance than opulence.’ (Smith, 1776, Bk IV, Ch II) Thus,
Smith accepted that some market management – on the grounds of
national security – was acceptable in certain instances, although he would
have confined those instances to a rather short list.
Modern defence, however, goes beyond just weapons in a conventional
sense. Energy has become vital to projecting military power and to keeping
economies operating during wartime. It is well worth remembering the
case of the attack by the Empire of Japan on the United States at Pearl
Harbor in December 1941. At the time, Japan depended upon the US for
around 90 per cent of its energy. So, when the US embargoed oil exports,
it threatened Japan’s conquest of Asia.
More recently, there is the case of Russo-European relations surrounding
the War in Ukraine. Prior to this, Germany had adopted a long-term
strategy – known as Ostpolitik – to integrate European and Russian energy
17
markets. This was intended to create commercial interdependence and

shared interests. Following Russia’s attacks on Ukraine, however, European
policy makers have found their foreign policy options limited by their
reliance on Russian energy – just as mercantilists had warned.
These days, defence goes well beyond just steel and energy. Modern
economies rely so heavily on telecommunications that attacks on vital IT
infrastructure could do as much material damage as do bombs. Similarly,
globally integrated supply chains offer cost savings in the production of IT
goods and services; but they also expose importers to supply shocks and,
more worryingly, possible remote exploits by producer nations.
Countries across the world share these concerns, but the US has reacted
most strongly, it seems. Such apprehensions were key to the US-China
trade war, which erupted in 2017. More recently, the United States passed
(in 2022) the CHIPS and Science Act, which provides $280 billion in
new funding to support the return of microchip production to US soil.
As a point of reference, this is fully 40 per cent of the size of the money
allocated to ‘bail out’ the US financial system in the 2008 Global Financial
Crisis. And, thus, both Republicans and Democrats within the USA have
begun to embrace the mercantilist security rationale.
The last security rationale concerns what is called the Relative Gains
Problem. Since David Ricardo developed the concept of comparative
advantage, liberal economists have proclaimed that free trade is mutually
beneficial for all parties who participate. This may be true in absolute
terms: all parties stand to increase their overall economic wealth. But the
gains from trade are almost never shared equally or even necessarily in
proportion to economic size. Mercantilists warn that unmanaged trade
could result in one’s rivals gaining disproportionately. And, because,
wealth can lead to power, mercantilists are often deadly jealous of the
trade of others. (See Jacob Viner and John Mearsheimer on this point.)
The conclusion is rather dismal. Such thinking could lead mercantilists
to prefer negative economic interactions (where the relative loss is less)
to positive interactions (where the relative gain is less). Cooperation
between the US and China since 2001 has benefited both countries, but it
has benefited China more. Then, in 2016, the US appears to have pivoted.
It began to systematically reduce international economic cooperation,
despite this being costly to the US, because the loss of that benefit hurts
China more (relatively speaking).
Activity 2.2
Identify two or three specific policies (in any country of your choosing) that appear to be
motivated by the mercantilist ‘security rationale.’
2.4 The economic view

The economic rationale for mercantilism is likely the most widely
misunderstood. This is largely because mercantilism has been denounced
most vigorously in this regard. While even Adam Smith was willing to
entertain some of the mercantilists’ security rationales, laissez-faire liberal
economists like Jacob Viner have been unequivocal. Viner wrote, ‘The
significance of such doctrine is not that those who adhered to it placed
power before plenty, but that they grossly misunderstood the true means
to and nature of plenty. What they were lacking in was not economic
18
motivation but economic understanding.’ (Viner, 1991, p.136) For him,

granting space to mercantilism had ‘served to poison international relations’
(Viner, 1991, p.153).
The rough treatment of mercantilism’s economic rationale likely also
follows from the difficulty in understanding it. Doing so requires
familiarity with both the operation of the balance of payments and
macroeconomic theory. We will return to these topics in Chapter 9. At this
point, we do not need to become bogged down in the technical details.
For our purposes here, it is enough to convey the intuition. Simply put,
policy makers often turn to mercantilist policies in order to mitigate – and/
or shift abroad – the burdens of macroeconomic adjustment generated by
global economic forces.
John Maynard Keynes was among the first scholars to reveal that,
historically, many mercantilist policies were driven by this rationale.
This drove Keynes to search for alternative mechanisms to reduce the
overall necessity of making such adjustments and to ensure that such
adjustments were made in an orderly, cooperative fashion. His plans
for the International Monetary Fund and the World Bank (discussed in
Chapter 14) turned on this endeavour.
It is important to recognise that Keynes’s concerns were not strictly
‘Keynesian’ in nature. Indeed, even the great ‘monetarist’ (and critic of
Keynes) Milton Friedman shared Keynes’s diagnosis of this particular
problem. Both recognised that preventing currency and trade wars
required providing policy makers with better methods of managing their
imbalances of payments.
Activity 2.3
Consulting recent news, find two or three instances in which contemporary policy makers
refer to the ‘balance of trade.’ In each instance, consider: are they thinking in mercantilist
terms?
2.5 The company view

Among the rationales for mercantilism, the ‘Company View’ (as we are
calling it here) is the most abstract but also arguably the most theoretically
interesting.
This is a question about ontology – meaning the study of being and of
the nature of the things we are studying. Some mercantilists take an
interesting view of the relationship between states and firms. Specifically,
mercantilists conceptualise states and interstate relations in the way that
laissez-faire liberals typically conceptualise firms and inter-firm relations.
In this vein, mercantilists consider that the US and South Korea think
about each other in the same sorts of ways that Apple and Samsung think
about each other. Sometimes, these relations are cooperative but typically
they are competitive, perhaps even ‘cutthroat.’ Crucially, mercantilists
typically see this as inevitable; and, even if it can be avoided, they do not
value reducing the competition between states.
At first, this perspective might be shocking to any who have become
accustomed to the liberals’ neat distinction between states and markets
as different types of things operating in different modes with different
objectives. For liberals, politics is defined by brutal violence while markets
are (ideally) about free enterprise and free exchange. So, for liberals,
19
being partial to one’s commercial enterprise is a virtue while being partial

to one’s country is a kind of vice.
Mercantilists, however, see this as hypocritical and ahistorical. If
competition between firms allows the invisible hand to maximise welfare,
why cannot competition between states do the same thing? After all, states
(like firms) face incentives to ensure their good governance (performance)
so as to attract and retain their valuable population (workforce).
Moreover, mercantilists remind us that markets have never been truly free.
This is obviously true in countries like China where most of the largest
firms are state-owned enterprises. But even within ‘liberal’ regimes their
largest firms have often depended upon considerable support and special
privileges granted by their home governments – from the colonial trading
companies of the past (like the Royal Africa Company and East India
Company) to the financial and IT firms of today. Chapter 20 discusses
these questions at greater length.
Activity 2.4
Was Lee Kuan Yew’s Singapore, sometimes called ‘Singapore, Inc,’ best described as a
‘mercantilist enterprise’? Why or why not?
2.6 The developmental view

Across the centuries – and today – policy makers have employed
mercantilist policies in pursuit of political and economic development. But
this is such a large and important topic that it is considered in Chapters 7
and 8.

Chang, H-J. Kicking away the ladder?: development strategy in historical
perspective. (London: Anthem Press, 2002) [ISBN 9781843310273].
Chapter 1.

• identify the origins of ‘mercantilism’ as a set of approaches to IPE and
as a style (or mode) of foreign economic policy
• explain the security rationale for mercantilism and produce useful
• explain the economic rationale for mercantilism and produce useful
• explain the developmental rationale for mercantilism and produce
useful examples of that rationale shaping practice (after connecting
this chapter to the material in Chapters 7 and 8).
20

1. What lessons does mercantilism hold for foreign economic
policy today?
To answer this question, you need to explain both the essence of the
mercantilist tradition and the continued relevance and appeal of
mercantilist ideas in contemporary economic policy. A good way to
start would be to introduce the key tenets of mercantilism. A brief
review of what makes mercantilism a distinctive tradition of IPE
would suffice. This is not the place to go into much detail about how
mercantilism changed over time. Instead, you should focus on some
core insights of mercantilism that have stayed constant over centuries.
There are (at least) three broad categories to consider.
First, there is the mercantilist understanding of power and wealth,
with reference to the idea of global wealth as a fixed sum and global
economic competition as a zero-sum game. This has enduring relevance
in the ‘relative gains problem’ and the challenges of imbalances of
payments.
Second, mercantilists stress the need for states to intervene in
international economic affairs, and especially international trade, to
maximise their economic gain. Contemporary examples include the
use of power (military and economic) to drive hard bargains and
steer the terms of trade. For instance, the USA might use the security
dependence of allies to press for specific economic policies.
Last, there is the importance of the state in directing the economy to
promote long-term national economic development. This could involve
a discussion of the use of trade protectionism as part of developmental
strategies, the role that infant industry protection plays even today,
and the importance of state intervention when it comes to investment
in education and national infrastructure. China, of course, provides
famous examples. But so too do the EOI economies of the ‘Asian tigers.’
Each of these points is worthy of a response unto itself. The best
answers covered all of these points, while others only covered some of
the points or only superficially.
2. Is China best described as a mercantilist power?
This question requires that you assess the developmental impact of
trade liberalisation and protection in the specific case of China. Weak
answers might attempt to simply describe the contours of the Trump-Xi
trade war. But this is ill-advised. It is a challenging question because it
requires candidates to think about trade theory, development strategies,
and the particular choices and outcomes in this crucial case. That
means explaining China’s approach, which may or may not relate to
Trump’s denunciation of it.
Liberals dating back to Smith and Hume have long argued that trade
liberalisation promotes economic growth; but developing countries
have traditionally been more sceptical about this argument as they
face competition from industrialised countries when they seek to
enter global markets. They therefore find themselves in a relatively
weak position in global competition. Arguably, this has inclined such
states to rely more heavily on state management of the economy and
state-led development policies. There are also the claims that the early
industrialisers themselves relied upon mercantilist-led development
(see Chang).
21
This may have characterised China’s perspective earlier on, but China
has since become economically dominant in some aspects of trade
(particularly manufacturing and assembly in global value chains). At
the same time, the security implications of China’s rapid economic
development have broached questions about the role of political and
military power in the global political economy.
To begin with, candidates could briefly review the debate on the pros
and cons of pursuing free trade versus protection. All of this should
be discussed with an eye to development in particular, as China has
relied heavily on trade as a means to promote its rapid economic
growth. This is not the place to give a comprehensive overview of
the liberal-mercantilist debate, let alone an intellectual history of
that debate. Instead, candidates should define major features of
each approach to foreign economic policy. They can then discuss
those features of China’s approach to trade that are best described
as mercantilist (e.g. the use of state-owned enterprises, currency
manipulation, austere labour practices, etc), and those that are best
described as liberal (e.g. its engagement with the global trade regime,
its commitment to low tariffs and stable exchange rates, and its desire
to avert trade war).
Good candidates would consider: what has been the role of trade
liberalisation – like joining the WTO – versus the heavy state
intervention in the creation of export industries, investment in
education and human capital? Also, what has been the role of factors
that might have enabled the growth but are not themselves necessarily
‘liberal’ or ‘mercantilist’ aspects: such as China’s massive population,
its non-democratic tradition, and its geography (ample coastline and
access to raw materials). In other words, there are many different
things to consider; and they can all lead in different directions.
The best answers might stretch to consider theories explaining IPE
(beyond just liberal and mercantilist prescriptions for policy). For
instance, can ‘dependency theory’ explain the particular form of
the policies employed in China which may or may not be useful
elsewhere? Might China’s approach be explained by Hegemonic
Stability Theory, regardless of what the policy makers in China might
themselves believe or say?
22
Chapter 3: From Marx to Marxism

With one economic crisis after another and the future of work uncertain,
Marxist approaches have returned to the fore. This chapter presents those
approaches.

• explain Marx’s historical materialism and offer useful examples that
illustrate this mode of explanation
• debate the roles of structure and agency in Marx’s account of the
coming communistic revolution
• identify the key differences and similarities between Marx and the
Marxists who followed him.

Marx, K. The German ideology. (Moscow: 1932 [1846]). Sections ‘Preface’;
‘First Premises of the Materialist Method’; ‘History: Fundamental
Conditions’; ‘Private Property and Communism’; first four paragraphs under
‘Conclusions from the Materialst Conception of History’; ‘Ruling Class and
Ruling Ideas’.
Engels, F. and K. Marx. ‘The Communist manifesto’ in Eastman, M. (ed.)
Capital, The Communist Manifesto, and other writings of Karl Marx. (New
York: Carlton House, 1932). Sections ‘I. Bourgeois and Proletarians’ and ‘IV.
Position of the Communists in Relation to the Various Existing Opposition
Parties’.
Lenin, V.I. Imperialism, the highest stage of capitalism. (Sydney: Resistance
Books, 1999 [1917]) [ISBN 9780909196844]. Read (in this order): p.75,
pp.119–120, pp.83–89; pp.91–92; pp.105–07; and p.108.
Mao, Z. Combat liberalism. (Seattle, WA: Fanshen Books, 1967) 4th edition
[Originally written September 7, 1937].
Wallerstein, I. ‘The world-system after the cold war’, Journal of Peace Research
30(1) 1993, pp.1–6.
Cox, R.W. ‘Social forces, states and world orders: beyond international relations
theory’, Millennium 10(2) 1981, pp.126–155.
Cox, R.W. ‘Gramsci, hegemony and international relations: an essay in method’,
Millennium 12(2) June 1983, pp.162–75.
Picketty, T. et al. ‘Public lecture: Debating capital and ideology.’ LSE: 26 April
2021. Featuring Dr Poornima Paidipaty (Chair); Speakers: Professor
Gurminder Bhambra, Dr Jens Lerche, Dr Sanjay G. Reddy, Professor Diego
Sánchez-Ancochea, Dr Nora Waitkus; and Thomas Picketty (respondent).

Cox, R.W. Production, power, and world order: social forces in the
making of history. (New York: Columbia University Press, 1987)
[ISBN 9780231058094].
Cox, R.W. and T.J. Sinclair Approaches to world order. (Cambridge: Cambridge
Gill, S.R. and D. Law. ‘Global hegemony and the structural power of capital’,
International Studies Quarterly 33(4) 1989, pp.475–499.
23
Wallerstein, I. ‘The rise and future demise of the world capitalist system:
concepts for comparative analysis’, Comparative Studies In Society And
History 16(4) 1974, pp.387–415.
Wallerstein, I.M. The politics of the world-economy: the states, the movements
and the civilisations. (Cambridge: Cambridge University Press, 1984)
[ISBN 9780521277600].
Strange, S. ‘Review of The politics of the world-economy: the states, the
movements, and the civilizations.’ International Affairs 61(3) (Summer,
1985), p.497.
Anievas, A. (ed.) Marxism and world politics: contesting global capitalism.
(London: Routledge, 2010) [ISBN 9780415478038].
Dafe, F. ‘Fuelled power: oil, financiers and central bank policy in Nigeria’, New
Political Economy 24(5) 2019, pp.641–58.
3.2 Introductory: situating Marx and Marxism

Karl Marx (1818–1883) is one of the most provocative thinkers we
will encounter in this course – and, indeed, in history writ large. Even
a century and a half after his death, Marx’s work itself continues to
challenge scholars, policy makers and activists in both good and, perhaps,
not always so good, ways. Moreover, Marx’s mode of analysis – broadly
construed – has given rise to a whole series of innovative, inspiring, and
challenging thinkers and doers who continue to generate new ‘Marxist’
perspectives on IPE.
Marx – and other Marxists – are broadly ‘critical’ theorists in that
they critique the existing international economic order – global
capitalism, broadly construed. More specifically, Marxists (like Lenin
and his followers) contend that modern capitalists use imperialism as a
mechanism to spread and sustain the global capitalist order. As such, Marx
and the Marxists share much in common with other ‘critical’ theorists,
such as those discussed in Chapter 8 ‘Development: Critical Perspectives.’
Indeed, theorists such as Kwame Nkrumah and Andre Gunder Frank are
both Marxists as well as major figures in the decolonisation movement.
Because Marx and Marxism have proven so controversial, it is quite
important that you do not prejudge – positively or negatively – these
thinkers and their work. Instead, do your best to approach this chapter
with fresh eyes. Take the materials themselves on their own terms. And
then think critically about whether – and how – these approaches can help
you to understand important dynamics in IPE.
3.3 Karl Marx

To understand Marx’s contributions, it is worth situating his work in its
proper (intellectual and political) context. Marx generally characterised
himself as a ‘communist.’ Communism was a particular version of
socialism; and Marx himself was at pains to distinguish this particular
variety of socialism from other, competing variants. In addition to being a
political-economic ideology, communism was also a political movement.
And Marx himself was active in this movement. Marx not only co-authored
(with Friedrich Engels) the Communist Manifesto (1848), but he was also
exiled from his home country of Germany due to his efforts to organise
workers.
Marx’s work is exceptionally wide-ranging and covers philosophical,
historical, political and economic themes. Therefore, it is impossible to do
justice to his work across these fields. Nevertheless, we can highlight the
key philosophical and political tenets that characterise Marx’s thinking
24
in our areas. We can also connect Marx’s work to the subsequent Marxist
writing that has followed and that continues to thrive.
3.4 Marx’s materialism

Initially, Marx was a follower of Georg Wilhelm Friedrich Hegel. But Marx
soon came to reject Hegel’s ‘idealism’ – the fixation on how we perceive
and understand the world. Instead, Marx became one of the foremost
advocates of materialism – the prioritisation of the underlying material
realities of the world as the principal drivers of human experience.
Marx contends that production and reproduction are principally material
processes. Regardless of whether we have souls, human beings are
material creatures, and our lives (literally) require that we ingest food,
water, fresh air, etc. However we might consider love and romance,
Marx stresses, procreation inescapably involves material processes:
conception; gestation; and labour/delivery of offspring. Thus, the survival
of individuals and our entire species depends upon material enterprises at
the most basic level.
For Marx, everything else – politics, ethics, religion, science, family
structures, conceptions of love and beauty, etc – are ‘superstructures’ built
upon the materialist ‘base.’ Again, this follows for Marx simply because
practices that do not align with the material imperatives (to produce
and reproduce) become contradictions that are resolved in favour of
the dictates of material circumstances. This contradiction is typically
resolved in the interests of – and by – that class which controls the
means of production in a given society. As Marx and Engels put it in The
Communist manifesto, the state under capitalism was merely ‘a committee
for managing the common affairs of the whole bourgeoisie.’ (Engels and
Marx, 1848)
Within IPE, such thinking has given rise to interest-group explanations
for policy choices. For instance, we will discuss later (in Chapter 6) how
interest groups may have been responsible for changes in trade policy in
the United States in the 1930s. Such explanations are broadly ‘materialist’
accounts not unlike the sort that Marx might have given.
While Marx’s materialism can speak to questions surrounding
reproduction, gender roles and patriarchy, Marx himself focused almost
entirely on the overtly economic dimensions of life (i.e. production,
distribution, and consumption). For him, class identities are not simply
the most important identities; they also prove vastly more significant than
do all other identities (e.g. gender, religious, ethnic, ‘racial,’ etc). Marx’s
(possibly myopic) privileging of class identities has profound implications,
as we will discuss in subsequent units.
Activity 3.1
Marx argues that the superstructures – from religious beliefs to art, from political and
legal systems to concepts of love and beauty – are all based on an underlying material
substructure. Do you agree? Defend your answer using illustrative examples of your
choosing (e.g. specific laws, moral codes, works of art, etc).
Explain a case of your choice – in international relations, broadly construed – using
Marx’s materialist method.
25
3.5 Marx’s historical materialism

Marx recognised that the ways in which humans satisfy their material
needs vary across time and space. For Marx, the cross-temporal variation
was the key. Economic structures, he contends, are constantly evolving
as humans develop new techniques and technologies of production and
distribution. Humans also become more capable, which is reflected in
economic growth across time.
Thus, Marx was not just a materialist but also a historical materialist. That
is to say, he believed that shifts in the material base drove changes in the
superstructures that rested upon that base. For instance, the development
of more sophisticated forms of banking in northern Italy in the fifteenth
century increased the wealth – and thus the economic power – of particular
families, such as the Medici. Just as Marx would have expected, the Medici
used their economic power to increase their political power and social
position. They even ascended to the head of the Catholic Church – with as
many as four popes coming from the Medici family. Indeed, there were few
superstructures that the Medici did not significantly reshape.
Marx’s historical materialism extended to the global and macro-historical
levels. He contended that humankind has passed through several distinct
stages of development. In each, a particular mode of production proved
dominant; and those who controlled the means of production within that
dominant mode were the dominant class. Crucially, the transition from one
stage to the next brought a veritable ‘revolution’ in the class that rules. For
example, the advent of the capitalist stage brought the capitalist class – those
bankers, financiers, and industrialists who control monied and industrial
capital – into ascendency. In other words, that which we have observed
about the Medici family becomes true writ large for the entire system.
Activity 3.2
What are the essential differences between materialism and historical materialism? Is it
possible to be a ‘materialist’ without also being a ‘historical materialist’?
3.6 The revolutionary telos

Marx’s historical materialism led him to consider the possible endpoint of
our economic evolution. He believed that the capitalist stage would be the
final stage. Production could not meaningfully evolve beyond this point. And,
perhaps more important, the proletariat – the working class whose income is
exclusively wage labour – would achieve class consciousness and revolt.
Marx is somewhat unclear on the nature of the revolution and,
especially, the operation of the post-revolutionary global system. But
he is much clearer on the preconditions required for the worldwide
communist revolution. First, mechanisation (and automation) would
create the economic surplus necessary to release the working class from
their toil. Second, proletarian class consciousness depended upon the
‘cosmopolitanisation’ and ‘agglomeration’ of the working class. This would
reduce the significance of their cross-spatial differences (e.g. cultural,
religious, ethnic, etc.) and help workers to recognise the greater
significance of their common class struggle. Thus, Marx wanted more
modernisation and more globalisation, and he expected that the revolution
would begin in the most advanced and industrialised societies – specifically,
the United Kingdom. As we will see later, not all Marxists shared this view.
26
Activity 3.3
What factors, according to Marx, would bring about the communist revolution? Where
was the revolution most likely to begin, in the most or least developed societies?
Is Marx’s communist revolution yet to come? What evidence suggests that it might be
so? What evidence suggests that it is not so?
3.7 Lenin’s interventions

It is important to remember that Marx and Engels predicted the worldwide
communist revolution as much as they had prescribed it. Yet, Marx’s
followers were increasingly disappointed when the revolution did not come
– even decades after Marx’s death. For many communists, the First World
War proved quasi-catastrophic. Instead of uniting along class lines, the
workers of the world tended to prioritise their national identities, even as
the war dragged on for years and immiserated the proletariat. So far from
turning on the capitalist ruling class, tens of millions of working people
entered their countries’ military services, often voluntarily.
This is the context in which Vladimir Lenin (1870–1924) – among
others, like Rudolf Hilferding and Rosa Luxemburg – split from Marx’s
particular vision of communism. In particular, Lenin insisted that Marx had
overlooked the role of imperialism both in powering the global capitalist
order and in thwarting the coalescence of a worldwide proletariat. For
Lenin, the First World War itself was the direct product of imperialistic
competition between the world’s leading capitalist countries (and empires)
at the turn of the twentieth century. Lenin issued this vision in 1916 in his
brief but remarkable book Imperialism, the highest stage of capitalism.
Lenin’s rendering of imperialism is not wholly innovative but, instead,
synthesises the views of a number of theorists, including the liberal theory
of imperialism developed by John Hobson. It is based on a number of
assumptions that offer a powerful indictment of capitalism as the source of
territorial expansion, international conflict and war. While many scholars
of imperialism have questioned the historical accuracy of Lenin’s analysis,
its impact on Marxism in the twentieth century is beyond doubt. The key
elements are:
• In the imperialist era, capitalism has entered its highest and final
stage. This stage is characterised by the concentration of capital and
productive forces, leading to the creation of large monopolies that
dominate the capitalist economy. In other words, imperialism is the
monopoly stage of capitalism.
• The concentration process has also led to the merging of bank capital
with industrial capital, to form a new financial oligarchy called finance
capital. The representatives of finance capital become the voice of a
united capitalist interest and possess unrivalled economic and political
influence.
• In this stage of capitalist development, leading economies will no
longer export goods but will increasingly export capital. Because of a
falling rate of profit in developed home markets, capital needs to find
new forms of employment abroad.
• The consequence of this expansionist drive is the creation of what
Lenin called the ‘international monopolist capitalist combines,’ in effect
27
corporate interests combined with governments that seek to expand

colonial empires and capture new international markets.
• Because of the Earth’s natural limits, which the scramble for colonies is
bound to reach, the logic of capitalist expansion will eventually drive
the leading capitalist countries into conflict and war. In short, war is
the inevitable outcome of the imperialist stage of capitalism. And war
will lead to the final collapse of capitalism in a worldwide revolution.
Lenin’s prediction that imperialist competition and war would unleash
the forces of revolution and seal the fate of the capitalist system came to
nothing. After the successful Russian Revolution in 1917 and the end of
the First World War in 1918, revolutionary movements in Europe failed to
overthrow the established order in the capitalist heartland, while fascist
governments soon gained power in Germany and Italy. For Marxists it
seemed as if the working class had abandoned its revolutionary mission
and become complicit in the maintenance of capitalist order. In their
view, a ‘labour aristocracy’ had emerged that benefited from the spoils of
colonialism through higher (real) wages and prevented a united stand of
the working class against their capitalist rulers. Internationally, the leading
colonial powers were able to bury their differences and coexist peacefully
after 1918, having broken up the Austro-Hungarian and Ottoman empires
as part of the post-war settlement.
Activity 3.4
What are the most significant differences between the theories offered by Marx and Lenin?
3.8 Modern Marxist views

Among Marxists today, Immanuel Wallerstein and Robert Cox remain
two of the most important proponents of Marxist approaches to IPE (in
general) and to critical perspectives on development (in particular). While
both died a few years ago, their work continues to influence the field in
numerous ways.
Wallerstein’s extensive historical survey of the evolution of global
capitalism, published in a three-volume book series entitled The modern
world-system, sparked a renewed interest in structuralist explanations.
Synthesising a range of intellectual traditions including Marxism,
dependency theory and French historical thinking à la Braudel, Wallerstein
explains global capitalism as a coherent, historically grown, system. It is
ruled by a single logic, based on capitalism, which encompasses both the
realms of international economics and international politics.
Wallerstein departs from Marx in several important areas. Whereas Marx
and many of their followers had downplayed the state, Wallerstein argues
that states indeed play a central role in maintaining the global capitalist
order. Capitalism and the state system, Wallerstein claims, are the two
sides ‘of a single coin…Neither is imaginable without the other.’
A second departure concerns the potential for change. Dependency
theorists (discussed in Chapter 8) had argued that developing countries
were caught in a state of dependency within the global capitalist system.
Wallerstein, by contrast, recognises the potential for movement between
the economies of the centre and the periphery. By introducing the
category of semi-periphery, he seeks to account for countries in the Global
South that have either managed to advance economically and leave the
periphery (e.g. Singapore and South Korea) or those countries in the
28
North that have fallen behind other centre economies (e.g. Portugal in the
twentieth century). The rise of the East Asian ‘Tiger economies’ thus points
to the emergence of a new ‘semi-periphery,’ which introduces a zone of
political stability between the centre and the periphery, but ultimately fails
to change the underlying reality of a polarised international structure. The
fact of global exploitation and under-development in many developing
countries remains unchanged.
Critics of Wallerstein’s theory have questioned his focus on international
exchange as the defining characteristic of global capitalism, challenged the
deterministic tendencies in the notion of a world-system, and suggested
that the concept of the semi-periphery overstates the stabilising role that
semi-developed economies are meant to play in the international economy.
The Canadian scholar Robert Cox combined both critical theory and
Marxist approaches to explain the persistence of global capitalism despite
its many limitations, gaps and disappointments. In his book Production,
power and world order: social forces in the making of history (1987), Cox
put forward a comprehensive theory of the evolution of international
hegemonic orders in the modern era. Like Wallerstein, Cox attributes a
greater role to states, and hegemonic states in particular, than traditional
Marxists had done in the past. Hegemonic states working in alliance with
capitalist forces create a global framework within which capitalism can
expand globally and establish itself as the dominant mode of production.
The novel element in Cox’s work, which is inspired by the thought of
Antonio Gramsci, is the key role played by ideological factors. Cox argues
that to stabilise the hegemonic order and make it legitimate, it needs to
be based on a set of consensual ideas that are widely accepted by other
states and civil society at large. The hegemonic bloc that underpins the
international order thus rests not only on a collusion of political and
economic forces, but also includes key elements of civil society. It is this
extended notion of hegemony that explains the resilience of the capitalist
order against all Marxist predictions of its imminent collapse.
Marxist views – including those of Wallerstein and Cox – have powered
many of the critical perspectives on development. These are discussed
further in Chapter 8.
Activity 3.5
How does subsequent Marxist analysis compare to Marx’s own thought? What factors
– and what types of factors (e.g. material, ideational, cultural) – drove those changes?
In what ways is Marx’s analysis relevant today? In what ways is Marxist analysis still
relevant?
Where in the ‘world system’ would you place the following countries: (a) Republic of
Korea; (b) Ghana; (c) Saudi Arabia; (d) the USA; (e) China? Briefly explain your answers.

• explain Marx’s historical materialism and offer useful examples that
illustrate this mode of explanation
• debate the roles of structure and agency in Marx’s account of the
coming communistic revolution
• identify the key differences and similarities between Marx and the
Marxists who followed him.
29

1. How do neo-Marxist theorists explain the continued
dominance of capitalism in the world economy? Discuss
the validity of their explanations.
This question requires candidates to apply their knowledge of the
Marxist, and especially 20th–21st Century neo-Marxist tradition to
the contemporary condition of IPE. The focus is on assessing the
theoretical explanation for the continued dominance of capitalism in
the global system, which has if anything strengthened after the collapse
of the Soviet Union and the disappearance of most communist regimes.
A starting point might be briefly to outline the main tenets of Marxist
political economy, particularly as they relate to the question of the
nature of capitalism and its historical evolution: the idea that capitalist
development is driven by the desire for capital accumulation, that
capitalists accumulate wealth through exploitation of the proletariat
and that this dynamic will lead to conflict in society, eventually giving
rise to a socialist revolution that overthrows the capitalist order.
From this starting point, candidates would then need to consider how
neo-Marxists explain the continued resilience of capitalism, which
has weathered many crises and has outlived most experiments with
communism. Thus, the paradox that needs to be explained is that
while Marxism expects capitalism to be overcome, capitalism continues
to thrive globally. Neo-Marxists such as Cox and Wallerstein have tried
to explain why the capitalist order persists, by considering the role
that powerful states play in maintaining the international capitalist
order, the role of hegemonic ideologies that form around capitalism
and that neutralise socialist opposition, and the stratification of the
international order into the centre, semi-periphery and periphery,
which gives international capitalism greater resilience. Candidates
need to both present the logic behind such neo-Marxist explanations
and discuss their validity, highlighting their strengths and weaknesses.
2. How useful are Marx and the Marxists in analysing
contemporary international political economy?
This question requires candidates to apply their knowledge of the
Marxist tradition to contemporary phenomena in IPE. The focus is
not on any specific aspect of Marxism, so students are expected to
think about the applicability of Marxist thought across a number
of facets. These facets include (among other things): historical
materialism; the concept of class conflict; the origin of economic crisis
(particularly financial crises); theories of value and price; the causes of
consequences of globalisation, cosmopolitanisation, and mechanisation
of production; and the concept of Marxist revolution.
It is hardly expected that students will be able to grapple with all of
these issues in any kind of depth. Instead, it is far better to perhaps
mention them and then dive more deeply into a handful of them.
The best answers took several concepts from Marxism, explained
how Marxist thinking has evolved over time, and then applied these
insights to contemporary IPE. A good way to start would be to identify
class conflict as a Marxist concept and explain how Marxists use it
to analyse capitalist structures and the revolutionary developments
that conflict between the main classes generates. This should then
be followed with a discussion of how the concept can be applied to
international relations, and how it has been applied in neo-Marxist
writings.
30
Consider, for instance, the all-important concept of class conflict.

Perhaps the central issue here is that Marx expected that ‘international
politics’ would shift from a system comprised of states and empires
to one comprised of global class structures. Of course, that did not
happen – and it has not happened as yet. The so-called ‘Marxists’ (such
as Lenin) and the ‘neo-Marxists’ sought to transform Marx’s concept of
‘class’ to apply it to the state system, as it has persisted and developed.
Today, contemporary Marxists use this concept to explain the enduring
conflicts between developed and developing countries. This can be
seen in the unequal results derived in, say, trade negotiations in the
GATT/WTO or the IMF’s approach to financial crises.
31
Notes
32
Chapter 4: Feminist approaches to IPE

In recent years, feminist approaches have come into IPE and substantially
enlarged our discussion – and our understanding. This chapter presents
those approaches.

• identify the factors that have led to women (and others) being
excluded from the domain of IPE
• identify the factors that have led to women (and others) being elided
from our renderings of IPE
• offer useful examples of both the exclusion and elision of women (and
others)
• explain the ideational (as opposed to material) basis for gender
identities (as distinct from biological sex)
• outline the differences between feminism and the advocacy of
women’s rights
• outline the differences between embracing feminism and identifying as
a woman.

Elias, J. and A. Roberts (eds) Handbook on the international political
economy of gender. (Cheltenham, UK: Edward Elgar Publishing, 2018)
[ISBN 9781783478835].
Enloe, C. Bananas, beaches and bases: making feminist sense of international
politics. (London: University of California Press, Ltd, 2014) 2nd edition
[ISBN 9780520279995] Chapter 1.
Crenshaw, K. ‘The urgency of intersectionality.’ TEDWomen, 2016.
Griffin, P. ‘Refashioning IPE: what and how gender analysis teaches
international (global) political economy’, Review of International Political
Economy 14(4) 2007, pp.719–36.
Wisniewska, A., B. Ehrenberg-Shannon and S. Gordon. ‘Gender pay gap: how
women are short-changed in the UK’, Financial Times 25 September 2020.
Leach, A., F. Cocco and C. Nevitt. ‘Work out your personal gender pay gap’,
Financial Times 10 November 2017.
Parrenas, R.S. ‘Migrant Filipina domestic workers and the international division
of reproductive labor’, Gender and Society 14(4) 2000, pp.560–80.

Essex County Recruiting Committee. ‘Murdered by the Huns.’ c.1915. (British
recruitment poster featuring Edith Cavell.)
Stoddard, K. ‘How the Guardian reported the death of Edith Cavell.’ The
Guardian. 16 October 2015.
‘Faithful Unto Death - Queen Alexandra unveils Nurse Cavell memorial. Oct
12th, 1915.’ British Pathé.
Singh, A. ‘Revealed: New evidence that executed wartime nurse Edith Cavell’s
network was spying.’ The Telegraph. 12 September 2015.
The Royal Mint. ‘The Royal Mint honours Edith Cavell.’ 27 May 2015.
33
King, G. ‘Eleanor Roosevelt and the Soviet sniper.’ Smithsonian Magazine 21

February 2013.
Bown, C. and K. Wolf. ‘Peru’s ‘China shock’: surprising turns and the women left
behind’, Trade Talks Episode 172: 21 November 2022.
Hutchings, K. ‘Feminism and international relations.’ 3 October 2014. Video
recorded for the Open University.
Tickner, J.A. ‘What has feminism done for international relations?’ 14 November
2014. Talk at the Centre for International Security Studies, University of
Sydney.
Tickner, J.A. ‘Hans Morgenthau’s principles of political realism: a feminist
reformulation,’ Millennium 17(3) 1988, pp.429–40.
Hutchings, K. and P. Owens. ‘Women thinkers and the canon of international
thought: recovery, rejection, and reconstitution’, American Political Science
Review 115(2) 2021, pp.347–59. doi:10.1017/S0003055420000969.
Teele, D.L. Forging the franchise: the political origins of the women’s vote.
(Princeton, NJ: Princeton University Press, 2018) [ISBN 9780691180267]
Chapter 1.
Elias, J. ‘Making migrant domestic work visible: the rights based approach to
migration and the challenges of social reproduction’, Review of International
Elias, J, and S.M. Rai. ‘Feminist everyday political economy: space, time, and
violence’, Review of International Studies 45(2) 2019, pp.201–20.
Winkler, E. ‘Was Shakespeare a Woman?’ The Atlantic Monthly. June 2019.
Tizon, A. ‘My Family’s Slave.’ The Atlantic Monthly. June 2017.
Goldberg, J. ‘Editor’s Note: A Reporter’s Final Story.’ The Atlantic Monthly. June
2017.
Desai, S., N. Deshmukh and S. Pramanik. ‘Precarity in a time of uncertainty:
gendered employment patterns during the Covid-19 lockdown in India’,
Feminist Economics 27(1–2) 2021, pp.152–72.
Bazarkulova, D. and J. Compton. ‘Gender differences in self-reported stress
and health behaviors of doctors in Kazakhstan during COVID-19’, Feminist
Economics 27(1–2) 2021, pp.81–102.
Mezzadri, A., S. Newman and S. Stevano. ‘Feminist global political economies
of work and social reproduction’, Review of International Political Economy
29(6) 2022, pp.1783–1803.
4.2 Introductory: ‘Where are the women?’

Much to their chagrin, the fields of IR and IPE were slow to incorporate
feminist approaches into their research agendas and, especially, their
teaching. At first glance, it may be surprising that even IPE was a laggard
in this regard. After all, IPE has always been sceptical of (traditional) IR’s
fixation on ‘great men,’ especially among military leaders and ‘statesmen’
in ‘great powers.’ IPE has always ventured into domains where there has
been a more diverse array of characters, for example among consumers,
producers of all sorts and civil society. Moreover, many of the most
influential scholars in IPE have been women: Susan Strange; Judith
Goldstein; Joanne Gowa; Helen Milner; and Katherine McNamara – to
name just a few. Yet, it was only in 1990 that Cynthia Enloe’s landmark
book Bananas, beaches and bases: making feminist sense of international
politics brought ‘feminist curiosity’ (as Enloe has termed it) to the centre of
enquiry in IR – and IPE.
This problem of women and feminist approaches missing from IR and
IPE is a microcosm of a much broader problem: women have been
systematically excluded and elided from social, political and economic
life. Exclusion is fairly straightforward. In formal and informal ways,
women (along with other people who are not cisgendered men) have been
excluded from the domains of IPE as voters, diplomats, entrepreneurs, etc.
34
The elision of women (and others) is more abstract and difficult to observe
but arguably equally pernicious. To ‘elide’ is to leave out or omit. In this
case, the contributions that women do make are ignored, misattributed
and/or undervalued in our renderings of IPE.1 Of course, addressing 1
This has been true
this means foregrounding the importance of women who have shaped for women studying
IR and IPE as well. See
IPE: Queen Elizabeth I, Margaret Thatcher, Indira Gandhi, et al. But
Hutchings, K. and P.
feminist approaches help us see much more than just this. Consider, Owens ‘Women thinkers
for instance, our models of the politics of trade liberalisation. Typically, and the canon of
scholars have assumed that workers in import-competing firms would international thought:
resist liberalisation. But this is based on simplistic assumptions about the recovery, rejection,
preferences of the assumed breadwinner. Perhaps this person has a partner and reconstitution’,
American Political
in an export-oriented industry. This person’s family also likely consumes
Science Review 115(2)
imports and would prefer to see the price of imports fall. As Enloe 2021, pp.347–59.
explains, ‘[M]aking useful sense – feminist sense – of international politics
requires us to follow diverse women to places that are usually dismissed
by conventional foreign affairs experts as merely “private,” “domestic,”
“local,” or “trivial.”’ (Enloe, 2014, p.3)
While it took too long to bring feminist approaches into IPE, these
approaches have quickly become some of the most engaging and fruitful in
recent years. This chapter will introduce you to those approaches to IPE. It
will help you to better understand the situations and experiences of all the
people who are not cisgendered men. And it will furnish tools that allow
us to reconsider every facet of IPE through a wider array of lenses. As such,
this will help you to acquire a richer, less distorted view of our world.
Activity 4.1
Where are the women in IPE, today?
You should discuss your findings with fellow students in the online forum in the course
4.3 Re-embedding ‘Homo Economicus’

Perhaps you have seen John Stuart Mill’s (in)famous characterisation,
‘Political Economy considers mankind as occupied solely in acquiring and
consuming wealth…’ In fact, Mill’s position was a little more nuanced
than this single sentence might imply. But the traditional ‘liberal’ view
(advanced by Mill) insists that we should – that we could! – study the
political-economy dimensions of ‘mankind’ apart from ‘the whole of man’s
nature as modified by the social state.’ (Mill, 1874)
Feminists demonstrate the importance of re-embedding ‘homo economicus’
– J.S. Mill’s ‘economic man.’ As Penny Griffin explains, ‘knowledge of
the economic world requires the kind of holistic and historical analysis
that embeds institutions and actors within their social context.’ More
broadly, ‘Gender analyses have overwhelmingly argued that the assumed
“rationality” and “gender neutrality” of economic discourse (in particular
classical liberal discourse) is a form of male-as-norm androcentricity,
perpetuating only “what men define as economics” (Peterson, 2005,
p.501), and thus excluding consideration of how certain knowledges and
practices are reproduced according to masculinised characteristics of
autonomy, objectivity and rationality.’ (Griffin, 2007)
For feminists, it is naïve to think that ‘knowledge of the economic world’
is based simply on unbiased analysis of hard ‘facts.’ All of us have priors,
biases, and blind spots, and this affects how we interpret and render the
world. Traditional analysis has bifurcated the world into public versus
private and masculine versus feminine. But these dichotomies are too
35
tidy. Consider, for instance, the ‘production’ of human life. Rather little
of the considerable work involved in gestating and birthing human lives
is counted in statistics about the economy. The labour of a doctor is
counted but not the labour of the mother in labour. Yet, is not gestation a
significant ‘investment’ in the economy? We can think of many examples
where ‘domestic’ work is not counted because it is done predominantly by
women who typically are not paid a market wage for this work.
Feminists help us see that our fixation on men and ‘masculine’ production
has skewed the facts about the state of the world. This matters because
policy makers craft policies based on these facts. For instance, many people
– predominantly women – spend hours every day walking to acquire clean
drinking water for their families. This would seem to indicate that there
is a serious economic need for investment in utilities. But these women
are not paid for this labour; and, by and large, they are not doing this at
a high opportunity cost of wage-labour they might otherwise undertake.
(Feminists argue that the opportunity cost for these women is low because
they would be underpaid as wage earners.) As a result, this massive, daily
economic enterprise does not show up in national statistics. The projected
monetary value of the savings from better utilities is zero. Meanwhile,
policy makers might be quite happy to spend a fortune to subsidise the
building of a factory that promises thousands of wage-paying jobs. As
Enloe explains, ‘No one’s labor is automatically cheap. It has to be made
cheap. It is the deliberate manipulation of ideas about girls and women,
and of notions of femininity, that empowers those who try to cheapen
women’s labor.’ (Enloe, 2014, p.259)
Feminists remind us that not all bodies are the same. Yet, our social,
political and economic institutions in the ‘public sphere’ have all been
fashioned largely by people with one type of body: the ‘male’ body. They
have been developed to suit that type of body. And this has created a
misfit with people who do not have that type of body. Often this has even
excluded people who are not men. Perhaps more important, we have
treated the ‘public’ sphere and the ‘market’ as places where men do things.
So, even when people who are not men have made vital contributions,
their contributions have been elided in our renderings of our world.
4.4 Gender: ideational over material

It would be a great mistake to reduce feminist approaches to simply
discussions about the material differences between different types of
bodies. In fact, the role of gender is much more a question of ideational
rather than material variables. The starting point for gender theory is that
gender is distinct from biological sex. The latter concerns the physical
configuration of a body, particularly as related to reproductive facilities.
Gender concerns social, psychological, cultural, economic, and behavioural
‘roles’ that come with being a man, a woman or a non-binary gender.
Gender is neither discrete nor necessarily fixed. Crucially, gender roles
are contestable, and, through contestation, they evolve constantly. This
can create challenges for disentangling, and pinning down, causality.
But it is safe to say that ‘masculinity’ and ‘femininity’ do not map simply
onto ‘men’ and ‘women.’ Feminists stress that men are not necessarily
more ‘bellicose,’ and women are not necessarily more ‘caring.’ These are
empirical questions to be studied, not assumptions to be taken as given. As
Griffin explains, ‘The turn towards “gender” as non-biological has already
been embraced by many feminists’ but ‘such research [also] recognises the
importance of situating the category of “woman” in socio-economic and
36
cultural terms, without risking the argument that all women share in the
same forms of oppression.’ (Griffin, 2007)
Activity 4.2
What are the differences between feminist analysis and the study of women and gender
in IPE? How does feminist theory help us to better understand the role of gender in the
global political economy? How does feminist theory help us to better understand global
political economy more broadly?
4.5 Feminism ≠ women’s rights

Feminism is not simply advocacy of women’s rights. This is true in two
senses. First, as we have seen, feminism is about much more than simply
women’s rights.
Second, not every advocate of women’s rights is necessarily a feminist.
John Stuart Mill was exemplary. He was a major advocate of recognising
women’s equal rights but he justified this on the grounds that women’s
intrinsic differences in preferences and demeanour needed legal
protection. Women, Mill argued, were equal, but complementary, to men.
What was women’s special province? ‘The great occupation of woman,’
Mill wrote, ‘should be to beautify life: to cultivate, for her own sake and
that of those who surround her, all her faculties of mind, soul, and body…
and to diffuse beauty, and elegance, and grace, everywhere.’ (Mill, 2014)
Mill is just one example. Others abound. For instance, more than two
dozen countries expanded the suffrage to include women following
the First World War. But many of these ‘grants’ of women’s rights were
predicated on ‘protecting’ the differentiated roles of men and women. For
instance, Germany’s new Weimar constitution acknowledged the ‘equality
between the sexes’ on the grounds that ‘[m]arriage…[is] the foundation of
family life and of the preservation and multiplication of the nation.’
One of the principal purposes of feminism is to help people see all the
ways that gender hierarchies operate – in the interests of some, against the
interests of others, and against the common good. Merely granting rights
to women and others does not remove these problematic structures. And,
as these cases show, some of these ‘reforms’ might well strengthen these
hierarchies.
4.6 Feminist ≠ woman

Not every woman is necessarily a feminist. And not every feminist is
necessarily a woman.
It should be obvious that a person who is not a woman can be a feminist.
To be a feminist is to problematise the patriarchy. But using feminist
approaches does not necessarily require that one is a feminist (politically,
socially or economically). After all, revealing the operation of gender
hierarchies is not the same as working to change them (although it might
be a good start to doing so).
It might be more difficult to imagine how it could be that a woman is not
automatically a feminist. Consider Susan Strange, who helped to create
the field of IPE and, as the field evolved, continuously blazed new trails.
Strange became a role model for scholars – especially women in the field,
many of whom she supported and mentored. She did immeasurable work
37
to flatten the academic hierarchies, including the patriarchy. Thus, she was
a feminist – by deed (see Navari, 2020).
But, in her words, Strange was an outspoken critic of feminist approaches
to the field. At points, she suggested that women would do a disservice to
themselves if they employed feminist approaches. Famously, Strange closed
her 1995 Presidential Address for the International Studies Association
with a direct appeal to the young women in the field. She relayed her love
for her six children, and insisted that they were not a burden, encouraging
her colleagues to not delay having children. (Strange, 1995)
At the time, this was seen as scandalous. Strange was criticised by non-
feminists for broaching ‘the personal.’ And she frustrated feminists by
playing down the gender hierarchies at play here. In the minds of some,
Strange was making light of the asymmetric challenges that women in our
field have faced. (Again, see Navari, 2020.)
Activity 4.3
Calculate the gender pay-gap for your likely/chosen profession using this page:
Gender Pay Gap
Report this for each age bracket, consider the likely trend across your career, and offer
some general reflections on your findings.
You should discuss your findings with fellow students in the online forum in the course

Mill, J.S. ‘On the definition of political economy; and on the method of
investigation proper to it’ in Essays on Some Unsettled Questions of Political
Economy. (London: Longmans, 1874) 2nd edition.
Mill, J.S. ‘On marriage’ in Robson, J.M. (ed.) Collected works of John Stuart
Mill, Volume XXI. (London: Routledge, 2014) [ISBN 9781138884137].
Navari, C. ‘The IR thought of Susan Strange.’ Talk in the ‘The Global Thinkers
Series.’ Oxford University. 21 April 2020.
Strange, S. ‘Presidential address for the International Studies Association: ISA
as a microcosm’, International Studies Quarterly 39(3) 1995, pp.289–95.

