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Summary readings 7-12 Global Political Economy
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Week 7 Hegemonic Cycles and Historical CapitalismO’Brien and Williams Chapter 1 Theories of Global Political Economy
UNDERSTANDING THE GLOBAL POLITICAL ECONOMY
The Asian financial crisis of 1997 can be explained by different theories (6-7):
“In order to make sense of the world and to enable us to take constructive action, humans develop
theories to help determine which facts are most important and what significant relationships there
are between different events. Theories are used for a variety of purposes:
they can prioritize information and allow individuals to turn their attention to the most
important issues
they can be used to make predictions about the future so that action can be taken to prepare
for upcoming events
they can be used to plan action or mobilize support for particular action.” (7)
Schools of thought, paradigms, approaches, theories, all are used interchangeably. “The central point
is that three main contending perspectives have been used to explain developments in the global
political economy.” (8)
THE ECONOMIC NATIOANLSIT PERSPECTIVE
“focus on the role of the state and the importance of power in shaping outcomes in the international
political economy. These theories stress the importance of the interest of the nation or the state in
understanding activity in international relations (IR). This grouping is variously termed ‘mercantilist’,
‘neomercantilist’, ‘statist’, ‘state-based theory’, ‘power politics’ or ‘economic nationalist’. The
equivalent in IR theory is realism. We use the term ‘economic nationalism’ to refer to this
perspective because at the centre of such analyses is the protection of the national unit.” (8)
“The origin of this school of thought can be traced back to the emergence and expansion of the
nation-state in Europe in the 15th century. Mercantlisism was a doctrine of political economy that
governed the actions of many states until the liberal revolution in Britain in the mid-19th century …
Two famous advocates of mercantilist theory were Alexander Hamilton ([1791]1991) and Fredrick
List ([1885]1991).” (8)
“One central question for students of the contemporary global economy relates to the persistence of
mercantilist thought [in this globalized world].” However, this approach should not be dismissed. “It
reflects, on the one hand, an acknowledgement that states remain at the centre of power within the
global political economy and, on the other, that there is an intimate connection between power and
wealth.” (8)
,Key actors
“Economic nationalist or mercantilist theories view the state as the main actor in the global political
economy.” (8) “Economic nationalist thought begins from two major assumptions.
The first is that the inter-state system is anarchical and it is therefore the duty of each state
to protect its own interests …
The second assumption concerns the primacy of the state in political life.” (9)
“From this perspective, the state is prior to the market and market relations are shaped by political
power. Economic nationalist thought is both descriptive and predictive. Descriptive economic
nationalists maintain that production, consumption, exchange and investment are all governed by
political power … But economic nationalists move beyond description and also provide policy advice
[prescriptive].” (9)
“Economic nationalists recognize the importance of market-based actors such as firms, but
subordinate their importance to that of the state.” (9)
Key dynamics
“From an economic nationalist perspective, international political economy is constituted through
the actions of rational states. If international relations are conceived as a struggle for power,
international political economy is a struggle for power and wealth … Market relations are important
indicators of power and wealth but the market is governed by the activities of states. Economic
activity is subordinate to political goals and objectives. Furthermore, economic actors are subject to
political authority. The consequence of the salience of the state is that international economic
relations are international political relations. The global economy in this view is subordinate to the
international political system.” (9)
“IPE scholars working in this perspective argue that the nature of the global economy reflects the
interests of the most powerful states … Analysts such as Gilpin (1981) have argued that changes in
the distribution of power between states increase the chances of conflict in the international
system.” (9)
“In the heated debate over globalization, both defensive and sceptical economic nationalist
perspectives can be heard. The defensive posture arises from a fear that globalization may prevent
state actors from fulfilling their goals … On the other hand, sceptical economic nationalists reject
many of the current liberal arguments about globalization. They contend that globalization is largely
a myth and that the power of the state remains undiminished.” (9)
Conflict and cooperation
“Within IR theory, realism, with its focus on the primacy of the state, the anarchical nature of
international relations and the inevitability of conflict, provides the foundation for economic
nationalist thought … Power-based theories such as economic nationalism and realism view the
world as anarchic – lacking any central authority. Relations between states are thus characterized by
unending conflict and the pursuit of power. International economic relations are therefore perceived
as a zero-sum game where the gain of one party necessitates a loss for another party. The system’s
structure is perceived in conflictual terms.” (10)
Economic nationalism today
“Although the dominant approach to global political economy as espoused by the leading
international institutions and economic theorists is liberalism, economic nationalism continues to
inform thinking and action. Countries continue to protect their markets from foreign competition
even though they have committed themselves to free trade. Although protectionism has been
,reduced as countries have lowered tariffs, many other mechanisms are used to keep out foreign
products.” (10)
“States have actively involved themselves in supporting particular industries, contrary to liberal
theory. Many developing countries have relied on their states to boost economic activity, shield
domestic industries from competition, and direct finance to selected industries.” Example is China:
“While benefitting from a generally liberal and open economic system, China has engaged in
economic nationalist policies in pursuit of development.” (10)
“Concerns about economic nationalism increase in times of economic downturn.” (10) “Such an
approach risks retaliation and the closing of world markets, which damages the interest of all states
because it reduces the possibility of growth through trade.” (10-11)
THE LIBERAL PERSPECTIVE
“In contrast to the economic nationalist theories, liberals focus either on the individual or on a wide
range of actors from the state to the corporation to interest groups. They do not see the state as a
unitary actor, but as influenced by numerous factors. Rather than stress the inevitability of conflict,
liberals search out the conditions for cooperation … Liberals see the world system as one of
interdependence rather than anarchy … Rather than a zerosum game where one’s gains are the
other’s losses, liberals see a positive-sum game where the pie grows bigger and everyone gains.” (12)
“Liberal theories of political economy emerged in 18th- and 19th-century Britain alongside the
Industrial Revolution … Adam Smith ([1776]1983) advocated freeing up commerce and creating
larger national and international markets as a method of generating wealth for everyone. Englishman
David Ricardo ([1817]1992) introduced the revolutionary theory of comparative advantage, which
demonstrated that all nations can benefit from free trade even if they are not as competitive as other
states.” (12)
“The trade regime [nowadays] is based upon the goal of free trade, money flows into and out of
most countries without great difficulty and all forms of economic activity are increasingly liberalized.”
