Introduction to International
Global Political Economy
David N. Balaam & Bradford Dillman
Summary M.K. van Es
,Outline
PART ONE: International Political Economy: Perspectives
Chapter 1: An Overview of International Political Economy
Chapter 2: Laissez-faire: The Economic Liberal Perspective
Chapter 3: Wealth and Power: The Mercantilist Perspective
Chapter 4: Economic Determinism and Exploitation: The Structuralist Perspective
PART TWO: Structures of International Political Economy
Chapter 6: The production and trade Structure
Chapter 7: The international Monetary and Finance structure
Chapter 8: International Debt and Financial Crises
Chapter 10: The knowledge and Technology structure
PART THREE: States and Markets in the Global Economy
Chapter 11: The Development Conundrum: Choices Amidst Constraints
Chapter 12: Toward a more perfect (European) Union
Chapter 13: Moving into Position: The Rising Powers
PART FOUR: Transnational Problems and Dilemmas
Chapter 15: The Illicit Global Economy: The Dark side of Globalization
Chapter 17: Transnational Corporations: The Governance of Foreign Investment
Chapter 18: Food and Hunger: Market Failure and Injustice
Chapter 19: The IPE of Energy resources: Stuck in Transition
Chapter 20: The Environment: Steering away from Climate change and Global
disaster
N.a.v. Collegestof Global Political Economy VU jaar 2
,PART ONE: INTERNATIONAL POLITICAL ECONOMY:
PERSPECTIVES
CHAPTER 1: An overview of International Political Ecnomy
The Darkness on the edge of town
The collapse of the U.S. housing market in 2007 morphed into a credit crisis that threatened
some of the biggest banks and financial institutions in the United States and in Europe.
Government leasers responded with a variety of bank rescue measures and so-called
stimulus packages to restart their economies. Meanwhile, many people were forces out of
their homes, and became unemployed. They suffered cuts in social services, health care
benefits, and education spending when governments were forces to trim budgets. The EU
had fallen into another recession, with countries like Greece, Italy, Spain, and Portugal so
deep in debt, that they might slide into national bankruptcy, causing the EU’s monetary
system to collapse. People seem to have lost confidence in national and international
political institutions that underpin capitalism and democracy. Is this what the Great
transformation from industrial to post-industrial society was supposed to look like? Are
globalization and the ‘creative destruction’ of new technologies shrinking the middle classes
in Western countries and permanently shifting economic dynamism to Asia and Latin
America?
Emerging powers such as China, India, Brazil and Russia have dramatically reduced
poverty in the last fifteen years and made it possible for hundreds of millions of people to join
the middle class. Fortunately they continued to grow at a fairly robust place after 2007: more
jobs, investment, and consumption in these countries helped keep the rest of the world from
falling into deeper recession. Along with these rays of hope are three interrelated global
developments that merit discussion because they are profoundly shaping the international
political economy: The Arab Spring, The European sovereign Debt crisis, and the Occupy
Wall Street movement. Each development can either help lead to a more stable, prosperous
world in which human security is better guaranteed or render divisions within and between
societies wider than before so that cooperative relations and a fairer distribution of resources
remain ever more elusive goals.
The Arab Spring: the Arab Spring took the world by surprise – a reminder that
social scientists still do not have good tools to predict when and why large-scale
changes will occur in complex socio-political systems. On 17-12-2010 a Tunisian
street vendor named Mohamed Bouazizi set himself on fire in reaction to harassment
by police officers. His death sparked street demonstrations that brought down the
Tunisian Government one month later. Protest likewise spread to other countries in
the Middle East and North Africa. The dramatic political protests created an
opportunity for a number of Arab countries to joun the community of democratic
nations. Some authoritarian leaders – killing thousands of their own citizens –
remained power. With the genie of Arab political opposition out of the bottle, countries
in the Middle East and North Africa are rapidly changing. Along with the Arab Spring
came President Barack Obama’s withdrawal of all U.S. troops from Iraq in 2011. The
withdrawal seemed to signal that the U.S. public was no longer willing to pay for wars
that drain the public treasury. Obama focused on fighting the Taliban in Afghanistan
and ratcheting up pressure on Iran to abandon its effort to develop nuclear weapons.