• identify the factors that have led to women (and others) being
excluded from the domain of IPE
• identify the factors that have led to women (and others) being elided
from our renderings of IPE
• offer useful examples of both the exclusion and elision of women (and
others)
• explain the ideational (as opposed to material) basis for gender
identities (as distinct from biological sex)
• outline the differences between feminism and the advocacy of
women’s rights
• outline the differences between embracing feminism and identifying as
a woman.
38

1. ‘If markets are driven by rational self-interest, why are
women systematically underpaid and underrepresented in
the global political economy despite evidence suggesting
that they outperform men?’ Discuss.
There are many ways that candidates could approach this question.
Perhaps the most promising start would be to demonstrate the
ways that our major approaches to IPE cannot explain this hugely
important, and persistent, phenomenon. Of course, Chapter 4 offers
the best material. But other chapters and materials lay out the key
assumptions of the (classical) liberal approach: the pursuit of self-
interest, the expectation that market processes will ensure an optimal
allocation of resources, and the belief in the progressive role of history.
Chapter 3 discusses Marxist materialist philosophy, which appears
to be contradicted by the finding presented in the prompt. It also
highlights Marxists’ fixation on class cleavages, which come at the
exclusion of other, perhaps more important, dimensions/hierarchies
like gender. Chapter 2 discusses mercantilism. Its fixation on material
security and national cleavages comes at the expense of considerations
of other types of insecurity (e.g. that women disproportionately face
within states and domestic economies) and, again, gender hierarchies.
As with Marxism, mercantilism is often criticized for fetishising those
forms of labour and production that are denominated in monetary
terms (e.g. wage labour and goods and services exchanged for money
in the ‘marketplace’) rather than (unremunerated) ‘domestic’ labour
and production.
Better responses would go beyond this to draw specific connections
to the current events described in periodicals like The Economist and
The Financial Times. For instance, COVID-19 provides fresh evidence of
the unequal sharing of ‘domestic’ responsibilities and their significant
consequences. As billions of people adjusted to lockdowns and new
ways of working across the world, the increased burden of caring for
family and educating children – who were learning from home – fell
disproportionately on women. As much news analysis and recent
academic research suggests, these significant differences ‘within the
home’ had the effect of further exacerbating the uneven playing field
‘outside of the home.’
Of course, this is just one example. Candidates could also discuss
persistent biases in hiring and promotion, sexual harassment in the
workplace (such as with the #MeToo movement), and the elision
of women’s contributions to knowledge (as e.g. scholars), their
performance in their roles (as e.g. hedge fund managers), and their
leadership within organisations (as e.g. policy makers). Talking
through cases like these is probably the best way to highlight the
limitations of the major approaches to IPE and to offer an original,
compelling response to the prompt.
2. ‘Because the point of IPE is to help countries develop
greater wealth, incorporating “gender” into IPE is a
pointless distraction.’ Discuss.
This question challenges candidates to discuss the implications of
bringing ‘gender’ into our analyses of IPE. More specifically, it is about:
(1) whether ‘gender’ should be central to our study; (2) the issues,
dynamics and processes, actors and questions this broaches; and (3)
how these things connect with the ‘core’ of IPE.
39
Weaker answers would simply offer a largely descriptive and

empirically focused discussion of the marginalised role of women in
the economy. They might give no, or only vague, definitions of gender
and what it entails.
Better answers would provide an initial discussion of ‘gender’ – noting
that it was a ‘social construct.’ Such answers might connect this to the
many different forms of feminist theory (e.g. liberal, critical, Marxist,
post-structuralist, constructivist and post-colonial). This would allow
candidates to counter the claims in the question by deploying the
insights that these different approaches offer.
One promising avenue is to consider the ‘public–private’ distinction
highlighted by gender theorists. This is rather significant in IPE
because we often treat the public sphere – the ‘market’ – as entirely
distinct from the private sphere – the ‘household.’ Yet, feminist theory
reminds us that actors participating in the public sphere are enabled
to do so only because of what happens in the private sphere. Thus,
fixation on wage-labour both skews our metrics of real economic
activity – such as labour – and creates a hierarchy that grants power to
those in ‘masculine’ roles.
Candidates could be even more ambitious. Gender theory helps us
to see the ways in which the conceptual, theoretical, epistemological
and ontological orientations of gender-unaware IPE have skewed
both the practice of IPE and the ways in which we study it. Masculine
values and orientations have distorted the questions we pose, the ways
we answer those questions, the figures we study and the areas we
consider as part of IPE. Candidates could point to some of the ways
in which the field itself could be reconsidered and reorganised with
gender theory at its heart.
Of course, it is possible – although challenging – to support the
prompt’s quote, to a certain extent. One way to do this would be
to argue in a materialist mode: that is, starvation is not socially
constructed; real economic development is a form of liberation; and
women (and other groups) tend to enjoy more opportunity, freedom
and equality in wealthier societies. Such candidates could point out
that gender theory is about so much more than simply maximising
material gain. So, while it is illuminating to challenge the premise of
the question, ‘How do we maximise growth?’, this is not the same as
answering this rather valid question.
40
Chapter 5: System-level approaches to IPE

The earliest approaches in the field of IPE proceeded from the level of
the international system. This chapter considers those approaches, their
evolution and the attacks of their critics.

• distinguish between system-level and sub-system-level analysis
• define international regimes, and explain how, according to
international regime theorists, regimes incentivise states to engage in
cooperative behaviour
• outline neorealists’ critiques of International Regime Theory
• develop useful examples that can be used to arbitrate between
the competing theoretical arguments made by neorealists and
international regime theorists.

Krasner, S.D. ‘State power and the structure of international trade’, World
Politics 28(3) 1976, pp.317–47.
Keohane, R.O. After hegemony: cooperation and discord in the world
political economy. (Princeton: Princeton University Press, 1984)
[ISBN 9780691122489] Chapters 4–5, pp.51–69.
Axelrod, R. and R.O. Keohane. ‘Achieving cooperation under anarchy: strategies
and institutions’, World Politics 38(1) 1985, pp.226–254.
Strange, S. ‘The persistent myth of lost hegemony’, International Organization
41(4) 1987, pp.551–74.
Mearsheimer, J.J. ‘The false promise of international institutions,’ International
Security 19(3) 1994–95, pp.5–49.

Kindleberger, C.P. The world in depression, 1929–1939. (Berkeley: University of
California Press, 2013) 40th Anniversary Edition [ISBN 9780520275850]
pp.288–300.
Krasner, S.D. (ed.) International regimes. (Ithaca, NY: Cornell University Press,
1983) [ISBN 9780801492501].
Winecoff, W.K. ‘“The persistent myth of lost hegemony,” revisited: structural
power as a complex network phenomenon’, European Journal of
International Relations 26(1) suppl (2020), pp.209–252.
Snidal, D. ‘The limits of hegemonic stability theory’, International Organization
39(4) 1985, pp.579–614.
Eichengreen, B. ‘Hegemonic stability theories of the international monetary
system’, Working paper no. 2193, NBER, March 1987.
Waltz, K.N. Theory of international politics. (Reading: Addison-Wesley Pub. Co.,
1979). [ISBN 9781577666707] Chapter 6, pp.102–104, pp.111–128.
41
5.2 Introductory: returning to the system-level

System-level approaches to IPE are some of the oldest. In fact, they trace
their origins to the 1970s – at the height of the Cold War – when scholars
in IR, such as Kenneth Waltz, had become fixated on the distribution
of power in the international system. Of course, IR scholars worried
mightily that the Western powers may be falling behind the powers of the
communist world. On the economic side, there was great concern that the
power shifts among NATO allies would create internal conflicts and reduce
the possibilities for cooperation – despite the looming communist threats.
Thus, the preoccupations of that historical context broadly shaped the
contours of these discussions.
But to say that system-level approaches are ‘classic’ is not to suggest
that they have little applicability these days; quite the contrary. The Rise
of China, the Resurgence of Russia, and the return of trade wars and
currency wars all fix our attention on the level of the international system
itself. In this context, the ideas, institutions, and interests that exist within
states might well matter less than do the structures of the international
system itself.
Some perspectives – such as Second Image Reversed – go even further.
They contend that the domestic politics of states might actually turn on the
interactions that play out at the international level (Gourevitch, 1978). For
instance, the fortunes of leaders in countries like Russia and China might
well turn on how well they navigate the challenges of the global system.
Or, in liberal democracies, the policy makers elected and the policies
embraced might depend on relative national economic performance. In
this view, Donald Trump’s election in 2016 might be explained (at least
partly) by fears that conventional candidates and policies had allowed the
US to fall behind rivals like China.
The distribution of power is often considered to be the defining feature
of the structure of the international system. But there are other system-
level factors to consider as well. One is the nature and extent of anarchy.
Scholars in the English School would add that there is also the operation
of the ‘anarchical society.’ Beyond just power, there is the scope and
influence of international regimes. In IPE, there is the all-important reality
that market actors often enjoy exit-options. For instance, a sovereign may
find that a new capital levy is undermined by capital flight. Similarly,
states often have to compete with one another for labour, investment and
market opportunities.
This chapter will consider the system-level approaches from a variety of
angles. It will develop the most prominent exemplars and consider their
strengths and limitations. In doing so, it will challenge you to consider the
usefulness of such approaches in understanding our world today.
Activity 5.1
What are the most significant ‘system-level’ variables in IPE? Which have changed the
most over the last several decades?
42
5.3 Hegemonic Stability Theory

Hegemonic Stability Theory (HST) is one of the most influential system-
level approaches to IPE. Most simply, HST prioritises the influence of the
distribution of (potential) economic power on IPE. HST has been applied to
trade relations, monetary relations and international economic cooperation
more broadly (e.g. over common challenges such as climate change). HST
draws on both mercantilist and (laissez-faire) liberal rationales.
The group of various Hegemonic Stability Theories is actually a varied
mix with different points of emphasis and rather different assessments of
the operation of hegemonic power. For instance, Charles Kindleberger’s
classic analysis of the international monetary order features a relatively
benign – almost magnanimous – hegemon leading the global system.
Stephen Krasner’s analysis of the global trade regime, by contrast, features
a hegemon that is self-centred and highly coercive.
Here, we will explore Krasner’s variant of HST for several reasons. First,
it is so carefully specified (analytically) that it serves as an exemplary
model of this style of analysis. Its variables are explicitly defined and its
predictions are the least ambiguous. Second, it has proven more influential
across the decades than have the other variants. Finally, it is arguably the
most directly applicable to the international system today where the US’s
share of global output continues to decline and China’s continues to rise.
Liberal (laissez-faire) economists are uncommonly united in their fondness
for reminding us that increasing trade between economies tends to benefit
both of the participants. But Hegemonic Stability Theorists recognise that
countries do not uniformly embrace trade liberalisation. The result is that
the overall level of global economic openness varies considerably over
time. In fact, international trade – as a share of total global output – was
higher in 1900 than it was in 1960.
Krasner explained this using the distribution of power in the international
system and the ways in which states build their strategies in response to
it. Following mercantilists and various development theorists (discussed
in Chapters 2, 7 and 8), Krasner recognised that smaller, less-developed
states face incentives to protect their producers from foreign competition.
In particular, Krasner argued, such states fear becoming beholden to
the larger, more developed economies, which would acquire economic
and political leverage vis-à-vis the weaker states. This hesitancy, though,
is overcome when one economy emerges as a hegemon – that is when
that one economy has so much power that resistance to it is essentially
futile. In an unforgettable phrase, ‘The most important conclusion of this
theoretical analysis is that a hegemonic distribution of potential economic
power is likely to result in an open trading structure.’ (Krasner, 1976, p.20)
Krasner’s HST was immensely ambitious. It sought to explain broad patterns
across the whole international system across several centuries using a small
number of important variables. But it was probably too ambitious.
While Krasner’s theory and argument were immensely lucid, his analysis
proved underwhelming empirically. Looking across these centuries,
Krasner gauged both the distribution of power and the overall level of
economic openness at the international level. Krasner’s HST explained
merely one-third of the periods observed. Moreover, his measures of both
power and openness were fuzzy and his periodisation, unconventional. He
was able to salvage his theory only by lagging the outcome (dependent)
variable and considering sub-system-level variables (such as domestic
institutions).
43
Activity 5.2
What are the major similarities and differences in the different variants of hegemonic
stability theory?
5.4 International Regime Theory

HST was created in the 1970s, when much of the world was convinced
that US hegemony was finished. Some scholars, such as Susan Strange,
knew better. Strange argued that the US was still dominant in the four
principal global structures: security, production, finance and knowledge
(Strange, 1987).
Nevertheless, many leading IPE scholars remained convinced that the
global economic order was now either bipolar or multipolar. For them, the
puzzle was that global economic openness continued – and even expanded
– despite the relative decline of US economic power. How, they asked,
could cooperation persist ‘after hegemony’? Scholars like Robert Keohane
answered: through international regimes (such as the GATT and the IMF).
In the classic definition, international regimes are ‘sets of implicit or
explicit principles, norms, rules and decision-making procedures around
which actors’ expectations converge in a given area of international
relations.’ (Krasner, 1983, p.2)
But how, precisely, do international regimes incentivise sovereign states
to comply with their dictates? The formulators of International Regime
Theory were at pains to show that international cooperation is often in the
interests of states. Borrowing from Game Theory, they used the so-called
Prisoner’s Dilemma. In this game, a pair of actors choose between betraying
trust for a small benefit and a larger benefit that is only generated if both
actors choose to trust the other. In a one-off game where the actors cannot
coordinate, game theorists predict that ‘rational’ actors will accept the
smaller benefit even though they would both prefer to cooperate with one
another. Criminal gangs, however, can alter the incentives – by punishing
those who ‘defect’ – and thus ensure cooperation by both actors.
International Regime Theorists argue that many situations in international
relations are these kinds of Prisoner’s Dilemmas where cooperation is
desired but cannot be assured. Robert Axelrod and Robert Keohane detail
the functions that international regimes perform. First, regimes define
obligations, which allows expectations to converge. They centralise and
furnish information, which enables monitoring and compliance. They
reduce transaction costs, which makes cooperation easier in the first
place and more likely to recur. This also facilitates repeated interactions,
increasing the importance of reputation and incentivising states to
cultivate positive reputations. Last, international regimes can even enforce
agreements through the denial of ‘carrots’ (benefits) and sometimes the
use of ‘sticks’ (punishments) (Axelrod and Keohane, 1985, p.237).
Activity 5.3
‘The rise of China is the first real test of International Regime Theory since it was first
formulated. Regrettably, it shows that International Regime Theory is wanting – and that
hegemonic stability theory has always been correct.’ Discuss.
44
5.5 The neorealist critique

Examining the international regimes that have emerged, some IR
‘neorealist’ scholars argue that they are unimportant. In a classic piece
‘The false promise of international institutions’ (1995), John Mearsheimer
questioned whether international regimes have any independent effect
on state behaviour. As we have seen, International Regime Theory
originated in the field of IPE. Mearsheimer makes much of this, insisting
that International Regime Theory ‘is of little relevance in situations where
states’ interests are fundamentally conflictual and neither side thinks it has
much to gain from cooperation…’ (Mearsheimer, 1995, p.15).
But ‘neorealist’ scholars go a step further. Following the mercantilists,
these scholars emphasise the interconnectedness of wealth and power, of
prosperity and peace. Thus, even in economic relations where states do
gain absolutely from trade integration, neorealists conclude that policy
makers will fixate on relative gains and losses due to overriding security
concerns. Joanne Gowa, for instance, finds that trade patterns typically
follow the lines of amity and enmity.
Activity 5.4
Do you think that international regimes have an independent effect on international
relations? Defend your answer with empirical examples.

• distinguish between system-level and sub-system-level analysis
• define international regimes, and explain how, according to
international regime theorists, regimes incentivise states to engage in
cooperative behaviour
• outline neorealists’ critiques of International Regime Theory
• develop useful examples that can be used to arbitrate between
the competing theoretical arguments made by neorealists and
international regime theorists.

1. ‘Hegemonic power is necessary to create, but not to
sustain, a stable international economic order.’ Discuss.
To answer this question, candidates need to show an understanding of
Hegemonic Stability Theory (HST) and be able to apply it to the study
of international cooperation. One way to start the answer is to describe
briefly the concept of hegemonic power and leadership as developed
in HST. This should involve a discussion of the different roles that
hegemons play in creating international cooperation, for example by
coercing or inducing other states to participate in cooperative
endeavours, by punishing free riders, and/or by providing policy
models and leadership in the solution of collective action problems.
Following this, candidates would need to turn to the question of
whether such hegemonic leadership is necessary to create, but
not to sustain, international economic order. There are therefore
45
two dimensions to this discussion: are hegemons necessary for

creating international economic regimes, in the sense that no lasting
international cooperation is possible without hegemons; and are these
regimes then able to survive even if hegemonic power disappears? It is
thus important not only to describe HST but to consider the specifics
of the question and engage with the two separate questions that are
contained within this prompt. A strong answer would cite relevant
historical evidence to support the argument, for example drawing on
the experience of the UK in the 19th century and/or the United States
in the 20th century, focusing on the decline of British and US power
and the consequences for international order.
In recent years, these classic questions have taken on new meaning
and significance given the rise of China. The statement in the prompt
would suggest that international regimes are likely to persist even as
the USA declines – and China rises. But there might well be another
factor that prompt misses: the acquiescence of the rising, and thus
potentially destabilising, powers.
2. ‘The reappearance of trade wars in the contemporary
global political economy demonstrates the limits of
International Regime Theory.’ Discuss.
This question challenges candidates to apply International Regime
Theory to contemporary international relations, particularly the trade
wars that have been raging in recent years. To answer the question,
you should both present the reasons behind the liberal argument
and consider how convincing the claim is. It is important to focus the
application of these theories to contemporary events.
A weak answer would simply describe the liberal theory of
international regimes and make some passing reference to the trade
wars. A satisfactory answer would focus more clearly on the specific
claims that liberals make about the nature of international regimes,
the reasons behind their creation and the effect they have on state
behaviour. In this context, candidates should explain why it is that
states would voluntarily restrict their sovereignty and be bound by
international regimes in order to gain certain economic benefits
from membership in such regimes. If those claims are true, however,
then why have states risked losing those benefits for the stake of
participating in these trade wars? In other words, why have the
regimes failed to work?
This could involve a discussion of the use of protectionism as part
of developmental strategies as well as the need for politicians to
appeal to domestic interest groups that may prefer mercantilist-
style protection from increased international competition. Such an
answer obviously requires analysis of the specific actions of the major
‘belligerents’ in the ‘wars.’ But it should also go much deeper, diving
into the key sub-system-level variables. In the case of the US-China
Trade War, one could walk through the electoral considerations
that prompted Trump’s tariffs and those that were targeted by Xi in
retaliation. This would be a story about the ideas, the interests and the
institutions at play.
Another promising approach would be to draw on a wider range of
theoretical arguments, from the mercantilist and Marxist traditions,
to consider the validity of the liberal claim and potential counter-
arguments. One particularly important argument in this context
comes from Hegemonic Stability Theory. This argument claims that
46
hegemonic power, and not just states’ self-interest, is needed to create

and maintain international regimes. This might explain the USA’s
shift towards closure; but it does not explain China’s apparent lack
of commitment to keeping the system open. The best answers would
grapple with that tension.
47
Notes
48
Chapter 6: Sub-system-level approaches

These days, sub-system-level analysis is the most popular approach to IPE.
This chapter develops those approaches.

• provide useful definitions and examples of the Three I’s: interests,
ideas, and institutions
• explain how interests can influence foreign economic policy using
relevant examples
• explain how ideas can influence foreign economic policy using
relevant examples
• explain how institutions can influence foreign economic policy using
relevant examples
• make arguments about how the Three I’s compete and combine to
shape foreign economic policy.

Goldstein, J. Ideas, interests, and American trade policy. (Ithaca, NY: Cornell
University Press, 1993) [ISBN 9780801499883] Chapter 1.
Rogowski, R. Commerce and coalitions. (Princeton: Princeton University Press,
1989) [ISBN 9780691023304] Chapter 1.
Simmons, B.A. Who adjusts?: domestic sources of foreign economic policy during
the interwar years. (Princeton, NJ: Princeton University Press, 1994)
[ISBN 9780691017105] Chapter 1.
Frieden, J.A. ‘Exchange rate politics: contemporary lessons from American
history’, Review of International Political Economy 1(1) 1994, pp.81–103.
Schonhardt-Bailey, C. From the Corn Laws to free trade: interests, ideas, and
institutions in historical perspective. (Cambridge, MA: MIT Press, 2006)
[ISBN 9780262538749] Chapter 1.
Dean, A. From conflict to coalition: profit-sharing institutions and the political
economy of trade. (Cambridge: Cambridge University Press, 2016)
[ISBN 9781316717592] Chapter 1.
Snider, E.A. Marketing democracy: the political economy of democracy aid
in the Middle East. (Cambridge: Cambridge University Press, 2022)
[ISBN 9781108844260] Chapter 2: ‘A Political Economy of Democracy Aid.’

Putnam, R.D. ‘Diplomacy and domestic politics: the logic of two-level games’,
International Organization 42(3) 1988, pp.427–60.
Milner, H.V. Resisting protectionism: global industries and the politics of
international trade. (Princeton, NJ: Princeton University Press, 1988)
[ISBN 9780691010748].
Lake, D.A. ‘Open economy politics: a critical review’, The Review of International
Organizations 4(3) 2009, pp.219–44.
North, D. and B. Weingast ‘Constitutions and commitment: the evolution of
institutions governing public choice in seventeenth-century England’, The
Journal of Economic History 49(4) 1989, pp.803–832.
49
Acemoglu, D., S. Johnson and J.A. Robinson ‘The colonial origins of

comparative development: an empirical investigation’, The American
Economic Review 91(5) 2001, pp.1369–401.
Frieden, J.A. and R. Rogowski ‘The impact of the international economy on
national policies: an analytical overview’ in Milner, H.V. and R.O. Keohane
(eds) Internationalization and domestic politics. (Cambridge: Cambridge
University Press, 1996) [ISBN 9780521565875] pp.25–47.
Dean, A. From conflict to coalition: profit-sharing institutions and the political
economy of trade. (Cambridge: Cambridge University Press, 2016)
[ISBN 9781316717592] Chapter 2.
Milner, H.V. Interests, institutions, and information: domestic politics and
international relations. (Princeton, NJ: Princeton University Press, 1997)
[ISBN 9780691011769].
Jamal, A. and H.V. Milner. ‘Economic self-interest, information, and trade
policy preferences: evidence from an experiment in Tunisia.’ Review of
International Political Economy 26(4) 2019, pp.545–72.
Pepinsky, T. ‘Autocracy, elections, and fiscal policy: evidence from Malaysia’,
Studies in Comparative International Development 42(1–2) 2007, pp.136–63.
6.2 Introductory: The 3 I’s

Previously, we considered the system-level approaches to IPE. In this
chapter, we will open the ‘black box’ of the state, examining the sub-
system-level factors affecting foreign economic policy. In these approaches,
scholars consider the infamous ‘3 I’s,’ – so-called because each begins with
the letter ‘I.’ These are: interests, institutions, and ideas.
Of course, all three of these can also exist at the system-level. So, to avoid
confusion, we will specify our scope deliberately.
First, we have interests. Typically, we say that states pursue their ‘national
interests’ at the level of the international system. This includes maximising
power, ensuring security, growing the economy and pursuing economic
stability.
Within states, there are also economic and/or political interests that vie
for influence. For instance, producers seek to gain access to new markets,
while consumers hope to get the best prices. At the same time, import-
competing firms seek protection from foreign competition. And creditors
and investors hope that their home governments will do all they can to
protect their interests (and property) abroad.
Next, we have institutions. At the system-level, we have international
regimes (discussed in Chapter 5). These include formal, ‘public’ entities
such as the WTO, the IMF and the UN. And they also include informal
norm-based regimes, such as the international gold standard system.
At the sub-system-level we focus on domestic institutions. These can be
as encompassing as regime-type (e.g. democracy, autocracy), the broad
structures determining property rights and the rule of law. They can also
be as specific as who (or what) has authority over trade policy (e.g. the
legislature versus the executive), the level of central bank independence
and how treaties are ratified.
Last, we have ideas. At first glance, it might not seem possible that ideas
could operate at the level of the international system. After all, are not
ideas always within the heads of individuals? In fact, much in IPE is
explicable in terms of system-wide norms and processes. Consider, for
instance, the typical dispute resolution process (which could be via self-
help or international law). Constructivists would emphasise the concept
of sovereignty (and the many interpretations thereof). Racial hierarchies
50
are another striking example. These are manifestly not rooted in material
differences between human individuals and, yet, the belief in a ‘hierarchy
of races’ has had substantial (and enduring) effects on our world. More
controversially, some scholars emphasise possible ‘civilisational’ differences
(such as in Samuel Huntington’s ‘Clash of Civilisations’).
At the sub-system-level, we all (as individuals) depend on our ideas. This
includes both our values and our understandings of the world – including
our theories, ideologies and strategies. Within societies, we also have the
amalgamation of this into culture.
In this chapter, we will explore how each of these types of variables can
shape foreign economic policy (and thus IPE). We will also consider how
they compete and combine to generate outcomes of interest.
6.3 The Corn Laws: a significant and useful case

In order to draw these comparisons, we will broadly consider a single,
landmark case in the history of the global economic order: the Repeal
of the Corn Laws. The Corn Laws were restrictions on the sale of
grain (‘corn’) in the UK. These laws had a long history, but they were
significantly expanded after the Napoleonic Wars ended in 1815. They
were a classic form of protection, limiting grain imports so as to prop up
the price of domestically-produced grain. Overwhelmingly, they benefited
landowners at the expense of consumers and (due to retaliation abroad)
urban producers.
By the 1840s, the Corn Laws had become the principal – and symbolic
– target of a nationwide campaign from the Anti-Corn Law League. In
fact, The Economist magazine was created (in 1843) to battle the Corn
Laws. For years, the Conservative Prime Minister Robert Peel and fellow
Conservative landowners voted against repeal, effectively blocking the
proposed policy shift. But in 1846, Peel changed his mind and convinced
enough landowners to join him that the Corn Laws were repealed.
We will consider this case for several reasons. First, the repeal itself
was substantively significant. More important, it became the first step
in a much broader shift: the radical reorientation of the UK-led global
economic order towards trade liberalisation.
Second, this case is intrinsically puzzling. Why did the landowners change
their minds and vote directly contrary to their interests? And how can we
get actors to vote against their interests today (such as to reverse climate
change)?
For these reasons, the Repeal of the Corn Laws has become a classical,
canonical case in the field of IPE. As we shall see, it is central in
several influential pieces in the field. And even those theories of trade
liberalisation that do not explicitly analyse the Corn Laws must be able to
explain (implicitly) this case. Thus, the Corn Laws are in IPE what the First
World War is in IR: it would be odd indeed to propose a theory of trade
liberalisation that could not also account for this canonical case.
Last, this case is relevant today. The UK’s Corn Laws closely parallel the
extensive agricultural policies in the US, the EU, Japan, India and other
countries today. These policies have been the principal target of the Doha
Development Round for the last several decades.
So, for our purposes, the various analyses of this case allow us to probe
the 3 I’s.
51
Activity 6.1
Consider the Corn Laws in the 19th century UK. Identify two or three contemporary
policies and/or cases that have similar dynamics and/or cover the same types of
substantive issues.
6.4 Interests
Remember Adam Smith’s two-pronged attack on mercantilism. First, Smith
argued, selfish merchants and manufacturers captured British politics and
built the mercantile system (which had no intellectual justification) to
advance their own interests. For Smith, the ‘bad’ mercantilist ideas were
not really important. They were a proverbial ‘fig leaf’ to cover the naked
pursuit of interests by a few well-placed interest groups.
Many modern scholars follow in this mode. Many of these models are
subtle and complex. Those developed by Ronald Rogowski and Michael
Hiscox are exemplary.
But other accounts are blunt. Nobel-prize-winning economist George
Stigler was at pains to stress that ‘economists exert a minor and scarcely
detectable influence on the societies in which they live.’ ‘[I]f [Richard]
Cobden had spoken only Yiddish, and with a stammer, and [Robert] Peel
had been a narrow, stupid man,’ Stigler (1982) declared, ‘England would
have moved towards free trade in grain as its agricultural classes declined
and its manufacturing and commercial classes grew.’
Jeff Frieden comes to the same conclusion throughout his magisterial
history of global capitalism. ‘The classical ideas alone were not the cause
of the [19th century] era’s global economic openness,’ Frieden writes.
‘After all…the heyday of European free trade came a hundred years after
[Adam] Smith had demonstrated its desirability.’ Instead, ‘The defeat of
mercantilism required a major reform of British political institutions…
Powerful people defending their interests drove the opening of country
after country to the world economy.’ (Frieden, 2020, pp.32–33)
Until recently, the ‘interests-based’ explanation has been the default
explanation for every foreign policy. This is beginning to change within
the field, however. For one thing, scholars like Cheryl Schonhardt-Bailey
– whose first book was entirely about the Repeal of the Corn Laws – have
reminded us of the complexity of actors’ ‘interests.’ Not least, leading
actors must consider various economic and political considerations. Layna
Mosley, Victoria Paniagua and Erik Wibbels (2020) show that even the
best-informed and most sophisticated actors still struggle to specify their
interests and champion the policies that would serve them best.
6.5 Ideas
J.M. Keynes’s unforgettable final words in The general theory (1936)
emphasised the importance of ideas. ‘[T]he ideas of economists and
political philosophers, both when they are right and when they are wrong,
are more powerful than is commonly understood. Indeed the world is
ruled by little else. Practical men, who believe themselves to be quite
exempt from any intellectual influences, are usually the slaves of some
defunct economist. Madmen in authority, who hear voices in the air, are
distilling their frenzy from some academic scribbler of a few years back.’
(Keynes, 1936, Ch.24) Keynes’s rendering is beautiful but underspecified.
52
He does not explain how, precisely, ideas shape foreign economic policy.
Scholars in IPE, however, have filled in the gaps. Broadly, there are three
ways/modes by which ideas affect IPE.
First, ideas shape our values, our preferences and our priorities. Many
theorists have tried to explain human behaviour by conceptualising
people as (approximations of) materially-oriented self-interest-maximising
individuals. (Thomas Hobbes is perhaps the most extreme exemplar.)
But this is belied by the innumerable examples of pro-social people
pursuing immaterial objectives at high personal cost – for example those
volunteering for combat, undertaking religious missions, etc.
Within the field of IR, ‘constructivist’ scholars emphasise that many of
our purposes and most of our identities are constructed through social
processes. This is true in IPE as well. Consider, for instance, the variation
in actors’ preferences regarding the trade-offs between economic growth
versus inequality, economic opportunity versus instability, and risk
acceptance versus risk aversion.
Second, ideas instruct actors on the means by which they pursue their
objectives (however derived). The world of IPE is complicated. It is not as
simple as merely desiring growth, stability and opportunities. One has to
decide which course will best attain these results. In this mode, ideas work
like ‘roadmaps’ that guide actors towards their destinations.
But, like real maps, ideas may be inaccurate, incorrect and even
misleading. Similarly, different actors might ‘read’ the ‘map’ differently and
plan their routes along different paths. In this vein, discoveries can range
from the small-but-meaningful to world-changing. For instance, finding a
way to better negotiate trade agreements might be akin to finding a more
efficient or more pleasant route from home to school. But discovering the
viability of a post-gold-backed monetary system might be comparable to
Christopher Columbus connecting the Americas to Eurasia and Africa.
Douglas Irwin has shown how ideas proved essential to the Repeal of
the Corn Laws in 1846. For Irwin, this was not simply about the rise of
liberal thinking among economists. Instead, he traces the evolution of
Prime Minister Peel’s specific ideas about the effects of the Corn Laws
on the UK’s economic performance. Irwin writes, ‘Economic ideas, and
not the pressure of interests, were central to Peel’s conversion to favor
repeal of the Corn Laws. As Peel was pivotal to the success of repeal, the
analysis presented here confirms the important role of ideas and ideology
in the great drama surrounding the first success of free trade since the
emergence of the science of political economy.’ (Irwin, 1989)
6.6 Institutions
The eternal battle of ‘ideas versus interests’ has often distracted from
the third of our 3 I’s: institutions. In the 1980s and 1990s, scholars
– particularly economists – seemed to ‘rediscover’ the importance of
institutions in shaping foreign economic policy. Nobel-prize-winning
economist Doug North led the charge in conceptualising the ways in which
institutions shape actors’ incentives and thus their choices.
Of course, the focus on institutions was not itself original. Classical liberals
like Thomas Hobbes, John Locke and the Baron de Montesquieu had written
extensively on the importance of institutional design. Institutional analysis
is central to the study of development (as discussed in Chapters 7 and 8).
Even within modern political economy, many of the leading accounts of the
role and operation of institutions closely paralleled (at the sub-system-level)
53
the analyses of the International Regime Theorists. Compare, for instance,

North’s definition of institutions to the definition of ‘international regimes’
developed several years earlier by scholars in IPE. (North, 1990, p.3)
How do domestic institutions shape IPE? Most simply, institutions
determine the ideas and interests that are allowed to shape policy. For
instance, consider the role of institutions in our case of the Repeal of
the Corn Laws. Adam Smith wrote (in 1776) that certain special interest
groups (merchants and industrialists) controlled the government and
imposed protectionist legislation that was good for them but bad for
working people. While the working people vastly outnumbered the elites,
the UK’s antidemocratic institutions ensured elite rule. The Great Reform
Act of 1832, however, vastly expanded the franchise (by more than 50
per cent). This empowered non-elites, who rooted out the protectionism
that was lowering their real wage. Simply put, democratising the UK’s
institutions → new ideas and interests in power → the UK’s trade
liberalisation.
In recent years, scholars have complicated this story, developing richer
accounts of domestic institutions and how they operate. Adam Dean, for
instance, finds that many UK workers actively resisted trade liberalisation
in 1846. The trouble, Dean finds, is that merely liberalising trade would
not necessarily benefit workers. After all, their employers might simply
increase their profits. This concern was redressed with an institutional
innovation. New ‘profit-sharing institutions’ guaranteed that employers
and workers alike would share the benefits of trade liberalisation. This
credible commitment convinced workers to support liberalisation,
providing the last element of the coalition required to repeal the Corn
Laws (Dean, 2016, pp.2–3).
Activity 6.2
Grapple with the following questions:
• How do ideas, interests and (domestic) institutions compete – and/or combine – to
shape states’ foreign economic policies?
• In any given case, how can we pick apart the roles played by these different factors?
• Do the roles played by the Three I’s vary across contexts? If so, what causes them to
vary?

Bordo, M.D., B. Eichengreen, D.A. Irwin, J. Frankel and A.M. Taylor ‘Is
globalization today really different from globalization a hundred years ago?
[with Comments and Discussion]’, Brookings Trade Forum 1999, pp.1–72.
Gourevitch, P. ‘The second image reversed: The international sources of
domestic politics’, International Organization 32(4) 1978, pp.881–912.
Irwin, D.A. ‘Political economy and Peel’s Repeal of the Corn Laws,’ Economics
and Politics 1(1) 1989, pp.41–59.
Keynes, J.M. The general theory of employment interest and money. (London:
Macmillan and Co., 1936).
North, D.C. Institutions, institutional change and economic performance.
(Cambridge: Cambridge University Press, 1990).
Stigler, G. The economist as preacher and other essays. (Chicago, IL: University of
Chicago Press, 1982).
54

• provide useful definitions and examples of the Three I’s: interests,
ideas, and institutions
• explain how interests can influence foreign economic policy using
relevant examples
• explain how ideas can influence foreign economic policy using
relevant examples
• explain how institutions can influence foreign economic policy using
relevant examples
• make arguments about how the Three I’s compete and combine to
shape foreign economic policy.

