Theories of International Political Economy
This lecture is about theories of international political economy or global capitalism. We will first review historical debates on global capitalism that will cover mercantilism and liberalism. Those two are the main worldviews or general approaches to the problem of global capitalism and the way individual economies relate to it. We will do that because those two mindsets approaches are still relevant today, not so much as theories in the analytical term, but as approaches to the way, policies are made. We will have a look at how IPE emerged theoretically from early IPE because as IPE developed as a distinct academic discipline or subdiscipline in the 1970s, and it did so largely out of debating international relations. In this regard, we will look at how debates in IR gave rise to IPE. We will look in more detail to perspectives in contemporary American IPE. The discipline can be broken up into two broad schools: the American and the British school. This course focuses mostly on the American school. Therefore, we will look at the theoretical perspectives developed within the American School over the last 30 years will apply throughout the rest of the course.
Historical debates on global capitalism
Mercantilism
For Oatley, mercantilism is a traditional school of political economy dating from (at least) the seventeenth century. It asserts that power and wealth are inextricably connected. Accordingly, it argues that governments structure their international economic transactions to enhance their power relative to other states and domestic society. Mercantilism thus depicts international political economy as inherently conflictual.
In purely economic terms mercantilism conceives how the struggle between states plays out in the international economic arena is by looking at the balance of trade. The key indicator of a state’s capacity to win or of the fact that a state is winning the economic conflict with other states is if exporting more than it is importing. Therefore, it is a state registering trade surpluses instead of trade deficits. The related aspect to that is the capacity of a state to master the advanced technologies of the day.
As the economic development of humankind was based on a continual process of the development of technological and technical capacities, mercantilism came to assume that a state was powerful if it was at the technological frontier and if it had industries that were based on the most advanced technologies of the day.
This is important because the early mercantilism in the 16th and 17th century was more about controlling overseas markets through force and making sure that the wealth could be extracted through that control mostly benefited the mother country. It wasn’t so much about mastering the process of technological development.
The origins of mercantilism but even liberalism go back to England. To a large extent, one can associate the mechanism with the practice of the East Indian Company that was the major mercantilist enterprise of the 17th century in England. Still, there were also East India companies in the Netherlands in front and alcohol.
Mercantilism is a doctrine developed first in England, and then it diffuses throughout Europe. The Netherlands, France, Austria, Prussia, the main powers of the day but mostly friends and the Netherlands that were the main powers that had seagoing activities; although France was mostly a terrestrial power, and the Netherlands was the typical seafaring power. France also had maritime activities and maritime capacities, and so it also developed mercantilism policy. Austria and Prussia were more landlocked powers, and so they were less involved in this game in the 17th century. However, later, Prussia and by extension Germany in the 19th century adopted some kind of modified mercantilist policy or at least philosophy as a way of organising their economic policy.
For mercantilism, there is a very clear link between state power and foreign trade (jacob viner source, Aurora and Findlay). Mercantilism and liberalism have two different views about how state power and the accumulation of private both relate to each other. For mercantilism the two go together, they are interlinked.
The East India Companies were the typical manifestations of policy in the 17th century and in the 18th century. England had one, the Netherlands had one, France had one. Those companies dominated overseas along with distance trade with India. It is important to remember that those companies also exercise administrative control over territories, given control by the states with which they were related to the territories in which they developed their commercial activities. There is a very close link between power and plenty. The very organisation that was tasked with carrying out the process of accumulating wealth abroad was also the same organisation that was tasked with the public administration of those territories.
The context is the context of the emergence of centralised nation-states. The early 17th century is the union between England and Scotland and the development of a powerful centralised state apparatus is in the United Kingdom. France is at the height of his absolute power under Louis XIV. The Netherlands developed from a set of loosely related provinces into an international state and so on.
Along with the emergence of centralisation states comes a process of great power competition among those states. Because this power becomes concentrated rivalry among those power centres. Together with our there is a search for new overseas markets and therefore the first wave of colonial expansion.
The worldviews the broader philosophical worldview that underpins mercantilism in the economic sphere is Machiavellian and Hobbesian real politics. These are the philosophical traditions that inform the tradition of realism in international relations. Mercantilism has clear intellectual links with the realist school of international relations. In this worldview, international politics and international economics are seen as a zero-sum game. What does that mean? It means that what matters is relative gains in this game and not absolute gains.
A state’s calculation of one event has an economic transaction with another state is not so much how much will this be beneficial to me. The question is, will this be more beneficial to me than to the other state? That is the basis on which economic transactions and economic relations between states are organized in this worldview.
It only makes sense going to a transaction if I will benefit more than my arrival. In which case one wonders why would there be an economic transaction in the first place because if it is evident that the relative gains are on one side rather than the other, then there will always be a state that will refuse to engage in economic transactions. Therefore it’s obvious that for mercantilists, foreign economic policy is more the affair of a single state trying to impose its policy on other territories and so on rather than a process in which great engage each other in economic relations.
