The Key Differences between Orthodox and New Approaches to International Political Economy - Term Paper Example

IPE Topic: What do you consider to be the key differences between ‘orthodox’ and ‘new’ approaches to International Political Economy? Illustrate your answer with particular Answer: The term ‘political economy’ was earlier used in the study of production, related to buying and selling according to laws, government and the prevailing customs. It underwent a change in perception in the 18th century from study of production to the study of the economies of states. The orthodox approach to ‘International Political Economy’ stands in contrast to the new meaning attached to the term. Now, it refers to distinct related approaches with basic assumptions, unlike orthodox economics, to study economic and political behaviour that coalesces economics with other fields. Thus, it has become interdisciplinary studies of economics, law and political science, which help in grasping the inter-relation of political institutions and capitalism – how they affect each other in the political environment. The new range of approaches to ‘International political economy’ (IPE) refers to international trade and finance and government’s monetary and fiscal policies that decide which way the international business of a state proceeds. These approaches to IPE are linked with the journal The Review of International Political Economy (RIPE), edited by British and American scholars.(http://en.wikipedia.org/wiki/Political_economy) ) Ronen Palan in his book, Global Politician Economy: Contemporary theories, has summarized the IPE in the preface of the book - “…. The emphasis on negotiation, contestation and historical narrative underlines the open-endedness of contemporary processes in the Global Political Economy”. http://www.mammadli.az/political_economy.htm IPE 2 The name of Robert Gilpin, the dean of American students of international political economy stands high in the field because of the new approach to IPE, which is due to the focus he has given to essential economic, political and technological forces changing the world. His Global Political Economy: Understanding the International Political Order is a masterpiece of scholarly research done on the different approaches to comprehend international economic relations. The book also takes into consideration the problems the new economy faces. Gilpin has taken into consideration the new emerging economic and political forces; how the new technology, computing and regionalism are changing the face of world economy after the end of cold war. He has laid emphasis in particular to globalisation of the economy, actual and underlying meaning of economic affairs and the level of its importance, nature and how far goes the role of economic affairs and how wrongly it has been interpreted. He has elucidated in his book the crucial importance of national policies and domestic economies in determining economic affairs. Gilpin has elaborately discussed the role of economic regionalism, multinational corporations, and financial turbulences. In his discussion on “global political economy”, Gilpin assimilates both economic and political with the help of conventional theory of international trade, theory of industrial organisation and endogenous growth. Subjects like History and Political Science have been incorporated to grasp the new international economic order fully.(http://www.pupress.princeton.edu/titles/7093.html) IPE 3 Now, let’s have a look at traditional approach. It was limited in using a variety of methods. It didn’t give due importance to cultural and societal conflicts in particular to developed and developing countries of the world. So, the traditional approach was not able to provide area specific knowledge of the economy and abstractions. In UK, the approach was somewhat different from the US. In the UK, the field of economy has attained two different but supportive traits; it was moving towards comparative political economy (CPE) and to an extent towards new political economy (IPE). On the contrary, in the United States, the traditional international relations approach was in usage. According to the changing circumstances due to globalisation, trade and investment, the means of accomplishing the business of multi-national corporations have also changed radically. To formulate social and economic development strategies, new organization bodies have appeared like North American Free Trade Agreement (NAFTA), European Union, to cater to regional interests. The working parameters have changed to smoothen the linking and dependence of world bodies like World Bank, International Monetary Fund and United Nations. In this connection, the Colorado School of Mines has underlined the importance of another element – culture. According to the School: “We at Colorado School of Mines propose that a third block be added: culture. It is culture that defines the perimeters of society, informs its political and economic activities, and even shapes inter-state relations with close and distant neighbors…”(http://www.mines.edu/academic/lais/minors/ipe/overview/overview.html) IPE 4 Gilpin has argued about a relation between constructivism and globalisation. It is a part of general trend in global relations. The change in trend is in the relationship between agreed fixed units of nation-states to the confrontation between political units. He talks about