The following questions do not require sub-system-level analysis. But they
can be answered readily using this type of approach.
1. ‘China’s rapid rise since joining the WTO shows that Adam
Smith’s critique of mercantilism is wrong.’ Discuss.
This question requires that candidates assess the developmental
impact of trade liberalisation and protection in the specific case of
China. It is a challenging question because it requires students to think
about trade theory, development strategies and the particular choices
and outcomes in this crucial case.
It also requires some familiarity with the critique that Adam Smith
levied against the mercantilist approach to global political economy.
Simply put, Smith argued that key sub-system-level variables –
ideas, interests and institutions – drove this result. He argued that
specific interest groups – merchants and manufacturers – captured
the UK policy making process. They were able to do this because the
institutions were undemocratic and highly susceptible to this kind of
capture and they peddled bad mercantilist ideas onto the public to
justify and rationalise their policies.
A good way to start would be to introduce the key tenets of
mercantilism. A brief review of what makes mercantilism a distinctive
tradition of IPE would suffice. This is not the place to go into much
detail about how mercantilism changed over time; instead, candidates
should focus on some core insights of mercantilism that have stayed
constant over centuries. Thus, candidates should introduce the
mercantilist understanding of power and wealth, with reference to the
idea of global wealth as a fixed sum and global economic competition
as a zero-sum game, the need for states to intervene in international
trade to maximise their economic gain and the importance of power
for the expansion of exports and accumulation of wealth. In particular,
candidates must be sure to highlight the application of these principles
to specific areas of development.
Smith denounced the mercantilist approach to IPE, and is often
credited with launching the liberal tradition in IPE. He (and his
followers) argued that trade liberalisation promotes economic growth
and that protection follows from bad ideas and self-interested actors
seeking to protect themselves from competitors. This, Smith argued,
55
created inefficiency and bred conflict at home and abroad – all of

which divert resources and attention away from development.
Despite these (quite sensible) arguments, developing countries have
often been sceptical of this perspective. When they enter global
markets, they face competition from countries that have already
industrialised, which conveys first-mover advantages, and that have
significant structural power in the global economy. They therefore
find themselves in a relatively weak position in global competition.
Developed countries are also often charged with hypocrisy: they
advocated liberalisation when they, themselves, often developed
behind tariff walls.
From here, candidates will want to explore this debate within the
specific context of China. Candidates should pay particular attention to
those features that are – and are not – generalisable beyond the case
of China.
Certainly, China was at a developmental disadvantage earlier on. But
it has since become dominant in some aspects of trade (particularly
manufacturing and assembly in global value chains). Candidates
should also consider the extent to which China follows mercantilist
versus liberal approaches. On the one hand, it has an exceptionally
strong state, which intervenes in, and leads, its economy. On the other
hand, it has joined the WTO, adopted many liberal norms (regarding
property rights) and reduced its capital controls. So, what has been the
role of trade liberalisation – like joining the WTO – versus the heavy
state intervention in the creation of export industries, investment
in education and human capital? Also, what has been the role of
factors that do not relate to its approach, per se: for example China’s
massive population, its non-democratic tradition, its geography (ample
coastline and access to raw materials)? In other words, there are
many different things to consider, and they can all lead in different
directions. The best answers would follow these threads in a careful
and thoughtful way. Some could also integrate ‘dependency theory’ to
explain the particular form of the policies employed in China, although
this is truly going well above and beyond expectations.
2. Critically assess the claim that globalisation is not a new
phenomenon in the history of the global political economy.
This question is essentially about the historical dimensions of
globalisation. While many non-experts (and even some academics)
conceptualise globalisation as an entirely new phenomenon, starting
roughly in the 1970s, historians have pointed to the longer history
of global economic integration, stretching back at least to the 19th
century, or colonial days, or even earlier periods of global economic
integration. The question thus asks candidates to establish whether
globalisation is not a new phenomenon, and whether historians that
trace it back beyond the 1970s are right or not.
As a first step, the answer would need to identify important periods
of global economic integration and disintegration. The most
common starting point is to compare and contrast the current era of
globalisation with the so-called First Era, which peaked just prior to
the First World War. The Bordo et al. piece provides great fodder for
this question.
But when did this era begin? What were its essential features? And
what brought it about? These questions are less obvious and more
interesting. They help to define globalisation itself.
56
Many accounts (such as Schonhardt-Bailey and Kindleberger) tie the

First Era of Globalisation to the free trade movement that reached a
crescendo in the mid-19th century. Morrison, by contrast, suggests
that the origins of that globalisation are found in Adam Smith’s pivotal
successes in the 1780s. But one can go back even further to the first
European efforts at colonisation, when countries such as Spain,
Portugal, the Netherlands, France and England integrated vast parts of
the world into one colonial system.
Having established a broader historical view of globalisation,
candidates would then need to establish if the more recent experience
of globalisation is different to previous ones and in what way(s).
A good answer would identify specific contemporary trends, as for
example in the areas of international investment, the integration of
global supply chains and economic policy coordination that could
mark out the modern experience of globalisation, and contrast those
with the more limited forms of integration characteristic of earlier
periods. At the same time, the global financial system was, in some
ways, more integrated before the First World War than it is today.
The same is true of international migration, which involved a larger
percentage of the world’s population than it does today.
57
Notes
58
Chapter 7: Development: classic perspectives
Chapter 7: Development: classic

perspectives

Development has long been at the heart of IPE. This chapter reviews more
traditional, ‘classic’ approaches to development.

• outline the role of institutions in promoting development, according to
the classical view
• discuss, using examples, liberal imperialism
• discuss, using examples, state-led development
• analyse the rise of China using classical perspectives on development.

Frieden, J.A. Global capitalism: its fall and rise in the twentieth century,
and its stumbles in the twenty-first. (New York: W. W. Norton, 2020)
[ISBN 9780393329810] Chapter 18 ‘Countries Catch Up.’
Locke, J. Second treatise of government. (London: 1689) Ch V.
Smith, A. The wealth of nations. (London: 1776) Bk IV, Ch. 1.
North, D. ‘Institutions and economic growth: an historical introduction’, World
Development 17(9) 1989, pp.1319–1332.
Acemoglu, D., S. Johnson and J.A. Robinson ‘The colonial origins of
comparative development: an empirical investigation’, The American
Economic Review 91(5) 2001, pp.1369–401.
Kipling, R. ‘The white man’s burden: the United States and the Philippine Islands’
1899.
Jackson, A. Message to Congress ‘on Indian removal’, US National Archives,
1830.
Gast, J. American progress. Oil on canvas. Held by the Autry Museum of the
American West. 1872.
Chang, H-J. Kicking away the ladder: development strategy in historical
perspective. (London: Anthem Press, 2002) [ISBN 9781843310273]
Chapter 1.
Hamilton, A. Report on manufactures. (Boston, MA: Potter Publishing, 1892
[1791]) pp.5–8, pp.23–25, pp.45–46, pp.52–56, p.84.
Schmoller, G. von The mercantile system and its historical significance illustrated
chiefly from Prussian history. (New York: Macmillan, 1896 [1884])
pp.50–51; pp.67–77.
Chey, H-k. and E. Helleiner ‘Civilisational values and political economy beyond
the West: the significance of Korean debates at the time of its economic
opening’, Contemporary Politics 24(2) 2018, pp.191–209.
Callahan, W. China dreams: 20 views of the future. (Oxford: Oxford University
Press, 2013) [ISBN 9780190235239] Introduction.

Arneil, B. ‘Trade, plantations, and property: John Locke and the economic
defense of colonialism’, Journal of the History of Ideas 55(4) 1994,
pp.591–609.
59
Williamson, J. ‘The Washington consensus as policy prescription for

development.’ Speech delivered at the World Bank. 13 January 2004.
Steinberg, D.A. ‘Developmental states and undervalued exchange rates in the
developing world’, Review of International Political Economy 23(3) 2016,
pp.418–449.
Collier, P. The bottom billion: why the poorest countries are failing and
what can be done about it. (Oxford: Oxford University Press, 2007)
[ISBN 9780195374636].
Landes, D.S. The wealth and poverty of nations: why some are so rich and some
so poor. (London: W. W. Norton & Company, 1998) [ISBN 9780349111667].
Soto, H. de. The mystery of capital: why capitalism triumphs in the West and fails
everywhere else. (New York: Basic Books, 2000) [ISBN 9780465016150].
Acemoglu, D. and J.A. Robinson. Why nations fail: the origins of
power, prosperity, and poverty. (London: Profile Books, 2012)
[ISBN 9781846684302].
Sen, A. Development as freedom. (Oxford: Oxford University Press, 2001)
[ISBN 9780198297581].
7.2 Introductory: debating development

The study of development – broadly construed – has been at the heart of
IPE since its very beginnings. Indeed, the full title of Adam Smith’s most
famous book – The wealth of nations – actually runs thus: An inquiry into
the nature and causes of the wealth of nations. Of course, Smith does not
use the term ‘development’ as we do today. But while Smith’s eighteenth-
century terminology is often unfamiliar to modern readers, he was
nevertheless driven to explain why some countries (such as England) had
developed so much faster than, say, his native country of Scotland. Smith
rejected categorically the state-led development model that (so-called)
mercantilists like John Locke had theorised, advocated and embedded at
the heart of the British Empire.
In his day, Smith worked assiduously to convince policy makers to
dismantle the British mercantile system. Instead of state-managed trade and
commerce, Smith advocated laissez-faire, a practice (taken from French)
in which the state grants a ‘free hand’ to market actors. This, he insisted,
would unlock those market forces that drive economic development. He
also called for an end to imperialism. The British Empire, he contended, had
both constrained the development of its colonies and redirected investment
at home away from its ‘natural’ channels and into those protected by the
mercantilist trading system. All of this sowed the seeds of discontent within
empires and drove inter-imperial conflict abroad. Instead, Smith pressed
the European powers to both grant their colonies independence and pursue
trade liberalisation with friend and foe alike.
Smith was remarkably successful – far more so than scholars have
traditionally recognised. The First Era of Globalisation (discussed in
Chapter 10) depended, to some extent, on the reorientation of policy in the
UK, which became quasi-hegemonic following the Napoleonic Wars. Over
the ensuing centuries Smith became iconic; and his brand of laissez-faire
liberalism continues to be extolled by scholars and policy makers alike.
Yet, Smith’s vision of globally integrated markets operating beyond the
reach of state management has never been achieved – for better or for
worse. Of course, mercantilist approaches continue to attract followers in
both ‘developing’ and ‘developed’ countries alike (as we have discussed
in Chapter 2). But even some of Smith’s most outspoken adherents –
such as Margaret Thatcher and Ronald Reagan – were found deliberately
liberalising only some aspects of their economies even while maintaining,
60
or even increasing, state involvement in the economy where they deemed

it desirable. In the face of this dichotomy between frank ‘mercantilists’
and hypocritical ‘liberals,’ many scholars and policy makers have sought to
find a ‘third way’ to promote development. Those efforts are discussed in
the next chapter (Chapter 8). The remainder of this chapter considers the
traditional – ‘classic’ – perspectives on development.
7.3 The importance of institutions

Traditionally, ‘development’ has been equated with acquiring wealth.
Both John Locke and Adam Smith, for instance, contrasted the riches of
European societies with that which was enjoyed across the rest of the
world. They made much of the (supposed) fact that even the poorest
Europeans enjoyed greater material wealth than did even the most elite
Native Americans, Africans and Asians.
Of course, wealth is different from income. Nevertheless, the classic
theorists held that sustaining high rates of economic growth across time
was the best means to build wealthy societies – to ‘develop’ economically.
Thus the question became: what drives economic growth?
The classic answer to this question is: institutions. Despite their many
disagreements, Locke and Smith both emphasised the centrality of
property rights. Without well-defined, well-secured property rights,
economic actors would face uncertainty that would confound and
disincentivise long-term planning and ambitious undertakings. After all,
what would be the point of investing today if one did not expect to reap
the benefits of this down the road?
More recently, the Nobel-prize-winning economist Douglas North has
refined and advanced this view. A host of empirical analyses have
followed, studying the development trends across the world across
centuries. They appear to confirm this essential finding. As Acemoglu,
Johnson and Robinson put it, ‘Countries with better “institutions,” more
secure property rights, and less distortionary policies will invest more in
physical and human capital, and will use these factors more efficiently to
achieve a greater level of income…’ (Acemoglu, Johnson and Robinson
2001, p.1369)
Activity 7.1
According to figures like Locke and North, how do institutions affect development?
7.4 Liberal imperialism

If these classic perspectives were correct, this would seem to offer rather
good news. These all-important institutions were not bound to specific
locales. In this view, development does not turn on being home to valuable
resources, advantageous geography or simple good luck. Instead, much
development could be achieved perhaps simply by reforming institutions
(generally) and better ‘securing’ property rights (in particular). Thus, these
institutions could be adopted universally.
A number of especially zealous devotees of this view set out to export –
and install abroad – their institutions, without seriously considering the
desires and perspectives of those being colonised. Locke himself not only
justified (intellectually) the expropriation of territory from the Native
61
Americans. He also served on England’s Board of Trade, which expanded

and deepened the emerging British Empire.
Such endeavours to promote development through imperialism reached a
crescendo in the late nineteenth century, particularly in the UK. This also
provoked – especially abroad – a resurgence in mercantilist thinking and
practice.
Some prominent figures became so enamoured with their institutions that
they proclaimed it was their duty to impose these upon all non-European
peoples ‘for their own good.’ Most shocking, Rudyard Kipling’s infamous
poem The White Man’s Burden (1899) exhorted the US President (William
McKinley) to colonise the Philippine Islands in a ‘civilising’ mission. Seen
through twenty-first century eyes, it is difficult to believe that Kipling
(among others) really held – let alone exalted – such racist, misogynistic
beliefs. But they did – with devastating effects.
Further discussion of these trends is available in Chapter 10. See also
Chapter 4 for discussion of gender hierarchies.
Activity 7.2
What ideas and assumptions led ‘liberals’ to embrace ‘imperialism’?
7.5 State-led development

As we have discussed, no country has ever fully embraced the laissez-
faire approach to development envisioned by Adam Smith. Instead, the
reality is that those states that have enjoyed rapid economic growth have
almost always pursued quasi-mercantilist state-led development models.
This was true of the earliest industrialisers – like the Dutch, the British
and the French. But it has also been true of those ‘late’ industrialisers that
followed.
In the 19th century, Germany, Japan and the United States all built large
economies and (de facto) trading blocs behind carefully managed tariff
walls. Alexander Hamilton, the US’s first Secretary of the Treasury, did
much to ensure that the United States embraced mercantilist development
strategies. Over the objections of his political foes – such as Thomas
Jefferson and James Madison – Hamilton saw the US adopt extensive
tariffs not simply to raise revenue but also to protect infant industries.
He also concentrated fiscal and monetary authority in the hands of the
national state. And he and his followers championed large infrastructure
projects (first canals and then rail lines).
Within a few decades, the US had gone from a post-colonial economy
dependent on trade with Europe to a budding industrial power in its
own right. This success attracted political economists like Friedrich List
(in Germany) who emulated the so-called ‘American System.’ Germany’s
subsequent rapid industrialisation and remarkable growth combined
with prominent pro-mercantilist scholarship (à la Gustav von Schmoller).
From Japan back to the UK, mercantilist development strategies came
into fashion again. As discussed in Chapter 10, this return to mercantilism
shook the global economic order to its core.
In the twentieth century, the so-called ‘Asian Tigers’ (South Korea, Taiwan,
Hong Kong, and Singapore) enjoyed extraordinary economic growth
across several decades. South Korea’s meteoric rise is especially brilliant.
For half a century, the Korean people had been subjected to brutal
62
colonisation by the Empire of Japan. Then, the Korean War (1950–1953)

further ravaged the country. In 1953, South Korea was one of the poorest
countries on Earth. Within just a few decades, however, South Korea was
in a position to give – rather than receive – development aid. Today, South
Korea has one of the highest rates of GDP per capita.
Most scholars agree that such development ‘miracles’ followed from these
countries’ institutional reforms across the post-war period. But debate
continues to rage over the nature and content of those reforms.
In 1993, the World Bank published a landmark report The East Asian
miracle: economic growth and public policy. No surprise, the report follows
Locke, Smith and North on what makes for ‘good’ institutions: ‘secure
property rights embodied in the legal framework were a key to high
investment rates. In addition, formal and informal mechanisms leading to
enforcement of contracts were an important contributing factor.’ (World
Bank, 1993) More broadly, the report is often seen as championing
‘neoliberal’ policies such as privatisation, deregulation and macroeconomic
(especially fiscal) prudence. This is because the report draws so much
attention to those aspects of its findings.
In reality, the economies studied all combined some liberalisation with
some continued (and expanded) state management. Of course, there was
relatively little political liberalisation in these illiberal regimes. Just as
important, these countries’ export-led growth strategies involved, as the
report states, ‘cooperation among firms and between government and the
private sector.’ (World Bank, 1993) It also depended upon maintaining
competitive exchange rates, which required active state management of
the financial sector, the monetary system (more broadly) and even labour
markets.
Activity 7.3
In the recent past, which development strategies have proven to be the most effective?
7.6 The crucial case of China

The same classic question attends China’s gargantuan shift over the last
half-century: that is has China been on the road to laissez-faire liberalism,
or is China pursuing neo-mercantilist policies?
There can be no doubt that, beginning in the 1970s, Deng Xiaoping
radically reoriented China’s development strategy. Among much else, Deng
decentralised economic planning, empowering instead local authorities.
He extolled individual responsibility, celebrated initiative and even
praised the pursuit of profit and shifted China’s position internationally.
Deng began to open China’s economy to foreign investment and pursued
favourable trade and social relations beyond the communist world –
including applying to join the General Agreement on Tariffs and Trade
(the GATT) in 1986.
Yet, Deng’s extensive economic reforms were not matched by political
liberalisation. Most famously, he abided the use of military force in 1989
to crack down on the (nearly 1 million) protestors who had gathered in
Tienanmen Square (and in other locales across China) to demand liberal
political reforms. At that time, the images of tanks rolling through crowds
of students and workers stood in sharp contrast to those of East Germans,
Poles and others dismantling the Eastern Bloc communist regimes.
63
Deng’s successors continued on this trajectory into the twenty-first

century. In 2001, China joined the WTO. This both reflected decades of
further ‘liberal’ reform and rapidly accelerated the globalisation of China’s
economy. By 2009, Chinese Premier Wen Jiabao was happy to praise Adam
Smith in The Financial Times. (Barber, 2009)
Just three years later, Xi Jinping became the paramount leader of China.
In 2013, he launched the Belt and Road Initiative, a massive series of
infrastructure projects and investments across Eurasia, Africa and beyond.
Just as intended, the BRI has become a powerful mechanism serving to
re-centralise – literally and metaphorically – China in the global economy.
At the same time, Xi has tightened his grip on power within the Chinese
Communist Party. He replied in kind to Donald Trump’s declaration of
trade war by issuing retaliatory tariffs (rather than filing a dispute at the
World Trade Organization). And more than a million Uyghurs have been
confined to ‘re-education camps’ so as to promote the ‘development’ of
rural western China. In these and other ways, Xi’s China offers striking
parallels to the overtly mercantilist regimes of the past.
However we might characterise the nature of China’s shift, it is hard to
overstate the potential significance of China’s ascent across the last several
decades.
Activity 7.4
Is it possible for any country to develop without arousing the ire – and antipathy – of
other countries?

Barber, L. ‘Interview of Wen Jiabao.’ 2 February 2009. Financial Times.
The World Bank. The East Asian Miracle: economic growth and public policy.
(New York: Oxford University Press, 1993) [ISBN 9780195209938].

• outline the role of institutions in promoting development, according to
the classical view
• discuss, using examples, liberal imperialism
• discuss, using examples, state-led development
• analyse the rise of China using classical perspectives on development.

1. Does mercantilism still hold lessons for the state’s role in
promoting economic development today?
To answer this question, you need to explain: the essence of the
mercantilist tradition; the continued relevance and appeal of
mercantilist ideas in contemporary economic policy; and the ‘statist’
development literature.
A good way to start would be to introduce the key tenets of
mercantilism. A brief review of what makes mercantilism a distinctive
64
tradition of IPE would suffice. This is not the place to go into much
detail about how mercantilism changed over time; instead, you
should focus on some core insights of mercantilism that have stayed
constant over centuries. Thus, you should introduce the mercantilist
understanding of power and wealth, with reference to the idea of
global wealth as a fixed sum and global economic competition as
a zero-sum game; the need for states to intervene in international
economic affairs, and especially international trade, to maximise their
economic gain; and the importance of the state directing the economy
to promote long-term national economic development.
On the basis of this, you should then discuss whether mercantilism
holds any lessons for contemporary developmental policy. This could
involve a discussion of the use of trade protectionism as part of
developmental strategies, the role that infant industry protection plays
even today and the importance of state intervention when it comes to
investment in education and national infrastructure.
It would be helpful to discuss the decline of mercantilist thinking in
economic policy over time, despite the fact that certain elements of
mercantilism survive today. A strong answer would be able to draw
on specific examples of the contemporary use of mercantilist ideas in
developmental policy. One is tempted to issue the standard historical
examples (from the 19th century). But, because the prompt specifically
says ‘today,’ you will need to give more contemporary examples. Of
course, the Asian Tigers and, especially, China are better examples.
2. Does China’s recent economic growth record suggest
that a strong state is necessary to promote economic
development?
This question requires that you assess the developmental impact of
trade liberalisation and protection in the specific case of China. It is
a challenging question because it requires students to think about
trade theory, development strategies and the particular choices and
outcomes in this crucial case.
It has long been argued by liberals that trade liberalisation promotes
economic growth, but developing countries have traditionally been
more sceptical about this argument as they face competition from
industrialised countries when they seek to enter global markets.
They therefore find themselves in a relatively weak position in global
competition. This was probably the case with China earlier on; but
it has since become dominant in some aspects of trade (particularly
manufacturing and assembly in global value chains).
To begin with, candidates could briefly review the debate on the pros
and cons of pursuing free trade versus protection. All of this should
be discussed with an eye to development in particular. This is not the
place to give a comprehensive overview of the liberal-mercantilist
debate. Instead, candidates should focus on the specific position that a
developing country like China finds itself in when it comes to engaging
with the global economy through international trade. Candidates
should pay particular attention to those features that are – and are not
– generalisable beyond the case of China.
The next step would need to relate this discussion to the broader
question of what lessons developing countries can learn from
the experience of this economy. What has been the role of trade
liberalisation – like joining the WTO – versus the heavy state
intervention in the creation of export industries, investment in
65
education and human capital? Also, what has been the role of factors
that might not apply as readily abroad: such as China’s massive
population, its non-democratic tradition, its geography (ample
coastline and access to raw materials)? In other words, there are
many different things to consider; and they can all lead in different
directions. The best answers might follow such threads in a careful
and thoughtful way. You could also integrate ‘dependency theory’ to
explain the particular form of the policies employed in China which
may or may not be useful elsewhere.
66
Chapter 8: Development: critical perspectives
Chapter 8: Development: critical

perspectives

Many scholars and policy makers from the developing world have
challenged the ‘classic’ approaches to development. This chapter explores
these ‘critical’ perspectives.

• define critical approaches, particularly to development
• explain the differences between decolonising the international system
versus IR’s theories about, and approaches to, development
• outline the essential features of ‘underdevelopment’ and dependency
theory and provide examples of each in practice
• compare and contrast these critical approaches to development with
other critical perspectives in IPE, such as feminist approaches and
Marxist approaches.

Gandhi, M.K. Hind Swaraj or Indian Home Rule. (Ahmedabad: Navajivan
Publishing House, 1938 [1909]) Read all but Chapters 2–3, 9, 15, and
appendices.
Naidu, S. ‘The gift of India.’ 1917.
Kahlo, F. ‘Self-portrait dedicated to Leon Trotsky.’ 1937.
Kahlo, F. ‘The two Fridas.’ 1939.
Kipling, R. ‘If–.’ 1910.
Redden, E. ‘Painting over Kipling.’ Inside Higher Ed. 20 July 2018.
Angelou, M. ‘Still I rise’ in And Still I Rise: A Book of Poems. (London: Virago,
1986) [ISBN 9780860687573].
Nkrumah, K. Neo-colonialism: the last stage of imperialism. (London: Panaf,
2004 [1965]) [ISBN 9780901787231] ‘Introduction.’
Frank, A.G. ‘The development of underdevelopment’ in Timmons Roberts, J.,
A. Bellone Hite and N. Chorev (eds) The globalization and development
reader: perspectives on development and global change. (Chichester: John
Wiley & Sons, Ltd, 2015) 2nd edition [ISBN 9781118735107] pp.105–115.

Orwell, G. ‘Reflections on Gandhi.’ The Partisan Review, January 1949.
Churchill, W. ‘Our duty in India.’ Speech given at Albert Hall, March 18, 1931.
Gopal, P. ‘Why can’t Britain handle the truth about Winston Churchill?’ The
Guardian. 17 March 2021.
Wade, R. Hunter. ‘Is globalization reducing poverty and inequality?’ World
Development 32(4) 2004, pp.567–589.
Cardoso, F.H. and E. Faletto. Dependency and development in Latin America.
Translated by Marjory Mattingly Urquidi. (Berkeley: University of California
Press, 1979) [ISBN 9780520035270].
Frank, A.G. ‘Re-orient world history, social theory and the nineteenth
century’ in Dasgupta, S. and R. Driskell (eds) Discourse on applied
sociology: theoretical perspectives (Vol. 1). (London: Anthem Press, 2007)
[ISBN 9781843313700] pp.27–78.
67
Jones, E. ‘The challenges international banking standards pose for peripheral

developing countries’ in Jones, E. (ed.) The political economy of bank
regulation in developing countries: risk and reputation. (Oxford: Oxford
Naqvi, N. ‘Finance and industrial policy in unsuccessful developmental states:
the case of Pakistan’, Development and change 49(4) 2018, pp.1064–1092.
Oliver, J. ‘Museums’, Last week tonight. HBO: 3 October 2022.
8.2 Introductory: What are ‘critical’ perspectives?

It can be difficult to pin down ‘Critical Theory’ and, especially, what counts
as a ‘critical approach’ to IPE. This is partly because the label itself is so
broad. But, presumably, Critical Theory is not merely any (and all) theory
that criticises established thinking. Also, critical analyses themselves are
often defined by the mode and nature of their critique, which might have
little in common with other equally valid modes of critique. For instance,
both Feminists and Marxists might critique mercantilist approaches on
entirely different – and incompatible – grounds.
Yet, there is typically a common purpose driving critical theorists. As Max
Horkheimer explains, ‘[Critical] theory never aims simply at an increase
of knowledge as such. Its goal is man’s emancipation from slavery.’ In
this spirit, rethinking ‘the economy’ is especially important. ‘In radically
analyzing present social conditions,’ Horkheimer writes, ‘it became a
critique of the economy…The economy must serve man, not man the
economy.’ (Horkheimer, 1992, pp.246–47)
In this chapter, we will explore a variety of critical perspectives on IPE,
especially those concerning development. We will also highlight the
various ways in which critical perspectives have overlapped, interacted
and competed with various other approaches that we have considered
(such as mercantilism, liberalism, Marxism, etc).
8.3 Decolonising the global order

Following the Second World War, the European empires were largely
dismantled. By the 1960s, dozens of colonies across the planet had
achieved their political independence. For this reason, this period is
sometimes portrayed as the great ‘era of decolonisation.’
But one must resist such an easy – glib – rendering. For one thing, there
had been several previous eras in which empires were compressed,
dismembered and even dissolved. The Americas were decolonised
(formally) in stages from the late eighteenth through the nineteenth
and twentieth centuries. In addition, the informal (political) empires
of the United States and the Soviet Union were expanded as the Cold
War heightened. Perhaps most important, the world’s leading powers
maintained extraordinary informal power over the former colonies –
especially their economic affairs.
These enduring challenges were laid bare most brilliantly by Kwame
Nkrumah in his book Neo-Colonialism: the last stage of imperialism
(1965). The title, which alludes to Lenin’s Imperialism: the highest stage
of capitalism, nicely signals that Nkrumah took the Marxist critique of
European imperialism as his starting point. But he ventured well beyond
this critique to challenge the global capitalist system as a whole. For
Nkrumah, colonies were not simply the source of raw materials and labour.
Nor were they mere export markets used to ameliorate the problems of
capitalist overproduction. They also provided the means to distract from –
and redirect – the class conflicts internal to the capitalist metropoles.
68
Nkrumah argued that while formal colonialism had been eschewed,

the global capitalist system ensured the persistence of informal ‘neo-
colonialism.’ This, he contended, is actually worse for developing
countries. ‘For those who practise it,’ he wrote, ‘it means power without
responsibility and for those who suffer from it, it means exploitation
without redress.’ (Nkrumah, 1965)
Nkrumah was not only an intellectual but also put his revolutionary ideas
into practice. He was a pre-eminent anti-imperial leader in Britain’s Gold
Coast Colony. Following independence, Nkrumah served as Ghana’s first
president. He was also a major voice in the pan-African movement, helping
to launch what became the Organisation of African Unity. In his inimitable
words, ‘The less developed world will not become developed through
the goodwill or generosity of the developed powers. It can only become
developed through a struggle against the external forces which have a
vested interest in keeping it undeveloped.’ (Nkrumah, 1965)
In the 1950s and 1960s, relatively high growth rates seemed to suggest
that the policies prescribed by these developmental theories were working.
Countries such as Brazil, Mexico, India and Egypt were actively promoting
domestic industrial growth behind trade barriers, and many other
developing countries followed suit. But after the initial economic boom,
many developing countries failed to wean their industries off the subsidies
and trade protection that had allowed them to grow. With no incentive to
become more efficient, these industries failed to compete internationally,
and growth rates began to fall.
8.4 ‘Underdevelopment’ and Dependency Theory

Nkrumah’s charge that developed countries were deliberately ‘keeping [the
less developed world] undeveloped’ galvanised scholars like Andre Gunder
Frank. Frank’s classic text The development of underdevelopment (1966, in
Timmons Roberts et al (eds), 2014) argues that the world’s highly uneven
development is not due simply to neglect by the world’s richest and most
powerful. In this view, global capitalism actually depends upon thwarting
development – meaning, keeping many countries poor and ‘developing’
them into ‘underdeveloped’ tributary states. Frank’s trenchant critique
tapped into, and connected with, a deeper tradition in development
debates known as Dependency Theory.
Dependency Theory originated in Latin America in the 1940s and 1950s,
particularly with scholars like Hans Singer, Raúl Prebisch and Fernando
Henrique Cardoso. But Dependency Theory was adapted and further
developed by African authors (such as Samir Amin), and it assumed
a central role in the resurgence of Marxist thought around the world
from the 1960s forward. Thus, Dependency Theory is a broad church.
It includes theorists informed by Marxist as well as non-Marxist ideas –
including variants of mercantilism.
The experience of Latin America was central to the evolution of
Dependency Theory. (It is not coincidental that Andre Gunder Frank
was a leading scholar of Latin American political economy.) Most Latin
American countries managed to throw off the yoke of colonial rule by
Spain and Portugal in the first quarter of the nineteenth century. But
despite over a century of political independence, they found themselves
in the middle of the twentieth century in a state of economic dependence
and underdevelopment. The explanation for this, dependency theorists
argued, lay in the international economic system and the unequal patterns
of exchange that characterise it.
69
Dependency theorists suggest that trade relations prove challenging for

developing countries for (at least) three reasons. First, far more countries can
offer labour and produce basic commodities such as sugar and coffee than
can (competitively) produce manufactured goods and high-end services. This
gives greater leverage to the developed countries, allowing them to drive
hard bargains by playing the many similarly situated developing countries off
one another. Second, dependency theorists find that, across time, developing
countries have tended to suffer from falling terms of trade, which is to say
that the prices of the Global South’s exports have been falling relative to
the prices of imports from the Global North. In effect, developing countries
have had to export ever larger quantities of labour and commodities for
each manufactured good and each high-end service they import. Thus, even
while developing countries might enjoy absolute economic gain, they suffer
relative loss; and the gap between rich countries and poor countries widens.
These patterns, of course, were first established in colonial times. Yet,
even with formal decolonisation, the systematically unequal relations have
persisted. And this is the third point of contention. Critical scholars (like
Kwame Nkrumah) argue that the post-war economic regimes, which were
created by and for the world’s wealthiest countries, ensure that the Global
South remains dependent upon the Global North.
Another explanation of Southern dependency focused on the role of
transnational corporations. Companies such as the US giant United
Fruit played a dominant role in many Latin American countries, both
economically and through involvement in domestic politics, raising
concerns about their overbearing power. These arguments are considered
more fully in Chapter 20.
In some ways, Dependency Theory can be seen as an extension of Marxist
thought:
• By focusing on the economic forces of global capitalism, as represented
by international trade relations and the operations of transnational
corporations, Dependency Theory provides a materialist interpretation
of the international system.
• By viewing international economic relations in dichotomous terms as a
conflict between the economies of the centre (North) and those of the
periphery (South), dependency theorists recreate the theory of class
conflict at a global level.
But it is important also to highlight the profound differences between
dependency theorists and Marxists:
• Whereas Marx viewed colonialism and integration into global
capitalism as a positive force, raising poorer societies to the level of
development of the most advanced nations, dependency theorists
argue that it is global capitalism that is holding back developmental
efforts in the South. Marx’s dynamic and progressive notion of history
is replaced with a more static picture in dependency theory.
• Whereas Marx viewed capitalism as a mode of production, focusing
on the ownership of the means of production, dependency theorists
define global capitalism by the mode of exchange, which from the
perspective of the periphery appears as unequal exchange.
Dependency thinking was influential in many developing countries
during the 1960s and 1970s. The widely applied strategy of Import
Substitution Industrialisation aimed at improving the terms of trade and
reducing dependence on foreign companies. At the United Nations, the
campaign for a New International Economic Order was also informed by
dependency thinking.
70
Activity 8.1
Is ‘underdevelopment’ the natural starting point for all countries, or has it been
‘developed’ as a part of the world system?
8.5 Decolonising IR Theory

Robert Cox famously wrote, ‘Theory is always for someone and for some
purpose.’ (Cox, 1981, p.128) His emphasis on the role of ideas – as well
as material factors – points to a much larger problem in the field of IPE:
our Eurocentric myopia. Too much of our thinking about development
has been shaped by particular interpretations of the ‘success stories’ of
European cases. Yet, as Andre Gunder Frank wrote, ‘We cannot hope to
formulate adequate development theory and policy for the majority of
the world’s population who suffer from underdevelopment without first
learning how their past economic and social history gave rise to their
present underdevelopment. Yet most historians study only the developed
metropolitan countries and pay scant attention to the colonial and
underdeveloped lands.’ (Frank, 2014)
Activity 8.2
‘To speak of “Western” and “non-Western” IPE is to fall prey to the tribalist ontology.
At best, it is blunt. At worst, it risks ‘orientalising’ particular theorists. In reality, there is
a huge range of diversity across all of IPE, and we ought to think in terms of individual
theorists and theories – without regard for the cultural contexts from which they
emerged.’ Discuss.
This was truly a revolutionary perspective, but it was not a new one.
Decades prior, thinkers like Frida Khalo, Diego Rivera, and Mahatma
Gandhi had issued a full-throated critique of such Eurocentric ideas.
Gandhi was perhaps the most radical. He sought to extirpate not just
British colonial institutions but also the European values and ideas that
drove South Asians to rely upon them. His book Hind Swaraj (1909) was,
as he put it, ‘a severe condemnation of “modern civilization”’ (Gandhi,
1938, p.15).
On this basis, Gandhi entirely rethought what is meant by ‘development’
and ‘progress.’ Even radical Marxists and dependency theorists shared the
common objectives of helping the Global South enjoy a larger share of the
material wealth generated in the modern modes of production. Gandhi,
however, questioned this materialism, arguing that it tended to ‘corrupt’
the physical and spiritual health of those who pursued it.
Gandhi’s political movement to politically decolonise the Global South
reached its fruition in the decades following the Second World War. His
values are reflected in the shifts from fixating on Gross Domestic Product
to gauging Human Development and even Gross National Happiness. His
ideas have also found expression in movements such as Degrowth and the
Green Critique.
71
Activity 8.3
What did Gandhi mean by ‘self rule’? To what extent was he challenging the rule of India
by westerners? To what extent was he challenging the rule of Indians by western norms
and values?

Cox, R.W. ‘Social forces, states and world orders: beyond international relations
theory’, Millennium 10(2) 1981, pp.126–55.
Horkheimer, M. Critical Theory: selected essays. Translated by M.J. O’Connell, et
al. (New York: Continuum, 1992).

• define critical approaches, particularly to development
• explain the differences between decolonising the international system
versus IR’s theories about, and approaches to, development
• outline the essential features of ‘underdevelopment’ and dependency
theory and provide examples of each in practice
• compare and contrast these critical approaches to development with
other critical perspectives in IPE, such as feminist approaches and
Marxist approaches.

1. ‘The case of the Asian Tigers shows that it is possible for
newcomers to increase their economic wealth but not their
political power in the international political economy.’
Discuss.
This question has several distinct elements. First, candidates must
consider whether the ‘Asian Tigers’ were actually able to increase their
economic wealth. Second, candidates must consider why they have or
have not done so. Third, candidates need to consider whether these
countries have increased their political power. Last, candidates must
again consider why they have or have not done so.
Most simply, it seems that the statement in the prompt is correct:
the so-called ‘Asian Tigers’ were able to increase their wealth but not
their power. The most banal answers would simply document these
apparent regularities.
Better answers would dive much deeper. They might consider
whether this designation has been an artefact of selecting on the
dependent variable: that is four economies in Asia did particularly
well economically (although not politically), and apparent similarities
(which may or may not have mattered) were inferred by scholars
after the fact. In other words, what enabled these countries to develop
economically while others did not? What has stopped them from
increasing their share of political power? One strategy – which might
make for a good answer – is to use Marxist theory to offer a single
explanation of both: these countries were ‘semi-peripheral’ and largely
72
served to legitimise the western-led global order while, at the same

time, posing little political or military threat.
The best answers would provide an updated answer to this old debate
with considerable reference to the puzzling case of China. After all,
China has enjoyed precipitous economic growth and considerable
political gain as well. Perhaps mercantilism helps to explain China’s
relative success. This would mean engaging with the specifics of the
various countries’ political and economic development strategies, their
relative size and their use of political power for economic gain and
vice versa. But excellent answers could also consider whether China’s
political and economic influence are proportioned to their material
positions or whether, say, international regimes still limit the gain that
any such newcomer (including China) can enjoy.
2. Does the failure to create a New International Economic
Order suggest that developed economies have maintained
their dominance in international political economy?
This question requires that you relate the failure of the project to create
a New International Economic Order in the 1970s and 1980s to the
overall question of North-South relations and the dominance of the
developed economies. The theoretical background to this question is
Dependency Theory and post-colonial approaches. These informed the
New International Economic Order project. Also, other IPE theories
(such as mercantilism) similarly focus on patterns of power and
dominance in the international order.
But the question is not primarily about explaining and discussing the
theoretical perspectives as such; it is much more about applying their
insights to the question of whether the industrialised economies have
retained their dominant position in the global economy and what the
failure of the NIEO can tell us about this. You should therefore discuss
the historical record of the global struggle to reform the international
economic order in the 1970s and 1980s, explain why the NIEO failed
and consider what this tells us about the relative power of Northern
and Southern economies. A good answer would make use of the
underlying theoretical perspectives, mostly Dependency Theory and
mercantilism, to shed light on the enduring power inequality between
North and South. An excellent answer would extend this discussion and
consider whether the more recent success of the emerging economies
(for example, China) has reduced the dominance of the industrialised
countries in the international economy.
73
Notes
74
Part II: Money and trade
Part II: Money and trade
75
Notes
76
Chapter 9: Striking imbalances: where money and trade meet
Chapter 9: Striking imbalances: where

money and trade meet

The balance of payments is one of the most important binding constraints
that states face in the global economy. This chapter presents these
constraints and the implications of global imbalances.

• outline the balance of payments, explaining what it is and how it
works
• outline the mechanisms by which balance is achieved in the balance of
payments
• define the balance of payments constraint and how it relates to IPE
• explain how the balance of payments constraint can lead to zero-sum
international economic relations
• specify the sources of global imbalances using empirical examples.

Eichengreen, B.J. Global imbalances and the lessons of Bretton Woods.
(Cambridge, MA: MIT Press, 2007) [ISBN 9780262514149] Chapter 1.
Berman, S. ‘The causes of populism in the West’, Annual Review of Political
Science 24(1) 2021, pp.71–88.
Autor, D., D. Dorn, and G. Hanson, et al. ‘The China trade shock.’
Davis, C.L. and K. Pelc ‘Cooperation in hard times: Self-restraint of trade
protection’, Journal of Conflict Resolution 61(2) 2017, pp.398–429.
Bown, C.P. and M. Kolb. ‘Trump’s trade war timeline: an up-to-date guide.’
17 November 2022.