Along with that comes the idea of the national interest. The interest of the emerging centralised state apparatuses of the day prevails over into the individual interests, all right. There is no such thing as a civil society with its own distinct interests and rights that could be contradictory and conflictual and that are distinct from the interests of the state. There is the state, it has its own interest that’s the national interest, and individuals within that state have to behave in a way that serves the national interest. It is a very liberal worldview, liberal in the sense that it is not an anti-individualistic worldview.
Among the main mercantilism figures is Thomas Mun. He was a private merchant, and most importantly was one of the directors of the East India Company. He was engaged in his practice, he was also one of the theoreticians of mercantilism practice. He was also a member of the standing committee on trade, a royal commission that was established in the 17th century to advise the kingdom about its foreign policy. Around 1630 he published England’s treasure by foreign trade which is a treaty on how the practice of foreign trade is to serve the accumulation of wealth for the service of the kingdom.
‘The ordinary means therefore to increase our wealth and treasure is by foreign trade, wherein we must ever observe this rule; to sell more to strangers yearly than we consume of theirs in value.’
The golden rule for the mercantilist is a positive trade balance, which is to have a trade surplus. For Mun, the ordinary means to increase wealth was through foreign trade and not technological development.
Early mercantilism thought was not associated with the idea of a state being at the technological frontier and having industries based on the most advanced technologies of the day. It was a view of economic development as being exogenous to the domestic economy. Wealth was brought from abroad, it wasn’t a process that was generated endogenously within the domestic economy.
Another main figure is Jean-Baptiste Colbert who was Louis XIV’s finance minister. Today in France instead of speaking of mercantilism people speak of Colbertism for economic policies that have contemporary economic policies that have some kind of affiliation with my country’s doctrines.
Colbert promoted state-led manufacturing: Import substitution and export promotion. The idea that there where there had to be policies to keep out imports and to encourage exports to foreign markets. Colbert also developed the idea that France had to have a favourable trade balance. He was also the founder of the French East India Company.
It’s interesting that in the case of Colbert you have the beginnings of something different in that he theorised the process of state-led manufacturing. The state had to intervene to build up productive and technological capabilities for the service of the nation and the kingdom. There, there is something that is different than I will develop later on in the doctrines of economic nationalism and national developmentalism.
There are not purely mercantilism, but that have a clear relationship to mercantilism and a clear affiliation with mercantilism.
Economic nationalism is related to Alexander Hamilton at Freidrich List. The context of economic nationalism is the 19th century and dominance of England of Pax Britannica. And its associated practice and theory of liberalism. Economic nationalism is a responsible of the hegemony of the United States in America in particular after independence and after the North Victory in the Civil War in 1864. In Germany in particular after the creation of the German customs union up the closure of the German market to foreign input in 1879.
Both of these processes are related to state-building independence. In the case of the United States because well, the colonies became states of their own sovereign state of their own. State-building after the Civil War because after the Civil War there is a process of centralisation of state power within the American Federation. Therefore the United States moves from being a collection of a decentralised collection of sovereign states to a rather centralised federation towards the late 19th century. Typically at the time in the 19th-century people would which referred to the United States in plural whereas from the late 19th century early turn in century onwards, It’s more typical to talk about the United States in the singular.
In the case of Germany, the customs union in the early 1820s was seen as the premise towards German unification, a process that was inspired by the French Revolution and the doctrines of nationhood that came out of it and that diffused in Germany through the Napoleonic Wars. After the process of German unification in the 1860s that culminated in 1870 in the creation of the German Empire. There is something more than a process of state-building.
In both cases, and this is the break with early mercantilism, in both the United States and Germany, economic nationalism is seen as a means to promote state-led industrialisation and economic development in particular through public infrastructure, investment and protectionism. In Germany in the United States, the development of rail networks take place in the late 19th century on the basis of protectionism.
It has been seen as a way of meeting together with the national economy to enable national economic development. Alexander Hamilton was the first Secretary to the American Treasury and he wrote in that capacity a report on the subject of manufacturers in 1791 that was presented to Congress and that included all of these ideas.
They were implemented wholeheartedly right away. The North had to win the Civil War before they could be implemented wholeheartedly, but they coexisted with South and liberalism and South and freetradeism for three-quarters of a century.
National Developmentalism
A related doctrine to economic nationalism in the 20th century is national developmentalism. That’s the 20th-century response to American hegemony and the ideologies that accompanied American hegemony after the second world war, namely global liberalism, and liberal internationalism.
It is important to note that some version of national developmentalism was applied even by allies of the United States in particular France, Japan and South Korea. But national developmentalism that was mostly applied in Latin America and in India.