The European Sovereign Debt Crisis: gathered steam after 2010 in the face of a
prolonged recession that made it hard for some countries to pay back huge loans to
domestic and foreign banks. European Union leaders had hoped to contain debt
problems in Greece and Ireland, but governments in Spain and Portugal also began
to have trouble raising new money by issueing new government bonds. Even with
help from the European Central Bank, these countries have dire conditions that
threaten the stability of the European Financial system. Europe’s response to its debt
, crisis have stimulated widespread social unrest. Some analysts believe that the crisis
will spur European Countries to form closer ties. While other foresee the death of the
euro and the prospect of national banktruptcies. The crisis is forcing Germany to
decide if it is willing to share the costs of making the EU stronger, or if it will pursue its
purely national interests.
The Occupy Wall Street Movement: Started on September 17 2011, but two weeks
later had spread to many major U.S. cities, with encampments and ‘general
assemblies’ in public spaces. Although the majority of participants in the OWS social
movement have been students, union workers, progressive activists, and the
unemployed, their ideas seemed to resonate with a significant number of the middle
class. Calling themselves the 99%, they criticized financial institutions, condemned
Wall Street greed and called for a reduction of corporate control over the democratic
process.
While each has its own causes, the protestors collectively represent a reaction to corrupt
government and growing inequality. In three large regions – The Middle East, Europe and
North America – movements sought protection from financial and cultural globalization. In all
three cases, elites who were supposed to be the experts on political and financial affairs
suddenly were at a loss to explain why things had gotten so bad under their watch. Old
political and economic institutions were still resilient. Many regimes held firm in the Middle
East, American banks grew even bigger after the government bailouts, and EU political elites
continued to make deals that seemed designed to save big investors and banks rather than
ordinary citizens.
The What, Why, and How of International Political Economy
When defining IPE we make a distinction between the term ‘International political Economy’
and the acronym IPE. The former refers to what we study; the subject area or field of inquiry
that involves tensions among states, markets, and societal actors. The focus lies on a variety
of actors and issues that are either International or Transnational. The acronym IPE also
connotes a method of inquiry that is multidisciplinary. IPE fashions the tools of analysis of its
antecedent disciplines so as to more accurately describe and explain the ever changing
relationships between governments, businesses and social forces across history and in
different geographical areas. IPE:
includes a political dimension that accounts for the use of power by a variety of
actors, including individuals, domestic groups, states, international organizations,
nongovernmental organizations and transnational cooperation.
Involves an economic dimension that deals with how scarce resources are
distributed among individuals, groups and nation-states. A variety of public and
private institutions allocate resources on a day to day basis in local markets where we
shop. The market can also be thought as a driving force that shapes human behavior.
There is a societal dimension of different international problems. There are usually
many different social groups within as state that share identities and norms based on
tribal ties, ethnicity, religion or gender. Likewise, a variety of transnational groups
have interests that cut across national boundaries. All these groups play a major role
in shaping global behavior.
The three dominant perspectives of IPE are economic Liberalism, mercantilism, and
structuralism. Each focuses on the relationships between a variety of actors and institutions.
Economic Liberalism is most closely associated with the study of markets. Many liberal
values and ideas are the ideological foundation of the globalization campaign. The laissez-
faire principle, that the state should leave the economy alone, is attributed by Adam Smith.
Under pure market conditions people are assumed to behave ‘rationally’: they will seek to
maximize their gains and limit their losses when producing and selling things. According to
OELs, people should strongly value economic efficiency – the ability to use and distribute
resources effectively and with little waste.
Mercantilism is most closely associated with the political philosophy of realism,
which focuses on state efforts to accumulate wealth and power to protect society from
,physical harm or the influence of other states. The state is a legal and autonomous system of
institutions that governs a specific geographic territory and a nation. States use two types of
power to protect themselves: Hard power: military and economic assets employed to compel.
Coerce. Influence, fend or defeat enemies, and soft power: selective tools that reflect and
project a country’s cultural values, beliefs, and ideals.
Structuralism is rooted in Marxist analysis but not limited to it. It looks at IPE issues
mainly in terms of how different social classes are shaped nu the dominant economic
structure. It is most closely associated with the methods of analysis many sociologists
employ. Structuralists emphasize that markets have never existed in social vacuum.
Not surprisingly, mixing together the disciplines of economics, political science and
sociology gives rise to an analytical problem: it is difficult to establish a single explanation to
any IPE issue because each discipline has its own set of analytical concepts, core beliefs,
and methodologies. IPE today represents an effort to return to the kind of analysis done by
political theorists and philosophers before the study of human social behavior came
fragmented into the discrete fields of social science-political-economics. We can say that IPE
blends together distinct perspectives to produce a more holistic explanation. It is more
flexible than most disciplines because it asks the analyst to choose how something should be
studied and with what tools.