(12-13) “However, there is a wide variety of liberal thought.” (13)
Key actors
“Within the liberal perspective there are a number of key actors. For liberals, the starting point of
analysis is the individual … In the context of analysis of the global economy, liberal theorists focus on
the behaviour of individuals, firms and states. In contrast to economic nationalism, the key economic
actor is the individual rather than the state. Individuals in pursuit of self-interest will maximize the
benefits of economic exchange for society. Within liberal theory the firm also plays an important
role. Unlike mercantilists who view the firm with a degree of suspicion, liberals see the firm as a
source of economic wealth. The state is viewed with hostility by many liberals since it brings politics
, into the realm of economics … From a liberal perspective the transnational corporation (TNC) is a
positive force. TNCs bring advantages to both home and host countries.” (13)
Key dynamics
“For liberal theorists the market lies at the centre of economic life … They both [Keynes and Hayek]
subscribe to a belief in the positive role of markets and the ability of the market to lead to prosperity.
However, they differ over the importance of market imperfections and the policies that ought to be
implemented to deal with market failure.” (13)
“For liberal theorists, IPE is constituted by a search for wealth. On the whole, open markets will
enhance growth and wealth, and firms will disseminate material wealth across the globe. Economic
failure in this perspective is often the result of government intervention.” (13)
“Many liberal theorists have been at the forefront of the debate on globalization. For what can be
termed ‘hyper-liberals’, globalization is not only a reality (indeed, an inevitability), it is a positive
force for good.” (13)
Conflict and cooperation
“Liberal theorists view international relations and the international political economy as essentially
cooperative.” (13) “economic relations are positive sum. A standard liberal theory that exemplifies
this belief is the theory of comparative advantage, which shows that even in a situation where one
country enjoys a superiority in the production of all goods and services over a second country, trade
between the two countries will benefit both countries.” (14)
“One persistent liberal belief has been that economic nationalist policies lead to conflict … The
German philosopher Immanuel Kant ([1795]1991) foresaw an era of perpetual peace when systems
of free trade, a coalition of republican states and the fear of destructive warfare would bring about
an era of calm and prosperity. Towards the end of the First World War, US president Woodrow
Wilson ([1918]1986) advocated liberal principles of free trade, self-determination and the use of
international organizations to settle disputes between states.” (14)
“The framers of international economic institutions after the Second World War were supporters of
this view. It was argued that the war had its origins in the economic nationalist policies of the 1930s
… Hence, there was the need after the war to design institutions to foster international economic
cooperation and to include within those institutions mechanisms to prevent states from resorting to
competitively nationalist policies.” (14)
“Within the study of IR, liberal theories of world politics and of political economy share assumptions
concerning the pluralist nature of the international system and the feasibility of cooperation.” (14)
Liberalism today
“Liberal neoclassical economics, which stresses the importance of rational decision makers in free
markets, dominates the field of economics … many states have bound themselves to an ever more
liberal economy through participation in international organizations and international economic
agreements such as regional or bilateral free-trade agreements.” (14)
“Despite the dominance of liberalism, there are challenges to liberal theory and practice from within
and without. Within liberalism, the 2008 financial crisis reopened the debate among liberals about
regulation and the role of government in economic crises.” (14) “There are also challenges to
liberalism from those who do not accept its claims. States may be happy to export into an open
liberal market, but reluctant to expose their own industry to competition” (15) “Other groups may
challenge liberalism because they advocate different agendas, such as labour rights … gender equity
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