assumed spatial context where global relationships are taking place. “… image of the geographical space, the envelope in which international relationships take place, has shifted from an image of a divided space made of separate and isolated nation-states to an image of a global space, an arena that give rise to problems of encounters between social units. Encounter theories, of which constructivism in all its variations is a good example, are predicated…” http://taylorandfrancis.metapress.com/(amh42ebdtqkfhxedz5vjctqr)/app/home/contribution.asp?referrer=parent&backto=issue,3,12;journal,7,13;linkingpublicationresults,1:300201,1 Let’s illustrate with examples of countries like Turkey and some of the Latin American countries. The Turkish economy after its exposure to financial globalisation in the post-1989 period has born negative results. Ziya Öniº* has examined the crisis in the wide political economy spectrum, taking into consideration both - the domestic politics and bearing of international influences. In Turkey, major changes took place due to international influences. The neo-liberal model of 1980 was an example of ‘externally induced restructuring’. On the other hand, the part played by the state was not pro-active like it was in the case of South Korea and Taiwan. In Turkey, some important structural changes occurred as a result of the liberalisation of the capital account in August 1989. IPE 5 The period of so-called ‘Populist cycles’ was taking a downward turn but financial crisis were becoming a random feature because of unchecked exposure to volatile temporary capital flows. Turkey found itself face-to-face with low growth-high inequality phenomenon. Post-Cold War period, in the context of cultural neo-liberal globalisation, civil and human rights linked with European Union membership did not help in solving the economic dead-end by removing the dictatorship. Political parties were a divided lot due to the failure of coalition governments. As a result, economy was at a higher risk due to shaking global capital market. Another reason of Turkey’s failure was its wrong positioning ‘in-between the two extremes – dictatorship and democracy. So, internally, environment was not favourable for open capital account regimen. Premature Capital Account Liberalization and the Debt Trap: The Economic and Political Background to the Twin Crises The neo-liberal reforms initiated in Turkey were related with both short-term and long- term structural adjustments. It was a joint initiative of the World Bank and IMF with the application of “cross-conditionality”. It was a revolutionary programme to consolidate its position step-by-step in the international market. Of course, it enabled Turkey to maintain a fast economic growth of 4-5 percent per annum but it has to pay the price of early exposure to global economy. Due to weak political will on the part of the government, necessary infrastructure was not developed although capital account remained opened for a decade after the programme started. On the part of the government, it took no initiative IPE 6 to apply fiscal measures and banking regulations so crucial for the success of the programme due to political instability. Another reason for the failure of the programme was the inability on the part of the government to attract foreign direct investment (FDI), which is so important for a developing country to sustain its growth and a very important growth factor in the present international scenario. Ziya Öniº* blames the prevailing political party system, not the democracy for not utilizing the benefits associated with financial globalisation. Ziya Öniº* has also discussed at length the role played by EU as an anchor for a healthy political economy (IPE) under the title: The Need for a Permanent External Anchor: Political Economy and the Significance of EU Membership Turkey’s relation with EU is of paramount importance to provide grease to the wheels of ‘populist cycles’. EU is Turkey’s major trading partner and source of foreign investment amounting to fifty percent of its trade. Turkey’s relationships with EC have been critical for its development but at times they have not been mutually beneficial. With EU, culture and identity related topics have cropped up along with economic, political and security concerns. From economic point of view, Turkey’s ambitions to become a permanent member of EC/EU have got a set back due to internal threats of large scale movement of labour to highly paid economies of central Europe. Due to the stress laid on human rights and democratisation issues by EU, it has put economically critical issues below political concerns. On the other hand, the Customs Union Agreement, which became functional IPE 7 1995, speeded up the work on trade liberalization in Turkey, enabling it to face competition with other international players. It also accrued benefits in regulatory reforms during the 1990s in the field of competition policy and intellectual property rights. These regulations helped Turkey to reach international standards of competition, which could not have been possible had there been a weak government and EU had not asked for their implementation. The turning point in Turkey’s political economy came in December 1999 when it was granted full EU membership, which had long-term benefits in Turkish political economy. EU membership has helped Turkey to strengthen the pace of internal