The main practice associated with national developmentalism is input substitution industrialisation which is the idea that if you want to develop your own industrial and technological capacity you have to keep out for at least a rather long timeframe industrial inputs from other countries that have already mastered the advanced technologies. Otherwise, you won’t be able to develop industries that master those technologies, and therefore you will be forever doomed to consume the advanced products of other countries.
An associated theory is the theory of national developmentalism is dependency theory mostly associated with the figure of the Argentinian economist Raul Prebisch. Prebisch wrote the economic development of Latin Americans principal problems in the late 1940s.
Prebisch’s work was written as a report to the United Nations and for a long time. Between the 1950s and 1970s, the United Nations was driven by the conflict between American liberalism and developing world developmentalism.
Liberalism
According to Oatley liberalism is a traditional school of a political economy that emerged in Britain during the 18th century as a challenge to mercantilism liberalism asserts that the purpose of economic activities is to enrich individuals and that the state should thus pay to play little role in the economic system. Liberalism gave rise to the theory of comparative advantage. It suggests that international political economies are cooperative rather than conflictual.
On almost every item, the definitions of mercantilism and liberalism stands opposed. Wealth and power are not related and not inextricably related. The role of the state is not to be an active promoter of economic development by the passive promoter in the sense that it has to guarantee property rights, basic infrastructure and so on. But it has to stay out of foreign trade, out of industrial investment on home and so forth.
Clearly, liberalism is based on the idea that international politics is not a zero-sum game, it is a positive-sum game. What matters when states enter into economic transactions with each other is how much they are going to gain out of that, irrespective of how much another the other state is going to gain out of that. That’s the idea of absolute gains as opposed to relative gains further for mercantilist theorists. Cooperation becomes much more plausible because after all at the end of the day what matters is how much extra economic welfare do states gain from internationally economic interactions and not how much relative gains they gain out of them.
This theory emerged in the 18th and 19th centuries in England. The first prominent figure of liberalism is Adam Smith and the other major figure David Ricardo. They develop a critique of what they called the rent-seekingmercantile system. In the case of Adam Smith, he associates this critique of mercantilism with a critique of colonialism in North America. He was in favour of independence for the American colonies.
The core of liberalism is the idea of individual interest and rights and the link between that and collective welfare. Collective welfare is promoted not because a state that embodies the collective welfare takes care of that, but because egoistic individuals pursue their own interests. And they have a right to do so, and by interacting with each other in persons of their own interests, they increase the collective welfare, and that’s the path to the accumulation of collective wealth.
They theorised the idea that there has to be freedom of prices, so freedom of import. Prices are not distorted artificially by artificial means of keeping out some goods from the market to the benefit of others. They also theorised the superiority of markets and competition as means of organising economic activity and economic development.
The government in Adam Smith is not absent, it has a critical role to play, but that’s an organiser of markets and guarantor of individual economic freedoms of property rights. The state is there to make sure that markets function correctly, so the state has to break up rent-seeking behaviour, rent-seekers and monopolies and so on. The state has to guarantee property rights so that individual rights are protected, and there’s no predatory behaviour on the market because otherwise market mechanisms are distorted. There is a clear connection between that kind of liberalism and the antitrust tradition that develops later on in the late 19th century in the United States of America. Controversially, in the United States in the case of the antitrust tradition, it’s a populist movement.
The context is the American and French revolutions with the end of absolutism and the beginnings of mass democracy and the rule of law. In the case of the French Revolution, there is a contradiction because at the same time, French Revolution promoted the idea of nationhood, the idea of national interest, the idea of a national community, it also promotes, the ideals of mass democracy and individual freedoms as well as the rule of law.
The worldviews are formed by the Enlightenment: liberty and property associated with the English philosopher Lockes from the 17th century and then taken up by the French philosophers and the French-speaking philosophers. With the revolution rationality and Kant, the idea that as opposed to the Hobbesian view of the world based on destructive instincts and aggressive instincts that are lodged in every human being, for the liberals, human beings are rational individuals, rational beings can tell that their individual welfare is tied together with the individual welfare of others in society and therefore have a tendency to cooperate.
For them international politics is a positive-sum game that is out there to enable interstate cooperation. Adam Smith was first and foremost the main figure of liberalism. He was also an advisor to national politicians and his major work in relation to political economies the Wealth of nations in 1776.
‘If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country.. will not thereby be diminished, but only left to find out the way in which it can be employed with the greatest advantage’
That prefigures the idea of comparative advantage, although Adam Smith did not have a theory of comparative advantage. For Adam Smith international trade was based on absolute advantage, it was good for a country to trade if it made something better than another country made, it if you could produce a good more efficiently than another country produced a good and so two countries could specialise in those goods.