Rodrik, D. The globalization paradox: democracy and the future of the world
economy. (New York: W.W. Norton & Co., 2011) [ISBN 9780393341287].
Case, A. and A. Deaton. Deaths of despair and the future of capitalism.
(Princeton, NJ: Princeton University Press, 2020) [ISBN 9780691190785].
Fajgelbaum, P.D., P.K. Goldberg, P.J. Kennedy and A.K. Khandelwal ‘The return
to protectionism’, NBER Working Paper 25638. October 2019.
Stockhammer, E., C. Constantine and S. Reissl ‘Explaining the Euro crisis:
current account imbalances, credit booms and economic policy in different
economic paradigms’, Journal of Post Keynesian economics 43(2) 2020,
pp.231–266.
Sifakis-Kapetanakis, C. ‘The European monetary integration process and
financial globalization: the rationale of the ‘creative imbalance’ model’,
International Journal of Political Economy 36(1) 2007, pp.75–90.
Hasanov, F. and R. Arezki ‘Global imbalances and petrodollars’, International
Monetary Fund Working Papers 1 April 2009.
Hung, H-f. ‘Rise of China and the global overaccumulation crisis’, Review of
77
9.2 Introductory: the balance of payments

Ideally, in economic theory, economic integration maximises the efficiency
of resource allocation and provides more opportunities to producers and
consumers alike. Yet, global economic order is bedevilled by the challenge
of ‘imbalances’ within and, especially, between economies. To understand
this challenge, we must first explain the balance of payments.
The balance of payments is a summary – an accounting – of all the
transactions between a domestic economy and the global economy. It is
used to track and understand the flows of money between economies.
Broadly, it comprises: (1) the current account, which has traditionally been
dominated by trade in goods and services; and (2) the capital account,
which has become increasingly important with the rise of international
investment (of all sorts). As an accounting matter, the balance of payments
must always balance, by design. If there is a deficit in the current account,
it is (generally) offset by a surplus in the capital account – and vice versa.
But it is not as though the one side is deliberately manipulated to offset
the surplus or deficit in the other. For instance, the US has consistently run
deficits in its current account largely because it imports more goods and
services than it exports to the world. But it has only been able to do this
because it has received money from foreigners who want to invest in the
US economy. So, simply put, people in the US get washing machines from
Germany, and Germans get shares in Apple.
It is actually more complicated than this. For one thing, states do have a
hard time accurately recording all of the transactions in an economy. So,
sometimes you will see a ‘statistical discrepancy’ to account for this. But,
for the most part, combining the current account and the capital account
should equal zero.
9.3 Achieving balance

As specified by Milton Friedman, there are four broad types of mechanisms
by which balance occurs in the balance of payments:
• Domestic macroeconomic adjustment: adjustment of domestic prices
and incomes
• Exchange rate adjustment: appreciation or depreciation of a currency’s
‘price’ (exchange rate) relative to other currencies and/or a key
commodity (such as gold)
• Reserve adjustment: spending or amassing official reserves by a
country’s monetary authorities
• Exchange controls: direct intervention into the current account (as
with a tariff or subsidy) and/or the capital account (as with capital
controls).
How do these mechanisms work? How do policy makers choose between
the mechanism(s) operating in a given context?
It might help to explain this by walking through the broad evolution of
responses to imbalances of payments. We will return briefly to the classic
monetary orders before introducing further complexity.
Before the First World War, many economies linked their currencies to
gold. It was difficult, if not impossible, to stop actors from moving gold
bullion (unminted metal) and specie (minted coins) across borders. Mints
also often allowed actors to materially convert gold bullion into the local
currency at will. In theory, this creates a price-specie-flow mechanism
78
(which was identified as early as the mid-18 century by David Hume) that
distributes monetary metal efficiently across the system.
To keep things simple, we will use the example of Spain (with pesetas)
and England (with pounds). Let us say that there is more gold per unit of
goods and services in one economy (Spain) than in another (England).
Ceteris paribus, the prices in Spain should be higher than in England.
Actors in Spain could melt their coins, transport the bullion to England
and convert the bullion to English gold coins. They could then make
purchases in England and bring the purchases home to Spain. Of course,
there are costs – time; shipping; bother – to these transactions. But if the
difference in the purchasing power of the coins is high enough, actors will
undertake this arbitrage.
In doing so, these actors affect the money supply in both countries.
This, in turn, affects the price levels. The efflux of money from Spain
creates deflationary pressure. The influx of money into England creates
inflationary pressure. In Hume’s theory, the monetary movements should
continue until the price levels in the two countries roughly equilibrate.
For our purposes, note that international balance has been achieved here
through macroeconomic adjustment – specifically changes in domestic
prices and incomes in these two countries.
These days, most economies use fiat currencies. Rather little of our
currency today is made of, or backed by, precious metals. Also, individuals
generally do not have the right to convert bullion into local currency.
Instead, actors must trade (in the currency market) their currency for
whatever currency they need to buy the goods, services and investment
opportunities they seek abroad.
Let us say that actors in Spain seek to buy more from England than
vice versa. With supply and demand off kilter, the ‘price’ will begin to
shift. There will be downward pressure on the exchange rate between
the currency of Spain (the peseta) and that of England (the pound). If
the policy makers in Spain and/or England do not intervene, then the
exchange rate will shift. In theory, the exchange rate should continue
shifting until the market clears. In the first instance, balance is achieved
by adjusting relative prices through the exchange rate. But there is also
another equilibrating force. As the peseta buys ever fewer pounds, English
imports become less competitive and Spanish exports become more
competitive. This should also ameliorate the imbalance of trade.
In reality, policy makers have incentives to react, to limit exchange rate
adjustment. This may be because they are committed (de facto and/or de
jure) to fixed exchange rate regimes. In such cases, policy makers might
adjust macroeconomic policies – fiscal and/or monetary policies – to force
adjustment in domestic prices and incomes. This shapes international
economic relations in ways analogous to those identified by David Hume.
But instead of having market forces adjust the quantity of money, here it is
deliberately manipulated by the monetary authorities. In the modern age,
macroeconomic policy adjustment can also affect the capital account by
changing the real return on investing in a domestic economy. For instance,
raising interest rates in an economy contracts the money supply (raising
its purchasing power), and it attracts speculative capital looking for a high
return. Both factors generate upward pressure on an exchange rate. This
is why monetary authorities with fixed exchange rates frequently make
‘defensive’ interest rate hikes in currency crises (see Chapter 15).
Often, policy makers do not want to lose control over either their domestic
price levels or their currency’s exchange rate. In such cases, the most
79
desirable tool is the third mechanism of achieving balance: reserve

adjustment. In this mode, policy makers intervene directly in the foreign
exchange market by either acquiring or selling reserves. For a surplus
country, there is upward pressure on its exchange rate. Its authorities can
print their own currency and then trade it for the foreign currency that
is currently overvalued. The authorities then hold that foreign currency
in reserve. In effect, they directly alter the market supplies of the two
currencies to match the demand at the desired exchange rate. For a
deficit country, there is downward pressure on its exchange rate. Those
authorities must do the opposite. On the foreign exchange market, they
trade their reserves of foreign currency for their own currency, once again
adjusting the market supply of both currencies.
This approach is highly desirable as it is the least distortionary. But the
situation of surplus and deficit countries is not symmetric. There is no
upper limit to the quantity of reserves a country can acquire. (The best
examples of this are the United States in the early twentieth century and
China in the early twenty-first century.) But there is (inevitably) a limit to
the reserves a country can expend in a currency crisis. The limits for deficit
countries are thus: the amount of reserves a country held at the start of
a crisis plus whatever additional reserves (‘credits’) it can borrow from
foreign entities, private markets and the IMF.
The last option for achieving balance is the most politically fraught:
exchange controls. We often see countries attempt to limit (or prohibit)
speculative capital outflows when they face currency crises. Insofar as
capital controls can be made effective, they might prop up an exchange rate
for a time. But what of a country whose overall balance of payments deficit
follows from a large current account deficit? In such cases, there is a strong
temptation to resort to trade and commercial policies, such as tariffs. In fact,
a general tariff might be useful even in cases where investors are fleeing.
For one, it ought to help the current account and avert deflationary pressure
at home (by shielding domestic producers). Second, it should contribute
revenue to the state. This would allow policy makers the option of having
otherwise looser monetary and fiscal policies. For these reasons, John
Maynard Keynes argued (during the Great Depression) that the UK needed
such a tariff if it remained determined to maintain the gold standard.
Ultimately, the balance of payments constraint binds policy makers.
Balance will be achieved one way or another. Yet, as we have seen,
following the interactions between these different factors is no easy matter
– even in our highly simplified example. It is vastly more difficult for policy
makers to understand these dynamics in the real world.
Often scholars in IPE (overly) simplify these constraints to a reduced form
of the so-called Mundell-Fleming Trilemma. In this scenario, the inevitable
mobility of capital forces policy makers to choose between (essentially) two
options: stable exchange rates or macroeconomic policy autonomy. It is true
that this is often the choice set. But there is much more to the balance of
payments than just this particular permutation. Understanding the broader
constraints is essential to understanding the full range of crises and choices
that have marked the global economic order over the decades.
Activity 9.1
Which are the most politically attractive methods of achieving balance in the balance of
payments? Which are the least politically attractive?
80
9.4 The zero-sumness of global imbalances

As an economic matter, ‘global imbalances’ are simply a reflection of the
unevenness of the global economy at a particular moment. It is like a
photograph of a storm on the ocean. Naturally, water tends to find its own
level; and, once the storm has passed, the calm sea may appear entirely
flat. But, at the given moment captured, we see large waves with peaks and
troughs. Some of the water is higher than it ‘ought’ to be; and some of it
is lower than it ‘ought’ to be. As such, we would expect that the peaks will
eventually sink and the troughs will eventually rise.
The same broad tendency prevails in the global economy. For a time, a
country may buy more from the world market than the world market buys
from it. This is called a ‘deficit’ country. But, like the wave at its peak, this
is difficult (likely impossible) to sustain forever. Conversely, a country may
sell more to the world market than it buys from the world market. This is
called a ‘surplus’ country. But, like the wave at its trough, this is unlikely to
last forever.
Unfortunately, the global economy is slightly more complex – and
challenging – than our simple metaphor of the sea captures. As we have
seen, the situation of surplus and deficit countries is not actually symmetric
(as are the peak and the trough of an ocean wave). Once a deficit country
has exhausted its reserves, it must turn to others to maintain its exchange
rate and/or make (often) painful macroeconomic adjustments at home.
In the special case of the US and China today, the US is only able to
maintain its overall deficit so long as China continues to adjust its reserves
(of US dollars) upwards. Both countries have an incentive to maintain this
precarious position. Chinese producers depend upon selling goods and
services to the US; and US consumers and producers depend upon low-
cost goods and services from China. To force an adjustment now would be
akin to allowing water to break through a dam. But this locks China and
the US into what some scholars have termed ‘mutual assured (financial)
destruction.’ Here, too, the persistence of imbalances proves portentous.
Activity 9.2
To what extent, and for what reasons, are global imbalances driving the conflict between
the United States and China?
9.5 The sources of global imbalances

What leads to global imbalances in the first place? Often, imbalances follow
largely from ‘natural’ phenomena. Sometimes, they follow when policy
makers adopt different responses to similar situations. And occasionally,
they follow deliberate choices made by policy makers.
In our large and diverse world, it is natural that different parts of the
global economy expand (and contract) at different rates. This is true in
both real and nominal terms. In real terms, some countries – especially
emerging markets – simply enjoy higher (real) growth rates than do more
established, ‘mature’ economies. Contrast China today with the United
States. Sadly, countries sometimes contract as well – and at different
rates as, say, a natural disaster hits some parts of the world harder than
others. In addition, looser (or tighter) monetary and fiscal policies across
economies also generate different rates of inflation (and deflation).
81
These factors shape producers’, consumers’ and investors’ decisions across

the globe and, with that, the economic relationships between national
economies.
There are also numerous occasions where countries take divergent
responses to similar situations. In such cases, each may press the other side
to shoulder the burden of adjustment.
Consider a situation in which two roughly similar economies are exposed
to an economic shock – such as a global pandemic. In the face of the
pandemic, both countries inject money into their economies to stimulate
economic activity in the hopes of preventing their economies from slowing
down too much. But let us say that Spain has injected far more money into
its economy than has England. As a result, Spain faces more inflation; and,
initially, this makes the goods in England relatively cheaper than those in
Spain. Consumers in Spain thus begin to import more goods from England
which benefits producers in England and harms producers in Spain.
Policy makers in Spain could reverse this trend by contracting the money
supply. It is quite difficult, however, to impose deflation; and it tends to be
highly unpopular politically. (Often, producers struggle to cut prices without
reducing wages and/or generating unemployment.) So, Spain might press
England to shoulder the burden of inflation (which is also distortionary but
easier politically). In effect, Spain would say: instead of us coming to you,
perhaps you should come to us. Like two old friends planning a cross-town
meetup, each prefers that the other bear the transaction costs of travel.
As we have noted, however, the deficit country (Spain) has fewer options
than does the surplus country (England). But that does not mean that
Spain has no options. If England refuses to share the adjustment burden,
Spain could depreciate the exchange rate and/or impose protective tariffs
on England’s exports. The former (competitive exchange rate devaluation)
is known as ‘currency war;’ and the latter (protective tariffs) is called ‘trade
war.’ Both are different mercantilist responses to this challenge. Neither
is optimal overall, but each may prove quite appealing to policy makers
hoping to deflect painful economic adjustments – particularly if an election
is looming. This dynamic has been at the heart of many of the failed
currency unions and currency wars of the last century or so.
Seeing these potential challenges, policy makers sometimes deliberately
pursue becoming surplus countries. This is one of the economic rationales
for mercantilist foreign policy (see Chapter 2). Certainly, this proclivity
animated the early mercantilists. While they were often unsophisticated
in their language and rendering, mercantilists like John Locke and John
Cary had hit upon the intuition that it was better to be on the surplus side
of the asymmetry than on the deficit side. They also intuited the benefits
of amassing reserves, which can serve as a form of ‘self-insurance.’ More
modern mercantilists, starting with Alexander Hamilton and Friedrich List,
sought to grow their industry by undercutting competition in the global
marketplace. They saw the benefits of competitive exchange rates and
carefully designed trade and commercial policies. For them, the amassing
of reserves was a happy by-product of these other pursuits.
It should come as little surprise that countries developed strategies to
acquire and employ sizeable foreign exchange reserves in the wake of
the Great Depression. And these logics are still with us today. China and
Germany are routinely accused – not without reason – of engaging in
similar sorts of ‘neo-mercantilist’ pursuits. We can now see how these
strategies follow partly as responses to the challenges of the balance of
payments constraint. And we can also see how some portion of global
imbalances follows from quite deliberate choices by policy makers.
82
Activity 9.3
Does the ‘balance of payments constraint’ necessarily drive states to embrace mercantilist
policies? What are states’ options for facing this challenge?

• outline the balance of payments, explaining what it is and how it works
• outline the mechanisms by which balance is achieved in the balance of
payments
• define the balance of payments constraint and how it relates to IPE
• explain how the balance of payments constraint can lead to zero-sum
international economic relations
• specify the sources of global imbalances using empirical examples.

1. What explains the inherent instability of the global
financial order?
This question requires an understanding of the global financial system
and global financial crises, but this needs to be applied to the specific
question of why the financial order is prone to instability and crisis.
The answer might start with an overview of the main elements of the
international financial order and a brief history of recent financial
crises. This could then lead to a closer examination of potential
reasons for the inherent instability of global finance. Candidates
should consider the difficulties of controlling global finance in an era
of globalisation, especially with regard to creating lasting international
cooperation between states and preventing financial contagion in the
case of sovereign debt or banking crises. They should also discuss
the role that international financial institutions such as the IMF play
in managing financial crises, and why they have repeatedly failed to
prevent the system from become unstable.
A strong answer would go one step further and engage theoretical
arguments related to the concept of moral hazard, that is the idea that
by helping indebted countries or bailing out failing banks, international
financial authorities create conditions in which countries or banks are
encouraged to take excessive risks because they expect to be helped or
bailed out should they enter into a crisis. Some would argue that it is
impossible to do away with moral hazard, as in some cases the costs of
letting a country default or a bank collapse would be too high. Either
way, the answer needs to end in a considered argument about why
international financial crises are so hard to prevent.
2. ‘Trump did not destroy the multilateral trading regime but
merely restored the balance of power within it – and thus
saved it.’ Discuss.
The question requires candidates to apply their knowledge of
multilateral trade policy in the WTO to the ongoing struggles within
and around it: the current Doha Round of negotiations and the trade
83
war that has emerged since 2016. They should demonstrate a general
understanding of the process of multilateral trade policy and some
detailed knowledge of the issues and problems of the Doha Round.
Similarly, they ought to demonstrate familiarity with the contours of
the trade war that has played out within – but also, crucially, beyond –
the WTO.
One option to open the essay would be to briefly describe the
multilateral model of the WTO, particularly with regard to the
negotiation process and the rules for adopting new trade agreements
and resolving trade disputes. This is not the place to give a detailed
history of the GATT or WTO or a comprehensive account of what
the WTO does. Instead, candidates need to focus on the procedural
dimension of the trading order and its core negotiation process.
Naturally, this must include a serious consideration of the role of
power (and what is sometimes called ‘power-based bargaining’) within
the regime. The next step would be to consider the Doha Round,
identify the main topics on its agenda, and discuss the factors that
have precluded its successful conclusion.
A good answer would consider both the conflicting interests of the
major trade powers, the rise of emerging economies, and the changing
nature of trade policy since the creation of the WTO. An excellent
answer would consider the Doha Round’s difficulties in the context of
the broader crises of multilateral negotiations and dispute settlement
resolution in IPE. This is a chance to consider explicitly whether these
challenges follow from, or operate independently of, the imbalances
of power that come inevitably from economic negotiations between
countries of substantially different economic sizes. Those who agree
with the prompt might argue that emerging economies (like China)
enjoyed too many ‘exceptions,’ which are no longer appropriate given
China’s substantial economic growth since joining two decades ago.
In that vein, Trump’s extra-legal response was a kind of corrective to a
set of rules and norms that had become outdated. Those who disagree
might argue that Trump’s actions – just or not – undermined the WTO
both by side-stepping it and by passing the opportunity to reform it.
There are further ways that a discussion on this topic could be
enhanced – provided the above elements are addressed directly
as well. The major approaches to IPE – specifically, neoliberal
institutionalism and (neo-) mercantilism – would help to build bridges
between the difficult – stymied – negotiations within the WTO and the
trade war that has developed beyond. For one thing, the appearance
of a Doha Round that has ‘failed’ has created incentives – and provided
rhetorical cover – for the unilateral actions taken by the Trump
administration. Similarly, the acrimony that has attended the progress
that has been achieved within the Doha Round has created distrust
and frustration on all sides. Neoliberals, however, might respond that
progress on new negotiations is quite apart (substantively and legally)
from addressing (potential) violations of existing agreements.
Similarly, neoliberals would (and do) lament that the trade war was
launched even before the WTO Dispute Settlement process had run its
course. In other words, the trade wars did not really test the Dispute
Settlement regime because they did not utilise it.
84
Chapter 10: The first era of globalisation and its demise
Chapter 10: The first era of globalisation

and its demise

Before the First World War, the world was more globalised than ever
before and, in some ways, more globalised than it is even in the twenty-
first century. This chapter explores that first great era of globalisation.

• define globalisation and outline the various ways in which it can be
measured and assessed
• specify the relationship between states and markets in driving
globalisation and deglobalisation
• specify the essential features of the First Era of Globalisation,
particularly with regard to the mechanisms that drove it forward and
those that brought it to an end
• discuss, using empirical examples, the social, political, and cultural
consequences of the First Era of Globalisation
• critically assess the veracity of the ‘Pax Britannica’
• discuss, using empirical examples, the resurgence of mercantilism in
the late nineteenth century and the efforts of the commercial liberals
to combat this
• analyse the origins and evolution of the post-war global economic
order using the major approaches to IPE.

Morrison, J.A. ‘Before hegemony: Adam Smith, American independence, and
the origins of the First Era of Globalization’, International Organization
66(3) 2012, pp.395–428.
Cobden, R. ‘On the total and immediate repeal of the Corn Laws’. Speech in
Manchester, 15 January 1846 in Bright, J. and J.E. Thorold Rogers (eds)
Speeches on Questions of Public Policy by Richard Cobden, M.P.J (London:
T. Fisher Unwin, 1908). Chapter XX ‘Free Trade.’
Keynes, J.M. The economic consequences of the peace. (New York: Harcourt,
Brace and Howe: 1920 [1919]) Chapters 1–2.
Angell, N. The great illusion: a study of the relation of military power to national
advantage. (New York: G.P. Putnam’s Sons, 1909) [ISBN 9781517402310]
Chapter 3: ‘The Great Illusion.’
History Channel. ‘Life aboard a slave ship.’ 7 February 2019.
HM Treasury. ‘Freedom of Information Act 2000: Slavery Abolition Act 1833.’
31 January 2018.
Newkirk, P. ‘Caged Congolese teen: Why a zoo took 114 years to apologise.’ BBC.
20 August 2020.
85

Bordo, M.D., B. Eichengreen, D.A. Irwin, J. Frankel and A.M. Taylor ‘Is
globalization today really different from globalization a hundred years ago?
[with Comments and Discussion]’, Brookings Trade Forum, 1999, pp.1–72.
Bryan, W.J. ‘Cross of gold’ speech, 9 July 1896.
Broz, J. and L. Broz. ‘The domestic politics of international monetary order:
the gold standard’ in Skidmore, D. (ed.) Contested social orders and
international politics, (Nashville, TN: Vanderbilt University Press, 1997)
[ISBN 9780826512840] pp. 53–84.
Mill, J.S. Principles of political economy. In Priestly, F.E.L. (ed.) The Collected
Works of John Stuart Mill. (Toronto: University of Toronto Press, 1824).
Sections II.V, ‘Of Slavery’ and III.XVII, ‘On International Trade’.
Williams, E. Capitalism and slavery. (Chapel Hill, NC: The University of North
Carolina Press, [1944] 1994) [ISBN 9781469663678].
Bown, C. and S. Redding. ‘Did Britain’s slave trade help drive its industrial
revolution?’ Trade Talks Episode 173: 8 December 2022.
Kennan, G. American diplomacy. (Chicago, IL: University of Chicago Press,
1984 [1951]) [ISBN 9780226431475] Chapter 1: ‘The War with Spain’ and
Chapter 3: ‘America and the Orient.’
Held, D. and A.G. McGrew. Globalization/anti-globalization: beyond the great
divide. (Cambridge: Polity, 2007) 2nd edition [ISBN 9780745639116].
Hirst, P., G. Thompson and S. Bromley. Globalization in question. (Cambridge:
Polity, 2009) 3rd edition. [ISBN 9780745641522] Especially Chapters 1, 2
and 9.
10.2 Introductory: conceptualising globalisation

What exactly do we mean by ‘globalisation’? It is one of the most
commonly used terms in contemporary debates on global issues, yet few
are able to provide a concise definition. In fact, many different definitions
exist, pointing to different aspects of global economic, political and social
integration. The sociologist Anthony Giddens, for example, refers to ‘the
intensification of worldwide social relations which link distant localities
in such a way that local happenings are shaped by events occurring many
miles away and vice versa.’ (Giddens, 1990, p.64) Robert Cox, on the
other hand, sees a more explicitly economic logic at work, pointing to
‘the internationalising of production, the new international division of
labor, new migratory movements from the South to North [and] the new
competitive environment that accelerates these processes…’ (Cox, 1996).
In this course, we will conceptualise globalisation as the process by which
geographic space becomes less significant in determining substantive
outcomes in our world. By this, we mean both that distance matters less
and that differences across space – being in one locale versus another
– matter less. For instance, in an unglobalised (or deglobalised) world,
individuals’ experiences – the prices they pay for the same good or service,
their access to jobs and other opportunities, their cultural reference points,
etc. – might vary enormously across short distances. In this world, being
in one region or another – or even on one side of a border or another –
matters hugely. But, in a globalised world, individuals’ experiences might
be remarkably similar even over enormous distances. So, an Argentinian
might drink a Scottish whisky in Singapore while watching the World
Cup in Dubai on a phone designed in California but assembled in China
with parts that originate from two dozen different countries. And that
experience might be remarkably similar for that individual in thousands of
cities and for billions of individuals – right down to the ‘Live, Laugh, Love’
sign hanging above the single-serve Nespresso machine in the Airbnb flat.
86
It is crucial to remember that globalisation is a process and that it is

broadly reversible – as we have seen across the last several centuries.
By no means has it constituted an end point in the historical evolution
of the world. Globalisation should be seen as driving forward the
process of deepening the links that exist between different societies
and individuals. But this process need not be all-encompassing, and
other trends pointing in other directions, such as a state of ‘standstill’ or
even greater fragmentation, are occurring at the same time. When we
discuss globalisation, it is therefore always important to bear in mind
the possibility and actual reality that some societies or communities
experience not greater integration into the global economy but
fragmentation and isolation.
10.3 Explaining globalisation

What drives globalisation? Of course, technology springs to mind,
especially revolutions in communication and transportation. These days,
we often think of the major developments that occurred in the twentieth
century. In transport, we developed aeroplanes, satellite navigation,
and, more substantively important, a standard system of shipping
containerisation. We have also had the telecommunications revolution:
radio, television, the internet and now mobile communications.
All of these economic developments work like a one-way ratchet. Once they
are introduced, there is no uninventing them. They tend to drive down the
costs of transport and communication. More accurately, they enable these
costs to fall – but whether they do fall turns on politics. After all, falling
costs of shipping, for instance, can easily be offset by raising tariffs.
In addition to the natural barriers to globalisation, we also have contrived
barriers. The level of linguistic and cultural overlap varies over time.
Across the nineteenth and twentieth centuries, English became as the
world’s lingua franca. If it were not your first language, it was likely to
be your second. But, in the twenty-first century, the world could become
increasingly bifurcated into those countries that speak English as a first
or second language and those that speak Mandarin as a first or second
language. The same is true with the flow of information. The internet
enables us to create a global commons. But, as the Great Firewall of China
shows, states can choose to manage whether and how their populations
connect to the common internet.
Simply put, the economic factors – technology, the pursuit of profit, etc.
– facilitate globalisation. But these factors are manifestly not sufficient to
ensure it. Indeed, achieving this depends upon policy makers – especially
those in powerful countries – prioritising and pursuing globalisation.
We will return to contemporary globalisation in Chapter 19. But, for now,
we will consider globalisation in historical context. We will see that the
political problems and challenges that globalisation poses are not entirely
new, and a rich history of international political-economic thought exists
that addresses the threats and opportunities that societies face from global
economic integration.
Activity 10.1
List three of the most important economic elements that drove the world towards
globalisation before the First World War. What political factors enabled this process?
87
10.4 The First Era of Globalisation in historical

perspective
Globalisation is often thought to have emerged in the post-1945 era, and
more specifically since the 1970s. The rise of multinational corporations,
first in the United States and later in Europe and East Asia, the expansion
of international trade, and the emergence of globally integrated financial
markets are all seen as interconnected trends that have begun to transform
the global economy in the last half century. But in one form or another,
these phenomena have existed for much longer, and the process of global
economic integration can be traced back much further, not just to the early
twentieth century but at least to the nineteenth century. Some scholars, such
as Immanuel Wallerstein, argue that the current global capitalist system
originated in the sixteenth century and has seen a continuous expansion
ever since. This begs the question of just how new globalisation is.
Trading links were among the first significant forms of the growing
interconnectedness of national economies in the late medieval and early
modern era. From the Hanseatic League to Venetian trading fleets and
the Dutch and British East India Companies, corporations from maritime
countries were at the forefront of establishing international trading
routes that connected first countries within Europe and later European
economies with those of Asia, Africa and the Americas. Globally operating
companies have thus been in existence for at least 500 years, often
working in close cooperation with state authorities. But these companies
were largely trading firms, and it was only in the mid-nineteenth century
that manufacturing firms began to establish facilities in different countries.
By the time of the First World War, the European economies were already
tied together by international capital flows and transnationally integrated
production. Some scholars, such as Kenneth Waltz, have argued that the
high-level interdependence of the pre-1914 gold standard era has never
been achieved again. Others, such as Michael Bordo et al. (1999), point to
the more limited nature of globalisation before the twentieth century.
One way to compare globalisations is to consider the level of integration
along three key dimensions: trade; finance; and migration. Consider the
share of exports in world output. This is a measure of the share of goods
and services that are consumed in a different country from whence they
originate. This peaked just before the First World War. And then it took six
decades before that level was reached again.
The story of migration and capital flows is even more startling. A larger
percentage of the world’s population was living abroad (on a permanent
or semi-permanent basis) in 1900 than today. These days, one can hardly
imagine the pre-war era, when much of the world’s population could
simply buy a ticket on a steamship and relocate to another country –
without a passport, visas or even necessarily informing the relevant
governments. While there were restrictions and (racist) quotas, cross-
border movement was largely unregulated.
Before the War, capital moved almost entirely freely. In fact, the whole
of the monetary order – the gold standard system – depended upon
extensive capital movements. What’s more, the UK set the gold standard
as the cornerstone of its hegemonic order. From the pursuit of global
trade liberalisation to the Boer Wars in South Africa, preserving the gold
standard system was often the UK’s pre-eminent foreign policy. In the end,
the flow of capital (relative to national income) across borders today pales
in comparison to the flows between developed countries prior to the War.
88
Activity 10.2
What were the defining features of the pre-war global economic order?
10.5 Mercantilist resurgence and the pleas of the

commercial liberals
For centuries, liberals have argued that war is not just immensely costly
but also largely unnecessary. Indeed, this ‘commercial liberal’ argument
was at the heart of Adam Smith’s critique of mercantilism. In the century
that followed, this became a major justification for the spread of ‘free trade
imperialism’ across the nineteenth century. In his calls to repeal the Corn
Laws in 1846, Richard Cobden promised, ‘I have speculated, and probably
dreamt…on what the effect of the triumph of this principle [of free trade]
may be…[It] will be to change the face of the world, so as to introduce
a system of government entirely distinct from that which now prevails. I
believe that the desire and the motive for large and mighty empires; for
gigantic armies and great navies – for those materials which are used for
the destruction of life and the desolation of the rewards of labour – will
die away…[T]he speculative philosopher of a thousand years hence will
date the greatest revolution that ever happened in the world’s history
from the triumph of the principle which we have met here to advocate.’
(Cobden, 1846)
But while Cobden was promising that trade liberalisation would cause ‘the
desire and the motive for large and mighty empires; for gigantic armies
and great navies…[to] die away,’ one market after another was opened
– and kept open – typically by the soldiers of the British Empire. And, by
the 1880s, imperial rivalry had ignited warfare once again. As discussed
in Chapter 10, this resurgence was partly driven by a rehabilitation of
mercantilist thinking. This combined with deeply pernicious ideas coming
from so-called ‘race science.’ The logic became so twisted, so tortured that
racist imperialists like Rudyard Kipling came to argue that ‘the white man’
had a ‘burden’ – an obligation – to colonise the ‘inferior races’ for ‘their
own good.’
At the same time, it would be naïve to ignore the role of interest groups.
It must be said that many of the architects of empire simply sought their
own gain. This was especially true in the so-called ‘Scramble for Africa’
in which leading Europeans (such as Cecil Rhodes and King Leopold II
of Belgium) systematically perpetrated atrocities as they extracted the
mineral wealth of Africa and the (coerced) labour of its people.
In 1909, the liberal theorist and sometime policy maker Norman Angell
directly challenged the mercantilist axioms that threatened the era’s
globalisation. Angell contrasted the political and economic logics.
‘The attitude of European finance,’ Angell wrote, ‘…is the absolute
condemnation of the view commonly taken by the statesman.’ ‘The only
consideration of the financier,’ he explained, ‘is profit and security…[H]e
has decided that the funds of the undefended nation are more secure than
the funds of one defended by colossal armaments…’ This was true, Angell
argued, because building the ‘colossal armaments’ not only cost resources,
but it also provoked one’s rivals into doing the same. It was not just costly
but futile. Here, he was thinking of the vicious circle in which Germany
and the UK raced to build ever larger ‘dreadnought’ battleships.
89
In a flourish, Angell posited, ‘modern wealth requires no defence, because

it cannot be confiscated’ (Angell, 1909, pp.38–39). Of course, he could
only have imagined something like Netflix. But he did see clearly to a
post-industrial world where high-end services – finance, logistics, design,
engineering, etc. – eclipsed the value of manufacturing. Angell recognised
that ever more of the world’s production would take the form of intangibles.
As such, ‘[T]he only possible policy in our day for a conqueror to pursue is to
leave the wealth of a territory in the complete possession of the individuals
inhabiting that territory, it is…an optical illusion to regard a nation as
increasing its wealth when it increases its territory…’ (Angell, 1909, p.34).
Yet, this contention was ahead of its time. Obviously, raw material and
energy were (are!) still scarce and vital to production and to defence. But
even money itself was still thought to be tangible: gold itself. And, as the
‘Scramble for Africa’ had demonstrated, the pursuit of these vital elements
still led to immensely violent conflict.
And, so, despite Angell’s pleas, statespersons all over the world went
to war in 1914. The First Era of Globalisation – and the so-called ‘Pax
Britannica’ – were the first casualties. As the global economy collapsed,
and the global order crumbled, policy makers mobilised blood and
treasure – again and again.
Activity 10.3
Does economic interdependence lead to peace or rivalry? Consider the theories of the
commercial liberals.
How would they advise the established powers to approach the rise of China today? Do
you agree with this advice? Why or why not?

Cox, R.W. ‘A perspective on globalization’ in Mittelman, J. (ed.) Globalization:
critical reflections. (Boulder, CO: Lynne Reinner, 1996).
Giddens, A. The consequences of modernity. (Cambridge: Polity, 1990).

• define globalisation and outline the various ways in which it can be
measured and assessed
• specify the relationship between states and markets in driving
globalisation and deglobalisation
• specify the essential features of the First Era of Globalisation,
particularly with regard to the mechanisms that drove it forward and
those that brought it to an end
• discuss, using empirical examples, the social, political, and cultural
consequences of the First Era of Globalisation
• critically assess the veracity of the ‘Pax Britannica’
• discuss, using empirical examples, the resurgence of mercantilism in
the late nineteenth century and the efforts of the commercial liberals
to combat this
90 order using the major approaches to IPE.

1. What are the most important lessons of the pre-war global
economic order? Discuss with reference to both the pre-
war trade and the pre-war monetary orders.
This is a challenging question. At the same time, however, it provides
a remarkable opportunity for the very best candidates to distinguish
themselves. As with any question on the ‘lessons’ afforded by historical
experience, good answers will consider both the empirics and the
applicability of these empirics to the present. This might be done
by thinking about IPE theory and/or by considering parallels to the
present. Students should note that they are tasked with discussing
both the pre-war trade and the pre-war monetary orders. This
means that less depth is expected than if the prompt had asked for
lessons from just one area but students ought to cover each in about
equivalent depth and sophistication.
Basic answers might proceed simply by summarising the major
features of the various international regimes related to trade and
money prior to the First World War: for example the international
gold standard system; and the British-led free trade system. They
might draw on HST to explain the underpinnings of this order, with
one set of potential lessons relating to the roles played by capable and
willing hegemons. They might also make some passing reference to
International Regime Theory along the way, particularly how the lack
of formal regimes hamstrung the pre-war efforts at cooperation.
Far better answers would seize upon this particular period as a
fascinating testing ground for evaluating the major IPE theories. After
all, the breakdown of these pre-war regimes is often seen as the classic
test of commercial liberalism and its arguments about commercial
interdependence. Mercantilists, too, have much to say in response.
This is worth much attention for any discussion of the trade regime.
On the monetary system, the pre-war gold standard system is often
said to be incompatible with modern liberal democracy. There are
lessons to explore here related to the kinds of regimes and conditions
required to support fixed exchange rate regimes (like the gold
standard). The gold standard also offers lessons about the rivalries
and financial crises fomented by such regimes. These can be usefully
compared to regimes like the eurozone today.
More broadly, there is the question of hegemonic challenge: a rising
power and a declining power. In this case, those powers would be the UK
and Germany. There are ready parallels to the present with lessons that
can be applied to the rise of China and the decline of the USA today.
Last, there is a chance to consider the applicability of Marxism. By
this, one does not mean the implementation of ‘Marxism’ as economic
policy in the ‘Communist world.’ Instead, candidates might consider
whether Marxist approaches to IPE describe the dynamics of the pre-
war order. For instance, candidates might use Dependency Theory and
show how the ‘capitalist states’ created colonial monetary and trade
relations with the ‘proletarian states’ across much of the world.
Not only are candidates challenged to think about both the monetary
and trade regimes, but they might also consider the interaction
between the two. Truly excellent responses might have teased out
several of the most subtle (but critical) points in this regard. After
all, liberalisation of the monetary system and the trade system was
inextricably linked in both theory and practice. 91
The above is hardly an exhaustive list, and examiners would never

expect so many lessons to be discussed in a single response. After all,
the prompt does ask for ‘the most important’ lessons. Thus, it is better
to develop three or so such lessons in depth. The very best candidates
would be able to build them into a coherent essay.
2. Is the combination of low-cost transport, sophisticated
telecommunications and economic interdependence
sufficient to both bring about and sustain globalisation?
This question is more complicated than it may first appear. It considers
the role of three different factors in doing two rather different things:
bringing about globalisation; and sustaining globalisation once it has
come about.
Most responses will probably begin simply by defining globalisation.
In doing so, you should remember that there are different dimensions
to globalisation, and that not all authors agree on how to define the
concept. So, while basic responses might simply deploy Giddens’
classic definition, better responses would probe this definition and
consider alternatives. The point of this is not to enter into a lengthy
discussion of different definitions but, instead, to use those different
ways of conceptualising globalisation as providing ways to consider
the factors that generate and sustain it.
The main focus of the answer should be on the question of how
transport, technology and economic interdependence enable
globalisation and create incentives for actors to make globalisation a
reality, although candidates also ought to discuss whether (and why)
it is harder to generate globalisation than it is to sustain it. This can be
done in relative short order perhaps by discussing path dependency,
institutional stickiness and the creation of coalitions in favour of one
foreign economic policy posture or another. (See Keohane’s After
hegemony for a classic invocation of this difference.).
Crucially, candidates must acknowledge that simply having the
conditions that allow for globalisation does not ensure that it comes
about or even that it persists once it has been realised. The best
evidence for this comes in the de-globalisation that occurred beginning
with the First World War. After all, the technological innovations of the
last century (for example, steamships, rail, refrigeration, the telegraph
and other information and communication technologies) remained,
but the world became less ‘globalised’ across the ensuing decades.
Good responses might address this with some reference to the ‘waves’
or ‘periods’ of globalisation. But better responses would explain why
this globalisation was reversed. The best responses would do so using
IPE theory and with specific reference to the prompt. Here, there
is a great opportunity for the best students to apply the arguments
of Hegemonic Stability Theory, international regime theory and the
resurgence of mercantilist policy prescriptions in this context.
92
Chapter 11: The post-war global system

Following the Second World War, leading actors worked to rebuild the
shattered global economic order. This chapter explores those efforts and
the evolution of the system in the decades that followed.

• outline the essential features of the Anglo-American liberal
international order
• trace the evolution of the global monetary order from the gold
standard through to the dollar order
• explain the creation and early evolution of the General Agreement on
Tariffs and Trade

Kindleberger, C.P. The world in depression, 1929–1939 (Berkeley, CA: University
of California Press, 1973) [ISBN 9780520275850] pp.288–300.
Mundell, R. ‘A reconsideration of the twentieth century.’ Address given upon
receipt of the Nobel Prize. 10 December 1999.
Roosevelt, F.D. ‘Inaugural Address.’ 4 March 1933.
The Atlantic Charter. August 14, 1941.
International Monetary Fund. Joint statement by Experts of united and
associated nations on the establishment of an international stabilisation fund.
April, 1944.
Bailey, M., J. Goldstein and B. Weingast ‘The institutional roots of American
trade policy: politics, coalitions, and international trade’, World Politics
49(3) 1997, pp.309–38.
Hiscox, M.J. ‘The magic bullet? The RTAA, institutional reform, and trade
liberalization’, International Organization 53(4) 1999, pp.669–98.
Irwin, D.A., P.C. Mavroidis and A.O. Sykes The Genesis of the GATT. (New York:
Cambridge University Press, 2008) [ISBN 9780521515610] Introduction,
1.1–1.3, 1.7–1.8, 1.12.

Frieden, J.A. Global capitalism: its fall and rise in the twentieth century,
and its stumbles in the twenty-first. (New York: W. W. Norton, 2020).
[ISBN 9780393329810] Chapter 10 ‘Building a social democracy’ and
Chapter 12 ‘The Bretton Woods system in action.’
Morrison, J.A. ‘Shocking intellectual austerity: the role of ideas in the demise
of the gold standard in Britain’, International Organization. 70(1) 2016,
pp.175–207.
Ruggie, J.G. ‘International regimes, transactions, and change: embedded
liberalism in the post-war economic order’, International Organization 36(2)
1982, pp.379–415.
Ikenberry, G.J. ‘A world economy restored: expert consensus and the Anglo-
American post-war settlement’, International Organization 46(1) (1992),
pp.289–321.
93
White, G.B. ‘Why are Republicans so obsessed with the Gold Standard?’, The
Atlantic November 11, 2015.
Goldstein, J. and J. Gowa ‘US national power and the post-war trading regime’,
World Trade Review 1(2) 2002, pp.153–170.
11.2 Introductory: The ‘Anglo-American’ liberal

international order
As the Second World War drew to a close, leading figures in the allied
powers crafted a series of interlocking international regimes that, they
hoped, would prevent repetition of the horrors of the previous decades.
The United Nations would promote law and order and facilitate positive
social and political relations. The General Agreement on Tariffs and
Trade was born as a ‘provisional’ agreement but subsequently grew
until it became the de facto multilateral trade regime (and, eventually,
reframed as the World Trade Organization in 1995). The International
Monetary Fund was a hugely ambitious plan to ensure financial stability
and also promote financial market access. The International Bank for
Reconstruction and Development was originally focused on reconstructing
war-torn Europe and Asia. But it expanded its remit as it became the
World Bank and devoted to eradicating poverty around the world.
It is important to understand that these regimes were all created
principally by the United States, in conjunction with the UK. Recognising
that fact is not necessarily to praise it. Many today suggest that these
regimes still bear the imprint of the ‘Eurocentric’ priors, priorities and
preoccupations of the ‘Anglo-American’ founders. This chapter traces the
evolution of these regimes across the post-war era.
Activity 11.1
The post-war international order was called the ‘Anglo-American’ ‘liberal’ order. Is this an
accurate characterisation? Was it truly ‘Anglo-American’? Was it truly ‘liberal’? And what
are the stakes of such questions?
11.3 From the gold standard to the dollar order

The last several centuries have seen a succession of different international
monetary systems, none of which has managed to provide a lasting,
long-term, international order. The era of the gold standard, which
lasted from the 1870s to 1914, is widely credited with providing stability
and confidence in the major currencies that formed the system. Its
stability, however, was to a large extent dependent on the willingness of
participating countries to subordinate domestic economic objectives to
the overriding concern for exchange rate stability (e.g. by deprioritising
domestic economic stability in order to support the fixed exchange rate).
The international gold standard system was one of the first casualties
of the First World War. Following the end of the war, many countries
attempted to restore the pre-war monetary system – or, at least, something
approximating it. Those efforts failed spectacularly, sowing the seeds of
the Great Depression and the international discord that followed. From
the 1930s onwards, the economic dislocations of the war forced one
country after another to abandon attempts to peg their currency to the
gold standard. The system then collapsed amid growing restrictions on
international capital flows and protectionist trade policies. The economic
94
crisis of the inter-war years, which was one of the factors contributing to
the outbreak of the Second World War, forced policy makers to reconsider
the need for international monetary cooperation. It led to international
efforts to create a more lasting order based on the institutions of the
Bretton Woods system.
At the Bretton Woods conference in 1944, the United States and the
United Kingdom played a pivotal role in designing a new framework
for international monetary relations. Bretton Woods was to provide
international stability while avoiding the shortcomings of previous
monetary systems. The leading economic powers restored a system
of fixed exchange rates and international cooperation linked with the
promise of domestic autonomy in economic policy making, which John
Ruggie dubbed the ‘compromise of embedded liberalism.’ Domestically,
many countries adopted the new economic doctrine of Keynesianism,
which saw a much greater role for the state in stimulating domestic
economic activity and promoting full employment. They were keen to
balance the need to intervene in the economy at home with the desire to
create greater economic openness abroad.
The Bretton Woods system was based on four key elements:
• The Member States adopted fixed but adjustable exchange rates,
with the US dollar serving as an anchor currency. The dollar itself
was linked to gold, and other currencies were allowed to fluctuate
within 1 per cent of their fixed rate to the dollar. If a fundamental
disequilibrium made this fixed exchange rate untenable, then currency
rates could be adjusted by up to 10 per cent on a unilateral basis or
over 10 per cent with the approval of three-quarters of the members of
the International Monetary Fund.
• Although the removal of restrictions on capital movement was the
ultimate goal, the Bretton Woods system allowed countries to retain
capital controls initially to help them stabilise the system and adjust
their domestic economy to it.
• A ‘scarce currency’ clause was established that allowed restrictions
of imports from countries that ran persistent payment surpluses and
whose currencies became scarce within the Fund. This provision
served predominantly the interests of European countries that faced
severe dollar shortages in the aftermath of the Second World War.
• The International Monetary Fund (IMF) and the International Bank
for Reconstruction and Development (IBRD, better known as The
World Bank) were created as the main institutions supporting the new
international monetary order. The IMF’s task was to provide policy
guidance and short-term financial loans to aid governments in dealing
with severe balance-of-payments imbalances. The World Bank’s remit
was to offer more long-term lending to support economic restructuring
and growth (see Chapter 14).
In many ways, the Bretton Woods system was a compromise, chiefly
between the USA and the UK. It represented a significant improvement
on the system of the interwar years, in that it provided institutional and
financial backup to deal with severe payments imbalances and allowed
for a more flexible mechanism of currency adjustment should those
imbalances persist. But it worked well only as long as international capital
flows were limited and did not pose a threat to fixed exchange rates.
Indeed, psychological and political problems prevented countries from
using the adjustment mechanism in a timely and effective fashion. Most
countries delayed a change in their currency’s exchange rate, which was
95
considered politically embarrassing, until it could no longer be avoided.

