International Political Economy (IPE) Second-Year Notes
These comprehensive notes cover essential topics for the International Political Economy (IPE) module in second-year International Relations. Key areas include:
IPE Ideologies: Mercantilism, liberalism, Marxism.
Bretton Woods Institutio...
Understanding Political Economy and Theoretical approaches to IPE, Analytical tools of
life.
• IPE studies life in the global economy. It focuses most heavily on the enduring political
battle between the winners and losers from global economic exchange.
• In the case of steel tariffs, domestic steel producers would lobby for higher tariffs,
because they are losing to int. trade and foreign producers. And if tariffs are raised, the
domestic producers win, however the steel manufacturers would lose because they
would have to pay more for steel. It would also harm foreign steel producers because
they’ll now be selling less steel in the market. In order to fully understand the (steel)
tariffs, we need to know something about the economic interests of the businesses
who produce and use steel, because we would then know more about why
countries choose to raise or decrease tariffs.
• Dividing the aspects of global economic activity into distinct issue areas. The four areas
are the international trade system, the international monetary system,
multinational corporations (MNCs), and economic development.
• These are different from each other but cannot be analysed in isolation as they all feed
into each other.
• The international trade system:
o Centred upon WTO, to which 147 countries belong to and through which they
have created a non-discriminatory international trade system.
o Meaning that each country gains access to all other WTO members’ markets on
equal terms. In addition, the WTO, and its predecessor, the General Agreement
on Trade and Tariffs (GATT) have enabled govs to progressively eliminate tariffs
and other barriers to the cross-border flow of goods and services, which has
steadily increased world trade.
o Scholars investigate how the political battles between the winners and losers
from global economic exchange shapes the creation, operation and
consequences of the WTO-centered system and the emerging regional trading
frameworks.
• The international monetary system:
o Enables people living in different countries to engage in economic transactions
with each other.
o Facilitates international exchange by performing these functions, and when it
does so well, international economic exchange flourishes, and when it doesn’t
the global economy can slow or even collapse.
o Scholars who study the international monetary system focus on how political
battles between the winners and the losers of global economic, operation, and
consequences of this system.
• Multinational corporations:
o Occupy a prominent and often controversial role in the global economy.
o An MNC is a company that controls production facilities in atleast two countries,
e.g. Ford Motor Company, General Motors.
o Have been controversial in part because of their size, but more importantly,
because they extend managerial control across national borders. Managers
based in the US, for example, make decisions that affect economic conditions in
Mexico.
, o Scholars focus on a variety of economic issues, such as why these MNCs exist
and what economic impact they have on the countries that host their
operations.
o Also, about how the political battle between the winners and losers from MNC
activity shapes government efforts to regulate the activities of MNCs.
• Economic development:
o Developing countries (DCs) have adopted explicit development strategies that
they believed would raise incomes by promoting industrialisation.
o Some countries such as Taiwan, South Korea, Singapore and Hong Kong have
been so successful in promoting industrialisation and raising per capita incomes
that they no longer considered developing countries.
o Scholars focus on specific strategies that DCs governments adopt and attempt
to explain why different countries adopt different strategies.
o They are also interested in knowing which developmental strategies have been
successful and which ones have not and why that is and also whether
participation in the international economy frustrates or facilitates development.
o Scholars emphasise how the political battle generated by the distributive
consequences of the global economy shapes the development strategies that
governments adopt.
• Foreign exchange policies that a government adopts, its trade policies, its exchange rate
policies, and policies towards MNCs, affect how that society’s resources are used.
o E.g. a decision to raise tariffs, for example, will encourage businesses to invest
and workers to seek employment in the industry that is protected by the tariff.
o A decision to lower tariffs will encourage businesses and workers in the newly
liberalised industry to seek employment in other industries, therefore eventually
affecting how the society’s resources are used.
• Foreign exchange policies are a product of polices, the process in which societies make
decisions.
• The study of IPE is in many respects the study of how the political battle between the
winners and losers from global economic exchange shapes the decisions that societies
make about how to allocate the resources they have available to them.
Traditional School of International Political Economy
Mercantilism (nationalism), liberalism, Marxism.
• Mercantilism:
o An economic theory where a country tries to become powerful and wealthy by
controlling trade. (more money, more power)
o The main idea is that a nation should export more than it imports to accumulate
wealth.
o Rooted in the 17th and 18th century theories about the relationship between
economic activity and state power.
o Have 3 propositions:
▪ National and state power are tightly connected. National power is
derived from wealth, which is required to have power.