IPE uses different levels of analysis in research:
1. The Global Level: the broadest most comprehensive level of analysis. Explanations focus
on how important global factors like changes in technology, commodity prices, and climate
create constraints on and opportunities for all governments and societies.
2. The interstate level: emphasizes how the relative balance of political, military, and
economic power between states affects the probability of war, prospects for cooperation and
rules related to transnational corporations.
3. The State/Societal Level: narrows to factors within states, explanations contain more
causal factors. Emphasize how lobbying by socio-economic groups electoral pressures and
culture influence the foreign policies of countries.
4. The individual level: the narrowest level and yet it contains the biggest number of factors
that explain why individuals choose certain politics or behave in particular ways.
the four levels of analyses help us organize our thoughts about the different causes of,
explanations for, and solutions to a particular problem.
Putting pieces together
Globalization is an important concept because it has framed the four structures of the
international Political economy. Many of the rules and processes related to trade, money,
technology and security, reflects this popular concept. Globalization has brought a significant
change in the way many experts and officials think about the international political economy.
The term ‘globalization’ began appearing in the IPE lexicon in the mid-1980’s to describe the
growing interdependence among people and states all over the world that resulted from the
digital revolution and the spread of Western Culture. Globalization also accounted for more
trade and financial exchanges with other countries relative to a nation’s gross domestic
product. The roots of globalization can be found when president Ronald Reagan and P.M.
Margaret Thatcher popularized the ideas and policies associated with economic liberalism
and free trade. Globalization is usually characterized as: an economic process, the
integration of markets into a global market, a political process and the further spread of
democracy in the world. Globalization connects people by reaching around the world faster,
deeper and more cheaply through an array of new digital technologies that include internet,
fiber optics, and smart phones. For Thomas Friedman, and free market state officials,
globalization manifested the power of unregulated and integrated markets to trump politics
and greatly benefit society. Friedman has gone on to argue that an intensely competive new
phase of capitalism drives individuals, states and TNC’s to continually produce new and
better products.
, Globalization shaped the strategies of developing countries and has remained quite
popular with elites and many citizens in the developed nationas. It led to increased emphasis
on a set of common rules and polities that all countries were expect to follow – implemented
and overseen by international institutions such as IMF, WTC and the VN. It was supposed to
help create a more peaceful relation between states that traded with one another. Critics saw
globalization as a wildcat version of capitalism that promised higher standards of living bur
increased the misery or marginalization of many people. Friedman acknowledged that
globalization alone would not automatically achieve success for everyone. He suggested that
if it increased the rich-poor gap or left too many behind, it would likely generate opposition.
By the turn of the twentieth century it had become clear that most developing nations
were not growing out of poverty as expected. A few countries like China, Singapore, Taiwan
did experience tremendous national and per-capita growth. Other parts of the world
experienced financial crisis.
CHAPTER 2: Laissez-Faire: the Liberal Perspective
Like many other terms in international political economy IPE, the generic term ‘liberalism’
suffers from something of a personality disorder. The term means different things in different
contexts. In the VS today, the term means an active role for the state in society, such as
helping the poor and funding programs to address social problems. For economic liberals,
the state should pay a limited, if not constricted role in the economy and society. Main theses
about economic liberalism are:
- Economic liberal ideas continue to involve as a reflection of changes in the economy
and the power influence of actors and institutions
- Economic liberalism gained renewed popularity due to its association with the laissez-
faire Reagan and Thatcher administrations, culminating in the globalization campaign
of 1990’s.
- Since then orthodox economic liberalism has increasingly come under attack for its
failure to predict or sufficiently deal with such things as the financial crisis and poverty
in less developed countries
- Laissez-faire ideas and policies are likely to remain popular in the VS and Many other
nations.
Roots of the economic liberal perspective
The term liberalism means ‘liberty under the law’. Liberalism focuses on the side of human
nature that is competitive in a constructive way and is guided by reason, not emotions. This
contrast with mercantilists view, which dwells on the side of human nature that is more
aggressive, combative and suspicious. Classical economic liberalism is rooted in reactions to
important trends in Europe in the 17th and 18th centuries. Ideas written by Adam Smith, David
Ricardo, Friedrich Hayek, and Milton Friedman, display respect, admiration, and almost
affection for the market, with different degrees of distaste for the state, or at least for its
abusive potential.