IMF lending became increasingly insufficient as global financial flows grew
in the post-war era. Moreover, the IMF’s supervisory role turned out to
be a blunt instrument, as Member States defended their economic policy
autonomy against intrusions from the international authority.
With hindsight, the shortcomings of the Bretton Woods system suggest
that it was bound to fail. Indeed, economists now argue that the fact that
the system allowed European countries to retain capital controls until the
late 1950s – an aberration from its intended goal of financial liberalisation
– explains why it functioned relatively smoothly in the first 10 to 15
years. The lack of convertibility kept capital flows under control during
that time. As soon as convertibility was restored, however, the strains in
the system began to show. The 1960s saw both a growth in international
financial flows and growing balance-of-payments difficulties in the United
States. These factors were to seal the fate of Bretton Woods. The USA’s
increasingly inflationary policy threatened the fixed gold-dollar rate that
was at the heart of the system, eventually driving the Nixon administration
to end the dollar’s gold convertibility and devalue the dollar in 1971. If
the USA had exercised some form of hegemonic leadership in creating
and maintaining the Bretton Woods system in the early post-war years, it
no longer had the desire to do so. Other nations also chose to prioritise
domestic policy objectives, and a switch to floating exchange rates thus
became the only practical alternative. In 1973, the Bretton Woods system
came to an end with the decision to let exchange rates float.
Activity 11.2
Consider the US’s decision to abandon the Bretton Woods system. Explain this using at
least two different approaches to IPE.
11.4 The creation of the GATT

To assess the different claims made in the contemporary debate on trade,
it is first important to review the history and nature of the current trading
order. The origins of the current trading system lie in the immediate
aftermath of the Second World War, when the leaders of the Allied forces
sought to establish a new international economic order. The challenge
was not only to overcome the economic distortions of the war but also to
remove the barriers to trade and capital movement that had been created
in the interwar years.
Following the example of the Bretton Woods arrangements, a similar
attempt was made to create an international regime with a strong
organisation at its heart to restore international trade. But the agreement
on the International Trade Organization (ITO) failed to win support in
the US legislature and was consequently shelved. Instead, a much more
limited agreement on trade liberalisation in manufactured goods, the
General Agreement on Tariffs and Trade (GATT) of 1948, came to form the
institutional home for the new international trade order.
The GATT is a multilateral treaty, not an international organisation, which
provides a forum for successive trade liberalisation talks in the post-war
era. It lays down principles and norms for trade policy, but the authority
to take decisions on tariff reductions lies firmly with the contracting
parties (i.e. the Member States). Its ultimate aim has been to reduce
trade barriers, focusing originally on tariffs on manufactured goods. The
96
contracting parties of the GATT have always been keen to retain some
degree of control over trade policy, and they built into the agreement
several safeguard provisions and exceptions from the free trade principle.
The GATT never aimed to create a world of free trade. Instead, the GATT
was envisaged as an ongoing attempt to lower trade barriers through
reciprocal agreements in a multilateral setting. It is this principle of
reciprocity that stipulates that tariff reductions are negotiated on a ‘give-
and-take’ basis, which makes GATT trade talks often look more like a form
of mercantilist bargaining than enlightened free trade practice.
The GATT’s most important principles are reciprocity, transparency and
non-discrimination. Reciprocity is present in the system of negotiated,
multilaterally balanced, agreements on trade liberalisation. All parties are
to conduct their trade relations and trade interventions in as transparent a
way as possible, so as to avoid hidden forms of protectionism and facilitate
multilateral negotiations on reducing trade barriers. The principle of
non-discrimination ensures that all members of the GATT can enjoy
the benefits of trade liberalisation in the same way, irrespective of their
economic size and power. Two variants of this principle exist in Articles I
and III of the agreement respectively:
• the most-favoured nation (MFN) principle, which states that the
rights and obligations given to one party extend to all parties of the
agreement
• the principle of national treatment, which obliges all parties to
treat domestic and foreign producers in the same manner (i.e. not
discriminate against foreign competitors to help domestic firms).
At the same time, the GATT recognises that countries may wish to protect
certain areas and industries from foreign competition. When a country
experiences a sudden influx of imports that cause substantial harm to
a domestic industry, Article XIX of the GATT allows this country to take
safeguard measures in the form of tariffs or import restrictions, provided
that this is done in a non-discriminatory way and that compensation
is paid to those foreign companies affected by the measures. Other
exemptions concern the exclusion of agriculture from the GATT’s
early trade liberalisation efforts, trade restrictions for human health
or environmental reasons (Article XX) and the use of regional trade
agreements and preferential rules for developing countries.
The many exceptions that are allowed under the GATT – and under the
Bretton Woods system – have led some analysts to argue that the post-war
international economic order embodied a form of ‘embedded liberalism’
rather than a return to nineteenth century-style classical liberalism. John
Ruggie’s notion of ‘embedded liberalism’ points to the fact that the United
States and its allies had to ensure that the move towards opening up
international markets did not harm the domestic effort to rebuild war-torn
economies and the welfare state. A compromise was therefore needed
between the liberal ideal of creating an open international order and the
need for a sufficiently high degree of state intervention in the domestic
economy to create a stable and legitimate international order.
11.5 Trade liberalisation under the GATT and the rise of

the ‘new protectionism’
The compromise of ‘embedded liberalism’ in the GATT allowed for an
unprecedented level of trade liberalisation after the Second World War,
through successive rounds of trade talks. The GATT system proved to be a
great success both in terms of driving down tariff levels for manufactured
97
goods and in terms of attracting a growing number of members. GATT

negotiation rounds became a regular feature on the international
diplomatic calendar, with the Kennedy Round (1963–67) achieving
average tariff cuts of 35 per cent for over 60,000 internationally-traded
products. At that time, the major industrialised countries experienced
average economic growth rates of four per cent per year while trade
volumes grew by eight per cent per year.
But maintaining the momentum in trade liberalisation proved to be
difficult. The relative success in reducing tariffs on manufactured goods
contrasted with the failure to agree a reduction of trade barriers in
areas outside the GATT’s original remit. Agriculture was one of the most
controversial areas where GATT rules did not apply. As global economic
integration proceeded, the GATT’s inadequate rules for trade in services
and international investment also generated concern. The Kennedy Round
had also failed to deal with the growing use of non-tariff barriers, and
with the onset of a prolonged economic crisis in the 1970s, it seemed as if
support for the GATT was beginning to wane. Yet, with hindsight we know
that the GATT’s inbuilt flexibility and gradualist approach to multilateral
negotiations helped to ride out those difficult decades. The conclusion
of the Uruguay Round in the early 1990s signalled a renewed consensus
among the major industrialised countries to push ahead with a widening
and deepening of the GATT’s trade liberalisation agenda.
One of the most intricate issues that came to the fore during the economic
disturbances of the 1960s and 1970s was the rise of the so-called ‘new
protectionism.’ The economic difficulties that brought down Bretton
Woods, and that were further aggravated by two oil crises in the 1970s,
created renewed incentives for countries to fall back on protectionist
practices. External economic shocks and inflation, combined with a
stagnant economy (‘stagflation’), posed severe challenges to many of
the major industrial sectors in the North. The economic success of Japan
and other East Asian countries also increased the pressure on Western
governments to shield their economies from the new competitive
pressures. With tariffs no longer available in the protectionist toolbox,
governments resorted to non-tariff barriers (NTBs) to keep out unwanted
competition from abroad. Such NTBs comprised a wide range of
instruments: voluntary export controls that set a quantitative limit on
imports from certain countries; government procurement policies that
favoured domestic producers; or national standards (e.g. in the areas of
health, consumer protection and environment) that discriminated against
foreign producers. The key problem with such measures has been that
they lack the transparency that the GATT requires, which complicates the
task of multilaterally agreeing on a reduction of NTBs; and they erode
the boundary between what can be considered a legitimate domestic
instrument of regulation and what foreign competitors perceive as a
hidden form of protectionism.
In the end, the GATT survived the economic disturbances and renewed
protectionist pressures of the 1960s and 1970s. The Tokyo Round
(1973–79) made a first, though incomplete, attempt to deal with non-tariff
barriers. But the major breakthrough came with the Uruguay Round in the
1980s, by which time a renewed multilateral consensus on the need for
trade liberalisation had swept away the doubts and threats of the era of
the new protectionism. Why was it possible to avert a deeper crisis for the
GATT? With hindsight, it is clear that the major industrialised countries
had maintained their support for the GATT’s trading order despite the
growing domestic pressure for protectionism. Jagdish Bhagwati (1988)
98
suggests that resorting to NTBs may have been a necessary means of

‘appeasing’ domestic interest groups and allowing for a more gradual
adaptation to the new competitive environment in the global economy. But
as Helen Milner (1988) argues, the balance between nationalist industries
favouring protectionism and internationalist industries supporting free
trade had shifted sufficiently in favour of the latter by the 1970s to allow
the GATT to survive. Unlike in the 1930s, when the rise of protectionism
contributed to the collapse of the international economic order, global
economic integration had progressed sufficiently in the post-war era to
withstand economic shocks and structural shifts in competition.
Activity 11.3
‘The distribution of power following the Second World War was largely irrelevant. Instead,
the post-war Anglo-American order depended far more on the ascent of ‘new thinking’
about political economy.’ Discuss.

• outline the essential features of the Anglo-American liberal
international order
• trace the evolution of the global monetary order from the gold standard
through to the dollar order
• explain the creation and early evolution of the General Agreement on
Tariffs and Trade

1. What are the most important lessons to be learned from
the efforts to restore a globalised world economy following
the Second World War? Discuss with reference to both the
international monetary and trade regimes.
themselves.
As with any question on the ‘lessons’ afforded by historical experience,
good answers will consider both the empirics and the applicability of
these empirics to the present. This might be done by thinking about IPE
theory and/or by considering parallels to the present. In the latter case,
for instance, there are striking parallels to discussions about ongoing
‘global imbalances’ today.
features of the various international regimes related to trade and
money: for example, the IMF and World Bank; the abortive ITO and
emergent GATT; etc. They might emphasise the need for international
cooperation following the conspicuous lack of cooperation in the
1930s. And they might make some passing reference to International
Regime Theory along the way.
99

all, Hegemonic Stability Theory and International Regime Theory were
largely developed by thinking about this question. But there is also
the chance to consider mercantilism, in particular the power-based
bargaining that prevailed between the US and the UK in forging this
order. Last, there is a chance to consider the applicability of Marxism
and mercantilism. By this, one does not mean the implementation
of ‘Marxism’ as economic policy in the ‘Communist world.’ Instead,
candidates might consider whether Marxist approaches to IPE describe
the dynamics of the new order. For instance, candidates might use
Lenin’s terms and show how the ‘capitalist states’ created neocolonial
monetary and trade relations with the ‘proletarian states’ even as they
formally embraced ‘decolonisation.’
between the two. Truly excellent responses might tease out several of
the most subtle (but critical) points in this regard. First, liberalisation
of the monetary system and the trade system was inextricably linked
in both theory and practice. Second, the experience of the 1930s
plausibly showed that cooperation within monetary affairs might not
have been as necessary as was cooperation in trade. Last, different
actors (individuals and states) had different priors and preferences
about which areas ought to be liberalised first and with what level of
autonomy left to states themselves.
2. What are the most important lessons about the
international political economy to be learned from the
interwar period? Discuss with reference to both the
international monetary and trade regimes.
themselves.
As with any question on the ‘lessons’ afforded by historical experience,
good answers will consider both the empirics and the applicability of
these empirics to the present. This might be done by thinking about
IPE theory and/or by considering parallels to the present. In the latter
case, for instance, there are striking parallels that can be drawn:
between the Great Depression and the Great Recession; austerity and
post-crisis politics; the power transition (from the UK to the USA in
the interwar period and between the USA and China today); trade war
and global imbalances; and the links between mercantilism and fascist
political economy.
features of the various ‘regimes’ related to trade and money in this
period: for example, the gold standard, the ‘new gold standard’ and
the era of floating exchange rates; the attempt to restore global trade
in the 1920s, the trade war that followed the introduction of Smoot-
Hawley, and the rebuilding of the trading system beginning with
the 1934 RTAA. They might emphasise the need for international
cooperation following the conspicuous lack of cooperation. And they
might make some passing reference to hegemonic stability theory and
International Regime Theory along the way.
100

all, Hegemonic Stability Theory and International Regime Theory
were largely developed by thinking about this question. There is also a
chance to consider the applicability of Marxism and mercantilism. By
this, one does not mean the implementation of ‘Marxism’ as economic
policy in the ‘Communist world.’ Instead, candidates might consider
whether Marxist approaches to IPE describe the dynamics of the
competitive, brutal order in this period. For instance, candidates might
use Lenin’s terms to consider neocolonialism under Nazi Germany and
Imperial Japan, among other places.
between the two. Truly excellent responses might tease out several of
the most subtle (but critical) points in this regard. First, liberalisation
of the monetary system and the trade system was inextricably linked
in both theory and practice. Second, the experience of the 1930s
plausibly showed that cooperation within monetary affairs might not
have been as necessary as was cooperation in trade. Last, different
actors (individuals and states) had different priors and preferences
about which areas ought to be liberalised first and with what level of
autonomy left to states themselves. There was little consensus on these
key questions throughout this period.
101
Notes
102
Chapter 12: The (r)evolutions of the global trade regime
Chapter 12: The (r)evolutions of the

global trade regime

Since the 1990s, the global trade regime has undergone numerous
transformations. This chapter analyses each of them, together with
discussion of the trajectory of the trading system going forward.

• outline the essential features of the multilateral trade regime (i.e. the
World Trade Organization)
• using the major approaches to IPE, explain the reasons for the creation
of the WTO
• using the major approaches to IPE, explain the reasons for the
decades-long failure to successfully conclude the Doha Round of WTO
negotiations
• using the major approaches to IPE, explain the causes of the
resurgence of the US’s ‘America first’ approach to international trade
• analyse the course of the US-China trade war.

Goldstein, J.L., D. Rivers and M. Tomz ‘Institutions in international relations:
understanding the effects of the GATT and the WTO on world trade’,
International Organization 61(1) 2007, pp.37–67.
Baldwin, R. ‘The World Trade Organization and the future of multilateralism’,
The Journal of Economic Perspectives 30(1) 2016, pp.95–115.
Baschuk, B. ‘The five biggest threats to the WTO’, Bloomberg. 11 April 2018.

Narlikar, A. ‘Fairness in international trade negotiations: developing countries
in the GATT and WTO’, World Economy 29(8) 2006, pp.1005–1029.
Jones, K. The Doha blues: institutional crisis and reform in the WTO. (Oxford:
Oxford University Press, 2009) [ISBN 9780195378825].
Kaya, A. ‘Designing the multilateral trading system: voting equality at the
International Trade Organization’, World Trade Review 15(1) 2016),
pp.25–49.
Davis, C.L. Why adjudicate?: enforcing trade rules in the WTO. (Princeton, NJ:
Hoekman, B.M. and M.M. Kostecki The political economy of the world trading
system: the WTO and beyond. (Oxford: Oxford University Press, 2009)
3rd edition [ISBN 9780199553761].
Stiglitz, J.E. and A. Charlton Fair trade for all: how trade can
promote development. (Oxford: Oxford University Press, 2006)
[ISBN 9780195328790].
103
12.2 Introductory: regimes for trade

International trade existed long before the modern capitalist world
economy came into existence. It plays a vital part in supplying a nation
with the goods that it either cannot produce (e.g. certain natural resources)
or that it cannot produce as efficiently and cheaply as other nations
(e.g. because of the lack of technology, industrial capital, etc.). Trade is
thus a simple economic necessity, and in today’s world it seems increasingly
impossible to imagine a situation of autarkic economies disconnected from
one another. Yet, trade is also an eminently political issue, raising questions
about which goods can and should be traded (e.g. arms, endangered
species), how much dependence on foreign suppliers is acceptable (e.g.
energy, food) and how much state intervention is needed to direct trade
flows. It should therefore come as no surprise that trade has always been at
the centre of the politics of international economic relations.
But addressing these issues at the global level is a relatively recent
innovation. It has come with the rise of the GATT – and now the WTO – as
the world’s de facto global trade regime. With its 164 members, the WTO
does not include all the countries of the world, but it does come rather
close. This is called the ‘multilateral trade regime’ to distinguish it from
regional and preferential trade agreements (PTAs). The latter are discussed
in the next chapter.
12.3 From the creation of the WTO to the Doha Round

Previously (in Chapter 11), we explored the origins and early evolution of
the GATT. Now we will continue that story into the modern era.
The Uruguay Round, which lasted from 1986 to 1993 and came into
force in 1995, produced a 22,000-page treaty with the broadest coverage
of trade issues ever in the history of the GATT. The Contracting Parties
signed 29 separate accords, covering areas such as agriculture, textiles,
services, intellectual property rights and investment. Tariff levels on most
manufactured goods were reduced to only a few percentage points, thus
making them insignificant for most industrialised countries. Economists
estimated that the achievements of the Uruguay Round would result in an
increase of global welfare by 2002 in the region of $270 billion.
Apart from widening the trade agenda, the Uruguay Round’s lasting
achievement was a deepening of trade rules through the creation of
the World Trade Organization (WTO) and a binding dispute settlement
mechanism. The WTO is a fully-fledged international organisation
that puts the GATT and its associated trade agreements on a more
comprehensive and permanent footing. It serves as an umbrella
organisation for all trade rules and obligations created by the Member
States. Through the newly introduced Single Undertaking, all trade
rules are now applicable to all Member States, irrespective of their level
of economic development (with some minor exceptions). This is an
important development as it reverses a previous trend that had granted
developing countries preferential treatment under the GATT, which
included asymmetrical rights and obligations as enshrined in the principle
of Special and Differential Treatment (SDT).
One of the most important institutional innovations of the WTO is the
dispute settlement mechanism with independent panels that adjudicate
trade disputes. Whereas the GATT’s dispute settlement procedure allowed
for long delays in the panels’ proceedings, the outcomes of which were
not legally binding unless both sides of a dispute accepted the ruling,
104
the Uruguay Round agreement built on this procedure and strengthened
it in several important ways. It made the panels’ rulings binding unless

overturned by a decision of all contracting parties, including those
involved in a dispute; it added the Appellate Body to review the decisions
of the dispute panels and to take final decisions; and, most controversially,
it enabled the WTO to authorise the use of sanctions against parties that
were found to be in breach of WTO rules. The WTO’s dispute settlement
mechanism has since been used hundreds of times to settle conflicting
interpretations of trade disciplines. Crucially, it has found not only in
favour of the most powerful trading countries but also against them.
Several times, even developing countries have won cases brought against
the United States or the European Union, showing, perhaps, that the WTO
DSM can work for developing countries as well.
But the position of the developing world in the WTO has remained
controversial ever since the Uruguay Round came into force in 1995.
Despite the fact that developing countries are now in a majority in the
WTO, allowing them to block decisions by the Ministerial Conference
(the highest authority of the trade body), many remain marginal in the
trading system, both in terms of share of international trade flows and
participation in decision-making. The poorest Member States regularly
complain that for them, the Uruguay Round’s promises remain largely
unfulfilled. Among the manifold complaints they have voiced are the
problems they face with implementing the Uruguay Round’s vast range of
agreements; the lack of progress that has been made in improving market
access for producers from the South, particularly in Northern agricultural
markets; and the creation of new trade rules and disciplines in areas
that are highly asymmetrically structured and favour Northern industry
interests over Southern developmental needs.
This last concern has been given powerful expression in debates over the
Trade-related Aspects of Intellectual Property Rights (TRIPs) Agreement.
Some of the least developed countries have argued that their efforts to
overturn rules that prevent them from acquiring cheap generic medicines
to fight diseases such as malaria or AIDS were being hampered by TRIPS
drug producers. In response to this debate, the WTO decided in 2003 that
under certain narrowly defined circumstances, the TRIPS’s overriding
concern with protecting the rights of pharmaceutical companies had to be
sacrificed in favour of the public health needs of developing countries.
While the partial victory of developing countries in the TRIPS/medicines
conflict has signalled an improvement in their bargaining position,
their influence in the WTO remains uneven – at best. On the one hand,
developing countries have forced the WTO to focus more clearly on their
developmental needs. Of course, the fact that developing countries are now
in a majority in the WTO’s ‘one country one vote’ decision-making system
has given them an effective veto power over any future trade deal. In this
sense, the trade body’s future might depend on its ability to accommodate
the demands of the increasingly assertive group of developing countries.
On the other hand, however, some of the larger emerging economies, most
notably China, India and Brazil, have become important and powerful
players in international trade negotiations. In fact, their disagreements
with the established powers in the WTO (chiefly the US and Europe) are
one key reason behind the difficulties in reaching a broader international
agreement in the Doha Round. By contrast, smaller and poorer developing
countries continue to complain about their inability to shape specific
outcomes in ongoing trade talks.
These tensions have been key to the ongoing disappointments of the
Doha Round.
105
Activity 12.1
What theory and/or approach best explains the success of the GATT?
12.4 The Doha Round difficulties

The Doha Round of WTO negotiations launched to much fanfare in Doha,
Qatar in 2001. It was the first round of GATT/WTO negotiations launched
at the behest of the developing countries. Termed the ‘Doha Development
Round,’ it brought hope that the WTO would pivot its focus to the priorities
and needs – especially concerning development – of the Global South.
The major focus was on agriculture. Since GATT 1947, agriculture has
always been the exception to the rule of trade liberalisation. It has been
heavily managed in both developed and developing countries. But it is
especially difficult for developing countries because they cannot simply
switch to specialising in manufactured goods and/or post-industrial goods
and services. After all, liberal trade theory suggests that they should be
allowed to exploit their comparative advantage.
Unfortunately, however, the situation has got worse rather than better.
The US and the EU agreed to cut some of their agricultural subsidies. This
gain, though, was more than offset by the increase in agricultural supports
by leading emerging markets (such as India).
At the same time, the leading developed economies negotiated alternative
trade deals, largely among themselves: the Trans-Pacific Partnership
(TPP) and the Transatlantic Trade and Investment Partnership (TTIP).
This renewed fears that the multilateral regime – the WTO – would be
marginalised. After stalling repeatedly for more than a decade, the Doha
Agenda was, essentially, abandoned at the 10th Ministerial Conference (in
Nairobi in December 2015).
Instead, the developed countries pushed through a new, ambitious IT tariff
deal. This agreement reduced tariffs on $1.3tn of trade, which is covering
seven per cent of global trade – more than in textiles, iron and steel
combined. The cuts affected more than 200 products, including computer
chips, GPS devices, medical equipment, video-game consoles, satellites
and touch screens. To a large extent, this deal served to ‘update’ the WTO
agreements to include all those products that had taken off since the
last WTO agreement (i.e. in 1995). Of course, the principal beneficiaries
were firms in the Global North, such as General Electric, Intel, Texas
Instruments, Apple, Microsoft and Nintendo.
Activity 12.2
What theory and/or approach best explains the struggles of the WTO during the
Doha Round?
12.5 America first

The USA has been among the most successful members of the GATT/WTO;
and it has typically benefited substantially (overall) in its PTAs (which are
discussed in Chapter 13). The USA has benefited economically, and it has
exercised outsized influence over the agendas and trajectories of these
regimes. Nevertheless, many people in the US remain sceptical of these
regimes (and of international organisations more generally).
106
In the election of 2016, Donald Trump ran on the platform of ‘Make

America Great Again.’ For our purposes, it is important to note that Trump
had bought (implicitly) into the story of US hegemonic decline. He placed
the blame on Asian rivals and feckless allies. He promised a trade war;
and, when he was elected, he launched his trade war(s).
Trump’s inaugural address promised to put ‘America first.’ Within a few
days of taking office, he withdrew from the Trans-Pacific Partnership. The
following summer, he directed the US Trade Representative to formally
investigate China for ‘implement[ing] laws, policies, and practices…
related to intellectual property, innovation, and technology that may
encourage or require the transfer of US technology and intellectual
property to enterprises in China.’ (US Trade Representative, 2018) Of
course, many official publications of the Chinese government explicitly
state these means and ends.
According to the WTO agreements, such grievances ought to be addressed
through diplomacy or, if necessary, through the formal legal process of
the Dispute Settlement Mechanism. But Trump became impatient with
the bilateral negotiations, disdaining the WTO (and international law
more generally). Instead, the Trump administration unilaterally imposed
tariffs on steel (25 per cent), aluminium (10 per cent), washing machines
and solar panels. Of course, China was the principal target, but most of
the US’s trading partners were affected – including US allies like the EU,
Canada and Mexico. This prompted retaliation from India, Canada and
China. In particular, the Xi regime’s retaliatory tariffs specifically targeted
US soybean farmers in politically important (and vulnerable) electoral
districts. Trump, however, was able to minimise the political backlash
by directly subsidising those farmers harmed by China’s retaliation. In
the end, US consumers paid more for their goods and services; and US
taxpayers paid extra to offset the costs of the trade war.
Trump did not stop there, going so far as to actively sabotage the WTO
Dispute Settlement Mechanism itself. In an unprecedented move, the
Trump administration categorically refused to approve members to the
WTO’s Appellate Body. By the end of 2019, there were too few members
to discharge their responsibilities. The following year, the term of the last
Appellate Body member expired, leaving the WTO with no remaining judges.
In the election of 2020, Joe Biden defeated Donald Trump – partly on
a promise to restore the US to its position of global leadership. After
taking office, however, Biden continued Trump’s undermining of the
WTO. The Biden administration re-issued the same critiques of the WTO’s
legal processes and continued to block all judicial appointments. At the
time of writing (January 2023), the caseload has continued to grow – as
WTO members continue to file disputes – but the WTO ‘court’ remains
essentially closed.
Activity 12.3
What theory and/or approach best explains the shift of the US towards its ‘America first’
trade policy?

US Trade Representative. Section 301 Findings. 22 March 2018.
107

• outline the essential features of the multilateral trade regime (i.e. the
World Trade Organization)
• using the major approaches to IPE, explain the reasons for the creation
of the WTO
• using the major approaches to IPE, explain the reasons for the
decades-long failure to successfully conclude the Doha Round of WTO
negotiations
• using the major approaches to IPE, explain the causes of the
resurgence of the US’s ‘America first’ approach to international trade
• analyse the course of the US-China trade war.

1. Is the failure of the Doha Development Agenda best
explained by Marxist theories of International Political
Economy?
multilateral trade policy in the WTO to the current Doha Round and
to examine the underlying problems of bringing the Doha Round to
a conclusion. It also requires that candidates are adept at applying
Marxist theory to contemporary events. They should demonstrate a
general understanding of the process of multilateral trade policy and
some detailed knowledge of the issues and problems of the Doha
Round. But all of this must be done with an eye to whether these
dynamics are best explained by Marxist approaches to IPE.
negotiation process and the rules for adopting new trade agreements.
This is not the place to give a detailed history of the GATT or WTO or
a comprehensive account of what the WTO does. Instead, candidates
need to focus on the procedural dimension of the trading order and
its core negotiation process. The next step would be to consider the
Doha Round, identify the main topics on its agenda and discuss the
factors that have precluded its successful conclusion. A good answer
would emphasise that even just setting the agenda itself is political.
Marxism might be particularly useful here in analysing the dynamics
within those political struggles. At first glance, the ‘Doha Development
Agenda’ ought to serve the interests of developing countries. So, does
its ‘failure’ suggest that the Marxists are right? Or perhaps the agenda
shifted in interesting ways that the Marxists can explain most usefully.
Within the Round itself, there are the conflicting interests of the
major trade powers, the rise of emerging economies and the changing
answer would consider the Doha Round’s difficulties in the context
of the broader crisis of multilateral negotiations in IPE. It would also
highlight that which has been agreed up to this point, in particular the
reductions on agricultural subsidies and the IT tariff agreement. Once
again, do the Marxist approaches explain this better than, say, the
mercantilist or liberal approaches?
108
2. ‘The GATT was more successful than the WTO precisely

because it was less ambitious and more realistic in its
design, objectives and operation.’ Discuss.
multilateral trade policy in the GATT/WTO trading regimes to the
trajectory of the WTO today. Most concretely, the latter calls for a
discussion of the underlying problems of bringing the Doha Round to a
conclusion. Candidates should demonstrate a general understanding of
the process of multilateral trade policy and some detailed knowledge
of the issues and problems of the Doha Round. But all of this must
be done with an eye as to whether the changes brought by the WTO
(relative to the GATT) mitigate or exacerbate these challenges.
negotiation process and the rules for adopting new trade agreements.
Candidates might then explicitly describe which aspects of these
dynamics are similar to – and which are different from – those that
attended the GATT mode of trade relations. The next step would be to
consider the Doha Round, identify the main topics on its agenda and
discuss the factors that have precluded its successful conclusion. These
can then be explicitly linked to the aforementioned GATT and WTO
dynamics. At first glance, the ‘Doha Development Agenda’ ought to
serve the interests of developing countries. So, does its ‘failure’ suggest
that the WTO has failed? Perhaps the agenda shifted in significant ways
– just as agendas tended to shift under the GATT and perhaps for the
same reasons.
Within the Round itself, there are the conflicting interests of the
major trade powers, the rise of emerging economies and the changing
answer would consider the Doha Round’s difficulties in the context
of the broader crisis of multilateral negotiations in IPE. It would also
highlight that which has been agreed up to this point, in particular the
reductions on agricultural subsidies and the IT tariff agreement. This
is important fodder for evaluating whether the WTO is actually ‘less
successful’ and why or why not.
109
Notes
110
Chapter 13: The rise of regionalism and preferential trade agreements (PTAs)
Chapter 13: The rise of regionalism and

preferential trade agreements (PTAs)

Even as the world has become more globalised, regionalism has remained
an essential feature within the international system. This chapter
considers the dynamics that are driving this phenomenon along with their
implications.

• outline the concept of regionalism as it applies to IPE
• explain the rise of regionalism in recent decades
• analyse the dynamics of regionalism using empirical examples
• analyse the cooperative and combative interactions between regional
and multilateral regimes.

Best, E. and T. Christiansen. ‘Regionalism in international affairs’ in Baylis, J.,
S. Smith and P. Owens (eds) The globalization of world politics: an
introduction to international relations. (Oxford: Oxford University Press,
2019) 8th edition [ISBN 9780198825548].
Mansfield, E.D. and H.V. Milner ‘The new wave of regionalism’, International
Organization 53(3) 1999, pp.589–627.
Baccini, L. ‘The economics and politics of preferential trade agreements’,
Annual Review of Political Science 22(1) 2019, pp.75–92.
Büthe, T. and H.V. Milner ‘Foreign direct investment and institutional diversity
in trade agreements: credibility, commitment, and economic flows in the
developing world, 1971–2007’, World Politics 66(1) 2014, pp.88–122.

Hurrell, A. ‘Explaining the resurgence of regionalism in world politics’, Review
of International Studies 21(4) 1995, pp.331–358.
Fawcett, L.L. and A. Hurrell Regionalism in world politics: regional organization
and international order. (New York: Oxford Univesity Press, 1995)
[ISBN 9780198280675].
Baldwin, R.E. ‘Multilateralising regionalism: spaghetti bowls as building blocs on
the path to global free trade’, World Economy 29(11) 2006, pp.1451–1518.
Bhagwati, J.N. Termites in the trading system: how preferential agreements
undermine free trade. (Oxford: Oxford University Press, 2008)
[ISBN 9780195331653].
Heydon, K. and S. Woolcock The rise of bilateralism: comparing American,
European and Asian approaches to preferential trade agreements. (Tokyo:
United Nations University Press, 2009) [ISBN 9789280811629].
Phillips, N. The Southern Cone Model: the political economy of regional
capitalist development in Latin America. (Abingdon: Routledge, 2004)
[ISBN 9780415747929].
Barton, J.H., J.L. Goldstein, T.E. Josling and R.H. Steinberg The evolution of
the trade regime: politics, law, and economics of the GATT and the WTO.
Ch 6 ‘Expansion of GATT/WTO Membership and the proliferation of
regional groups’.
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Peacock, C., K. Milewicz and D. Snidal ‘Boilerplate in international trade

agreements’, International Studies Quarterly 63(4) 2019, pp.923–937.
Donno, D. and N. Rudra ‘David and Goliath? Small developing countries,
large emerging markets, and south-south preferential trade agreements’,
Ravenhill, J. ‘East Asian regionalism: much ado about nothing?’, Review of
International Studies 35(S1) 2009, pp.215–235.
Hamanaka, S. ‘Inter-regionalism in the global south: comparison with extra-,
cross-, trans-, and pan-regionalism’, Cambridge Review of International
Affairs, 2021, pp.1–23.
13.2 Introductory: grappling with regionalism

Despite the challenges since 2016, globalisation continues to broaden and
deepen. It manifests itself in growing trade links and production chains
across boundaries, convergence of consumer preferences and values and
political integration and cooperation. But alongside the trend towards
global harmonisation exist moves towards regional integration and
institution-building. In one sense, both globalisation and regionalisation
transcend the nation state as the key organising entity in the IPE. But in
another sense, regionalisation runs counter to globalisation, promoting
cooperative institutions and structures that are based not on global but on
regional identities and processes.
The concepts of regionalisation and regionalism are often used
interchangeably, but we need to define them more precisely if we are to
make sense of the vast range of regional trends and institutions that exist
today. Regionalisation denotes a process of social, political and economic
integration within a region. This process is typically unintended, often
driven by disparate (even autonomous) economic processes. It creates
deeper communities and identities across boundaries but below the global
level. It stands in contrast to regionalism, which refers to a more deliberate
process of creating an integrated form of cooperation within a region.
Regional integration may take place in the realms of society, culture,
politics or the economy. In fact, economic regionalism is one of the key
driving forces behind the recent resurgence of regionalist projects, with
regional free trade areas being developed in all continents.
A complicating factor in achieving definitional clarity is that the concept of
the region is in itself ambiguous. Boundaries between regions are difficult
to establish, and different types of regional ‘identity’ – geographical
proximity, culture, language, religion – yield different delineations. These
are the product of large-scale political, economic and cultural change, and
thus they are open to challenge. In a sense, therefore, regional identity
is created, or ‘socially constructed’, as sociologists would put it. In other
words, there are no ‘natural’ boundaries to regions.
Ukraine is an exemplary – and crucial – case. It is a massive and diverse
country at the proverbial crossroads between ‘East’ and ‘West.’ Those in
the country’s western parts have strong political, economic and cultural
connections to Europe. Those in the country’s eastern parts have such
ties with Russia. Since its independence from the Soviet Union in 1990,
the country has been pulled in both directions. Of course, these tensions
became outright conflict in 2014; and a full-scale Russian invasion
followed in 2022. To a large extent, this war erupted over the regional
identity – and orientation – of this country.
The European Union is the most successful example of a regional
community of states that has achieved a high level of economic and
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political integration. Despite some efforts to emulate this project, there is

nothing comparable anywhere else in the world. The reality is that most
international economic agreements are far narrower and less ambitious. As
a result, the terminology used to describe such agreements collectively is
also evolving. The traditional term of ‘Regional Trade Agreements (RTAs)’
is giving way to the more generic – and less region-focused – term of
‘Preferential Trade Agreements (PTAs).’ Since the 1990s, there has been an
explosion of PTAs – especially between developing countries.
Activity 13.1
Consider the boundaries of the commonly referred-to regions or sub-regions of Asia,
Southeast Asia and East Asia/Pacific. Compare these with the membership of Asian
regional organisations such as ASEAN or APEC.
13.3 Explaining regionalism

How can we explain the trends towards greater regionalism in the IPE?
The processes at work in different parts of the world all share certain
characteristics, but they also reflect different, region-specific, factors.
Developing a general theory of regionalism is therefore bound to be a
frustrating, perhaps futile, effort. It helps, however, to identify certain
general features that lie behind the surge of regional integration. This is
explicable from several perspectives.
Liberal economists explain the growth of economic regionalism, like any
form of international integration, as an attempt to overcome market
failures and to provide a more lasting basis for international cooperation
to support the expansion of markets. This rationale is clearly at work in the
many regional trade agreements that have been created in the last three
decades, such as the EU and NAFTA. What is missing from this explanation
is an account of the political motives behind regional institutions such as
those of the European Union.
Mercantilists provide a rather less benign view of economic regionalism.
From their perspective, the building of regional trading blocs reflects a
concern with relative gains and losses and a need to achieve a competitive
advantage for domestic industries. Also, mercantilists see regionalism as
a way to create economic blocs that bring the advantages of trade and
integration while reducing the potential negative security externalities. In
this view, regionalism is a modern analogue to imperialism. In explaining
European economic regionalism, mercantilists point to the fear of US and
Japanese competition that informed efforts in the 1980s to establish a
single market for Europe. They also emphasise the dominance of the larger
powers within regionalisation (such as Germany’s position within the EU).
Economic regionalism is thus embedded in a wider strategy of economic
competition and serves as a bargaining chip in multilateral negotiations on
trade and investment.
Activity 13.2
What do the WTO agreements say about regional trade agreements (RTAs)? Is there a
fundamental conflict between participation in the WTO and in RTAs? What explains the
trend towards regional trade agreements in the world economy?
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13.4 The European Union

The European integration process is widely considered to be the most
successful example of regional integration. Whether it holds lessons for
other regions is a matter for debate. Important historical circumstances
have shaped European integration: the experience of two devastating
world wars sparked the desire to bring the countries of Europe closer
together to prevent future conflict; and the emergence of a bipolar world
with the USA and the Soviet Union as the predominant powers accelerated
the decline of the old European order and promoted the emergence of
a pan-European perspective. With the destruction caused by the Second
World War, integration in Europe also became a matter of practical
importance in the effort to rebuild industries and communities.
The European Union started out in the 1950s with a limited effort to
create supranational authorities in the field of economic cooperation.
The European Coal and Steel Community (ECSC) of 1952 was followed
in 1957 by the more comprehensive Treaties of Rome that gave birth to
the European Economic Community (EEC). The EEC created a customs
union and facilitated greater economic integration between its original
six Member States (France, Germany, Italy, Netherlands, Belgium and
Luxembourg), which were joined later by other European countries.
Economic integration was followed by political integration, and with
political integration came the gradual transfer of political authority to the
common institutions of the EEC. However, Member States were not simply
ceding sovereignty to a new European super-state. The Single European
Act of 1985 and the Treaty on European Union of 1992 further integrated
policy areas from environment to monetary policy, but the Member States
continued to protect their sovereign rights in important areas such as
foreign policy and defence.
The many early successes of European integration fostered growth in
membership. The six founding members of the EEC were joined by Britain,
Denmark and Ireland in 1973, Greece in 1981, Spain and Portugal in
1986 and Sweden, Finland and Austria in 1995. In 2004, the EU took in
10 countries, including many former members of the Soviet bloc: Cyprus,
Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland,
Slovakia and Slovenia. Bulgaria and Romania joined in 2007.
The expanding membership of the EU, however, has put the community
under increasing strain. Decision-making in the 27-member organisation
proved cumbersome and ineffective. While the new East European
members have generally thrived, they still have not achieved West
European levels of development and prosperity. These differences in
circumstances, preferences and priorities came to a head in the wake of
the eurozone debt crisis. (This is discussed further in Chapter 15). In the
dark days of 2012, leaders in Greece (and abroad) seriously contemplated
‘Grexit’ – a Greek exit – from the eurozone.
In June 2016, (eligible) UK citizens voted to remove the UK from the
European Union. Nearly four years of acrimonious negotiations followed.
In 2020, the Brexit withdrawal agreement (treaty) was ratified by both
countries, and the UK became the first sovereign entity to leave the EU.
Explanations for the unexpected result abound – especially those that
analyse the UK and the EU using sub-systemic analysis. For years to come,
scholars will continue to debate what lessons this holds for the future of
the European project.
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Activity 13.3
Critics of the process of European integration have argued that it would eventually lead
to the creation of a ‘Fortress Europe’ and would erect new trade barriers against non-
European countries. Is this true? Consider the acrimonious UK–EU negotiations over their
‘divorce.’ What lessons does this teach us about this question?
13.5 Regionalism in the Americas

Efforts to build regional groupings in Latin America go back to the 1950s,
when the UN Economic Commission for Latin America began to promote
greater cooperation in the region. Latin American regionalism was
inspired by the need to promote economic development, but it was also
informed by a desire to counter the dominant influence of the region’s
undisputed hegemon, the United States. From the 1960s onwards, several
regional economic blocs emerged that provided a framework for economic
cooperation. The Central American Common Market (CACM), the
Caribbean Common Market (CARICOM) and the Andean Group all sought
to create an economic union at the sub-regional level. Their success in
promoting economic integration was mixed, however. Political integration
played only a marginal role in these early sub-regional schemes, and none
of them came to encompass the entire region.
In the 1990s, a new grouping of Southern American economies came
into existence that also included a more overtly political dimension. The
MERCOSUR (‘Common Market of the South’) includes Brazil, Argentina,
Paraguay and Uruguay, with Chile being closely associated. MERCOSUR
is seen by some as a potential model for greater economic integration
in the entire Latin American region. A key question remains, however,
as to whether the United States should become a member of any such
all-encompassing regional organisation. Because of its economic size and
political dominance, the USA could not be an equal partner and this would
raise concerns about the economic and political marginalisation of smaller
countries. The only pan-American organisation in existence today is the
Organization of American States (OAS), which focuses on political and
security issues. There is no equivalent economic body for the Americas,
although recent attempts by the United States to create a Free Trade Area
of the Americas (FTAA) would result in an embryonic scheme for pan-
American economic union.
US efforts to create stronger economic and political ties between North
and South America go back to the 1940s and 1950s and produced
only limited results. These efforts received a boost in the 1990s from
the creation of a trilateral trade agreement between the USA, Canada
and Mexico. The North American Free Trade Agreement (NAFTA) of
1993 proved to be one of the most successful models of sub-regional
integration, helping to lower tariff barriers and promoting cross-country
investment between the three Member States. NAFTA, however, became a
favourite target of free-trade-sceptics. In 2018, the Trump administration
renegotiated and updated the agreement, now called the United States–
Mexico–Canada Agreement (USMCA).
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Activity 13.4
Discuss the role of the United States in promoting, and hindering, regional integration
of the Americas. Can regional integration ever succeed given the asymmetrical power
balance between the United States and the Latin American countries?
13.6 Regionalism in Asia

The Asian continent has also seen the rise of a number of sub-regional
economic organisations. In South East Asia, the Association of South East
Asian Nations (ASEAN) took on a more overtly economic dimension in
the 1990s with the 1992 agreement to establish a free trade area among
its members. But ASEAN’s impact on economic regionalism has been
limited. Unlike the European Union, ASEAN did not manage to achieve a
substantial increase in intra-ASEAN trade. Instead, most Member States
continue to trade predominantly with non-ASEAN countries.
More recently, the development of Asia-Pacific Economic Cooperation
(APEC) provides a framework for economic cooperation that includes the
United States, Japan, Australia and New Zealand and seeks to tie together
the continents bordering the Pacific. As in the early phase of ASEAN, APEC’s
main function has been to provide a forum for regional dialogue, while
moves towards a deeper model of integration à la Europe remain elusive.
The Asian region continues to be characterised by significant differences
in economic development, thriving nationalist sentiment and a precarious
security situation. These are all factors that have held back Asian
regionalism. But China’s ascent – and its assertiveness – has combined
with the (de facto) US pivot away from Asia to open more space for Asian
regionalism.
In 2020, 15 countries (led by China) signed the Regional Comprehensive
Economic Partnership. This included ASEAN countries, the East Asian
leaders (China, Japan and South Korea), and Australia and New Zealand.
Altogether, it covers 30 per cent of the world’s population and 30 per cent of
world GDP. But, while it is very broad, it is ‘shallower’ than the Trans-Pacific
Partnership. It is also less focused on investment. Broadly, this continues the
process of US-China decoupling, and it complements China’s (global) Belt
and Road Initiative with a regional economic bloc. In the years to come, it
could prove to be a landmark agreement. But only time will tell.
13.7 PTAs, the multilateral trade regime and increasing

trade-scepticism
Over the last several decades, there has been a dramatic increase in the
number of bilateral and preferential trade agreements (PTAs). Given
the difficulties of the Doha Round – and, really, since the conclusion of
the WTO’s Uruguay Round – this is hardly surprising. The major trading
powers, especially the United States and the EU, have often resorted to
bilateral and minilateral trade diplomacy. This has raised serious concerns
about their commitment to the multilateral process of the WTO.
Whether globalisation and regionalisation are compatible trends remains
one of the most hotly debated issues in international economic circles.
There is much room for optimism. Over the last half century, the creation
of an internationally integrated economy has (typically) gone hand-in-
hand with economic regionalisation, causing little friction between the two
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trends. Advocates of regionalism argue that regional units should be seen

as building blocks of a multilateral economic order, and in some cases as
models for economic integration that go even beyond the levels achieved in
multilateral settings.
But some observers have expressed the fear that regional economic
unions and preferential trade areas may reduce the move towards a truly
globalised economy and potentially threaten the ongoing multilateral
process of agreeing rules on trade and investment. They see economic
regionalism as a threat to multilateralism and an open international
economy. They fear a return of the ‘economic fortress’ mentality that
characterised the economic climate of the interwar years.
Such fears have only grown since 2016. Events since then seem to suggest
that the debate between regionalism and multilateralism is giving way to
a debate between those who support trade liberalisation (by this or that
means) and those who prefer trade and commercial management. The
debate between the mercantilists and the liberals is back.
Prior to Trump’s election, the Obama administration negotiated two
substantial PTAs. The first, the Transatlantic Trade and Investment
Partnership (TTIP), was meant to deepen integration between the United
States and the European Union. It was hugely ambitious in its scope, depth
and size. It would have been the largest PTA in history by essentially any
metric.
The second agreement, the Trans-Pacific Partnership (TPP), was less
economically, but more geopolitically, ambitious. It included twelve Pacific
Rim economies: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico,
New Zealand, Peru, Singapore, Vietnam and the United States. One
notes that China is conspicuously absent. Many have speculated that the
agreement was designed to isolate China – and to reduce these economies’
collective dependence upon Chinese trade and investment.
Trump effectively killed both PTAs, halting negotiations of the TTIP and
formally withdrawing from the TPP. The latter, however, lives on as a
humbler agreement (the Comprehensive and Progressive Agreement
for Trans-Pacific Partnership) among six of the original twelve members
(Australia, Canada, Japan, Mexico, New Zealand and Singapore).
Activity 13.5
Do PTAs do more to create or to divert trade? Has the rise of regionalism more broadly
helped or hindered the advance of globalisation?