, ▪ Trade provides a way for countries to acquire wealth from abroad, by
prioritising exports more than imports and running a positive balance
of trade.
▪ Argues that some economic activities are more important than
others. Prioritising manufacturing activities, while agriculture and other
nonmanufacturing activities should be discouraged.
o Argues that the state should play a large role in determining how society’s
resources are allocated. And economic policy should channel resources that
increase the country’s wealth and protect the national interest and shy away
from those who don’t.
• Liberalism
o Emphasizes the importance of free trade, open markets, and minimal
government intervention in the economy. It is based on the idea that when
individuals, companies, and countries pursue their own economic interests,
everyone benefits through mutual cooperation and growth.
o Thinkers like Adam Smith and David Ricardo were scholars that were trying to
alter government policy.
o Challenged all 3 propositions about mercantilism:
▪ Attempts to draw a strong line between politics and economics. Argued
that the purpose of economic activity was to enrich individuals, not
to enhance the state’s power.
▪ Countries do not enrich themselves by running trade surplus, and
instead have something to gain regardless of the balance of trade
deficit or surplus.
▪ Liberalism argues that countries become richer not by focusing only on
producing manufactured goods but by specializing in what they
produce most efficiently. The idea is that each country should make
things that are cheaper to produce locally and trade them for products
that would cost more to produce domestically. This way, both
countries benefit through efficient production and trade.
o Government should make little effort to influence the country’s trade balance.
(Laissez-faire), it promotes the idea that the economy performs best when
individuals and companies are free to pursue their interests without government
restrictions like tariffs, subsidies, or regulations.
o However, that state must not entirely not-interfere, they should establish clear
rights on property and resources and resolve market failures where needed.
• Marxist:
o Originated as a school of thought from Karl Marx as a critique of capitalism.
o Capitalism is characterised by central conditions: private ownership of the
means of production (or capital) and wage labour.
o Argues that the value of manufactured goods is determined by the amount of
labour used to produce them. Instead, the capitalists who owned the factories
paid workers a portion of the profit that they get from the goods. And Marx
argued that because of this a revolution (caused by workers/proletariat, to rise
and overthrow the capitalist system and replace it with socialism) would
take place and do away with private property and with the capitalist system that
supported it.
o Three dynamics would drive this revolution:
, ▪ There is a natural tendency that drives towards the concentration of
capitalism. Because of increased economic competition, capital
would be concentrated to the small, wealthy elite.
▪ Capitalism leads to the decrease in profits, and because of this,
capitalists would want to increase efficiency and profit and reduce
wages, this further impoverishing the already poor working
class/proletariat.
▪ Marxism argues that capitalism creates a mismatch between the
production of goods and people’s ability to buy them. Businesses
constantly invest in technology to increase production, but at the same
time, they cut wages to maximize profits. This reduces consumers'
purchasing power, even though more goods are available. Over time,
this imbalance leads to overproduction, economic slowdowns, and
crises, as people cannot afford the products being made.
• The state is not an actor but is an enabler of capitalist tendencies. They enact policies
that support and reinforce capitalism and the capitalist’s class control of resource
allocation. Marx argues that large corporations and businesses are the key actors
and are the ones that determine how resources are allocated and used.
Summary of the ideologies
Mercantilism Liberalism Marxism
Thinkers • Jean-Baptiste • Adam Smith • Karl Marx
Colbert • David Ricardo • Vladimir Lenin
• Thomas Mun • John Locke • Fredrich Engels
• Antonio Serra • John Stuart Mill • Antonio
• William Petty • Immanuel Kant Gramsci
• Immanuel
Wallestein
Most The State Individuals Classes, particularly
important the capitalist class
actor
Role of the Intervene in the Establish and enforce Instrument of the
state economy to allocate property rights to capitalist class uses
resources facilitate market-based state power to sustain
exchange capitalist system
Image of the Conflicted: countries Harmonious: The Exploitative:
International compete for desirable international economy capitalists exploit
Economic industries and engage in offers benefits to all labour within
system trade conflicts as a countries. The challenge countries, rich
result of this is to create a political countries exploit poor
competition. framework that enables countries in the
countries to realise these international economy.
benefits.
Proper Enhance power of the Enhance aggregate social Promote an equitable
objective of nation-state in welfare distribution of wealth
economic international state and income.
policy system
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