National wealth is not associated with trade surplus to accumulate wealth because wealth is produced through the process of exchange. Therefore, it is sufficient that the trade balance is in balance with other countries. It is through the process of exchange that wealth is accumulated.
David Ricardo is the other main figure and theoretician. Ricardo was a banker in London in the city, an economist, and a member of parliament. In 1817 he wrote Principles of political economy and taxation in which he explicitly theorises comparative advantage. He is also a critic of the Corn Laws that were passed in the early 1810s and are tariff on the inputs of grain to protect domestic grain producers. Riccardo also campaigned for free trade in the abolition of tariffs.
The comparative advantage is different from the absolute advantage. That’ the key idea is that countries should specialise what their best producing within their own economy, not what their best producing across the globe. Even if a country is less efficient at producing something that another country produces, it should still produce it if it is more efficient and produces that good rather than another good within the domestic economy.
The third figure is Richard Cobden. Cobden was a Manchester manufacturer and a member of parliament. He was the leader of the Manchester School of Liberalism and the anti-corn law league which succeeded in 1846 at repealing the Corn laws and in abolishing the tariff on the imports of grain. With him was inaugurated the great cycle of free trade.
The idea is that free trade promotes equality because free trade in that context amounted to cheaper food prices for workers in urban centres that were developing fast in the United Kingdom at the time. Therefore it reduced inequality because workers would see by the simple abolition of tariff their purchasing power goes up, even if their wages stayed the same. They would see their purchasing power go up to the detriment of the landowners because the landowners would no longer be able to sell their produce at the prices at which they sold it before they would either be wiped out as they were or they would have to sell a lower price. Therefore there was a transfer of welfare of economic value from the landowners to the workers. So that was the idea on which covenants at that free trade promoted equality in the context of the 19th century in England.
Classical liberalism of the pre-1914 global economy was relatively free trade capital flows in the gold standard.
The current stage of globalisation, with the advance of free trade and free capital flows and the associated ideology of Washington consensus theorised in 1990 by John Williamson. He theorized the idea that the essential recipe for economic developments is to liberalise one’s economy, to privatise it and to deregulate it.
General consideration
It’s obvious that there’s a parallel between the mercantilism nationalism versus liberalism debate in classical political economy and the debate between realism and neoliberalism in international relations and IPE.
Both mercantilism, nationalism and liberalism provide a path to schools of thought that provide powerful doctrines and worldviews that is still informing economic policy today. For instance, in France today, when it comes to discussing industrial policy, everyone talks about Colbert and thinks inspiration in the way Colbert promoted industry in the 17th and 18th centuries, France.
These schools of thought are less useful as analytical frameworks; they’re much more normative in orientation and positive. They seek to understand the world based on a certain number of preconceptions of the way in which societies organise and function. As analytical frameworks, they’re not very useful.
Modern IPE has tried to develop a more positive and analytically oriented approach Discourse, in order to make sense to understand, to analyse the way in which the global economy and global capitalism works. The main benefit of this is that it allows for analysis that incorporates both that understands why in the same system, you can have mercantilist elements and liberal elements coexisting one next to each other.
That means that modern IPE is based on an attempt to identify the political and economic building blocks or variables on which global capitalism is based and functions. It also attempts to identify the way those variables interact with each other. The three main categories are variables that IPE uses are: interests, whether the economic actors that make up the system and what kind of interests do they have and so it rejects the idea that there is something called a national interest and it’s overarching and so forth but it also rejects the idea that all individuals have the same basic interests that are at the basis of the liberal notion of homos economicus was that is the basis of new classifications. institutions the fact that institutions have an independent influence on how economic interaction between states in global cancellations organised Ideas which have an independent influence on the way foreign economic policies are made, and on the way states interact with each other in the international political economy.
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Table 56
The first theorie, mercantilism dates back to 1620s, liberalism to the 1770s, economic nationalism attributed to Alexander Hamilton to the 1790s or at least to the early 19th century, with Marxism and neoclassical economics it leads up to the 1870s. in a way Marxism sees itself as the continuation of classical polictical economy, whereas in neo classical economics sees itself as a bifurcation inspired by the positive sciences. then there is a new versions of all that theories coming up.
from the early 1900s, IR liberalism and idealism spring up. The highpoint of IR idealism, liberalism and idealisms is in the 1920s and the League of Nations.
Then since the 1930s realism and new realism began to develop and it developed as a critique of idealism and as a critique of the failure of the League of Nations. The critics is that with the League of Nations the war did not stop between the main powers between 1919 and 1939.
Since the 1970s and this is closely associated with the development of IPE, there is the development of neoliberal institutionalism. Neoliberalins and titutionalism to a large extent informs the way in which IPE tries to analyse global capitalism and the functioning of the international community.