• outline the concept of regionalism as it applies to IPE
• explain the rise of regionalism in recent decades
• analyse the dynamics of regionalism using empirical examples
• analyse the cooperative and combative interactions between regional
and multilateral regimes.
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1. Does regionalisation support or undermine globalisation?
To answer this question, you need to have an understanding of the
forces driving both regional integration and global integration. You are
required to compare and contrast both forms of integration and discuss
whether they are compatible. One way to start the answer would
be first to introduce the concepts of regional and global integration
and then describe recent shifts towards regional integration. The
focus in this answer should be not on explaining regionalisation and
globalisation as such but on a discussion of the extent to which the
former supports the latter. The answer could then focus on specific
examples that illustrate the relationship between regional and global
integration.
A useful area to focus on is international trade, where it is often
argued that trade regionalisation undermines the multilateral trading
system and thus global trade integration. You can use the example of
regional trade agreements (e.g. NAFTA, EU) to illustrate your answer
and explain some of the underlying reasons why there is – or isn’t
– tension between regional and global trade integration. A strong
answer would go one step further and distinguish between different
regional contexts and different levels of regional integration, noting
that not all regional integration efforts detract from globalisation.
2. Compare and contrast liberal and mercantilist
explanations of economic regionalism.
In order to answer this question, candidates need to first describe
the phenomenon of economic regionalism, giving examples from
the history of global economic integration. A good example would
be the rise of regional trade agreements or economic integration
projects such as the European Union. Having set out the phenomenon,
candidates would then need to explore the competing explanations
that have been developed for the rise of economic regionalism,
focusing on and contrasting liberal and mercantilist explanations. In
doing so, candidates need to draw on liberal and mercantilist logics
of international cooperation, but this is not the place to rehearse the
entire liberal and mercantilist traditions of IPE. Instead, the answer
should focus on how a liberal logic can explain phenomena such as
regional trading systems, or whether a mercantilist logic is better
suited. In comparing the two explanations, candidates may want to
focus on the difference between absolute versus relative gains, and
the role played by economic versus political/strategic rationales for
integration.
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Chapter 14: International regimes to the rescue? High hopes for global monetary governance
Chapter 14: International regimes to the

rescue? High hopes for global monetary
governance

Following the demise of the Bretton Woods system, the IMF and the World
Bank have reinvented themselves. This chapter traces those changes
through to the present.

• explain the demise of the Bretton Woods system
• outline the emergence of the Washington Consensus and analyse its
strengths and weaknesses
• use IPE approaches to explain the failure of the Multilateral Agreement
on Investment
• use classical and critical approaches to development to assess the
operation of the World Bank today.

Chwieroth, J.M. Capital ideas: The IMF and the rise of financial liberalization.
Chapters 2 and 3.
Weaver, C. ‘The world’s bank and the bank’s world’, Global Governance 13(4)
2007, pp.493–512.
Woods, N. ‘Understanding pathways through financial crises and the impact of
the IMF: an introduction’, Global Governance 12(4) 2006, pp.373–393.
Woods, N. ‘Global governance after the financial crisis: a new multilateralism
or the last gasp of the great powers?’, Global Policy 1(1) 2010, pp.51–63.

Gelpern, A., S. Horn, S. Morris, B. Parks and C. Trebesch ‘How China lends: a
rare look into 100 debt contracts with foreign governments.’ AIDDATA.
Woods, N. The globalizers: The IMF, the World Bank, and their borrowers.
(Ithaca, NY: Cornell University Press, 2014) [ISBN 9780801474200].
Kaya, A. and M. Reay ‘How did the Washington Consensus move within the
IMF? Fragmented change from the 1980s to the aftermath of the 2008
crisis’, Review of International Political Economy 26(3) 2019, pp.384–409.
James, H. International monetary cooperation since Bretton Woods. (Washington,
DC and New York: International Monetary Fund and Oxford University
Press, 1996) [ISBN 9781475506969].
Nelson, S.C. The currency of confidence: how economic beliefs shape the IMF’s
relationship with its borrowers. (Ithaca, NY: Cornell University Press, 2017)
[ISBN 9781501705120].
Cormier, B. ‘Empowered borrowers? Tracking the World Bank’s Program-for-
Results’, Third World Quarterly 37(2) 2016, pp.209–26.
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14.2 Introductory: after Bretton Woods

As the Bretton Woods system collapsed (see Chapter 11), advocates of
the move towards flexible exchange rates argued that this solved the
fundamental conflict between domestic policy autonomy and maintaining
fixed exchange rates. In their view, national economies would be more
independent of each other, with the floating exchange rate moderating the
impact of differing business cycles in the major economies.
In contrast, critics of the new system argued that flexible rates would spell
disaster in the global economy. The possibility of wildly fluctuating rates
would threaten trade and undermine the long-term planning of companies
operating internationally. Moreover, governments might be tempted to use
aggressive devaluations of their currency to boost export industries. While
it is true that the switch to flexible rates made currencies more volatile,
especially in the case of the dollar, the fluctuations between the major
currencies did not lead to economic turmoil.
To the surprise of many, Richard Nixon’s decision to renege on the dollar’s
gold backing did not alter the position of the dollar as the world’s global
money. Instead, the dollar continued to be the main reserve currency
in the international system, giving the USA continued leverage as the
predominant economic power. Ad hoc coordination of macroeconomic
policy and stabilisation of currency markets replaced the more
institutionalised Bretton Woods system. Throughout the 1980s, the world’s
leading economies met to stabilise international monetary relations –
particularly the wildly fluctuating dollar – first in the Plaza Accord of
1985 and then in the Louvre meeting of 1987. These attempts at policy
coordination helped somewhat to restore order in currency markets, but
the powers that be never managed to lock in the policy adjustments that
were needed to reach previous levels of monetary cooperation.
But what of the Bretton Woods organisations – the IMF and the World
Bank – after the end of the Bretton Woods system? In both cases, these
international organisations more than merely persisted. They largely
reinvented themselves and shifted their remit. This chapter explores the
evolution of these organisations and their development into the regimes as
we know them today.
14.3 The World Bank and international aid

The World Bank plays a central role in all the debates on the best way
forward in fighting poverty. As the largest multilateral lender to developing
countries, it is in a powerful position to guide these countries in their
developmental strategies. The World Bank was founded in 1944 as part
of the new international economic order of the post-Second World War
era. Its task was initially to help with the reconstruction of the countries
affected by the war. With the onset of decolonisation, however, the World
Bank began to focus more on helping poorer countries in the South fight
poverty and promote economic development.
By the 1970s, when the decolonisation process was nearing its completion,
the World Bank had become the leading international organisation in
the field of development assistance. Its role is to provide developmental
aid and long-term lending, support private sector investment and help
developing countries with poverty alleviation strategies. With 187 Member
States, over 10,000 members of staff in more than 100 offices worldwide,
and a budget of $58.8 billion for loans in the 2009 fiscal year, the World
Bank is a key player in the field of economic development. As the largest
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contributors to the World Bank, the United States, Japan and Europe
also possess ultimate control over the use of its funds. Unlike the United
Nations General Assembly and other UN organisations, which apply a
‘one country, one vote’ system, the Bank’s weighted voting structure gives
the rich donor countries a majority of votes. This has led to concerns in
the past that the World Bank (and by the same token the IMF) essentially
imposes a Northern economic agenda on developing countries. This
criticism also applies to the bilateral aid programmes that the major
industrialised countries provide. In its extreme form, this view considers
all development assistance as a symbol, and instrument, of Northern
dominance, even as a form of neo-imperialism.
More moderate versions criticise specific policies promoted through
international aid, and especially the conditionality of aid, as failing to help
poorer countries overcome their state of dependence. But to suggest that
donor countries should give financial aid without any consideration for
how it is used by recipients would ignore the reality of foreign aid:
• First, governments, and ultimately the voters, in donor countries
need to approve aid budgets and are likely to ask for some degree of
accountability.
• Second, governments routinely use foreign aid as an instrument
of foreign policy to further their interests and to influence other
governments. In that sense, developmental assistance has to be seen as
being driven by both moral concerns and a diplomatic rationale.
• Third, the growing interest in promoting democracy and good
governance around the world has led virtually all donor countries
and organisations to stipulate that recipients of aid programmes must
adhere to some form of political conditionality.
The rise of the good governance agenda suggests a wider effort by
donors to eradicate corruption and governmental malpractice. From the
perspective of recipient countries, however, it is often seen as yet another
example of the dependency relationship that developmental aid creates.
Activity 14.1
Is economic aid policy driven, at least in part, by moral concerns? If so, how can we tell?
14.4 The Washington Consensus and beyond

Faltering economic growth in the South and a worsening debt crisis in the
aftermath of two oil crises in the 1970s led many developing countries
to abandon their developmentalist strategies and turn towards economic
liberalisation. By the 1980s, a new consensus was emerging on the need
for governments to retreat from direct interference in the economy and to
set business and markets free. In the developed world, the conservative
governments under Ronald Reagan (USA) and Margaret Thatcher (UK)
led the way towards decidedly neo-liberal economic policies. At the
international level, the World Bank and the IMF (both based in the US
capital Washington, DC) used their leverage as large lenders to developing
countries to push for the adoption of what came to be known as the
‘Washington Consensus.’ The Washington Consensus consisted of a number
of principles and specific policy prescriptions that shifted the balance
between states and markets in favour of the latter. To achieve long-
term economic growth, developing countries were advised to prioritise
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macroeconomic stability, privatise state-owned firms and allow the forces

of competition to work in the domestic economy, bring down barriers to
trade and investment by foreign firms and stimulate private enterprise.
International donor agencies used loan agreements to demand structural
reforms from recipient countries in the developing world.
Because these ‘structural adjustment’ programmes tended to prioritise
economic reform over social welfare objectives, they frequently provoked
protests in developing countries as governments were forced to cut social
spending and reduce subsidies of basic foods and other essential goods.
Criticism of the Washington Consensus became more widespread in the
1990s, and even officials at the World Bank and the IMF now admit that a
simple move towards freer markets may not produce the desired outcomes
in all cases. The criticisms concerned a number of problems with the
anti-statist drive towards market liberalisation. For example, economists
such as Dani Rodrik have questioned the empirical evidence that links
greater trade openness with higher levels of economic growth. There is no
guarantee that opening up trade will directly benefit the economy as such.
In fact, the East Asian ‘tiger economies’ continued to exercise a high degree
of protectionism while promoting certain export industries of their own,
all under the tutelage of the state. Moreover, the move towards greater
market liberalisation has put the already weak social welfare systems in
developing countries under increasing stress, contributing to increases in
poverty during the reform process. By concentrating on macroeconomic
restructuring and ignoring the need for social and political stability during
the reform processes, the IMF and the World Bank may have helped to
undermine the very policies they have promoted in the South.
Activity 14.2
Is the Washington Consensus proof that the developed countries are unwilling to
meaningfully support development abroad?
14.5 False-starts: the failed Multilateral Agreement on

Investment
In the mid-1990s, the Member States of the Organization for Economic
Cooperation and Development (OECD), a kind of ‘rich countries’ club’,
embarked on the ambitious project of creating an international treaty
on global investment rules. The so-called Multilateral Agreement on
Investment (MAI) was meant to harmonise existing rules set by different
states and create a level playing field for the major industries. In the
end, the effort failed, and leading industrialised countries have sought
to strengthen bilateral and regional investment-related agreements
instead. The collapse of the MAI negotiations means, however, that there
is no overarching international treaty to govern the investment-related
behaviour of firms and states.
On the one hand, the MAI was intended to set in stone the principles of
economic liberalisation in the field of investment and guarantee global
firms free access to all participating countries. For this reason, the global
business community was strongly in favour of this treaty. On the other
hand, the negotiations on the MAI led to the insertion of an increasing
number of exceptions that governments were demanding if they were to
agree to the accord. As a consequence, the final draft text looked more like
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a document that confirmed the status quo and reaffirmed existing rights of
governments to interfere with foreign investment. Business support for the
MAI therefore declined, and disagreements between the key negotiating
parties led to a collapse of the talks in late 1998.
Although the negotiations failed primarily because of disagreements
among the OECD Member States, organised protests by demonstrators
outside the OECD’s headquarters in Paris ensured that the issue of foreign
investment protection became a hotly debated issue in civil society
circles. The growing opposition to the MAI by human rights groups,
environmental organisations and trade unions eventually became the
starting point for a wider anti-globalisation campaign that was to lead
to highly public confrontations at the 1999 Seattle WTO ministerial
conference and other gatherings of world leaders.
Activity 14.3
Does the ‘failure’ of the Multilateral Agreement on Investment do more to show investors’
influence or their weakness in global politics?
14.6 International regimes and development today

Intense debate continues today about the right policy mix to achieve
economic development. The Washington Consensus may no longer reign
supreme, but a post-Washington Consensus has failed to emerge. Some
point to China’s extraordinary success in achieving year-on-year economic
growth rates of around 10 per cent and lifting hundreds of millions of
people out of poverty – all seemingly achieved with an autocratic political
system with a strong governmental role in guiding investment and trade.
Others highlight India’s more recent success in stimulating sustained
economic growth, which seems to go hand-in-hand with the country’s long-
standing democratic tradition and a much weaker state than that of China.
In a recent effort to shed light on the diverse conditions for a successful
economic strategy in poorer societies, the World Bank convened a
Commission on Growth and Development. Its 2008 report, The growth
report: strategies for sustained growth and inclusive development provides
a summary of current developmental thinking. Most importantly, it
argues that there is no generic formula for achieving sustained growth
and development. Each country has its own specific characteristics and
historical experiences that play into its economic strategy. The report
highlights four categories of countries that face particular challenges:
African countries, which suffer from unhelpful borders and poor transport
infrastructure; small states, with little scope to diversify their domestic
economy; countries rich in natural resources, who fail to turn their
natural riches into societal progress; and middle-income countries, which
often struggle to maintain the growth momentum and identify areas of
international competitiveness. Despite there being no magic formula for
economic success, the Growth report nevertheless highlights key insights
and policy ingredients that governments can use as part of their growth
strategy. According to past experience, successful growth stories have
included all or some of the following ingredients:
• high rates of investment, public and private, in infrastructure,
education and health;
• absorption of technology and knowledge from the rest of the world;
123
• competition policies that help, not hinder, structural change as the

economy grows;
• increased labour mobility; export promotion; and macroeconomic
stability.
Activity 14.4
What have been the most important changes in the World Bank since its inception?

• explain the demise of the Bretton Woods system
• outline the emergence of the Washington Consensus and analyse its
strengths and weaknesses
• use IPE approaches to explain the failure of the Multilateral Agreement
on Investment
• use classical and critical approaches to development to assess the
operation of the World Bank today.

1. For developing countries, do the benefits of foreign
investment outweigh the costs?
The question refers to the widespread perception that global firms
have become more powerful in the IPE and that a power shift from
states to global firms has occurred. Globalisation is seen by some to
have produced this result. Others emphasise the power that certain
multinationals exercise over host (developing) countries through their
home (developed) countries. In any case, investment is a key factor
in development, and so developing countries are often in the difficult
position of having to woo investors, sometimes with debilitating
side‑effects.
To answer the question, candidates should first describe the growth
of multinational corporations (MNCs), define what they are and
give a sense of their size and economic clout. This may involve some
discussion of globalisation as the background condition for the growth
of MNCs, but the focus should be on MNCs and foreign investment
specifically. Following this, candidates would need to consider the
extent to which MNC power may be surpassing the power of nation-
states. This can be seen in situations where MNCs seek out favourable
investment locations and thus set off a competition between different
governments for their investment. Such competition may lead to a
regulatory race to the bottom, which limits the ability of states to set
domestic policy objectives (e.g. on taxation, environmental protection)
independently of the wishes of MNCs. Candidates should also consider
counter-arguments that suggest that states have retained sufficient
sovereign powers and are able to control the operations of MNCs and
extract concessions from them in bilateral bargaining.
A strong answer would distinguish between different types of states
and different types of firm–state bargaining situations, which may
produce different results in terms of the erosion of state sovereignty.
124
Thus, the United States or Japan or China are in a much stronger

position vis-à-vis MNCs than are small developing countries. Similarly,
MNCs from states with heavy economic and security clout (such as
the USA and, increasingly, China) may have even more influence than
MNCs from states with overall power.
Also, this question is specifically about ‘foreign investment’. In this
context, international investment can come in the form of FDI (often
from such multinational firms) and/or in the form of portfolio
investment (which can come from private investors or, increasingly,
large investment firms). So, better responses will demonstrate that
they understand this distinction. The best will highlight the different
dynamics that occur within each context. Among other things, portfolio
investment is easier to court but also leaves quickly. FDI is more
permanent, and it comes with more ‘spillovers,’ for better and for worse.
2. Does international aid promote economic growth and
reduce poverty in developing countries?
This is a straightforward question about whether international aid
works in terms of stimulating growth and reducing poverty. There is
a lively debate in the literature on this question, with opposing sides
arguing that aid is either essential or self-defeating.
To get started, candidates may want to first describe the use of
development aid in the global fight against poverty before discussing
its effectiveness and introducing rival interpretations and viewpoints.
Candidates should explain the reasoning behind arguments on both
sides of the debate, explaining how aid can work as some claim and
why it doesn’t always work as others assert. In trying to resolve this
debate, candidates should refer to specific examples of countries or aid
programmes that support certain conclusions. A good answer would
try to distinguish specific contexts in which aid can or cannot work,
thereby introducing greater nuance into what is often a heated and
polarised debate in the study of economic development.
125
Notes
126
Chapter 15: The financial system: from crisis to crisis
Chapter 15: The financial system: from

crisis to crisis

Financial crises are some of the most disruptive events in the global
economic system. This chapter analyses the various types of crises along
with their causes and the efforts to prevent and combat them.

• outline the different types of financial crises, the ways in which they
interact, and the causes of such crises
• outline the contours of the major financial crises that have rocked the
world economy since the 1980s
• analyse the success and failures of the IMF in its approach to these crises.

Reinhart, C.M. and K.S. Rogoff ‘This time is different: a panoramic view of
eight centuries of financial crises’, Annals of Economics and Finance 15(2)
2014, pp.215–68.
Helleiner, E. ‘Understanding the 2007–2008 Global Financial Crisis: lessons
for scholars of international political economy’, Annual Review of Political
Science 14(1) 2011, pp.67–87.
Bauerle Danzman, S., W. Kindred Winecoff and T. Oatley ‘All crises are
global: capital cycles in an imbalanced international political economy’,
Eichengreen, B.J. Financial crises: and what to do about them. (Oxford: Oxford
Woods, N. ‘Understanding pathways through financial crises and the impact of
the IMF: an introduction’, Global Governance 12(4) 2006, pp.373–93.
There is now a quite sizeable literature that grapples with the 2008 GFC
and beyond. Within that, three books stand out:
Drezner, D.W. The system worked: how the world stopped another
Great Depression. (New York: Oxford University Press, 2014)
[ISBN 9780195373844].
Blyth, M. Austerity: The history of a dangerous idea. (New York: Oxford
Tooze, A. Crashed: How a decade of financial crises changed the world. (New
York: Viking, 2018) [ISBN 9780670024933].
Initially, the possible lessons related to the GFC were viewed through
the lens of the much-discussed paper (and subsequent) book by Carmen
Reinhart and Kenneth Rogoff:
Reinhart, C.M. and K.S. Rogoff ‘Growth in a time of debt’, American Economic
Review 100(2) 2010, pp.573–78.
But their findings were later found to have followed from significant
omissions, mistakes and over-claiming. See the following discussion for a
review of this:
Cassidy, J. ‘The Reinhart and Rogoff controversy: a summing up’. The New
Yorker. 26 April 2013.
127
Candidates should thus ensure that they are working from the most up-to-
date research.

Haggard, S. The political economy of the Asian financial crisis. (Washington,
DC: Institute for International Economics, 2000) [ISBN 9780881322835]
Chapter 1.
Frieden, J.A. Debt, development, and democracy: modern political economy and
Latin America, 1965–1985. (Princeton: Princeton University Press, 1992)
[ISBN 9780691003993].
Eichengreen, B. Financial crises and what to do about them. (Oxford: Oxford
Moschella, M. Governing risk: the IMF and global financial crises. (Basingstoke:
Palgrave Macmillan, 2010) [ISBN 9780230236875].
Reinhart, C.M. and K.S. Rogoff. This time is different: eight centuries of
financial folly. (Princeton, NJ: Princeton University Press, 2009)
[ISBN 9780691152646]
Sahasrabuddhe, A. ‘Drawing the line: the politics of federal currency swaps in
the global financial crisis’, Review of International Political Economy 26(3)
2019, pp.461–89.
Nelson, S.C. and P.J. Katzenstein ‘Uncertainty, risk, and the financial crisis of
2008’, International Organization 68(2) 2014, pp.361–392.
Kaya, A. ‘Conflicted principals, uncertain agency: The International Monetary
Fund and the Great Recession’, Global Policy 3(1) 2012, pp.24–34.
Eichengreen, B.J. Globalizing capital: a history of the international monetary
system. (Princeton, NJ: Princeton University Press, 2019) 3rd edition
[ISBN 9780691193908] Chapter 7, ‘A decade of crises.’
Gamble, A. The spectre at the feast: capitalist crisis and the politics of recession.
(Basingstoke: Palgrave Macmillan, 2009) [ISBN 9780230230750].
Howarth, D. and L. Quaglia ‘The political economy of the Euro area’s sovereign
debt crisis: introduction to the special issue of the review of international
political economy’, Review of International Political Economy 22(3) 2015,
pp.457–484.
15.2 Introductory: approaching financial crises

A stable international monetary order is important for several reasons.
It gives predictability and stability to foreign exchange markets, whether
through fixed exchange rates or a managed system of floating exchange
rates. This, in turn, provides a conducive environment for the expansion of
international trade and investment.
In reality, however, the international order has been rocked by a series of
financial crises. Indeed, financial crises seem to be endemic to the global
financial system. Speculative bubbles, macroeconomic policy failures
and volatile market reactions are recurrent features of the international
economy. From stock market crashes to bank collapses and debt crises, the
international financial system is prone to what in retrospect may look like
irrational market behaviour. In a highly interdependent global economy,
therefore, managing financial crises is of utmost importance to create a
stable international order.
This has been true across centuries. Indeed, some of the most important
theorists of IPE wrote extensively about financial crises. John Locke
proved decisive in the debates about the currency crises of the seventeenth
century. His arguments underpinned the regime that became the modern
gold standard system. In the Wealth of nations, Adam Smith wrote at
length about the crises of the eighteenth century. And, of course, much of
Marx’s work – especially Capital – grappled with the relationship between
128
capitalism and financial crisis.
There are many different sources – and thus types – of financial crises.
There are currency crises. These days, this usually takes the form of a
speculative attack on a currency’s exchange rate. There are banking crises.
Here there are actual (or even potential) bank runs and/or failures that
can result in illiquidity and/or insolvency. Many countries face inflation
crises. Here, there are rapid, excessive and uncontrolled price increases.
Countries – especially developing countries – often face foreign debt
crises. In this case, there is default on foreign debt due to inability and/
or unwillingness to pay bondholders. There are also domestic debt crises.
In this case, there is the failure to honour (real) fiscal obligations by
defaulting, currency depreciation and/or financial repression.
Of course, these different facets of the financial system are intertwined.
As a result, we often see one crisis spilling over into other areas. These are
known as twin, triple, quadruple and quintuple crises. Similarly, we also
have the contagion effect in which a financial crisis in one country spreads,
through international linkages, into the financial systems of another.
This chapter discusses some of the most significant financial crises in
recent history. It also traces the evolution of our approaches to preventing
and resolving them.
15.3 The IMF and international debt crises

The IMF’s original role was to provide short-term lending to countries with
balance-of-payments problems. With the end of the Bretton Woods system
of fixed rates in the 1970s, however, this role was no longer central to the
IMF’s mission. With global financial liberalisation and greater capital flows
to emerging economies in the developing world during the 1970s, the IMF
shifted its focus to dealing with problems of indebtedness and long-term
structural economic problems. In a sense, therefore, the IMF managed to
reinvent itself to retain relevance in the post-Bretton Woods era. One of
the key events of the 1980s that was to underline the importance of the
IMF was the debt crisis that afflicted a number of developing countries.
Between the early 1970s and the mid-1980s, total debt by governments
rose from around $100 billion to nearly $900 billion. While being indebted
is not in itself an economic problem – the United States has one of the
highest sovereign debt levels in the world – countries that are unable
to service, let alone repay, their debt are faced with stark economic
dilemmas. In the case of the developing countries that took on an ever-
growing debt burden in the 1980s, indebtedness became a key factor
holding back their developmental efforts. In Latin America – with some of
the most heavily indebted countries of all, such as Mexico, Argentina and
Brazil – the 1980s became known as the ‘lost decade’.
The debt crisis started in 1982, when the Mexican government nearly
defaulted on its loan obligations. With a debt burden of $86 billion,
Mexico’s debt crisis soon assumed international dimensions. Heavily
exposed creditor nations such as the United States could not afford to let
indebted countries default, as this would threaten the stability of their own
financial system. The USA and European governments, private banks and
the IMF responded by setting in motion a process of debt rescheduling that
aimed at averting a global crisis while allowing for structural reforms to
take place. In this context, the IMF assumed the central role of negotiating
rescheduling terms with debtor nations, leading the way for agreements
between debtors and private banks. The creditors thus acted like a cartel,
and they were able to largely impose their preferences on the affected
developing countries. However, the threat of international contagion effects
129
served to rein in the power of creditors and forced them to continue to

supply capital to pull the international financial system back from collapse.
Activity 15.1
Who was responsible for the onset and depth of the 1980s debt crisis: debtor countries,
creditor countries or both?
15.4 Managing financial crises: the 1997 Asian crisis and

the 2008 global crisis
In the last several decades, several major financial crises have rocked the
international system. The first, which hit primarily Asian economies in
the late 1990s, did not translate into a major economic crisis worldwide.
The financial crisis of 2008, however, had all the hallmarks of a global
economic crisis, with potentially devastating effects for a great number of
major economies. Both are worth considering in more detail.
The Asian crisis of 1997 exhibits some of the central features of financial
crises. Attracted by a prolonged period of economic growth in the newly
industrialising countries (NICs) of East Asia, the so-called East Asian
‘miracle’, private capital poured into the region to the tune of $40 billion
and $32 billion in 1995 and 1996 respectively. Much of this capital inflow,
however, was short-term and could be reversed quickly if the economic
climate worsened. This is indeed what happened from 1997 onwards, with
net capital outflows from East Asia reaching $40 billion in 1998. The crisis
was triggered by Thailand’s decision to end the currency peg of its national
currency to the US dollar in response to speculative pressure from currency
traders. A sense of crisis soon began to spread throughout the region and
beyond, especially in Latin America and Russia. Speculative bubbles in
regional asset markets, such as property investment, burst and laid bare
a dysfunctional banking system that was heavily exposed to bad debt and
poorly regulated by national authorities in East Asia.
The financial crisis quickly developed into a broader economic crisis in
East Asia, with many countries seeing both an outflow of capital and a
decline in economic prosperity, often with disastrous social consequences.
The international response to the crisis was initially slow and insufficient.
The IMF’s aid offers to Thailand and other affected countries failed to
restore confidence or prevent the international contagion effect. Backed
by the United States, the IMF prescribed a strong and bitter medicine:
the troubled economies of East Asia had to cut back public spending,
raise interest rates and increase the value of their currencies. These
measures were meant to restore the credibility of macroeconomic policy
in the region, but there was a high social cost. Cuts to food subsidies
and reductions in social welfare budgets forced large parts of East Asia’s
societies into poverty and created a climate of social unrest.
The lessons of the East Asian crisis fed into a wider international debate
over the role of the IMF in preventing, and managing, financial crises. The
key questions in this debate concern, among other issues:
• The conditionality of IMF aid: As the debt crisis of the 1980s had
already shown, conditions imposed by IMF loans often led to serious
clashes with local governments and populations. The IMF is frequently
accused of applying a one-size-fits-all policy of structural reforms that
ignore the special circumstances of each country.
130
• The problem of moral hazard: By offering aid before or during a

financial crisis, the IMF may encourage countries to abandon economic
prudence and rely on bailouts by international donors. Thus, by trying
to prevent financial crises through early intervention, the IMF may in
fact contribute to their outbreak by reducing the costs of crises to be
borne by governments and private investors.
The debate as to how to respond to financial crises continues without
showing any signs of an international agreement. The IMF has responded
to criticisms by reviewing its lending practices and moving towards more
tailor-made loan agreements with individual countries. Some emerging
economies in the developing world have re-established capital controls to
better manage volatile flows of short-term capital. But despite talk about
a new international financial architecture in the aftermath of the Asian
crisis, the policy response by the international community has been one of
gradualism and, to some extent, institutional inertia.
A decade after the Asian crisis, another financial crisis hit the world
economy in 2008, this time with global dimensions and more far-reaching
consequences. The crisis had its origins in events that started in 2007 in
leading industrialised countries and became known as the ‘credit crunch.’
Over many years of low interest rates, lax bank lending practices and
inadequate regulation by governments, a speculative bubble had been
building up in the real estate sector, which finally burst in 2007. Starting
with the collapse of the US market for so-called subprime mortgages
(i.e. mortgage lending to the riskiest category of consumers), banks that
were heavily exposed to such forms of lending soon faced massive write-
downs of bad debt. As market confidence quickly evaporated, banks
around the world encountered severe difficulties remaining solvent, with
some collapsing and others needing to be rescued by their governments.
The risks to the global financial system became apparent in 2008 when
Lehman Brothers, one of the world’s largest investment banks and
heavily exposed to the subprime mortgage crisis, went bankrupt. The US
government refused to bail out Lehman Brothers, but as panic started to
spread in the worldwide market and threatened to bring down other major
long-established banks, the government authorised a large rescue package
to support banks at risk and to inject a fiscal stimulus into the ailing US
economy. By this time, the global dimensions of the crisis were all too visible,
with ever more governments in the industrialised world stepping in to
support the banking system and economic activity more generally. 2009 saw
the worst global recession since the Great Depression in the early 1930s.
To some, the global financial crisis signalled a wider malaise of global
capitalism; indeed, a fundamental crisis of capitalism as Marx and neo-
Marxists had long predicted. To others, the main reason behind the events
of 2007–2008 was a weak regulatory system for the banking system, which
failed to detect the build-up of a speculative bubble in the housing market
and allowed banks to take overly large risks that posed a wider systemic
threat to the stability of the financial system. In either case, confidence in
the functioning of the market system was severely shaken, and governments
around the world were called upon to step in and rescue the banking
system. In the immediate aftermath of the crisis, the political pendulum
seemed to swing back in favour of governments that came to the rescue
of the global economy. However, the large-scale spending programmes
combined with a fall in tax revenue due to the global recession forced
governments to cut back expenditure again in an effort to balance budgets
and avoid a further loss of confidence in global financial markets.
What have we learned from the global financial crisis? Unfortunately,
there is no clear consensus. In fact, the ‘left’ and the ‘right’ remain deeply 131
divided over both the causes as well as the costs and benefits of our
responses to it. Those on the right blame Democrats’ efforts to expand
home ownership to underrepresented groups, who were, on paper, less
‘qualified’ for mortgages. They insist that the rescue package and economic
stimulus were too large and primed markets for the market turbulence that
continued across the next decade. Those on the left argue that ‘neoliberals’
had dismantled the regulatory system, leaving finance free to run amok.
They celebrate that the financial bailout worked. And they contend that the
economic stimulus was too small and curtailed too quickly.
Activity 15.2
What lessons does history hold for the prevention or management of financial crises?
Given what you have read in the Essential readings and in newspapers, what have
been the most important changes in the international monetary order since the Global
Financial Crisis?
15.5 The eurozone and its crises

Frustrated by a lack of international cooperation, the European countries
sought their own solution to the volatility of currency markets by creating
a separate monetary order for Europe. Europe’s leading economies were
more open to international trade than the USA and thus placed a higher
premium on stability and predictability. These efforts were supported by
the underlying institutional framework of European integration, in the
form of the European Economic Community (see Chapter 13). A first step
towards that goal was made by the creation of the ‘European Snake’ in
1971, which limited the fluctuations of European currencies against each
other to 4.5 per cent. But in an environment of severe external shocks,
mainly in the form of oil price rises and inflationary pressures, the Snake
failed to live up to expectations. It was replaced in 1979 by the European
Monetary System (EMS), a much stronger institutional arrangement that
included an element of policy oversight that was missing in the Snake.
For some, the EMS could only serve as an interim step towards a full
monetary union and single currency, as only this final merging of monetary
authority would remove the possibility of reckless national policies. The
withdrawal in 1992 of Britain and Italy from the EMS underlined the
weakness of its monetary disciplines. The EMS crisis of 1992 gave the
final impulse to the creation of a full monetary union, which came into
existence in 1999 as the European Monetary Union (EMU), with the euro
replacing national currencies as the new single currency. By eliminating
national monetary autonomy, EMU provided the ultimate solution to the
inherent conflict between fixed rates and domestic autonomy.
The eurozone, as the group of countries that adopted the euro came to be
known, enjoyed years of stability after the creation of the single European
currency. In the wake of the 2008 global financial crisis and under the
strains of rapidly rising budget deficits, however, the euro itself came
under pressure. In 2010, the EU needed to set up a mechanism to support
members of the eurozone that experience difficulties in refinancing their
public debt amid growing unease among international lenders over
European countries’ long-term fiscal stability. The euro crisis thus brought
into sharp focus the difficulty of sustaining a common currency system
that is not based also on a full political union with centralised control over
economic and fiscal policy.
132
Activity 15.3
If fixed exchange rate systems are difficult to maintain under circumstances of
international capital mobility, why did the Europeans remain so committed to European
monetary integration? What explains the persistence of the eurozone today?

• outline the different types of financial crises, the ways in which they
interact and the causes of such crises
• outline the contours of the major financial crises that have rocked the
world economy since the 1980s
• analyse the success and failures of the IMF in its approach to these crises.

1. What are the most important lessons from the 2008 Global
Financial Crisis?
Candidates will need to show a general understanding of financial
crises and of the 2007–2008 crisis in particular. A good way to start the
answer would be to introduce the main features of the 2008 financial
crisis and describe how it has brought about the world’s most severe
economic downturn since the 1930s. Based on this initial discussion
of the empirical situation, candidates will then need to consider the
deeper causes of the crises, whether they could have been foreseen,
and whether anything could have been done to avert the crisis.
This relates to questions about deficiencies in banking and financial
regulation in the USA and other industrialised countries, the risk-prone
nature of modern financial institutions and the incentives that lead
banks to take risks they cannot control, and the high degree of financial
globalisation that has allowed crises to sweep rapidly across the world.
A good answer would focus both on what state authorities could have
done as well as on the role of the private finance sector in preventing
financial crisis.
But, as this question concerns lessons from the crisis, candidates ought
to go on to consider the responses to the crisis. Among other things,
candidates could discuss the responses by the major central banks,
the role of international cooperation (both formal and informal) and
approaches taken by the regimes of the international monetary order
(especially the IMF). Here, the Drezner book (2014) provides an
excellent starting point.
Excellent candidates would do all of this and consider the classic
debate between (those whom Paul Krugman called) ‘the Keynesians’
and ‘the Austerians.’ This is really a debate about counter-cyclical
macroeconomic policy, especially austerity. Here Blyth’s book (2013)
would be quite helpful. Candidates should also be mindful of the
debate – controversy! – over the (in)famous Reinhart and Rogoff
findings. Details on this are given in the reading list for this chapter.
133
2. ‘The International Monetary Fund has toppled more

governments than Marx and Lenin combined.’ Discuss.
This question combines several different topics/elements to address a
broader question in IPE. As such, it is rather challenging; but it reflects
the examiners’ increasing tendency to break away from the established
mould of one question per major topic. Thus, this question gives well-
prepared candidates the opportunity to mix and match insights from
across the whole course.
First, candidates need to demonstrate knowledge of the international
financial order and international financial crises (for example, the
Asian crisis of 1997, the global financial crisis of 2008) as well as the
role of the IMF. Candidates need to be able to discuss international
policy responses to financial crises, with a particular focus on the role
that the IMF plays in dealing with such crises. The principal focus
should be on the difficulties that often attend IMF intervention. Critics
suggest that the IMF’s usual recommendation of austerity – especially
in the heyday of the ‘Washington Consensus’ – directly causes such
difficulties. Respondents, however, contend that the difficulties
are caused by those underlying factors that prompted the IMF’s
intervention in the first place.
The prompt also requires candidates to apply their knowledge of
the Marxist tradition – both in theory and in practice. It would be
fine (although perhaps unnecessary) for candidates to recapitulate
the history of that tradition, but the most important element is the
Marxists’ view of revolution – both the causes of revolution and the
(normative) need for revolution.
It is not expected that candidates would (or even could) determine
definitively which actors have caused ‘more’ revolutions. But excellent
candidates would offer some rich empirical discussion of the instances
of each.
134
Chapter 16: The trajectory of the global monetary order
Chapter 16: The trajectory of the global

monetary order

Today, the dollar still reigns supreme as the world’s global currency. But
what can we learn from recent events about the trajectory of the global
monetary order? This chapter explores that question.

• define ‘global money’ and specify the factors that lead currencies to
become – and to remain – global money
• analyse the strengths and weaknesses of the US dollar in its role as the
world’s global money these days
• analyse the strengths and weaknesses of the euro as a rival to the US
dollar as the world’s global money
• analyse the strengths and weaknesses of the renminbi as a rival to the
US dollar as the world’s global money.

Norrlof, C., P. Poast, B.J. Cohen, S. Croteau, A. Khanna, D. McDowell, H. Wang
and W. Kindred Winecoff ‘Global monetary order and the liberal order
debate’, International Studies Perspectives 21(2) 2020, pp.109–53.
Germain, R. and H.M. Schwartz ‘The political economy of currency
internationalisation: the case of the RMB’, Review of International Studies
43(4) 2017, pp.765–87.
Eichengreen, B. Exorbitant privilege: the rise and fall of the dollar and the future
of the international monetary system. (Oxford: Oxford University Press,
2011) [ISBN 9780199596713] Chapters 1 and 7.
Fratzscher, M. and A. Mehl ‘China’s dominance hypothesis and the emergence
of a tri-polar global currency system’, The Economic Journal 124(581) 2014,
pp.1343–70.
McDowell, D. and D.A. Steinberg ‘Systemic strengths, domestic deficiencies:
the Renminbi’s future as a reserve currency’, Journal of Contemporary China
26(108) 2017, pp.801–19.

