18. International Political Economy (IPE): Definition, Approaches, History and other aspects

1. Introduction

Two cases have been discussed to explain the concept of International Political Economy.

Case 1:  The latest " Trade War " between the United States and China aptly describes the phenomenon of International Political Economy. American president, Donald Trump decided to put an end to 'unfair' Chinese trade practices through imposition of heavy taxes on the Chinese exports to the US. The US president imposed duties on the imports worth $250 billion from China , apparently, to bridge the massive trade deficit with the latter.  Instead of submitting to the unilateral measures by the US, China retaliated by imposing duties on the US exports worth $110 billion to China, in a tit for tat move. Owing to the  globalized nature of the world , the conflict between the two countries has adversely  affected economies worldwide particularly in developing countries . The 'Trade War' explains how deeply the political authorities are involved in their respective economic systems. It further brings into light an ongoing trend that how political decisions in one country directly impact economy of various countries and vice versa. As of now, the leadership of both the countries met recently on the sidelines of the G20 summit in Buenos Aires to iron out the difficulties through a dialogue.

US-China

Case 2: In 2005 a trade dispute between China and the European Union occurred when the Europeans began to block the import of certain forms of Chinese clothing after seeing their domestic industries undermined by a sudden influx of much cheaper produced products from the Orient. The Chinese cried foul play at such politicized interference in commerce whilst European textile industries and Trades Unions defended the action, pointing out that they could hardly be expected to compete in price with clothes produced in the ‘sweatshop’ conditions of China (1).  A compromise solution ended the dispute but the incident highlighted how politics and economics are increasingly entwined in the contemporary world. That the world’s leading Communist power could lecture the world’s leading trading actor and epitome of Liberalism on free trade served to illustrate how economic globalization has produced political contradictions, uncertainties and dilemmas for governments in their dealings with the international economy. (1)

2. What is IPE?

 Political Economy is the study of the intersection of politics and economics within a given country, whilst International Political Economy is the study of this at the international level.

Or 

Ngaire Woods define it as

‘It is about the interplay of economics and politics in world affairs’

⦁ This is tantamount to States vs markets

⦁ When Banks fail, states pump money into them to bail them out and vice versa.

⦁ Some states fail to control their financial markets. And let their banks make profit at the expense of their societies.

3. Factors that gave rise to the idea of International Political Economy

⦁Economic events in one country can have political implications for other countries

E.g. the global recession of 2008-9 when a prominent US financial firm failed, its adverse effects had spilled over to the rest of the world.  Developing countries bore the brunt of the economic disaster.

⦁Political events in one country can have economic implications for another countries e.g. the recent Saudi-Qatari feud impacted economies of many countries including Pakistan. In 1971, President Nixon prompted the oil embargo when he decided to take the United States off of the gold standard. As a result, countries could no longer redeem the U.S. dollars in their foreign exchange reserves for gold. The OPEC countries retaliated by refusing to supply oil to the United States, which crippled the economy of the US as well as many European countries.

⦁Economic events in one country can have political implications in another country. The  Great Depression of 1929 in US, stoked the wave of communism and fascism in Europe and gave rise to the leaders like Benito Mussolini in Italy and Adolf Hitler in Germany.

⦁Power in International relations comes from Economic as well military might. As a matter of fact, Germany and Japan wield influence owing to its economic  strength.

⦁International political structures reflects economics-- The IMF, WTO and World Bank may appear to be serving the interests of the poor countries but in reality, these institutions are tools in the hands of developed countries to advance their interests across the world.

4. Brief History of International Political Economy 

⦁Age of Mercantilism—1580-1780.

⦁1780+-- age of industrial revolution.

⦁Age of Liberalism—1815-73--- British adopted gold standard in 1821,  economic union between the German states in 1834 to create a unified Germany. In 1846, British repealed the Corn Laws, thus put to end the protectionism. In 1871, the German adopts the Gold Standard, giving boost to liberal order.

⦁Return of Mercantilism 1873-1945—Depression 1873-96, the Great Depression 1929, And the Smoot- Hawley Act 1930 in US stepped up the protectionism and Collapse of Gold Standard in 1931.

⦁International Liberal Economic order—1944---to date---  Bretton Woods Conference 1944, GATT 1947, Collapse of Bretton Wood 1971, Oil crisis 1971-74, WTO 1995, Credit Crunch global recession 2008-9.

5. Concept of ‘’Hegemon’’  in International Politics

A strong government that has enough political power to build international institutions in order to further its interests. A country with more share in international trade would want more free trade. Historically Britain was 'Hegemon'. Now the US has assumed the role.

⦁Realists contend that International institutions are merely tools in the hands of stronger states to advance their interests.

⦁Marxist or Critical theorists pointed out that dominant transnational classes wielded influence over international institutions to exploit marginalized classes.