So to this in mind because so when I refer to doctrine theories and so on it’s good to be able to to to locate in time when such a theory emerges when such as in such a theory became dominant and when declines over example realism wasn’t the ascendant in the IR discipline between the 1940s and the 1970s, I mean 1970s.
Neorealism From early IR to IPE, how did we move from a situation in which realism was the main way in which international relations was studied to the detailed development of IP in the 1970s and 1990s?
Neorealism was the dominant part of the 1930s and 1970s and it’s important to put that in perspective in relation to real-world developments. Because that intellectual hegemony coincides with the interwar breakdown of global capitalism and the rise of economic nationalism, national developmentalism and the primary given to domestic policy autonomy over external stability characterised the period between the early 1930s and the early 1970s. Both one part of the interwar collapse within embedded liberalism. although it was a compromise between domestic policy autonomy and external stability, it gave primacy to domestic policy.
What were the main theoretical aspects of new realism of realism in the realism?
The basic premise is that being some national system is anarchic. What does that mean? It means that there is no world government, there is no world rule of law, and therefore there is no mechanism to impose cooperation among sovereign states. interaction between sovereign states is not based on the rule of law. It’s not based on norms on rules and whatever it’s based on raw power. The way states interact with each other is extremely different to the way in which individuals intneract or groups of individuals interact within a given state. the basic concept here is external sovereignty.
Therefore the basic variable that determines the way that the international system and by extension of the international particular economy works is the distribution of power among states.
If the basic way in which state interacts, how they relate to each other in power returns, then how power is distributed among them is the main determinant of the way in which they interact. There's also the theories about what’s was the distribution of power that’s most likely to lead to stability. Realists don’t agree with each other,but the basic terms of the debate among them are the same.
along with this of external sovereignty is also the idea that states are unitary actors that have a national interest. their behaviour is determined by that national interest. this is an extension of again the idea of sovereignty. There is one state that is sovereign, the realists take that to mean that the state is a single actor that has a single way of perceiving things of understanding things and of defining its own interest. For most realists, the national interests is first and foremost the preservation of state sovereignty. then hinges on the accumulation of power and so the national interest is about accumulating power within the international system. Here and this is not the case with neoliberalism, states are not driven by contradictions and different bureaucracies within the state all work towards the same goal. There is no contradiction between state managers. They don’t pursue different goals and also stay because the states are not permeated by civil society interests. They’re not almondable to be influenced by the interest group.
Relative gains and international relations is some game. international relations is basically conflict. Neorealism is in line with the basic tenets of mercantilism and economic nationalist stock. If economic power is the main variable, then it’s important to be able to master the advanced technologies of the day. What matters is havea as big as a big a psisible of of global production, global trade as a state can. Those are indicators of power For realists as they are former mercantilists and economic nationals. There's also a focus for realism on high versus low politics. high politics is anything it has to do with war security and diplomacy whereas low politics is politics has to do with economic aspects of international life.
Neoliberalism and its critics in the 1970s 1h06
The main dimensions of neoliberalism were criticised heavily in the 1960s and the 1970s. Notably the fact that IR is basically conflictual in line with mercantilism and economic nationalism and focus on high versus low politics.
The main breach in the intellectual hegemony within academia began in the 1950s and the 1960s with many cases of cooperation and not rivalry in international relations. The main one was the Détente which is the process of thawing of relations between the USSR and the USA and by extension between the USSR s block and the American-dominated block. That included the SALT agreements inter alia. there were also many others instances of integration among states through trade cooperation within the GATT but also the Comecon for in the Soviet block. There is also the European integration which is very important because just a few years after France has been occupied by Germany there was an agreement between those two states to begin to build a European federation. as the process of European integration developed after the Treaty of Rome in 1957 and throughout the 1960s successfully, there was these idea that international politics does not have to be conflictual and deep cooperation amongst states can take place. This challenge the idea that IR is basically conflictua.
The idea that neorealism is in line with the basic tenets of mercantilism and economic nationalism thoughts were challenged by the gradually opening of national economy throughout the 1960s and the 1970s. that provided the basis for the takeover of the fourth stage in the history of global capitalism, namely the second globalisation from the 1970s onwards. I tis the case that despite the fact that and better liberalism was To allow extent dominated by economic nationalism closure and so on, it also so very rapid rates of growth in international trade international investment and from the late 1960s onwards international capital flows.
these developments challenged the notion that the future of global capitalism would be inextricably linked to the practice of economic nationalism that prevailed in the 1930s. that challenge the idea the alignment between neorelalism and economic nationalism.
The primacy of high politics over low politics came on the challenge because low politics became much more salient throughout the 1960s. first because of the end of the battle with the system of the Bretton Woods system. Second because of the challenge from the group of 77 developing nations within the United Nations in the 1970s that demanded the setup of a new international economic order which is the idea that international economic relations should be organised differently from the blueprint that was set down by the United States in the late 1940s.