Strange, S. Sterling and British policy: a political study of an international
currency in decline. (London: Oxford University Press, 1971)
[ISBN 9780192149855]
Rojas, P.-H. ‘At the origins of European monetary cooperation: Triffin, Bretton
Woods, and the European monetary Union’ in Cunha, A.M. and C.E.
Suprinyak (eds) Political economy and international order in interwar
Europe. (Cham: Palgrave Macmillan, 2021) [ISBN 9783030471040]
Chapter 6, pp.139–178.
McNamara, K.R. The currency of ideas: monetary politics in the European Union.
(Ithaca, NY: Cornell University Press, 2019) [ISBN 9780801486029].
McNamara, K.R. ‘Economic governance, ideas and EMU: what currency does
policy consensus have today?’, Journal of Common Market Studies 44(4)
2006, pp.803–21.
135
Helleiner, E. States and the Reemergence of global finance: from Bretton

Woods to the 1990s. (Ithaca, NY: Cornell University Press, 1994)
[ISBN 9780801483332].
Matthijs, M. and M. Blyth (eds) The future of the euro. (New York: Oxford
Bown, C. and M. Chorzempa ‘The incredible rise of Chinese fintech,’ Trade Talks
Episode 174: 18 December 2022.
Cohen, B.J. ‘The international monetary system: diffusion and ambiguity’,
International Affairs 84(3) 2008, pp.455–470.
Mabbett, D. and W. Schelkle ‘What difference does euro membership make
to stabilization? The political economy of international monetary
systems revisited’, Review of International Political Economy 22(3) 2015,
pp.508–534.
Weiss, J.C. and A. Wichowsky ‘External influence on exchange rates: an
empirical investigation of US pressure and the Chinese RMB’, Review of
16.2 Introductory: global money

The global monetary order connects the economies of our world. It shapes
the patterns of trade, investment and development. Every country depends
upon it; and, yet, it is the source of some of the most striking political and
economic inequalities. As one French Minister (Valéry Giscard d’Estaing)
put it, the centrality of the dollar to the global monetary order conveys
‘exorbitant privilege’ to the United States.
To understand the global monetary order, it is worth reviewing the three
essential functions of money. First, money facilitates exchange by serving
as a medium of exchange. By having a common medium, we are able to
solve the ‘double coincidence of wants’ problem and move beyond mere
barter. Second, money serves as a store of value. It allows individuals
to convert perishables into something more durable, which allows both
storing value between transactions and saving by hoarding cash. By
performing these other two functions, money is able to perform a third:
it serves as a unit of account. Money provides a standard relationship
between various goods and services in the economy. This simplifies
accounting and calculations immensely.
The same logic that impels the development of a common medium of
exchange within economies impels the adoption of international media
of exchange between economies. This is sometimes called ‘global money.’
It is a kind of common currency for all the other currencies in the world.
Previously, gold was used in this role. These days, it is the US dollar. So,
instead of trading Japanese yen for Chinese renminbi, most transactions
move through dollars (i.e. from yen to dollars to renminbi).
Typically, to serve as global money, a currency must perform the essential
functions of money brilliantly. It must be a good medium of exchange.
Internationally, this becomes a question of convertibility. An actor asks:
how easily can I move into and out of this currency? Naturally, actors
prefer currencies that are not subject to extensive capital controls. Also,
the larger the transactional network of a currency, the better the medium
of exchange. For a currency that circulates in a large, relatively diverse
market, actors are more likely to find something they may wish to
purchase. Barring that, it is relatively easy to find someone else who has
reason to acquire that currency.
Second, a good global money ought to be a reliable store of value. Actors
who are building reserves ask: will the currency have the same purchasing
power when I decide to spend it? In the long term, there is fear of
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depreciation, the amount of purchasing power that a currency loses over

time. In the short term, one must consider volatility: will the currency’s
value be unpredictable the day I want to spend it? Cryptocurrencies like
bitcoin have promised to mitigate depreciation; but, thus far, their values
have been so volatile from one day to the next that monetary authorities
generally have not taken them on.
Thus, performing money’s functions well is likely necessary to becoming a
global money. But it manifestly is not sufficient. It is not the case that the
world’s global money is always the currency that best serves as money. The
reality is that the path dependency with global money is immensely strong.
Once a currency is established as global money, inertia helps to maintain it
in that position – even if/as that currency comes to perform disappointingly
as global money. This effect is so strong that, in fact, the world has had just
two global moneys in as many centuries. Prior to the First World War, the
(ostensibly gold-backed) British pound sterling emerged as the world’s global
money. Since the Second World War, the US dollar has served as such.
Activity 16.1
What are the most important factors in determining whether a currency serves as global
money?
16.3 The US dollar

The US dollar has been hegemonic as the world’s global money. This is
true both as a store of value and as a medium of exchange.
In November 2022, there were $6.65 trillion held in reserve abroad. This
is 60 per cent of all the reserves in the world. In other words, upwards of
two-thirds of all reserves are in the form of US dollars. Going back to 2015,
the US’s share was just 3 per cent higher (at 63 per cent). It might be that
actors are moving (very) slowly away from holding the dollar in reserve.
But, as the IMF notes, some portion of this apparent ‘change’ is attributable
simply to market fluctuations in the exchange rates (which thus affect the
dollar value of the different currencies held in reserve) (IMF, 2022).
As an international medium of exchange, the US dollar is even more
dominant. According to the Bank for International Settlements, the US
dollar was used (on one side or the other) in more than 88 per cent of all
currency trades in 2019. This is actually about one per cent higher than it
had been in 2016 (Bank for International Settlements, 2019).
The world’s reliance on the US dollar gives enormous power to the US
financial system and the US monetary authorities. The first, and most
obvious, advantage is that it lowers transaction costs for those holding
the currency. For those whose income is in the global money, they can
shop easily at home and abroad. Sometimes, they can even use the global
money directly – without conversion – in foreign markets. It also helps
producers. When a country’s goods and services are denominated in the
global money, the potential sales market is larger. After all, potential
consumers could get that currency more easily and at lower relative cost.
Seigniorage is another other major benefit. Seigniorage is the value the
monetary authority gets from monopolising the production of currency.
It is the market value of the currency minus the cost of production. For a
$100 bill, the costs of production are fractions of a penny; but the market
value is (obviously) $100.
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All monetary authorities enjoy this privilege. But the scale is vastly
different when a country produces a currency that is utilised all over the
world. As we noted, there are $6.65 trillion held in reserve abroad (as of
November 2022). That is nearly 30 per cent of the US’s ($22.996 trillion)
annual production of goods and services.
How do foreign actors initially acquire the dollars that they will hold in
reserve? They do so by selling goods and services to the US. For each $1 held
in reserve abroad, the US has received $1 worth of goods and services. Of
course, that $6.65 trillion is a claim on US goods and services. But as long
as those dollars remain in reserve, that is $6.65 trillion worth of goods and
services that the US got simply by printing the world’s reserve currency.
The use of the US dollar as the world’s medium of exchange also grants the
US an extraordinary amount of financial control well beyond its borders.
The underpinnings are slightly complicated, but the simple version is
that the global financial system is highly centralised. All of these global
transactions conducted using dollars are directly or indirectly connected
to financial institutions in New York City. Even firms that do not buy or
sell in the US market still (knowingly or otherwise) make/collect payment
through New York. Because the transfers pass through US financial
institutions, this provides the US Treasury great punitive power and
jurisdictional reach. Practically speaking, exclusion from the US financial
system is an even more potent threat than is exclusion from US consumers.
The US can also impose ‘secondary sanctions’ by refusing to do business
with a firm that does business with a ‘blacklisted’ party. There is a stunning
example of the US flexing this muscle. In August 2020, the Trump
administration imposed sanctions on the Chief Executive of Hong Kong
(Carrie Lam) following a security crackdown in Hong Kong. Lam was
a political official acting in a political capacity. But bankers everywhere
(including in Hong Kong) were warned that their entire bank would
be blacklisted if they did any business with Lam. This would effectively
eliminate those banks’ abilities to conduct international transactions in
general. Thus banks were forced to choose between having this individual
as a customer and retaining their other customers. None of the banks – not
even Chinese state-owned banks – crossed the US. Lam was effectively
‘unbanked’ and forced to stockpile her salary – paid in cash – in her home.
In 2022, Lam announced that she would not seek another term as the
Hong Kong authority (ostensibly for personal reasons) (Hale, 2020).
Activity 16.2
Is dollar hegemony based on political foundations or economic conditions? What trends,
developments and challenges are doing the most currently to undermine the dollar’s position?
16.4 The euro

The euro is the biggest challenger to the US dollar as the world’s next
global money. It has been – and remains – firmly in second place by any
metric. More broadly, it is an ambitious project.
The euro currently comprises just under 20 per cent (19.66 per cent) of
all foreign reserves. This is down from its 22 per cent in 2015; but, as with
the dollar, this might follow from changes in the reserve valuations due
to fluctuating exchange rates. Of course, this is just one-third of the share
enjoyed by the dollar. But it is almost four times the share held by the
third-place contender: the Japanese yen (5.26 per cent) (IMF, 2022).
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As an international medium of exchange, the euro comes in second place

(at 32 per cent). Again, this is merely one-third of the share of transactions
involving the dollar. But it is still nearly twice and three times the third-
and fourth-place currencies. These are the Japanese yen (16.8 per cent)
and the British pound (12.8 per cent) respectively (Bank for International
Settlements, 2019).
All of these measures underscore the unevenness of the competition to
become the world’s global money. In purchasing-power-parity terms,
the US is no longer the world’s leading producer. It has nothing like
the enviable growth rates that China and India have had across recent
decades. But the global monetary order is such that everyone wants to be
– and remain – on the same page. This creates considerable challenges for
any who might like to see the euro displace the dollar.
While the European Union is the world’s largest economy, the eurozone’s
growth prospects have been weaker than those of the US and China. This
creates some question of whether euros will store value as well as dollars will
do. Much more important, the euro is bedevilled by enormous uncertainty.
Who will be in the eurozone? How big will it be? What will be the monetary
policy of the countries that remain? So long as the answer to those questions
remains uncertain, the ascent of the euro will be an uphill climb.
Last, we must remember that creating the euro was as much (or more) a
political project as it was an economic project. There was (and remains) a
real question of whether the eurozone is an ‘optimum currency area’ (from
an economic standpoint). In 2016, Nobel-prize-winning economist Joseph
Stiglitz published an editorial in The Financial Times advocating that the
eurozone be split up (Stiglitz, 2016). It might be that Stiglitz is misguided.
But the incumbent – the dollar – has not been subjected to this kind of
serious attack. This too surely weighs upon the minds of those managing
money around the world.
Activity 16.3
What are the biggest challenges to the further internationalisation of the euro? Defend
your answer using the course materials and whatever you can glean from the latest
newspapers.
16.5 The renminbi

Traditionally, China has imposed extensive restrictions on the use of the
renminbi, especially abroad. Since about 2010, China has made significant
efforts to internationalise its currency. The reforms have been profound,
and the renminbi has come onto the global stage, to much fanfare in
Beijing and beyond.
But it is necessary to maintain some perspective. As of 2022, the renminbi
is still largely off the map in terms of its international use. It is just 2.76
per cent of the world’s reserves. As a medium of exchange, the Chinese
yuan is in seventh place – behind the Australian, Canadian and Swiss
currencies – at just 4.3 per cent. The Hong Kong dollar is in eighth place.
Interestingly, it has risen from 1.7 per cent in 2016 to 3.5 per cent by
2019 (Bank for International Settlements, 2019). But even this seems to
overstate the case. In fact, the dollar is still used in more than 80 per cent
of transactions where the ultimate beneficiary is based in either China or
Hong Kong.
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China’s incredible growth prospects do raise the possibility that the

renminbi could displace the dollar in the future. But, at present, the
renminbi is still not very good at being an international currency. Many
of China’s capital controls remain, and the People’s Bank of China heavily
manages its market exchange rate.
Perhaps more important, there are serious political and economic
questions about the trajectory of the Chinese Communist Party and its
economy. In modern times, China’s economic ascent is relatively new – just
a few decades old. Its economic policy is unusually opaque. Its government
may have been transitioning towards liberal democracy, but Xi Jinping
turned the PRC back into something like a personalist regime. As such,
one cannot know if the next leader will look more like Mao Zedong or,
say, Deng Xiaoping. The implications of each, for the holders of renminbi,
could be enormous.
It is true that China has the world’s largest supply of reserves, by far. The
size and composition of the reserves is a closely guarded state secret. But
the World Bank estimates that China held about $3.5 trillion worth of
reserves at the end of 2021. Around 60 per cent of these are thought to be
US dollars.
This gives China claims on foreign goods and services. But it does not,
itself, make the renminbi more likely to become global money. Indeed,
China cannot ‘cash in’ these reserves without undermining its export-led-
growth strategy. Moreover, doing so would drive down the value of those
reserves.
For these reasons, it is difficult to see the renminbi surpassing the USD as
the global money without major shifts in the global economy and major
policy shifts within China.
Activity 16.4
What are the biggest challenges to the further internationalisation of the renminbi?
Defend your answer using the course materials and whatever you can glean from the
latest newspapers.
16.6 Conclusion
The global money of the future will likely be rather good – perhaps the
best – at serving as money for the world. It will need to be a strong,
predictable store of value. And it ought to be a good medium of exchange.
But the history we have seen and the contemporary analysis offered here
both point to the incredible ‘stickiness’ – the path dependency – of the
incumbent. The last time one currency displaced another, it took two
decades attended by: two world wars; a colossal system of war debts and
reparations; the Great Depression; Britain’s sharp political and economic
decline; the ascent of a capable and willing ascendant hegemon; a massive
expansion of the suffrage to women and poor men; increased unionisation
and worker power; and a series of specific choices by pivotal agents. This
is not to say that such a shift will not happen again, but it could well
require catastrophic events such as these.
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Activity 16.5
What will be the world’s global money in, say, 2050? What do you think will transpire
between now and then to bring about this result?

Bank for International Settlements. ‘Foreign exchange turnover in April 2019.’
Accessed 30 January 2023.
Hale, T. ‘Why Trump’s Hong Kong sanctions are bad news for banks’, Financial
Times. 11 Aug 2020.
International Monetary Fund. ‘Currency composition of official foreign exchange
reserves (COFER).’ Washington, DC: International Monetary Fund. Data
extracted on 30 September November 2022
Stiglitz, J. ‘A split euro is the solution for Europe’s single currency.’ Financial
Times. 17 Aug 2016.

• define ‘global money’ and specify the factors that lead currencies to
become – and to remain – global money
• analyse the strengths and weaknesses of the US dollar in its role as the
world’s global money these days
• analyse the strengths and weaknesses of the euro as a rival to the US
dollar as the world’s global money
• analyse the strengths and weaknesses of the renminbi as a rival to the
US dollar as the world’s global money.

1. What lessons does the history of the last century hold for
those who seek to displace the US dollar as the world’s
global money? Discuss with reference to both major fiat
currencies (like the renminbi and the euro) and non-fiat
currencies (like bitcoin).
This question requires candidates to apply insights from IPE theory
to a topical question, in this case the rise of (possible) challengers to
the so-called dollar hegemony. To answer this question, candidates
need to show familiarity with the contours of the history of the global
monetary order since the 1920s as well as awareness of current trends
in the global economy. All of these empirics can then be analysed using
theories about the international monetary system more broadly.
A good way to start the answer would be to identify the essential
features that underpin currency hegemony and those factors/dynamics
that might displace such hegemony. This can be demonstrated using the
case of the rise of the dollar a century ago. Strong answers would be
quite clear in listing some of the major factors that led to the transition
from the British pound order (before the First World War) to the dollar
order in the years between the world wars and thereafter. They would
also grapple with the puzzle as to why the world did not abandon the
use of the dollar even in the wake of the collapse of the Bretton Woods
141
system. Of course, we do not need a deep history of the international

negotiations at, say, Bretton Woods (in 1944), in the 1970s, etc. But
candidates would do well to stress the significant size and growth rates
of the US economy, the enormous financial and political costs borne
by the United Kingdom across this period and the willingness of the
United States to take a leadership role (particularly in the wake of the
Second World War). Similarly, strong candidates might use the non-
transition of the 1970s as a way to think about the importance of path
dependency and the costs of abandoning an existing monetary order.
These important facts can be connected nicely to theories about
currency hegemony today. It then becomes a question of candidates
choosing whether the parallels we see today are strong enough to
see something displace the dollar. Is the dollar – and the country that
backs it – similarly weak relative to the rivals on offer – the euro,
China’s renminbi, bitcoin, etc.? Are the alternatives to the dollar more
viable today than they were in the 1970s or at other prior points? Of
course, there is no single way to answer this question. Candidates
can find plenty of data and material to argue in either direction.
The strongest answers will be those that approach the comparisons
systematically, that analyse them clearly and that make good use of
relevant empirical material as evidence.
2. ‘As a growing number of policy makers recognise, a return
to the gold standard promises the best long-term solution
to financial crises.’ Discuss.
This question challenges candidates to distil the lessons from the
past and apply them to contemporary debates and circumstances.
Candidates ought to touch on the contemporary calls for a return to
the gold standard – perhaps at the beginning or the end of the essay –
but the bulk of the answer will consider financial crises in general and
the gold standard specifically.
The discussion of the gold standard should consider it both in theory
and in practice. In theory, the gold standard was a commitment by
the monetary authorities to ensure that the market price of gold (in
terms of the national currency) would remain stable at (or, really,
within a band around) a specified value. Its proponents believed
that this would limit monetary (and fiscal) policy discretion, limiting
inflation and reducing exchange rate risk. The former was meant to
provide greater domestic macroeconomic stability – thus reducing the
frequency of financial crises – and the latter would facilitate global
market integration. There is much more to say about the gold standard
in theory; but good candidates would establish this much at least.
Perhaps the most notable thing about the gold standard in practice is
that it scarcely existed anywhere for any sustained period. Famously,
it was thought to have existed most robustly in England from the 18th
century to the 1930s. But the best candidates could challenge this
‘just so’ story in numerous ways – for example by emphasising the
variation within the UK itself, the several suspensions of convertibility,
the changes to the official ‘Bank Acts,’ etc. The deviations from gold
standard orthodoxy were even more pronounced beyond the British
Isles. Simply acknowledging that the gold standard varied in practice
across time and space is a good start. Naturally, the case of the Bretton
Woods version of the gold standard is replete with fodder for picking
apart the monolith that was thought to be the gold standard. Students
might be tempted to think of the gold standard strictly – and simply –
142
in these terms. But better candidates will go beyond just this particular
iteration of the gold standard to consider it more broadly.
Candidates also ought to demonstrate a good knowledge of
international financial crises, specifically the dilemmas that bedevil
attempts to limit such crises and to respond to them. It is certainly
not necessary to discuss all of the major crises (for example, the
Asian crisis of 1997, the global financial crisis of 2008, the several
eurozone crises, etc) as such. Indeed, it would be bad to simply
rehearse prepared answers about the causes and course of these crises.
Instead, such examples (or other examples) should be used to test
and illustrate the mechanisms and dynamics that might be mitigated
and exacerbated by the gold standard. For instance, candidates should
discuss the role the gold standard might have played in preventing (or
generating) such financial crises. Better candidates would also discuss
the ways in which the gold standard might help to spread such crises
(through contagion) and in limiting policy responses to financial crises
(by limiting monetary and fiscal policy responses). Here, the Great
Depression is the exemplary case.
143
Notes
144
Part III: The frontiers of IPE
Part III: The frontiers of IPE
145
Notes
146
Chapter 17: Global environmental politics

This chapter brings the environment into IPE. It presents some of the
greatest environmental challenges facing us today, along with the
responses we have developed thus far.

• outline the relationship between global environmental politics and IPE
• analyse the strengths and weaknesses of the various major approaches
to global environmental politics: reformist, radical, and anti-
environmentalist
• trace the history of international environmental politics, from its early
history through to the present.
• outline the concept of sustainable development and analyse the factors
that present opportunities for, and challenges to, achieving this.

Bernstein, S. ‘Liberal environmentalism and global environmental governance’.
Global Environmental Politics 2(3) 2002, pp.1–16.
Clapp, J. and E. Helleiner ‘International political economy and the
environment: back to the basics?’, International Affairs 88(3) 2012,
pp.485–501.
Falkner, R. Environmentalism and global international society. (Cambridge:
Cambridge University Press, 2021) [ISBN 9781108833011] Chapter 1.

Adams, W. Green development: environment and sustainability in a developing
world. (Abingdon: Routledge, 2020) 4th Edition [ISBN 9780415820721].
Ostrom, E. Governing the commons: the evolution of institutions for collective
action. (Cambridge: Cambridge University Press, [1990] 2015)
[ISBN 9781316423936].
Butler, A. ‘Environmental protection and free trade: are they mutually
exclusive?’ Review. Federal Reserve Bank of St. Louis 74(3) 1992, pp.3–16.
Dobson, A. Green political thought: an introduction. (London: Routledge,
1995) 2nd edition [ISBN 9780415222044].
Clapp, J. and P. Dauvergne Paths to a green world: the political economy of
the global environment. (Cambridge, MA: MIT Press, 2011) 2nd Edition
[ISBN 9780262532716].
Falkner, R. ‘Private environmental governance and international relations:
exploring the links’, Global Environmental Politics 3(2) 2003, pp.72–87.
Delmas, M.A. and O.R. Young Governance for the environment: new perspectives.
(Cambridge: Cambridge University Press, 2009) [ISBN 9780521743006].
Elliott, L. The global politics of the environment. (Basingstoke: Palgrave
Macmillan, 2014) [ISBN 9780333948514].
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17.2 Introductory: bringing the environment into IPE

Ever since the industrial revolution swept across Europe and beyond,
economic growth and technological innovation have provoked fierce
controversy. In the eighteenth and nineteenth centuries, the introduction
of machines in manufacturing and railways in transport was greeted
at times with violent opposition by those who feared that these new
technologies would undermine existing patterns of life and work. This
was joined by concerns over the ecological and health consequences
of industrial production. These latter concerns became increasingly
pronounced across the twentieth-century and into the twenty-first. The
rapid depletion of natural resources and the growing pollution of water, air
and the atmosphere have led to the emergence of a global environmental
movement. Today, the ecological constraints of the global economy present
one of our most profound challenges.
The international community took up this challenge somewhat belatedly.
Although the first half of the twentieth century saw the adoption of some
of the first international treaties on, for example, the protection of seals in
the North Pacific (1911) and wildlife in the Western Hemisphere (1940),
a more systematic effort to protect the global environment dates back
only to the 1970s. At that time, the United Nations began to host regular
international conferences to address the various ecological problems that
threaten life on this planet. Today, environmental protection features
prominently on the international agenda as one of the key challenges for
international collective action.
Some progress has been made over the last 40 years: over 200 multilateral
environmental treaties (MEAs) have been signed, and an array of
international, regional and national institutions are now in place to
promote environmental protection. Global markets for clean energy and
emission reductions have emerged, and environmental sustainability
has become a guiding principle for global politics and business. But
serious doubts persist about the effectiveness of these developments.
Most international environmental treaties lack teeth, and many have
not been sufficiently implemented to make a difference. Many pressing
environmental threats, from species extinction to climate change, are still
awaiting an effective response from the international states system.
17.3 Differing perspectives on environmentalism

Far from being a coherent ideology, environmental thought consists of a
diverse range of intellectual strands. Early green thinking was concerned
primarily with protecting wildlife and the long-term management
of natural resources, such as forests. This was often termed – and
conceptualised – as ‘conservation.’ Think, for instance, of Theodore
Roosevelt, John Muir, and Rachel Carson.
In the second half of the twentieth century, the threats of the industrial
system and the global dimensions of environmental pollution came to
the fore. Industrial accidents, such as those at a chemical plant in Bhopal
(India) in 1984 and at a nuclear power plant in Chernobyl (Ukraine)
in 1986, came to symbolise the inherent risks of modern industry and
technological progress. While some environmentalists seek solutions
for making the global economy compatible with environmental needs,
others go as far as calling for a radical restructuring of the economic
system to avert a global ecological crisis. It is thus useful to distinguish
(broadly) between reformists and radicals in environmental thought. Yet
148
others reject these two strands of environmentalism and put forward an

altogether more sceptical perspective on the ecological question.
Reformists believe that it is possible to achieve a higher level of
environmental protection within the existing global political-economic
order. They advocate the creation of national and international institutions
to promote environmental objectives; dialogue and cooperation between
government, business and civil society in the search for environmental
solutions; and a gradualist approach to reforming existing institutional
arrangements that fail to serve the needs of sustainability. Reformists can
thus be found in support of environmental diplomacy, for example in the
form of UN environmental summits and MEA negotiations. The concept of
sustainable development (see below) is seen by reformists as a model for
combining diverse interests in a common effort to promote global objectives.
In contrast, radicals speak of a profound ecological crisis that is rooted
in the very foundations of the global capitalist system. In their view,
which is often referred to as a ‘deep ecology’ perspective, reforms can
merely slow down, but not avert, global ecological destruction. What is
needed is a root-and-branch restructuring of our consumerist society and
capitalist economy, to put the survival of the Earth’s ecosystems before
the imperative of economic growth. Radicals such as writers associated
with the magazine The Ecologist take an ecocentric perspective that
acknowledges nature’s intrinsic value (see The Ecologist, 1993). In this
view, existing attempts to negotiate international environmental accords
are, at best, a futile attempt to address isolated cases of environmental
degradation. At worst, they are a means of deflecting attention from the
root causes of the ecological crisis.
The radical vision resonates with many environmental activists who tire
of the piecemeal progress states have made in addressing environmental
problems. But its prescription of profound social and economic change
reveals radical ecology’s utopian, and at times even anti-democratic,
character. Radical ecologists have a particular problem explaining how
they would seek to fulfil the aspirations of the poorer nations who have
not yet benefited from industrialisation. The spread of post-consumerist
values in the rich countries of the North may have given rise to a growing
environmentalist movement, but it has been met with some hostility among
developing countries who see environmental policies as a ‘neo-colonial’
conspiracy to prevent them from catching up in economic development.
Anti-environmentalist sentiment exists in many different forms. Some
question the scientific evidence underpinning predictions of imminent
environmental doom, while others point to the fundamental trade-off that
exists in choosing between investing resources in environmental protection
and promoting economic development. Many industry groups have used
both types of arguments to question the need for further environmental
regulation at national and international level. Bjørn Lomborg has sparked
a lively international debate on what he sees as an alarmist and misguided
rush into action against global warming. Lomborg challenges the scientific
opinion behind the push for the international climate change regime and
argues that society would do better by adapting to any future climate
change and promoting technological change. In his book The skeptical
environmentalist, Lomborg challenges the pessimistic predictions of
environmentalists on a number of fronts, from climate change to species
loss and air pollution, suggesting that in fact environmental quality is
improving, or at least not deteriorating, in many of these areas. Lomborg’s
own work, however, has been heavily criticised by scholars for using
statistical data in a one-sided fashion to support his argument.
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Activity 17.1
Formulate your own critical assessment of these three perspectives on environmentalism.
What, if anything, do the traditional approaches to IPE have to say about the global
ecological crisis and international responses to environmental problems?
17.4 Early history of international environmental politics

The first UN environment conference took place in Stockholm in 1972.
The UN Conference on the Human Environment (UNCHE) produced
the Stockholm Declaration, a catalogue of environmental principles that
are intended to guide states in their efforts to protect the environment.
The declaration reflects a compromise between the interests of states in
preserving their sovereign control over their natural resources, on the one
hand, and the need for environmental cooperation across boundaries,
on the other. Still, for the first time, the international community
acknowledged countries’ responsibilities for environmental damage
beyond their borders.
The other major achievement of the Stockholm conference was the
establishment of the UN Environment Programme (UNEP). As the first UN
body primarily dealing with global ecological problems, UNEP became the
focal point for developing a raft of international initiatives and treaties.
It was held back in its efforts, however, by its comparatively small budget
and the fact that it was established merely as a programme, and not as a
fully-fledged UN special agency. As a concession to developing countries,
the UNEP’s headquarters were established in Nairobi (Kenya). The 1970s
saw the creation of major international environmental treaties, including
treaties on:
• trade in endangered species (CITES, 1972)
• prevention of maritime pollution (London Dumping Convention 1972,
MARPOL, 1973)
• long-range transboundary air pollution (Geneva Convention, 1979).
A growing number of countries, initially mainly in the developed North,
were now undertaking domestic efforts to establish environmental policies
and institutions. Slowly but steadily, environmental issues made their
way onto the domestic agenda of ever more countries as well as onto the
international agenda.
By the 1980s, the international community had fully acknowledged that
ecological issues were of a global nature and required a global response.
Nothing symbolised the global ecological threat quite like the depletion
of the ozone layer, a thin protective layer of gases in the stratosphere
that shields the Earth from damaging ultra-violet radiation. In 1974,
Mario Molina and Sherwood Rowland, two scientists at the University
of California, Irvine, first alerted policy makers to the possibility that
man-made gases used in refrigeration, air conditioning and aerosol
sprays might be the cause of ozone layer thinning. It took more than a
decade of intense scientific research and international diplomacy for the
international community to agree on the Vienna Convention in 1985,
the first effort to deal with the threat of ozone-depleting chemicals.
The 1987 Montreal Protocol to the Vienna Convention and subsequent
treaty revisions eventually led to a global phase-out of these chemicals.
Developing countries were given an extended phase-out schedule for these
150
chemicals to ease the economic pain of transition and received financial

aid to pay for the conversion costs. The Montreal Protocol was initially
opposed by the chemical industry, but once an international agreement
had been reached, leading chemical producers led the way towards the
complete elimination of the major ozone-depleting substances. This was
aided, no doubt, by the discovery and development of safe, cost-effective
alternatives to the harmful chemicals and processes. The Montreal
Protocol stands out as one of the lasting achievements of UN-sponsored
international environmental diplomacy.
Activity 17.2
What makes environmental problems ‘global’? Are all environmental problems of a global
nature? What can be learned from the experience with the Montreal Protocol on ozone
layer protection for other international environmental negotiations?
17.5 From the 1992 Rio ‘Earth Summit’ to the 2002

Johannesburg Summit and beyond
Emboldened by such success, in 1992 the UN convened the UN Conference
on Environment and Development (UNCED) in Rio de Janeiro under the
chairmanship of Maurice Strong. The then largest international gathering of
172 countries, which became known as the Rio ‘Earth Summit’, was in many
ways the high water mark in international environmental politics. Twenty
years after Stockholm, UNCED reiterated in the Rio Declaration the need for
a new and equitable global partnership. The 800-page Agenda 21 set out an
ambitious work programme for implementing the Declaration’s principles.
And three new agreements – on climate change, biodiversity and forests –
extended the reach of international environmental governance. Turning the
Rio agreements into reality, however, proved far more difficult, and the post-
Rio international debate has been characterised by much greater modesty in
ambition and a stronger focus on the gaps in implementation.
Of the Rio agreements, the Convention on Biological Diversity and the UN
Framework Convention on Climate Change were the most controversial.
Both were opposed by the United States, the most outspoken critic among
industrialised countries of the drive towards ever stricter environmental
rules, even though the US ratified the climate convention. The biodiversity
treaty serves as an all-encompassing instrument for protecting ecological
habitats and systems, the ambition of which was never matched with
practical steps and programmes. The climate treaty was followed by the
Kyoto Protocol in 1997, which set goals for reducing greenhouse gas
emissions by at least five per cent. The US refused to accede to the treaty
and remains sceptical of legally binding targets for reducing greenhouse
gas emissions. Developing countries, who under the Kyoto Protocol are not
obliged to reduce their emissions, are fearful of future restraints on their
economic development efforts. Their future role in climate change politics
is bound to increase, however, as countries such as China and India are
among the world’s fastest growing emitters of greenhouse gases.
The conflict between environment and development was once again at
the centre of UN environmental diplomacy when the World Summit on
Sustainable Development (WSSD) convened in 2002 in Johannesburg. Ten
years after Rio, the ‘Johannesburg Summit’ struck a much more sombre
note and recognised that past environmental agreements had not been
followed up by decisive action. The summit agenda focused on areas
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that reflect both environmental and developmental concerns, such as

biodiversity, renewable energy, water and sanitation. Instead of pushing
for new international agreements, it sought to concentrate state leaders’
minds on how to implement existing MEAs.
Over the first several decades of the twenty-first century, the challenge of
climate change has taken centre stage. As this is the subject of Chapter 18,
we will return to this question there.
2012 brought the third UN Conference on Sustainable Development. Held
in Rio de Janeiro, Brazil, it was billed as the largest event ever organised
by the United Nations. Nearly two hundred countries joined together to
reaffirm their commitment to sustainable growth. While the document
was nonbinding, it further centralised the global environment as key to
achieving development goals.
Activity 17.3
Why is it that so many international environmental treaties remain ineffective? Why
are some developing countries sceptical of the global environmental agenda? Is their
scepticism justified? Think of examples where environmental activist groups have made a
difference in world politics. How powerful, in your view, are environmental groups?
17.6 The concept of sustainable development

The economy and the environment have traditionally been seen as
diametrically opposed to each other. Green activists point to the devastating
effects of continued economic growth and resource extraction on the earth’s
ecosystems, while advocates of industrial growth and free trade stress
the need for an expansion of material production to serve the interests of
individuals, particularly in the poorest nations. It should come as no surprise
that developing countries have been particularly hostile to environmentalists’
demands for reducing – let alone halting – economic growth.
To overcome this economy-ecology divide and to reflect the concerns
of poorer nations in environmental politics properly, the concept of
‘sustainable development’ was proposed in the 1980s as a new way of
thinking about global policy imperatives. In a landmark report published
in 1987, the World Commission on Environment and Development,
also known as the Brundtland Commission, named after its chair Gro
Brundtland, produced one of the most influential definitions of this new
concept. The report Our common future defined sustainable development
as ‘development that meets the needs of the present without compromising
the ability of future generations to meet their own needs’.
Activity 17.4
At this point, you should read Chapter 2 of Our common future, the World Commission
on Environment and Development (1987), which provides one of the most widely used
definitions of the concept of sustainable development.
Critics of the concept point out that it is at best a meaningless phrase and
at worst a contradiction in terms. As with many other political slogans,
sustainable development has taken on many forms and meanings,
and has been claimed by a diverse group of organisations, ranging
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from environmental campaign groups to multinational corporations.

Reflecting their ulterior motives, these groups either stress the importance
of ecological sustainability or the need to foster economic growth.
While most people can agree with the broad objective of sustainable
development, reaching a consensus on what the concept means in practice
has proved an elusive task.
Activity 17.5
What do you understand by the term ‘sustainable development’? Why is the usefulness of
the term disputed?

• outline the relationship between global environmental politics and IPE
• analyse the strengths and weaknesses of the various major approaches
to global environmental politics: reformist, radical and anti-
environmentalist
• trace the history of international environmental politics, from its early
history through to the present
• outline the concept of sustainable development and analyse the factors
that present opportunities for, and challenges to, achieving this.

1. Does the Montreal Protocol on ozone layer depletion hold
lessons for international environmental regime-building
today?
Students are asked to evaluate the lessons from the Montreal Protocol
on ozone layer depletion, which is widely held to be the most successful
international environmental treaty, and apply these to international
environmental regime-building more widely. To begin with, students
should briefly introduce the Montreal Protocol and how it dealt with
ozone depletion. They should explain why it is generally held up as a
good example of effective environmental governance, which requires
a discussion of the key factors behind its successful negotiation and
implementation. A second step would then expand the discussion
to identify key lessons that might be relevant for other cases of
international environmental cooperation. This could refer to the
important role that scientific research and consensus-building played in
the ozone regime; the nature of the international bargaining process,
which proceeded from a general framework convention to a legally
binding protocol with specific regulatory obligations; and the role that
business played in the regime creation and evolution process. These
lessons could be applied to other cases, such as the international climate
regime. In doing so, candidates would need to carefully elaborate
whether, and if so why, certain lessons can be applied to other cases,
and contrast this with the view that the ozone regime is a unique
case that offers few if any lessons. A strong answer would ground the
discussion in a more general discussion of what makes international
environmental regime-building generally successful or not.
153
2. Is free trade at odds with global environmentalism?

To answer this question, you need to have a general understanding of
both global environmentalism and the liberal principles that underpin
the international economic order.
A good starting point would be to introduce the core tenets of global
environmentalism and how it emerged in international politics from
the 1970s onwards. This is not the time to rehearse the history of
international environmental politics. Instead, you should identify
why and to what extent environmental ideas might clash with liberal
principles of free trade and economic growth. This should then lead
to a discussion of whether, and to what extent, the liberal principles
of the global economy run counter to environmental ideas. A good
empirical focus for this is the trade regime, which emphasizes the need
for free trade and non-discrimination. On the basis of this, and with
the help of empirical examples, you would need to establish the extent
to which there is indeed a fundamental conflict or whether the two are
compatible.
For example, the discussion could focus on how environmental
policies target polluting behaviour in the international economy by
regulating or outlawing such behaviour, which can end up interfering
with or restricting trade. Ideally, you should refer to specific examples
of whether, and how, the environmental agenda creates challenges
to liberal principles of economic exchange. An outstanding answer
would note the ambiguities and different strands in environmentalism
and demonstrate how these can lead to different forms of global
environmental policy, some of which are compatible with the liberal
principles of the international economy.
154
Chapter 18: Climate change

Climate change is possibly a species-ending challenge. This chapter
grapples with that challenge and our responses to it.

• outline the nature and scope of the challenge of climate change
• analyse the origins and evolution of the Paris Agreement order using
the major approaches to IPE
• explain why states often fail to meet their Paris Agreement obligations.

Keohane, R.O. and D.G. Victor ‘The regime complex for climate change’,
Perspectives on Politics 9(1) 2011, pp.7–23.
Colgan, J.D., J.F. Green and T.N. Hale. ‘Asset revaluation and the existential
politics of climate change’, International Organization 75(2) 2021,
pp.86–610.
Graham, E.R. ‘Climate Crisis’ in J.C.W. Pevehouse and L. Seakbrooke (eds)
The Oxford handbook of international political economy. (Oxford: Oxford

Allan, B.B. ‘Producing the climate: states, scientists, and the constitution
of global governance objects’, International Organization 71(1) 2017,
pp.131–62.
Giddens, A. The politics of climate change. (Cambridge: Polity, 2011) 2nd
edition [ISBN 9780745655154].
Svartzman, R. and J. Althouse ‘Greening the international monetary system?
Not without addressing the political ecology of global imbalances’, Review of
Abbott, K.W., J.F. Green and R.O. Keohane ‘Organizational ecology and
institutional change in global governance’, International Organization 70(2)
2016, pp.247–277.
Thompson, H. Disorder: hard times in the 21st century. (Oxford: Oxford
Kuzemko, C., A. Lawrence and M. Watson ‘New directions in the international
political economy of energy’, Review of International Political Economy 26(1)
2019, pp.1–24.
Kennard, A. ‘The enemy of my enemy: when firms support climate change
regulation’, International Organization 74(2) 2020, pp.187–221.
18.2 Introductory: the challenge of climate change

It is hard to overstate the scale or importance of the challenge of climate
change. Scientific uncertainty, economic costs, political conflicts and
North-South tensions make climate change one of the most difficult issues
on the global agenda. At the heart of the problem is the ‘greenhouse
effect’, a naturally occurring phenomenon that is exacerbated by the
increased emission of gases such as carbon dioxide, methane and nitrous
oxide due to human activities. These so-called greenhouse gases originate
155
in processes of mainly fossil fuel-based energy production and agriculture.

Their accumulation in the atmosphere over the last two centuries – a
process that has accelerated considerably since the end of the Second
World War – is regarded by scientists as having led to the gradual warming
of the Earth’s atmosphere, causing long-term, damaging effects on
ecosystems around the world. Among other things, climate change has
already led to rising sea levels, a worsening of extreme weather patterns
and greater desertification. Given our current trajectory, such effects are
expected to increase in the future.
The challenge of climate change raises several key questions, for example:
• Is the scientific evidence on man-made global warming sufficiently
strong to justify early and costly action? Or should societies adopt a
‘wait and see’ approach?
• What would be an equitable distribution of emission reduction efforts
between developed and developing countries? As emerging economies
contribute an ever-larger amount of greenhouse gases, should they
also be obliged to reduce emissions, or at least reduce the emissions
intensity of economic growth?
• Given the difficulties of reaching international agreement on a
comprehensive and legally binding climate deal, what can be done at
the global level to mitigate climate change?
The international community has found it difficult to agree on an
appropriate response to the threat of climate change. There are several key
reasons for this.
First, this is a hard problem. The challenge itself is possibly existential
for our species. Of course, we have faced existential threats before – such
as the possibility of nuclear apocalypse. But climate change is vastly
more complex. We are talking here about nothing less than the ecology
of the planet writ large; and it goes well beyond that to include health,
economic, social and political dimensions. It is hard to understand the
nature of the challenges and the best means for addressing them.
Second, there is the time-inconsistency problem. The costs of mitigating
climate change will be borne by those in the present, but the benefits of
doing so – and the costs of failing to do so – will be borne by those in
the future. For obvious political reasons, policy makers have short time-
horizons and rather high discount rates.
Third, even if we could agree to act now, climate change presents a classic
‘prisoner’s dilemma’ – with all of the difficulties that this entails. Countries
have strong incentives to renege on their promises. At the same time, our
international regimes lack the tools required for effective monitoring and
enforcement.
More broadly, each country has incentives to shift the burden of
adjustment abroad. Developed countries can – and do – argue that they
are decarbonising (however slowly). But developing countries can –
and do – argue that the developed countries’ development was largely
responsible for creating this challenge in the first place. Moreover, the
developed countries are far better able to afford decarbonisation and
adjustment in the face of climate change. For these reasons, they can – and
do – drive hard bargains with the more vulnerable countries of the world.
Fourth, climate change is a harder political problem than most of those that
we have faced previously. Of course, there are always distributive questions
with any policy. But the politics are not symmetric between distributing
x amount of benefits versus imposing x amount of costs. With economic
156
integration, for instance, it was a question of distributing the gain from

economic growth. Mitigating climate change, though, becomes a question
of distributing pain. In the former case, it is a question of how much each
progresses. But, in the latter case, it is a question of how much ground each
loses. Due to loss-aversion, policy makers are more likely to be scrutinised,
and every side is likely to fight even more vigorously to evade losses.
These challenges raise serious questions about our traditional approach
to IPE. Most economists – especially liberal economists – have held
economic growth as the ends and economic integration as the means. Yet,
climate change means slowing or, perhaps, reversing economic growth.
And global market integration could well be contributing to the problem.
Worryingly, all this points to mercantilism: the increasing zero-sumness
of international economic interactions; the possible disintegration of the
global market; and the growing competition for ever-scarce resources.
Just as countries used to fight to increase their share of the gold supply, so
might they fight to increase their share of sustainable carbon emissions.
Activity 18.1
Who are the winners and losers from effective global climate governance?
18.3 Initial international responses

The 1997 Kyoto Protocol to the United Nations Framework Convention
on Climate Change was the first major commitment by states to reduce
their greenhouse gas emissions. It was bold in clearly stating that climate
change is happening and that humans are driving it. But it was less bold in
that it simply sought to stabilise industrialised countries’ greenhouse gas
emissions into the atmosphere in the medium term. Moreover, key states
such as the USA, which had been the world’s biggest emitter of carbon
dioxide in historical terms, refused to ratify the accord. And the emerging
economies with fast rising emissions (e.g. China, India) are not covered by
its mandatory emission reductions. Powerful business interests, such as the
oil and coal industries, have lobbied against the Kyoto Protocol, and many
other companies fear a competitive disadvantage in situations where their
government takes costly climate change action but others do not follow suit.
Efforts to negotiate a successor agreement to the Kyoto Protocol
culminated in the 2009 climate conference in Copenhagen, which was
attended by over 100 heads of government. The conference adopted
a non-binding Copenhagen Accord, in which governments commit to
stabilising future temperature rises caused by global warming to 2 degrees
Celsius. However, the meeting failed to agree legally binding commitments
to reduce emissions.
The 2012 United Nations Climate Change Conference proved crucial
in several regards. First, it renewed the Kyoto Protocol, which was
due to expire that year, to 2020. Second, developed countries formally
acknowledged for the first time their responsibility for the ‘loss and
damage’ that followed from their development.
157
Activity 18.2
Consider these questions: What would Gandhi think about the concept and pursuit
of ‘sustainable development’? What would Gandhi think about the climate crisis?
What prescriptions would Gandhi advance for tackling the climate crisis? How has
the development of ‘newly industrialised countries’ (like India and China) affected our
prospects for mitigating climate change?
18.4 The Paris Agreement and after

Much bolder action was taken in the 2015 United Nations Climate Change
Conference. It brought the Paris Agreement, which is a legally binding
international treaty adopted by 196 parties. It entered into force on
4 November 2016. The principal objective of the Paris Agreement is to
limit global warming to less than 2 degrees Celsius (compared to pre-
industrial levels). Under the agreement, countries submit plans every five
years with their ‘nationally determined contributions’ (NDCs). By limiting
and then ratcheting down the total amount of greenhouse gas emissions,
the world can move to a climate-neutral level by the middle of this
century. Additionally, the Paris Agreement encourages those most capable
to provide further financial, technical and capacity-building support to
those countries who most need it.
Measurable progress has been achieved since the launching of the Paris
Agreement. Achieving carbon neutrality has become a priority for ever
more actors – public and private. The UNFCCC estimates (in 2023)
that, by 2030, ‘zero-carbon solutions could be competitive in sectors
representing over 70 percent of global emissions.’ (UNFCCC, 2023)
But the struggle continues – particularly among and between the world’s
largest producers and consumers of carbon-intensive products. In 2020,
the Trump administration pulled the US out of the Paris Agreement. But
the US re-joined the agreement in 2021 – on Joe Biden’s first day in office.
Since joining the WTO in 2001, China’s energy consumption has nearly
tripled. In recent years, however, China’s consumption rates have begun to
fall, and the Xi regime has taken on more global leadership on mitigating
climate change. In addition to evolving global norms, this partly reflects
China’s status as a more well-established power and the difficulties China’s
cities are already experiencing.
Unfortunately, the actions taken thus far have been inadequate to prevent
– let alone mitigate – long-term climate change. There were high hopes
for the 2021 United Nations Climate Change Conference (in Glasgow,
Scotland). This was the first conference in which countries submitted
their enhanced national pledges as a part of the Paris Agreement’s
five-year cycles. (Countries were meant to meet in 2020 but this was
delayed a year due to COVID-19.) For the first time, it was agreed that
countries would end their use of coal-based power and inefficient fossil
fuel subsidies. Unfortunately, India and China intervened to weaken this
overall commitment. This was followed by COP27 in Egypt in November
2022. The first loss and damage fund was created. This is important, but it
obviously does not address the root of the problem.
158
Activity 18.3
Consult the websites of your government and the UNFCCC. What is your country’s
strategy for combating climate change and meeting its Paris commitments? How
effective, in your view, has this strategy been?