reforms. Decisions taken at Helsinki have resulted in the appearance of a vocal pro-EU alliance in Turkey. It has speeded up the reforms procedure both in political and economic fields although amid opposition. Thus, success in the context of Turkey is based on two assumptions: a powerful, pro-reform alliance at political set up and equally powerful, long-lasting outside support. Definitely, Turkey-EU relation is going to be a major contributor in developing Turkish political economy in the coming times. Domestic politics versus global dynamics: towards a political economy of the 2000 and 2001 financial crises in turkey (October 2002 Revised Draft)(http://home.ku.edu.tr/~zonis/ZIYAONIS-TSPAPER.PDF) Let’s reach a conclusion with Vinod Aggarwal, who has discussed the trade strategies since the early 1980s of Latin American countries like Chile, Argentina, Brazil and Mexico with Ralph Espach and Tulchin ED., The approach has been to make a IPE 8 comparison of different choices of economic, political and security issues opted by these countries. There are a variety of combinations tried at bilateral, unilateral, regional and multilateral stages. Conclusions make a study of trade pacts and reasoning behind the strategy applied. Chile has chosen a path of unilateral liberalization supported by bilateral and multilateral trade to raise its level of competition and lessen the risks. On the other hand, Mexico has sought to gain political benefit by becoming a member of NAFTA, which has resulted in raising the long-term benefits but at the price of limited strategic choices. Brazil has on its part taken benefits of its position in the regional block to settle business deals with EU and the US. Argentina has taken the leverage by the umbrella of MERCOSUR. It has suffered on the front of economic competitiveness as Brazilian companies run most of the industries. Authors have outlined the importance of soft deals made by these countries as a tool to register their presence as these trade pacts offer not only economic logic but instrumental in raising the legality of a country to be a part in deciding on international rules as scene of trade agreements is so multifold and congesting. Aggarwal and Espach have analysed in their findings the presence of some national trade strategies at different levels or even their absence -- whether these nation states follow some consistent set of policies resulting in a “strategy” or it is a temporary alliance of compelling domestic politics, ideology shift or opportunistic behaviour on their part. There have been basic differences of intention in strategic preferences. Although trade policies of these countries have been somewhat similar but they haven’t been implemented according to long-term thinking. Some of the causes behind are institutional weaknesses, presence of special interest groups like associations and pressurising the management to engross in domestic alliance building as hindrances in implementing a strategy. There are strategic differences of size of domestic markets, their natural talents, extent and form of industrialization, boring process of policymaking and to some extent their political identity. Many observers find the differences in the trade profiles of Argentina, Brazil, Chile and Mexico resulting in a failure due to inefficient political set up to implement these policies So far as the question of state capacity to formulate and implement a plan is concerned, Chile and Argentina provide inverse reasons. In Argentina, willingness not to formulate trade policies has affected its strategy while on the contrary Chile is in a favourable position due its centralized institutional power. It has a multi-faceted strategy the success of which can be seen in finalizing a range of trade agreements since1990. The case analysis of Brazil and Mexico is cloudy. So far Brazil is concerned, due to the effective power of Itamaraty, Brazil’s foreign ministry, it is a better clincher of trade deals reason being diplomatically professional attitude. There is another negative side also of Brazil’s incapacity, as they don’t involve outside government agencies to formulate trade deals. This lacuna is not there in the case of Mexico. NAFTA plays a formidable role in pressurizing different Mexican agencies, whether it is foreign ministry or office of the drug control policies, to show results like their partners in North America. The Strategic Dynamics of Latin American Trade. (Stanford: Stanford University Press 2004) (See The Economist, January 4, 2003.)http://socrates.berkeley.edu/~basc/pdf/articles/Conclusions%20Latin%20America%20with%20Ralph%20Espach%20and%20Joseph%20Tulchin.pdf Works cited list Internet resources: http://taylorandfrancis.metapress.com/(amh42ebdtqkfhxedz5vjctqr)/app/home/contribution.asp?referrer=parent&backto=issue,3,12;journal,7,13;linkingpublicationresults,1:300201,1 http://home.ku.edu.tr/~zonis/ZIYAONIS-TSPAPER.PDF http://www.mammadli.az/political_economy.htm http://en.wikipedia.org/wiki/Political_economy http://www.pupress.princeton.edu/titles/7093.html http://search.barnesandnoble.com/booksearch/isbninquiry.asp?z=y&pwb=1&ean=9780691086774 http://socrates.berkeley.edu/~basc/pdf/articles/Conclusions%20Latin%20America%20with%20Ralph%20Espach%20and%20Joseph%20Tulchin.pdf http://www.mines.edu/academic/lais/minors/ipe/overview/overview.html http://www.etext.org/Politics/World.Systems/input/RIPE%20Editorial_text.txt Read More