⦁Liberals are of the view that International Institutions are important for collective good for states alone cannot make decisions.

6. Different Approaches to understand IPE

  1. Economic Liberalism 

The approach is underpinned by a belief that people are naturally inclined to cooperate with each other and can be trusted by governments to control their own destiny without this producing chaos and troubles in society. The fundamental tenets of this approach are:

⦁Free Trade—No government involvement, no protectionism 

⦁Invisible hands-- Adam Smith in Wealth of Nations in 1776, free international trade benefits all. The market forces should have control over trade. Government intervention distorts the natural inclination of people to trade and exchange goods.

⦁Comparative Advantage--- Some countries have advantage over other in production of specific advantage. Instead of trying everything, the states build specific products and import the rest from other countries since it is easy in free trade. True utilization of resources 

⦁Trade brings peace--- Economic ties thwart the possibility of wrangling between states. European Union.

2. Mercantilism (realist’s presumption)

 As an arena of inter-state competition, the world economy is one in which states seek to maximize their wealth and independence vis-à-vis other states. The more the wealth, the more the security guarantee. International System is just like a jungle.

Fundamental principles—

⦁State should control every aspect of economy— States intervene to protect the interests of its citizens. A state’s resources manifest its power so these should not be subjected to international market. Do not let anybody plunder your precious resources.

⦁International economy is competitive not cooperative--- there will be losers and winners. Collective good is an eyewash.

⦁Autarky---- Reduce reliance on others and become self-sufficient. The pursuit of total self-reliance their main goal. Some do this by plundering others resources (Iraq in 1980s) while other through isolation. 

⦁Protectionism—trade surplus is another goal. And insulate domestic markets from international competition through tariffs.  (3)

3. Neo-Marxism/ Marxism 

It argues that global economic structures are the chief determinants of international political behavior and events and, hence, see IPE as being synonymous with IR, rather than a mere subset of the discipline.

⦁The competition is not between states but different classes (Capitalists and workers)

⦁Capitalism is the driving force behind world economy. The oppressors are controlling the means of production (trade and industry) 

⦁International relations therefore are a class struggle in which unequal exchange occurs between classes. 

⦁Global capitalist structure reflects the interest of those who own it.  

⦁Neo-Marxists see IPE as based on a global bourgeoisie systematically exploiting a global proletariat.

⦁Some of that bourgeoisie is composed of small elites in poorer states who operate in ‘enclave economies’ profiting from the proceeds of exporting their country’s resources to the richer states. . Some of the exploited transnational class reside in the richer states as underpaid workers or unemployed beggars also short-changed by the global system. (2)

7.Some new approaches to IPE (1)

 1. Application of rational choice to groups within the state

⦁Rational Choice has become prevalent in IPE.  Instead of exploring the ideas, personalities, ideologies or historical traditions behind policies and institutions, it focuses on the incentive structures faced by those making decisions.

⦁The interest groups within a state which influence the trade policies of states thus impact IPE.

⦁For example banks in the US fanned the flames of Global Recession 2008-9

2. Institutionalism: the application of rational choice to states

⦁The states create international institutions and delegate power to them in order to maximize utility within the constraints of world markets and world politics

⦁States do this because they think they alone cannot resolve the international problems of trade and environment. To make concerted efforts, they create institutions 

3. Social constructivism 

⦁Policies in the world are affected by social and cultural factors 

⦁They examine the beliefs, roles, traditions, ideologies and patterns of influence that shape preferences, behavior and outcomes 

⦁Whose interests are embodied in the world economic structure?  Super powers will achieve their goals not just through coercion but by ensuring the consent of the actors. This means they will promulgate institutions, ideologies and ideas to persuade other actors. 

8. How Globalization and International Political Economy are interconnected?  

There are four different aspects of globalization that people usually refer to when asked to shed light on globalization 

⦁Internationalization—increase in economic transactions across the border.

⦁Technological Revolution—effect of new communications and transportation technologies on operations of actors and firms. Some argue it gave birth to global terrorism.

⦁Deterritorialization—now people identify themselves as a unit regardless of borders, distances and places. E.g. Banks in the US in 2008. They may live globally but they die nationally.

⦁Liberalization--- polices undertaken by states that have made a new global economy possible. Some people argue it has exacerbated inequalities in the world.

Sources 

1.The Globalization of World Politics (Book)  by John Baylis, Patricia Owens, and Steve Smith

2. University of Pudget Sound   https://www.pugetsound.edu/academics/departments-and-programs/undergraduate/ipe/what-is-ipe/

3. The London School of Economics  https://www.lse.ac.uk/study-at-lse/Summer-Schools/Summer-School/Courses/Secure/International-Relations-Government-and-Society/IR209