Adam Smith opposed in his book The Wealth of Nations, the mercantilist state of the
th
18 century, established on the principle that the nation is best served when state power is
used to create wealth, which produces more power and national security, For classical
economic liberals, individual freedom in the marketplace represents the best alternative to
potentially abusive state power when it comes to the allocation of resources or organizing
economic activity,. Smith also believed in the cooperative, constructive side of human nature.
The best interest of all of society is served by individual choices, which when observed from
afar appear as an invisible hand that guides the economy and promotes the common good.
Smith was writing at a time when the production system known as capitalism was replacing
feudalism. He was the first to overview some of the ideals and tenets of capitalism.
The five mean elements of capitalism are as follows:
1. Market coordinate society’s economic activities
2. Extensive markets exist for the exchange of land, labor, commodities and money.
, 3. Competition regulates economic activity; consumer self-interests motivate economic
activity
4. Freedom of enterprise: individuals are free to start up any new business enterprise
without state permission.
5. Private property: the owner of a resource is legally entitled to the income that flows
from the resource.
The first three tenets address the nature and behavior of markets. Whereas before capitalism
the economy was organized to serve society, today markets organize most of our lives in
ways we are not aware of. Another feature of capitalism is the existence of markets for land,
labor end money. These were all commodified, which provided the financial foundation and
labor for the industrial revolution and the society that today we recognize as capitalist.
When economists say that competition regulates economic activity, there are referring
to the ways in which markets convert the pursuit of consumer self-interests into an outcome
that inevitably benefits all of society. According to Smith, the pursuit of individual interest
does not lead to civil disorder or even anarchy; rather self-interest serves society’s interest.
In a capitalist economy self-interest drives individuals to make rational choices that best
serve their own needs and desires. However, it is a competition that constrains and
disciplines self-interest and prevents it from becoming destructive to the interests of other.
Under ideal circumstances, producers must compete with others, which forces them to
charge reasonable prices and provide quality goods to consumers who may be willing to pay
more for a product. Capitalism assumes that price competition also results in the efficient
allocation of resources among competing uses. When economists say that markets
coordinate society’s economic activity, they generally mean that no one should be in charge
of how resources are allocated. Market coordination entails a decentralized resource
allocation process guided by the tastes and preferences of individual consumers. For
capitalists, government intervention in the market generally distorts resource reallocation and
frustrates the coordination function we have described. Competition also requires firms to be
production efficient, in the sense that is pays to adopt cost-saving innovations in the
production of goods to remain on the cutting edge of product and process innovation, the
delivery of services, and the management of resources.
The last two tenets of capitalism deal with the role of the state in establishing freedom
of enterprise and private property. Freedom of enterprise means that businesses can easily
channel resources to the production of goods and services that are in high demand while
intensifying competitive pressures in these industries: when individuals are free to make their
own career choices, they naturally prepare for and seek out careers or lines of employment
in which they are likely most productive. As economic change, labor resources will be rapidly
redeployed to growing sectors of economy as individuals take advantage of new
opportunities. Capitalists are adamant that the income of those who capital is usually in the
form of profits. Capital goods are the important subset of all commodities that are required to
produce other commodities. When private property rights are less clear, the incentive to use
resources diminishes. Private property also encourages the owner to make investments in
improving the land and provides the owner the collateral with which to obtain the credit
necessary to do so. Freedom of enterprise allows entrepreneurs to test new ideas in the
marketplace and allows firms to increase or reduce their labor force necessary. Because
firms can easily expand and contract, the associated risk of changes is minimized and
competition is consequently enhanced.
What Smith is most known for is the view that ideally a capitalist economy is
self-motivating, self-coordinating, and self-regulating. Consumers determine how resources
will be allocated; self-interest motivates entrepreneurs to develop and firms and their workers
to produce the goods and services consumers desire. The market coordinates economic
activity by communicating the ever changing tastes of consumers to producers. Yes, many
historians and philosophers have come to view Smith as a more complex, nuanced
philosopher, rather than associating him with only the invisible hand of the market, Smith’s
work has three categories of capitalism: The role of the state, the motives and behavior of
capitalists related to preservation of the market, and a variety of moral issues. Smith is clear