UNFCCC. ‘The Paris Agreement.’ Accessed 30 January 2023.

• outline the nature and scope of the challenge of climate change
• analyse the origins and evolution of the Paris Agreement order using
the major approaches to IPE
• explain why states often fail to meet their Paris Agreement obligations.

1. Is trade liberalisation necessarily at odds with the struggle
to mitigate climate change?
To answer this question, you need to have a general understanding
of both global environmental politics and the liberal principles that
underpin the international economic order. A good starting point
would be to introduce the core tenets of global environmentalism and
how it emerged in international politics from the 1970s onwards. This
is not the time to rehearse the history of international environmental
politics but to identify why and to what extent environmental ideas
might clash with liberal principles.
This should then lead to a discussion of whether, and to what
extent, the liberal principles of the global economy run counter
to environmental ideas. A good empirical focus for this is the
trade regime, which emphasises the need for free trade and non-
discrimination. On the basis of this, and with the help of empirical
examples, you would need to establish the extent to which there is
indeed a fundamental conflict. For example, the discussion could
focus on how environmental policies target polluting behaviour
in the international economy, by regulating or outlawing such
behaviour, which can end up interfering with or restricting trade.
Ideally, you should refer to specific examples of whether, and how,
the environmental agenda creates challenges to liberal principles of
economic exchange.
An outstanding answer would note the ambiguities and different
strands in environmentalism and demonstrate how these can lead to
different forms of global environmental policy, some of which may
in fact be compatible with the liberal principles of the international
economy.
159
2. To what extent do North–South divisions stand in the way

of successful international cooperation to mitigate climate
change?
This question is broadly about the conditions for successful
international cooperation to mitigate climate change. But it is
specifically about the role that North-South divisions play in thwarting
such cooperation. As such, you will need to do beyond simply
rehearsing the standard points about the challenges of international
cooperation and about the challenges of climate change. Instead, you
should put these topics directly into conversation with one another.
A good way to start would be to introduce the topic of climate change
and why international cooperation is both needed and difficult to
achieve in this particular area. The next step could be a more focused
discussion on why Northern and Southern countries have different
concerns and interests in this international policy area. You should
list specific examples of North–South divisions, including the tension
between historical responsibilities for climate change, the distinction
between producer and consumer countries, etc. A good answer
would demonstrate in some detail how these divisions have held back
international cooperation efforts where the burden-sharing in bringing
down greenhouse emissions has been a critical issue in the past. These
have been stumbling blocks across years. An excellent answer would
investigate the role of North-South tensions in specific negotiations
from the various Conferences of the Parties (COP) in the United
Nations Framework Convention on Climate Change (UNFCCC). Such
answers would also consider the other factors – beyond North-South
tensions – that have undermined cooperation.
160
Chapter 19: Globalisation and policy autonomy
Chapter 19: Globalisation and policy

autonomy

Globalisation brings many benefits; but it also limits states’ abilities to
shape their domestic economies. This chapter explores that tension.

• specify the essential features of the current era of globalisation,
particularly with regard to the mechanisms that have driven it forward
and those that resist its advance now
• discuss, using empirical examples, the social, political and cultural
consequences of the current era of globalisation
• analyse the strengths and weaknesses of the arguments made by the
anti-globalists today
• outline the tensions between global market forces and the welfare
state
• use IPE approaches to explain how states navigate the trade-offs
between global integration and policy autonomy.

Strange, S. ‘The Westfailure system’, Review of International Studies 25(3) 1999,
pp.345–354.
Mosley, L. ‘Room to move: international financial markets and national welfare
states’, International Organization 54(4) 2000, pp.737–773.
Rudra, N. Globalization and the race to the bottom in developing countries:
who really gets hurt? (Cambridge: Cambridge University Press, 2008)
[ISBN 9780521715034].
Walter, S. ‘The backlash against globalization’, Annual Review of Political Science
24(1) 2021, pp.421–442.
Fetzer, T. ‘Did austerity cause Brexit?’, The American Economic Review 109(11)
2019, pp.3849–3886.
Thompson, H. ‘Inevitability and contingency: the political economy of Brexit’,
The British Journal of Politics and International Relations 19(3) August 2017,
pp.434–49.

Mosley, L. ‘Globalisation and the state: still room to move?’, New Political
Economy 10(3) 2005, pp.355–362.
Lierse, H. and L. Seelkopf ‘Room to manoeuvre? International financial markets
and the national tax state’, New Political Economy 21(1) 2016, pp.145–165.
Nooruddin, I. and N. Rudra ‘Are developing countries really defying the
embedded liberalism compact?’, World Politics 66(4) 2014, pp.603–640.
Walter, S. ‘Globalization and the welfare state: testing the microfoundations of
the compensation hypothesis’, International Studies Quarterly 54(2) 2010,
pp.403–426.
May, T. Speech at Lancaster House. 17 January 2017.
Fetzer, T. ‘Austerity caused Brexit.’ VoxEU. 8 April 2019.
161
Born, B., G.J. Müller, M. Schularick and P. Sedláček ‘The costs of economic
nationalism: evidence from the Brexit experiment’, The Economic Journal
129(23) 2019, pp.2722–2744.
Williamson, J. ‘Winners and losers over two centuries of globalization’, NBER
Working Paper 9161, 2002.
Stiglitz, J.E. Globalization and its discontents. (London: Allen Lane, 2002)
[ISBN 9780141010380].
Held, D. and M. Koenig-Archibugi. Taming globalization: frontiers of governance.
(Oxford: Polity, 2003) [ISBN 9780745630762].
Blyth, M. Austerity the history of a dangerous idea. (Oxford: Oxford University
Press, 2013) [ISBN 9780199389445].
19.2 Introductory: globalisation today

From the end of the Second World War to (at least) 2020, every decade
has brought ever more economic integration, encompassing trade, foreign
direct investment, short-term financial flows and cross-border technology
exchange. Global production by multinational corporations is now common
in most industrial sectors. Global brands and products can be found in the
most distant places of the world. And the integration of financial markets
has helped to tie the fate of different national economies more closely
together as markets respond almost immediately to economic signals in
faraway places. Moreover, the communications revolution has allowed
people to enter into contact with others regardless of national boundaries.
Telephony, the internet and the electronic media have created 24-hour
news, a world around which information and ideas can flow much more
freely than ever before. Similarly, the spread of communications access
has combined with the development of (relatively) low-cost platforms and
mediums to broadly democratise access to the global civil society.
As we have seen, not all indicators of global economic integration are
at the same level as in the late nineteenth century. But this is due in
part to the dramatic growth of the domestic economy in the twentieth
century and particularly the rise of the services sector that is less likely to
be internationalised. What matters more is the degree to which leading
companies in the major industrialised economies are pursuing corporate
strategies that are globally oriented. Innovation, product development,
branding and marketing are now routinely carried out to serve global
sales strategies.
A question remains about the fate of the states system and ‘the
international’ in an era of globalisation. In its more extreme
manifestations, the debate on globalisation has suggested that the
states system may be an anachronism that is no longer well suited
to a world of interconnected societies and economies, and that new
forms of governance, below and above the nation state, will need to
be found to match the emerging global networks of interaction. In this
view, globalisation tends to undermine the nation state basis of political
organisation and brings with it the emergence of a global political space in
which individuals and groups of people will create new forms of political
authority and governance. The UK’s vote for Brexit, the election of Donald
Trump and the ascent of nationalist-populist movements around the globe
all suggest that we may have begun a process of deglobalisation.
Yet others remain sceptical as to the potential for such a profound
transformation in the political sphere. Paul Hirst and Grahame Thompson
point to the continuing role of states in providing international security
and an international framework within which economic and social
162
globalisation can take place. In their view, globalisation needs a supportive

political environment that in the past has been provided by leading
states, such as the United States. Rather than making the states system
redundant, globalisation depends on a supportive framework provided
by states. These scholars therefore prefer to speak of ‘internationalisation’
rather than globalisation, a concept that highlights the continued role of
states in the integration of the world economy and society.
Activity 19.1
What are the defining features of globalisation today? How does this compare to the
pre-war global economic order?
19.3 Globalisation and its discontents

The globalisation of the world economy will most likely continue to tie
societies and economies more closely together. Liberal economists and
others see in this process of integration the hope for greater cooperation
and prosperity for all nations involved. They welcome the opportunities
that globalisation offers for extending markets, deepening the division
of labour and raising productivity in production. Even if globalisation
brings with it economic dislocation in the short run, it will contribute to
alleviating poverty in the longer run.
However, all observers do not share this optimistic view of globalisation.
The late 1990s saw the emergence of a transnational movement of protest
against globalisation, which gave expression to widespread fears about the
ever-deeper integration of the world economy. For the anti-globalisation
movement and other critical observers, globalisation poses the threat of
economic marginalisation and global inequality, cultural homogenisation
and the erosion of national sovereignty. Globalisation is seen as a process
that benefits the rich rather than the poor, multinational corporations
rather than local communities and the West and the United States in
particular rather than the developing world. Furthermore, the 2008
Global Financial Crisis and the COVID-19 pandemic both highlighted the
profound dangers of ever greater global connectedness.
The growing unease about the consequences of globalisation has
manifested itself in a number of responses from civil society – in the
form of high-profile protests against international conferences and
organisations – and, increasingly, from anti-globalisation political figures
(i.e. the so-called ‘populists’). In 1999, protesters fought street battles
with the police of Seattle (USA) outside the meeting of the Ministerial
Conference of the World Trade Organization (WTO). Other high-profile
meetings of the International Monetary Fund (IMF), the World Bank, and
G8 have since provoked similar public demonstrations. 2016 saw the vote
for Brexit and the election of Donald Trump. At the same time, Vladimir
Putin emerged as one of the world’s leading critics of globalism, liberalism
and globalisation. Not since the interwar period has the world seen such a
strong movement against globalisation.
It is worth considering the main objections that are being raised against
the process of globalisation:
• Distribution of wealth and inequality: One of the most contested
questions in the debate on globalisation is whether it will lead to a
more equal or unequal distribution of wealth worldwide. Proponents
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of greater economic integration argue that it will stimulate economic

growth in all countries that are opening up their economies –
particularly in those that are starting out from a lower level of
prosperity. The recent economic success of economic liberalisation in
countries such as China and India, which have seen annual growth
rates often between eight and ten per cent across the last several
decades, is seen as an example of what globalisation and economic
reform can achieve. Critics of globalisation point to the serious
economic dislocations that countries experience when they open
their economies to international trade and capital flows. In their
view, globalisation allows for a greater concentration of economic
wealth and power in the hands of global corporations and the most
industrialised economies of the North. Cases of economic growth
in developing countries in fact result in greater inequality within
those countries, leaving many local communities exposed to the
destructive forces of market competition. To some extent, the different
perspectives of proponents and critics of globalisation reflect their
different time horizons. The former point to the long-term growth
prospects for all sections of society, while the latter focus on the short-
term dislocations that economic change brings with it. But beyond this,
real differences in opinion persist with regard to the question of what
opportunities and threats the spread of global capitalism produces for
workers, local communities and developing countries.
• Loss of national autonomy: A central argument of critics of
globalisation is the eroding effect global integration has on national
autonomy, that is the ability of states to set and pursue independent
policy objectives. No country in the world is, of course, entirely
autonomous – not even North Korea. But globalisation is seen to
enmesh countries in a growing web of transnational links that
leaves them increasingly exposed to global market forces. Critics
argue that the resulting power shift from states to global firms puts
pressure on governments to provide an attractive investment climate
for multinationals. (This is discussed at length in Chapter 20.)
Governments are locked into a ‘race to the bottom’ in which they
compete with each other for foreign investment by deregulating the
economy and dismantling welfare states. Proponents of globalisation
counter this argument by highlighting the contrary empirical evidence.
The role of the state in industrialised economies has changed little
over the last 40 years. Despite sustained periods of deregulation in the
1980s and 1990s, state spending as a proportion of GDP has actually
increased during that period. The Global Financial Crisis forced
governments to reduce public spending again in an effort to cut fiscal
deficits. But, of course, spending ballooned during the COVID-19
pandemic. At the time of writing (January 2023), governments around
the world have made moves to tighten monetary policy and reign in
fiscal policy. But it remains to be seen whether this represents a small
blip or a serious change of direction. At the same time, the debate still
rages between the different models of capitalism in the industrialised
world, with central European and Scandinavian countries continuing
to rely on a significantly larger role for the state in the economy than
do the largest ‘Anglophone’ countries.
• Environmental costs: Trade liberalisation and global market
integration have been linked to environmental degradation around
the world. Ecologists argue that international trade promotes an
energy-intensive exchange of goods between distant communities that
contributes to global warming through higher fossil fuel consumption,
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and erodes local and regional forms of sustainable production and

exchange. Insofar as trade fuels higher economic growth and the
spread of unsustainable patterns of production, it acts as a major force
behind the exploitation of natural resources. Advocates of free trade
respond by pointing to the efficiency-raising effects of international
trade that help reduce resource inputs in production. By extending
competition and forcing inefficient companies out of business, trade
can be a force for higher resource-efficiency in the economy. An
important condition for reducing the environmental side-effects of
trade liberalisation is, however, that all costs of moving goods around
the world are fully integrated into their prices. An important step in
that direction would be to raise energy prices in transport, be it by
air, sea or land, to reflect the so-called ‘environmental externalities’,
especially of fossil fuels (e.g. their contribution to global warming).
As this brief review of concerns over globalisation has shown, global
economic integration poses serious dilemmas for states and societies
around the world. Globalisation has changed, and will continue to change,
the nature of international relations. But it is unlikely to lead to the demise
of the nation state. States continue to play a key role in determining how
much societies benefit from globalisation and how well they are protected
from its negative consequences. The interaction between states and global
markets thus remains a key focus in the study of IPE.
Activity 19.2
In what ways can globalisation be said to be limiting the power of states?
List the benefits and costs that globalisation has produced for your own country.
19.4 Globalised markets versus welfare states

Throughout this course, we have examined the broad battle between
states and markets – between the political and economic logics,
between economic outcomes and political objectives, between (market)
‘meritocracy’ and (political) ‘democracy.’ These questions become
particularly acute when we consider the interaction between globalisation
and the ‘welfare states’ that emerged following the Second World War.
There are two broad views on this relationship:
• The efficiency hypothesis: this view emphasises the tension between
markets’ dictates and political imperatives. For instance, sustaining
a welfare state generally requires redistributive fiscal policy. But the
owners of capital enjoy exit options in a globalised world. And they
can threaten to exit those countries with more progressive taxation
schemes. Many countries – especially developing countries – thus
find that they can only attract and retain capital by reducing the tax
rates on businesses and high-income earners. This process can lead to
downward pressure on overall taxation rates as countries compete to
get some tax revenue from ‘footloose’ capital rather than none. In this
view, the welfare state is the first casualty in this struggle.
• The compensation hypothesis: this view stresses the distributive
consequences of globalisation within states. As we have discussed,
market integration – whether it be increased trade or investment –
creates ‘winners’ and ‘losers.’ The so-called ‘losers from globalisation’
have an incentive to organise politically to thwart, and perhaps
165
reverse, market integration. To pre-empt this, the so-called ‘winners’

developed – and now support – the welfare state to ‘compensate’ the
‘losers,’ which keeps them invested in the globalised system.
These hypotheses have been tested extensively in a rich and varied
literature – including numerous pieces on the reading list. Broadly, there
appears to be support for the compensation hypothesis, particularly in
the most developed economies. There is rather less ‘room to move’ for
developing economies. Moreover, there are (strongly) diminishing returns
to globalisation. And, overall, the world has become increasingly unequal –
between developing and developed countries and within both types as well.
Many have pointed to these tensions to explain the rise of so-called
‘populism’ (especially in 2016 and after). One does not expect that there
is a single motivation driving those who voted for Brexit, for Donald
Trump or for other populist movements and parties. A person might be
socio-economically harmed by globalisation and/or xenophobic and/
or understandably concerned about the loss of sovereignty to distant
bureaucrats, global markets, etc. Moreover, there is no doubt that many
votes were cast (in both directions) on the basis of misrepresentations
of the current situation and the ways to address it. For instance, it is
revelatory that those in the UK most affected by the ‘China shock’ – the
loss of jobs and opportunities due to competition from China – were the
most likely to vote for Brexit. Of course, leaving the European Union had
zero legal effect on the UK’s rights to respond to Chinese competition. And,
likely, it has put the UK – now forced to negotiate bilaterally with China
rather than as a part of the large EU market – into a more vulnerable
position. But, at the same time, this was the referendum on market
integration in which people could vote and express their discontent.
The same might be true for Donald Trump, the Five Star Movement
in Italy, etc. Many of those who voted for these ‘populists’ may have
disdained the leaders themselves. But such voters may have found these
ballots as their only meaningful way to press the ‘conventional’ parties and
leaders to reconsider globalisation.
Do these shifts represent a brief abatement of globalisation’s otherwise
relentless march forward? Or do they represent the start of a new era – a
decisive shift away from the ‘embedded liberalism’ compromise that has
reigned since the end of the Second World War? Only time will tell.
Activity 19.3
What determines the extent to which states must choose between globalisation and
maintaining welfare states? Consider your own country. What balance has been struck
between the one and the other? What balance do you think would be right?

• specify the essential features of the current era of globalisation,
particularly with regard to the mechanisms that have driven it forward
and those that resist its advance now
• discuss, using empirical examples, the social, political and cultural
consequences of the current era of globalisation
166
• analyse the strengths and weaknesses of the arguments made by the

anti-globalists today
• outline the tensions between global market forces and the welfare state
• use IPE approaches to explain how states navigate the trade-offs
between global integration and policy autonomy.

1. ‘The growth of global civil society severely restricts the
national autonomy of nation states.’ Discuss.
The question relates to the widespread perception that global civil
society has become more powerful in the IPE and that a power shift
from states to civil society has occurred.
Of course, much of the discussion surrounds the power – and the role
– of multinational corporations. From this perspective, the withering of
the state is often seen as a lamentable phenomenon.
To answer the question, a good way to start would be to describe
the growth of multinational corporations in the context of economic
globalisation, then explain both their economic and political clout
and why it is argued that governments find it increasingly difficult to
control MNC operations. Following this, you would need to consider
the specific effects that MNCs and their investments have on national
economies and how this affects governments’ regulatory powers. This
might include a discussion of the extent to which governments depend
on foreign investment to stimulate economic growth, employment
and technological innovation; and the dangers relating to economic
dependence, the regulatory race to the bottom and exposure to
external economic fluctuations. It would be useful to refer to specific
cases of MNC-government bargaining over investment decisions, or
lobbying activities of firms.
But the prompt describes ‘civil society,’ which includes much beyond
just MNCs. This includes NGOs, transnational social movements, social
media, religious entities and organisations, etc. Here, the stories are
often seen as positive – for example transnational movements pressure
states accused of violating human rights.
Recognising this distinction – and grappling with the prompt from
this broader view – is essential. It would be wrong to simply deploy
responses that address strictly MNCs. Such answers would be
incomplete.
Also, candidates need to discuss both developed and developing
countries. The prompt does not specify just one set of states. The very
best candidates would also seek to work out whether the ability to
withstand these pressures varies systematically between these two
types of state.
2. ‘From the climate crisis to the global pandemic, it is clear
that the Malthusians are right that our collective future
requires that we reduce globalisation.’ Discuss.
To answer this question, candidates need to have a general
understanding of global environmental issues and how they relate
to developments in the IPE. As always, they should avoid the
temptation to just rehearse general arguments about the rise of global
environmental problems and how the international community has
responded to them. Similarly, students should not simply discuss the
global pandemic (as such) and/or the work of Malthus.
167
Instead, the answer should focus on the broader relationship between

globalisation and the pressing challenges in global environmental
(and health) politics. For instance, globalisation is often associated
with consumerism, which is bad for the environment and health. But
globalisation can also increase efficiency in production. And, because
seaborne trade has a lower carbon footprint than does overground
trade, globalisation can also reduce the environmental costs of some
trade. Similarly, globalisation cuts in both directions in the context
of the pandemic: it helps to spread disease (obviously); but it also
facilitates cross-border collaboration (research, vaccine production and
distribution, etc).
Candidates might also consider the globalisation-environment link by
considering the role played by those organisations and agreements
that facilitate economic integration itself. For instance, if those regimes
are designed to address environmental issues – such as by enabling
or encouraging domestic environmental policies – then pursuing
globalisation (in such contexts) might actually help to address global
environmental challenges.
The most ambitious answers might also directly grapple with the
question of (potential) overpopulation, the pursuit of growth (rather
than, say, sustainability) and the political and economic challenges of
intergenerational rights and responsibilities.
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Chapter 20: Multinational corporations and the state
Chapter 20: Multinational corporations

and the state

These days, the question of states versus markets, with which we began,
is often the question of states versus firms. This chapter explores the
cooperative, collaborative and competitive dynamics between states
and firms.

• outline the nature of the tension between MNCs and the state, both in
previous centuries and in the twenty-first century
• compare the strengths and weaknesses of the argument that states
have been eclipsed by MNCs
continue to prevail over MNCs
• analyse these debates in specific national contexts, especially those
where state-owned enterprises predominate and those where they
do not.

Strange, S. ‘States, firms, and diplomacy’, International Affairs 68(1) 1992,
pp.1–15.
Gray, J. ‘Wonder how American tobacco companies can sue countries for
antismoking campaigns?’, The Washington Post. 8 July 2015.
Pandya, S.S. ‘Political economy of foreign direct investment: globalized
production in the twenty-first century’, Annual Review of Political Science
19(1) 2016, pp.455–475.
Hertz, N. The silent takeover: global capitalism and the death of democracy.
(London: Heinemann, 2001) [ISBN 9780060559731].

Strange, S. The retreat of the state: the diffusion of power in the world economy.
(Cambridge: Cambridge University Press, 1996) [ISBN 9780521564403].
Ohmae, K. The end of the nation state: the rise of regional economies. (London:
Harper Collins, 2008) [ISBN 9780007292271].
Hirst, P.Q., G. Thompson and S. Bromley Globalization in question. (Cambridge:
Polity, 2009) 3rd edition [ISBN 9780745641522].
Reich, R. ‘Who is us?’ Harvard Business Review January–February 1990,
pp.53–64.
Doremus, P.N. The myth of the global corporation. (Princeton, NJ: Princeton
Vogel, D. ‘The private regulation of global corporate conduct: achievements and
limitations’, Business & Society 49(1) 2010, pp.68–87.
Vogel, D. The market for virtue: the potential and limits of corporate social
responsibility. (Washington, DC: Brookings Institution Press, 2006)
[ISBN 9780815790778].
Jones, G. Multinationals and global capitalism: from the nineteenth to
the twenty first century. (Oxford: Oxford University Press, 2004)
[ISBN 9780199272105].
169
Li, Q. ‘Democracy, autocracy, and expropriation of foreign direct investment’,

Comparative Political Studies 42(8) 2009, pp.1098–1127.
St John, T. The rise of investor-state arbitration: politics, law, and
unintended consequences. (Oxford: Oxford University Press, 2018)
[ISBN 9780198789918].
Gray, J. The company states keep: international economic organizations and
investor perceptions. (Cambridge: Cambridge University Press, 2013)
[ISBN 9781107030886].
Mosley, L., V. Paniagua and E. Wibbels ‘Moving markets? Government bond
investors and microeconomic policy changes’, Economics and Politics 32(2)
2020, pp.197–249.
Falkner, R. Business power and conflict in international environmental politics.
(Basingstoke: Palgrave Macmillan, 2008) [ISBN 9780230239302].
Blyth, M. and J. Nahm. ‘Why undoing globalization is going to be a painful
affair.’ The Rhodes Center Podcast. 16 December 2022.
Braithwaite, J. and P. Drahos Global business regulation. (Cambridge:
Cambridge University Press, 2000) [ISBN 9780521784993].
Walters, R. ‘Varieties of gender wash: towards a framework for critiquing
corporate social responsibility in feminist IPE’, Review of International
LeBaron, G. and J. Lister ‘The hidden costs of global supply chain solutions’,
Review of International Political Economy 29(3) 2021, pp.669–695.
20.2 Introductory: Will MNCs rule?

One of the most potent symbols of economic globalisation is the
multinational corporation (MNC). Huge corporate empires now straddle
the world and rival some states in terms of economic significance and
power. MNCs exist in virtually all industrial sectors and dominate the
global production and trade of energy, minerals and food. They are the
main driving force behind technological innovation, shifts in employment
and the integration of the world economy. Increasingly, MNCs’ economic
strength is also felt in the realm of international politics, where large
firms have emerged as political actors alongside states and civil society
groups. Some scholars, such as Susan Strange, go so far as to argue that
we have witnessed a large-scale power shift away from states towards
global firms and that authority in the international realm now increasingly
rests with the private sector. Others, however, question the ability of
MNCs to challenge state power and point to corporate dependence on the
supportive political and legal framework that states provide. But before
we discuss the political implications of the rise of global firms, we need to
gain a better understanding of the nature of global production and foreign
direct investment in today’s global economy.
20.3 Multinational production and foreign investment in

a global economy
Economic globalisation since the end of the Second World War has
brought with it not only an expansion of international trade but also the
integration of production across national boundaries. Many consumer
products, such as cars and computers, are now routinely manufactured
using input factors from several locations around the world. Likewise,
such manufacturing is now often carried out under the umbrella of a large
multinational corporation, with subsidiary operations in many different
countries, servicing a multitude of markets around the world.
Multinational corporations (MNCs) – also called multinational enterprises
(MNEs) – are firms that own subsidiaries in at least one other country.
170
They expand abroad through a process of foreign direct investment

(FDI). FDI takes place where an MNC either buys a share in a foreign
business or acquires an entire company abroad with the aim of gaining
partial or complete control over that business. Whereas so-called portfolio
investments are aimed at making a short-term financial return, FDI is part
of a wider, and more long-term, strategy to expand business operations
into other markets. Very simply put, buying shares on a foreign market is
usually portfolio investment, while building a factory abroad is FDI.
FDI has grown phenomenally since the end of the Second World War. FDI
inflows amounted to $59 billion in 1982, $209 billion in 1990 and $560
billion in 2003. The years since, however, have seen extraordinary shifts.
FDI climbed steadily until it reached $1,947 billion in 2007. Following
the Global Financial Crisis, it fell to $1,228 billion. By 2015, however, FDI
had surpassed its previous peak, topping out at $2,141 billion. Of course,
2016 brought a substantial shift in posture and policy – particularly in the
United States. It fell in most years until 2020, when it reached its lowest
point ($1,098 billion) since 2006. But 2021 brought a substantial recovery
returning to $1,748 billion. This variability makes it near impossible to
predict the future course of FDI flows. But one thing is almost certain: the
future of foreign investment will turn at least as much on the political and
social landscape as it does on the economic costs and benefits.
Activity 20.1
Compare different regional patterns in FDI as recorded by UNCTAD’s annual statistical
review. (Be sure to get the latest version from the UNCTAD website.) Which regions are
major exporters of FDI flows, and which are major recipients?
20.4 The rise of the global firm and the evolution of the
welfare state
In a famous article, ‘Who is us?’ published in 1990, Robert Reich
questioned the political fixation with national ownership of productive
facilities and argued that global firms had disconnected themselves
from their national context. The growth of international investment and
production has indeed created a situation in which many MNCs have
outgrown their national market and are now operating in a global market
context. But just how ‘global’ these firms are remains a contested issue
among researchers and policy makers. For example, companies such as
the oil giant Shell or the drinks manufacturer Coca-Cola are operating in
nearly all countries of the world. Their production and sales strategies take
a global view and their home markets often provide a declining share of
their global sales volume.
At the same time, however, MNCs continue to have close links with their
home countries. They value the support they get from their governments,
particularly when it comes to defending their investments and interests
abroad. They also have limited (or no) standing in most international
regimes. Apple, for instance, cannot sue Samsung (or South Korea) in the
WTO. Instead, MNCs often rely upon state actors to take up cases on their
behalf. Home economies also provide MNCs with sources of finance, and
they host important research and development activities. Consider, for
instance, the benefit that tech and medical firms get from the government
grants given to researchers at universities within highly advanced economies.
Very few, if any, large firms are truly global in the sense of being footloose.
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The rise of the multinational firm is a distinctively twentieth-century

phenomenon, and it continues unabated in the twenty-first century. To
be sure, the history of global firms goes back much further. In the era of
colonialism, merchant companies such as England’s East India Company
maintained trading posts and even armies in a number of countries,
mixing global trade with military occupation to sustain their global
businesses. But while colonial trading companies were interested primarily
in the extraction of natural resources and agricultural products, today’s
MNCs engage in the full range of economic activities across national
boundaries. Companies such as Apple, Nestlé and Toyota pursue global
strategies in manufacturing, services and retailing.
By the second decade of the twenty-first century, there were more than
82,000 MNCs operating with over 800,000 foreign affiliates between
them. These figures include the world’s largest companies, such as BP and
Mercedes-Benz Group AG, but also small and medium-sized enterprises
operating in only a limited number of countries. Their economic importance
has grown significantly in the era of globalisation. The Organization for
Economic Cooperation and Development (OECD) estimates that MNCs
and their foreign affiliates account for fully one-third of all global output.
They account for around four-fifths of the world’s industrial output.
They dominate international trade and play a critical role in promoting
technological innovation and providing channels for technology transfer
and diffusion. For many developing countries, foreign investment is the only
way to tap into the innovative potential of the global economy. But even
developed economies tend to promote FDI by multinationals as a source of
both technological innovation and employment.
Although the current global economic climate favours a free flow of
foreign investment, the activities of multinationals continue to cause
concern, and indeed moral outrage, around the world. Where global firms
seek to exploit cheap labour and lack of worker protection, and pay little
regard for human rights and environmental protection, they are routinely
confronted by the transnational campaigns of trade unions, human rights
groups and environmental organisations. The massive size and economic
power of MNCs invariably invokes suspicion and fear, particularly in
developing countries. The growth of international production has thus
given rise to a renewed debate over the power balance between global
firms on the one hand, and states and local communities on the other.
Activity 20.2
List the reasons why some countries may question the economic benefits of FDI.
20.5 Power shift? State–firms relations in flux

Many see global firms as the new ‘sovereigns’ in international politics
(i.e. as rivals to states and their claim to national sovereignty). As
multinational firms weave an increasingly dense web of production
across boundaries, inexorably linking different economies together, the
state’s control over the national economy is coming under threat. Some
see this as a positive development: in the neo-liberal vision of Kenichi
Ohmae, global firms are the agents of a new global economy, bringing
greater efficiency and productivity, and ultimately prosperity, to the world.
States and state intervention in the economy are seen by neo-liberals as
a mere hindrance to greater economic welfare. Others, especially those
172
critical of global capitalism, fear that the growing power of global firms
is undermining the authority of democratically-elected governments and
threatening social welfare systems around the world. Writers such as
Noreena Hertz argue that a ‘silent takeover’ is taking place, with corporate
leaders effectively in control of society’s future.
Activity 20.3
Critically assess Noreena Hertz’s argument in her 2001 book that the world faces a ‘silent
takeover’ by the corporate sector (see Chapters 4 and 5 in particular).
While these two perspectives fundamentally disagree on the desirability of

the rise of global firms, they nevertheless agree on one thing: a power shift
is occurring in IPE, away from nation states and towards multinational
firms. Both advocates and radical critics of global capitalism see the states
system as inevitably losing out to the corporate sector.
But is this really the case? To speak of a power shift implies that we can
compare the power of states with the power of global firms. Can this be
done? To answer these questions, we need to look more closely at the way
in which global firms exercise influence and power in IPE.
Much recent research on the state–firm relationship has focused on the
bargaining between these two types of actors over foreign investment.
Because multinationals hold the promise of access to technology and job
creation, they are usually in a strong bargaining position when it comes
to choosing the right location for their international investments. As
Stopford, Strange and Henley (1991) point out, states may find themselves
in competition when seeking to attract foreign investment. Offering
preferential conditions such as tax havens and reduced regulatory burdens
is but one way for states to attract business investment, with a ‘regulatory
race to the bottom’ as the result. In this perspective, states have had to
retreat from their previously dominant position in the economy in order to
provide multinational businesses with a favourable climate for investment.
But the state–firm bargain works in more than one way, and not always
in favour of firms. Once a multinational has invested in a country and
its ‘exit’ costs have risen, the host government’s bargaining position will
improve and it can begin to extract greater concessions from foreign firms.
Moreover, MNCs do not simply seek low labour and regulatory costs when
they move abroad. In fact, the majority of FDI flows occur among the
most developed countries of North America, Europe and East Asia. Here,
multinationals invest in markets where consumer demand is high, skilled
labour is abundant and the regulatory environment is stable.
Global firms have become more powerful in the sense that their key
contribution to economic growth and prosperity is now generally accepted
around the world. Governments reject foreign investment at their own
peril. With the economic opening of the former socialist economies and
many developing countries, MNCs now have unprecedented access to
global markets. At the same time, not all governments are at the mercy
of internationally mobile capital. This may be the case for some of the
poorest developing countries, which are failing to attract sufficient foreign
investment. A different picture emerges, however, for countries such as
the United States, the United Kingdom and Japan. These rich countries
attract foreign firms while maintaining considerable control over them. As
ever, developing and developed countries face rather different constraints
and opportunities.
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Activity 20.4
To what extent can we compare the economic size and strength of multinationals with
the economic and political power of nation states? Can you think of examples of MNC–
government bargaining that illustrate the arguments in favour of, and against, a ‘power
shift’ from states to firms?
You should discuss your answers with fellows students in the online forum in the course
20.6 Governing global firms: national and international

rules
Global firms may not have eroded the sovereign power of nation states,
but with increasing globalisation the question arises as to whether there
is a sufficient international system of governance for multinational
firms. The short answer is ‘no.’ Compared to the global governance of
international trade and finance, the international institutions and regimes
dealing with global firms and investment are weak and fragmented. There
is no equivalent to the World Trade Organization or the IMF in the world
of transnational investment.
Investment issues and conflicts continue to be dealt with on the basis
of national, bilateral and regional agreements. The United States, for
example, has long provided protection for its multinational companies
through an extensive network of bilateral and regional investment treaties.
As a consequence, the existing rules on investment differ greatly across the
world. Corporate leaders frequently complain about the lack of a global
level playing field, but governments, including those in the developing
world, are reluctant to surrender their sovereign rights in this area to an
international body. Efforts to establish an international investment regime
have therefore been fruitless.
Among the many attempts to regulate the activities of global firms are:
• the UN Code of Conduct on Transnational Corporations (TNCs), which
was developed in the 1970s
• the International Labour Organization’s (ILO) Tripartite Declaration of
Principles concerning Multinational Enterprises and Social Policy (1977)
• the OECD Declaration on Multinational Enterprises and appended
Guidelines (1976)
• the Agreement on Trade-Related Investment Measures (TRIMS) under
the World Trade Organization
• the OECD’s Multilateral Agreement on Investment (MAI), negotiated
but eventually abandoned in the 1990s.
While the international community never adopted the UN Code, the ILO and
OECD declarations remain non-binding documents, which are voluntary and
non-enforceable. The TRIMS agreement was enforceable with the help of the
WTO dispute settlement mechanism, but it was never designed (or expected)
to be a fully-fledged investment regime. Of all the efforts to regulate MNCs,
the MAI was the most far-reaching international treaty. The failure of the
MAI negotiations in 1998 (see Chapter 14), however, dealt a serious blow to
the drive towards a global investment regime.
In the absence of state-sponsored international regulation of firms, new
initiatives have sprung up at the global level that seek to establish so-
called ‘private regimes’ (i.e. voluntary agreements and standards created
by firms and/or civil society groups). In the business world, the concept of
corporate social responsibility (CSR) has rapidly gained ground as more
174
and more multinationals are subscribing to their own, or industry-wide, sets

of norms and principles of responsibility to the communities within which
they operate. This can have far-reaching consequences for global business
operations, as is the case in certification schemes. Such transnationally
established schemes provide independent verification of, for example,
environmentally sustainable business behaviour, as is the case with the
Forest Stewardship Council (FSC). The FSC is a body set up by the forest
industry and environmental organisations. It certifies those companies that
produce or trade only in sustainable timber and timber products. The UN
has recently acknowledged the importance of such private initiatives by
setting up its own forum for developing voluntary standards and promoting
best practice among MNCs, in the form of the Global Compact.
Critics of CSR approaches point out that as long as these initiatives remain
voluntary, they will not have a lasting impact on the behaviour of global
firms. What is needed, therefore, is a global regulatory framework that
imposes a duty of social and environmental responsibility and establishes
principles of transparency and accountability. At best, they argue, CSR
schemes are a mere public relations exercise for companies whose reputation
has been damaged in the past. At worst, they serve to prevent states from
taking action and undermine democratic principles of public governance.
Activity 20.5
Research the UN Global Compact’s website (www.unglobalcompact.org) to find out
more about the nature of the Global Compact, its approach to matters of corporate
responsibility and its voluntary basis for regulating multinational corporations’ behaviour.

Stopford, J., S. Strange and J.S. Henley Rival states, rival firms: competition for
world market shares. (Cambridge: Cambridge University Press, 1991).

• outline the nature of the tension between MNCs and the state, both in
previous centuries and in the twenty-first century
have been eclipsed by MNCs
continue to prevail over MNCs
• analyse these debates in specific national contexts, especially those
where state-owned enterprises predominate and those where
they do not.

1. ‘Developing countries hold less power than do
multinational corporations.’ Discuss.
The question refers to the widespread perception that global firms
have become more powerful in the IPE and that a power shift from
states to global firms has occurred. Globalisation is seen by some to
have produced this result. Others emphasise the power that certain
175
multinationals exercise over host (developing) countries through their

home (developed) countries.
To answer the question, candidates should first describe the growth
of multinational corporations (MNCs), define what they are and
give a sense of their size and economic clout. This may involve some
discussion of globalisation as the background condition for the growth
of MNCs, but the focus should be on MNCs themselves. Following
this, candidates would need to consider the extent to which MNC
power may be surpassing the power of nation states. This can be seen
in situations where MNCs seek out favourable investment locations
and thus set off a competition between different governments for
their investment. Such competition may lead to a regulatory race to
the bottom, which limits the ability of states to set domestic policy
objectives (e.g. on taxation, environmental protection) independently
of the wishes of MNCs. Candidates should also consider counter-
arguments that suggest that states have retained sufficient sovereign
powers and are able to control the operations of MNCs and extract
concessions from them in bilateral bargaining.
A strong answer would distinguish between different types of states
and different types of firm–state bargaining situations, which may
produce different results in terms of the erosion of state sovereignty.
Thus, the United States or Japan or China are in a much stronger
position vis-à-vis MNCs than small developing countries. Similarly,
MNCs from states with heavy economic and security clout (such as
the USA and, increasingly, China) may have even more influence than
MNCs from states with overall power.
It is also important to remember that international investment can
come in the form of FDI (often from multinational firms) and/or
in the form of portfolio investment (which can come from private
investors or, increasingly, large investment firms). So, better responses
will demonstrate that they understand this distinction. The best will
highlight the different dynamics that occur within each context.
Among other things, portfolio investment is easier to court but also
leaves quickly. FDI is more permanent, and it comes with more
‘spillovers,’ for better and for worse.
2. To what extent can the rise of corporate social
responsibility compensate for the lack of a comprehensive
global regime to govern multinational corporations?
The question relates to the growing use of self-regulation, and
particularly CSR approaches, in dealing with social and environmental
problems in global business. It is set in the context of the broader
debate about how global business should be regulated, and why
the international framework for business regulation is relatively
weak and underdeveloped. To answer the question, you should first
describe the growing popularity of CSR approaches and contrast
it with the comparatively weak international regulatory system for
global business. The discussion should include an evaluation of CSR
approaches, with a specific focus on their effectiveness, that is their
strengths and weaknesses. This should make specific reference to
empirical examples. Based on this, the answer should then consider
the relative strengths of business self-regulation and a more state-
based approach to regulating global business – that is, whether the
former can ever adequately replace the latter. This means that the
answer should consider both sides of this debate: arguments in favour
and against sole reliance of business on self-regulation and CSR.
176

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Undergraduate study in Economics,

Management, Finance and the Social Sciences

Published by: University of London

Chapter 5: System-level approaches to IPE........................................................... 41

10.4 The First Era of Globalisation in historical perspective............................................ 88

Chapter 16: The trajectory of the global monetary order................................... 135

The up-to-date course syllabus for IR3210 International political economy

How to use this guide

Reading lists rationale

In addition, we have tried to make the course materials as diverse,

Gilpin, R. The challenge of global capitalism: the world economy in the

Online study resources

• Collaborative activities: Work with fellow students to build a body

Making use of the Online Library

• where available, past examination papers and Examiners’ commentaries

Acronyms used in IPE

Part I: Approaching IPE

Chapter 1: States versus markets

1.1 Synopsis of chapter content

1.1.1 Learning outcomes

1.1.2 Essential reading

1.13 Further reading

1.2 Introductory: the ascent of IPE

creating a supportive international trade and investment environment.

American international order. Meanwhile, across the Global South, one

1.3 Going beyond the ‘three schools of thought’

1.4 States versus markets: liberals versus republicans

1.5 References cited

1.6 Reminder of learning outcomes

1.7 Sample examination questions

Chapter 2: Mercantilist IPE

2.1 Synopsis of chapter content

2.1.1 Learning outcomes

2.1.2 Essential reading

2.1.3 Further reading

2.2 Introductory: constructing mercantilism

2.3 The security view

markets. This was intended to create commercial interdependence and

2.4 The economic view

motivation but economic understanding.’ (Viner, 1991, p.136) For him,

2.5 The company view

being partial to one’s commercial enterprise is a virtue while being partial

2.6 The developmental view

2.7 References cited

2.8 Reminder of learning outcomes

2.9 Sample examination questions

Chapter 3: From Marx to Marxism

3.1 Synopsis of chapter content

3.1.1 Learning outcomes

3.1.2 Essential reading

3.1.3 Further reading

3.2 Introductory: situating Marx and Marxism

3.3 Karl Marx

3.4 Marx’s materialism

3.5 Marx’s historical materialism

3.6 The revolutionary telos

3.7 Lenin’s interventions

corporate interests combined with governments that seek to expand

3.8 Modern Marxist views

3.9 Reminder of learning outcomes

3.10 Sample examination questions

Consider, for instance, the all-important concept of class conflict.

Chapter 4: Feminist approaches to IPE

4.1 Synopsis of chapter content

10.4 The First Era of Globalisation in historical perspective............................................ 88