Finally, after the collapse of the Bretton Woods system, the high salience of issues around European monetary cooperation and integration came to play a very important role.
The combination of these factors throughout the period from the mid-1960s to the early 1980s showed that issues of low politics could be very important in the way states interact with each other in the international system.
These three challenges created the first breach in the academic hegemony of realism within international relations. But neorealism was not dethrone overnight. the development of IPE in the 1970s was very much influenced by the debates over the pattern of neoliberalism. the first major questions and major theorists were perspectives that were thrown out by the development of IPE had clear links to the main questions asked by neorealists in their attempt to understand the international system.
the first one was the challenge to the idea that international relations was conflictual. one of the main debates was, if actually states do cooperate but in other cases they do compete what determines when is it that states compete and when is it that stays cooperate.
in the 1970s IP focused on the interstate level. to typical questions such as how does the distribution of power affect international relations, there is associated to IPE questions that dominated the seventies in the eighties. to the question how does the distribution of power affect international relations the associated question became what determines international economic stability or crises and what determines economic openness. To the question is cooperation possible under anarchy, the modified IPE questions were who are just to external imbalances to ensure stability, who makes sure that there is a cooperative outcome that is that makes sure that there is stability in the system, and also who sets for an economic policy.
As the hegemony of neorealism was challenged, the challenge brought and in the 1980s other aspects of the neorealist paradigm came under attack. there was another dimension that was introduced to IPE in the 1980s, and that’s a fundamental dimension because since then this is the main focus of American IPE with the issue of the domestic sources of foreign economic policy. that was based on challenge to the idea of States as unitary actors and Behave according to the national interest. that is not self-contradictory.
Another typical IR questions was what is the national interest. the modified IPE question would be who sets for an economic policy. the assumption being that different groups of actors may have different interests and so there may be a conflict over who sets for an economic policy whereas for their realists, and that’s not even a question, state managers who are imbued with state rationality and, who all push in the same direction said for an economic policy. A second typical IR question is open as closure in line with the national interest that became who benefits from openness and closure as in which domestic groups benefit from openness and closure. openness and closure does not necessarily align with the national interests with which all domestic groups align, but can be to the benefit of some groups into the detriment of others and their. Therefore, there is a conflict over whether a state should open its economy up or whether it should barricade itself behind protective barriers.
This is how theoretically IP emerged on the basis of a challenge to othe hegemony of realism and neorealism within international relationsdiscipline.
Power and hegemonic stability
The theoretical perspectives
We are now going to look at these different theoretical perspectives within American IPE. We will look first at the theoretical perspectives that have to do with the systemic level which is the level of the of interaction between states. The Second part will be about the domestic sources of foreign economic policy. Finally, we will present an overview of the main theoretical perspectives in American IPE such as it has developed since the 1970s.
The link between power and hegemonic stability The first debate that clearly had to do with the systemic level was also the foundational debate of international political economy. it was the debate about the link between power and hegemonic stability and what became known as a human stability theory with both its liberal and realist variants.
This debate was launched by the publication of Charles Kindleburgers ‘interpretation of the Great Depression’ in 1973. that’s the liberal version of economic stability theory. Kindleberger was very much a new dealer who was involved with the administration of the Marshall Plan in Europe in the late 1940s. he was imbued with the liberal internationalist spirit that informed American foreign policy from the 1940s onward.
Krasner Stephen Krasner published an article in 1976 on the determinants of free trade openness. Kindleburgers studied why the Great Depression happened in the 1930s and he had attributes to what IPE scholars refer to as a hegemonic transition. This is the the idea that Pax Britannica was on the decline and had almost disappeared in the 1930s, but Pax Americana was not yet there. the vacuum between the two conditions were created for the break-up of the fragmentation of global capitalism and that contributed to the Great Depression. For Kindleberger, it was a way of indicating what he did when he was in the Treasury Department in the 1940s because the policy he pursued as a US state official was liberal internationalist and he was in marked contrast to the isolationist policies of the 1930s.
Krasner attempts to find a correlation between the rise and decline of precision American money and the trend towards open and closure in the world economy. Krasner being realistic he associates openness with the rise and stability over hegemonic power.
in both versions of the theory, the basic idea is that internationally economic stability and openness and an open international economy both require action by one hegemonic power Pax Britannica before the First World War Pax Americana since the second
Theoretically, the assumption that there had to be one hegemonic power came under attack in the 1980s some people said theoretically can have a world where a Bipolar world a world without one heavy money power that is still stable because both of these power provide the public goods that underpin the stability of the global system. That's very much a theoretical debate that doesn’t have a historical application so it’s not that important in the development of a demonic stability theory.
very quickly the debate about the conditions of stability mutated into a debate about the conditions of stability of the contemporary international political economy of the day because along with the dollar crisis of the 1970s came a debate about the decline over American hegemony. in the 1970s 1980s, most scholars were convinced that American hegemony was on the decline. some people predicted the collapse of the dollar standard and so on, In particular realists. there’s a major book by historian Paul Kennedy in 1988 called The rise and decline of great powers and he attempts to show how America was on the verge of a breakdown of taking money positions within the international system just as Britain, the Netherlands, France and so on before it had gone through the same process. that was written two years before the collapse of the Soviet bloc. it is a major whose thesis is rejected now. There is a debate about the state of American power today within IR but the consensual position is an American hegemony is still very much alive.
But the key thing in relation to development of American IPE is the debate on the decline of the US hegemony throughout the debate about the conditions that couldn’t ensure continued stability despite the fact that there was no longer one hegemonic power willing to provide that stability and to bear the cost of providing that stability.
that debate is best captured by the book by Robert Keyhane called After Hegemony. That is precisely jey statement of neo institutionalism and will look at some of the dimensions of that later on. the basic argument is that the sets of relations and institutions established by hegemon to ensure stability will live on after the decline of that hegemon’s power because for the other states in the system the maintenance costs of that regime are lower than the costs that would be entailed by a breakup of that regime. this is a kind of inertia that characterises the institutions set up by the hegemon. that will ensure that stability will prevail despite the fact that the hegemon is still not around to enforce those relations and those institutions.
International Institution
Tbleau 012323
This table is a summary of how neoliberal institutionalism theoretically developed.
neo-institutionalism is about international institutions and how international institutions can be designed in order to advance cooperation between states. There are five ways in which institutions can be designed to make sure that those aspects of cooperative behaviour guaranteed.
the first one is the payoff structure. The payoff structure basically is a fancy way of saying the, s the list of preferences in descending order that states have about how international economic relations should be organised. the payoff structure has to match. this is very much based on game theory. a lot of neoliberal institutions is based on game theory.
the idea is that preferences among states have to match and if they don’t spontaneously match there has to be a process through which they can be broad closer together, a way through which states can agree to forgo their first preferences in favour of other preferences But can enable the international system to work on the basis of cooperation. institutions do that the by facilitating issue linkage. linkage is a major feature of the theory of interstate bargaining. institutions are meant to make sure that when states sit down at the bargaining table, they sit down to talk about both good exchanges but also about financial services, and so on. so they can make concessions to each other across a spectrum of items that make up the bargaining agenda.
The next issue on which cooperation depends is transaction costs. transaction cost is a concept that comes from economics and is the idea that for market transactions to be beneficial, there are costs associated with realizing a market transaction, and the costs have to be lowered for the transaction to be worth it. a key transaction cost obviously is distance. There are other kinds of transaction costs that have to do with the information. international institutions are there to set standards and make sure that parties in international economic transactions can have confidence that the goods and services that they exchange leave up to a minimum set of standards.
Institutions provide also a form for negotiations. they make it easier for states to come to the bargaining table, whereas without international institutions and fora for negotiations, it might prove difficult for states to find their way to the bargaining table.
appropriate strategies is the fact that states need to know that if they make a concession the they will get a concession back and anticipate the reaction by another state to a decision that they will take. that’s the issue of reciprocity. if we look at the feature the principles of the WTO, reciprocity is one of them. if you give something to a state you expect the same thing back And that facilitates the exchange Of concessions.
information problems ; from economics, mostly information imperfection is when parties to a transaction are not fully aware of the different aspects to the transaction. what institutions do is that they provide monitoring gathering information and make it available to all parties involved. they can bring down information asymmetries and information imperfections. So they're producers anddistributors of information regarding international economic transactions.
Finally, what scholars in IR refer to as the shadow of the future is the idea that I will interact with another party differently, if I know that down the road I will have to repeat the interaction and I will have to transact with that party again. institutions do that by raising defection costs and tie countries together. defection costs are the reputation costs that are associated with the WTO for example making known to the world that the American or Chinese government has broken the rules.
01:31:51
Unpacking the “National Interest”
We are going to open up the black box of the state and of the national interest and understanding and identifying the sources of foreign the domestic sources of foreign economic policy.
one aspect of that is to identify what are the actors that collectively act to influence the definition of foreign economic policy. One way of looking at that is by classes or factors of production in some cases, capital-labour and landowners. Another is by broad sectors of economic activity. that can be export-oriented sectors of the economy, input competing sectors of the economic sectors that complete with inputs from abroad, non-tradable sectors that do not engage in international trade, the financial sector, the capital intensive industrial sector and so on.
sectors are a finer grain characterization of the way economic actors grouped together than classes. Classes are the more macro level, sectors are the more massive level. There are also firms which is the very individual level, the micro-level. There are distinctions between large transnational corporations, small-medium enterprises (SMEs). cooperations are also operated to transnational supply chains and others are. Within the same branch of activity, there may have conflicting interests.
another Aspect of this is how our preference is aggregated. It’s not because actress exists that they have the same capacity to come to an agreement about what their collective interests is and also to pursue that interest with state managers. that refers to collective action theory and the concept of organisational capacity. the idea is that the larger the size of a group is, the more difficulties to find a consensual position and to pursue collective activity, To advance that collective interest and the asymmetry between different groups and so on.
small groups of very large actors have greater organisation capacity than big groups of very small actors. typically the distinction is between monopolistic corporations, on the one hand, and consumers that are each individual in the economy. therefore they have very little collective organisational capacity.
Another aspect that determines how preference are aggregated is domestic institutions. the basic distinctions are that the distinction between democratic and authoritarian regimes but also within democratic regimes the distinction between majoritarian versus proportional electoral institutions, but also within democratic regimes the way in which wage bargaining institutions allow for coordination or competition in which setting systems.
Explaining US foreign economic policy
We are going to take a look that has to do with explaining US for an economic policy Mostly in the twenties and in the seventies.
The first article I want to talk about is the article of Frienden on US interwar policy and the way in which freedom explained the conflict between isolationism and liberal internationalism in US foreign policy in general. Frieden says this is not about schools of thought within the American State apparatus or within the American party system. this was first and for most about a split within the business community in the US and in particular between the internationalised interests within the American capitalist class and the domestically oriented interests within the American capitalist class. he shows that throughout the twenties and the thirties there was a conflict between those two and gradually the internationalised section segment of the American capitalist class Won the day because it gradually became more important in terms of the overall domestic economy. there was a crisis that crystallised the conflict between the two and therefore throughout the second part of the thirties, the liberal internationalists gradually managed to take over the foreign policy of the United States.
Helen Milner is 1988 study on protectionism versus free trade both in the interwar period and in the 1970s. she shows that the conflict between imposes protection is imposes in and free trade impulses had to do with the extent to which American corporations in different sectors of the economy had become internationalised or not. she shows that and she shows that, First between the twenties and the seventies, the overall exposure of the American economy to the international economy had gone up and so that explains why in the seventies protectionism did not prevail as opposed to the twenties overall. then she shows that even within periods the same distinction applies. even in the twenties in that minority of sectors in which corporations have already become transnational internationalised, free trade prevailed over protections. it’s a very similar argument to the one that Friedman puts forward that applied To trade policy, whereas Friedman has a broader scope.
Other aspects of domestic politics
other aspects of domestic politics that obviously have benn studied and affect the way in which global capitalism functions is institutions. scholars distinguish between authoritarian and democratic regimes and then within regimes between majoritarian proportional systems. the basic idea is that authoritarian and majoritarian systems (majoritarian systems are for example the The House of Representatives in the United States, the House of Commons in the UK, the National Assembly in France as opposed to proportional systems like the German federal parliament and so on).
the main I assumption and idea is that authoritarian majoritarian regimes are more amenable to capture by special interests And therefore they’re more likely to pursue protectionism. whereas proportional single constituency electoral systems like the American president for example are most sensitive to pressure by non-concentrated groups like consumers, and therefore they’re more likely to pursue openeness because openness obviously benefits the policy that benefits consumers the most because it lowers prices.
Another aspect is so-called to level games. the idea that there is an interaction in the way the interstate system functions and the way the domestic system functions. and executives’ governments that find themselves between those two levels, the domestic and the interstate level, Can both benefit because they can argue to their domestic constituents that the interest system constrains them in a way that means that they have to the policies that are not necessarily popular with domestic electors, but they can do the same at the interstate level where they can argue in bargaining processes that they’re willing to make concessions, but they won’t have a majority to ratify those concessions domestically because they’re not popular and so, They can use that as a bargaining chip In interstate negotiations.
Political factors theorised in American IPE
List 1:43:00 That’s a list of the main factors that have been theorised and continue to a large extent to be theorised in American IPE. We can see that there is a blend of ideas coming from realism and from and from neoliberalism, particularly neoliberal institutions. Clearly, the idea that the distribution of power within the international system affects the way the international political economy works is still very much around. scholars still debate to a lesser extent than what done in the ’70s, but they still debate that aspect of the problem.
B is the way international institutions affect the way the international political economy works. the basic question is how can international institutions be made to promote cooperation and therefore openness.
C is the way strategic behaviour between states can lead to cooperation or conflict.
D is a major which is the way domestic interests influence the way foreign economic policies made and the way states interact with each other.
E is a sub-theme of d which is the organisational capacity of domestic interests and how that affects the way domestic interests are able to influence for an economic policy and have domestic institutions.