The Relationship between Economic Systems and Political Systems in the International Arena - Case Study Example

International Political Economy The global economy has increasingly made countries depend on each other for their sustainability. In effect, companies are breaking boundaries in terms of spreading their business operations. In this case, companies are setting operations in various countries in order to maximize profits. It is crucial to point out that in the same way that privately-held business firms venture in foreign markets, governments also participate in business by engaging other governments in trade. In effect, the interdependence amongst companies and nations necessitates political relationships that define approaches to the international economy. Consequently, interactions define cooperation amongst nations and corporations in various countries. Hence, it is essential to note that governments have a responsibility of defining economic policies that determine transaction of international trade. Thus, the government’s role in defining economic policies enhances international relations in terms of the economy and politics while international forces in the economy can influence the policies of governments in international relations. Based on the foregoing, this expose describes international political economy on the foundation of interaction between international politics and the global economy. Frieden and Lake defined international political economy as the study involving the reciprocated interaction of politics and the economy in the global economic world (1). Following this perspective, it is common knowledge that the economy is the system that governs the processes constituting manufacturing, supplying, and consumption of products while managing a nation’s wealth efficaciously. On the other hand, politics is the approach towards governing a society and the society’s economy. In effect, international political economy involves studying the relationship between economic systems and political systems in the international arena. Political decisions and actions of nations influenced the flow of products in international trade. In effect, these political actions and decisions influenced the choice of decisions made by nations and entrepreneurs due to the prevailing economic environment (Veseth 3). In this case, international economy and international politics are two mutually interacting aspects that governments and businesses should consider while developing policies meant to enable a nation to develop by participating in international trade. Despite this knowledge, it is possible for economists to disassociate international politics from the international economy while developing strategies for their government’s involvement in international markets. Conversely, political scientists and analysts routinely disassociate the international economy from international politics. Nevertheless, this should not be the ideal situation since the economy has always been political, which effectively implies that politics and the economy were one thing and individuals like Karl Marx and Adam Smith always linked the two (Frieden and Lake 4). In effect, this emphasises the importance of tying politics to the economy while developing policies for participation in international trade considering that scholars in the 20th century increasingly divorced politics from the economy (Frieden and Lake 4). Market operations and dynamics might be the primary cause for divorcing politics from the economy. In this regard, it is evident that there are basic laws that govern markets to operate independently without the need for intervention from the government or any other sources (Frieden and Lake 2). In this case, the laws of demand and supply are the fundamental factors that ensure that markets operated without intervention from a firm, the government, or any individual. In effect, this might be one reason that scholars increasingly divorced economics from politics although the two are mutually interactive. A section of scholars approached international political economics on the basis that politics influence the economic actions of a nation, which implies that the policies of a government towards trade influences the operations in a market (Frieden and Lake 1). In this regard, this section of scholars identifies government’s policies as the fundamental factor defining market operations. Thus, the laws, regulations, and policies a government implemented within its boundaries were responsible for the behaviour of markets. Consequently, a government’s policies based on its principles regarding the global and domestic economy affected the way businesses operated within the country’s boundaries. On the other hand, Frieden and Lake noted another group of scholars used a different approach to define political economy (1). In this regard, this group’s main focus was on the basis that the economy affected political actions in a nation, which effectively shaped a governments policies (Frieden and Lake 1). For this group, economic activities are responsible for shaping the policies that a government adopted regarding its foreign policy or even its internal governance structures. Hence, the operations of a market necessitated and shaped a governments policies with the government implementing the policies through legislative measures. Nevertheless, the two different approaches are complementary since economic markets and politics cannot work without each other since they are mutually interactive (Frieden and Lake 1). While describing the international political economy, it is crucial to note the importance role played by domestic-international interaction. In supporting this argument, Frieden and Martin noted that internal levels of political economy and foreign affairs policy were a critical foundation to integrated and in-depth international relations in a nation, which effectively fits the description of international political economy (120). This approach considers a nation’s domestic policy on foreign issues as instrumental in directing the approaches that the nation used while interacting with other foreign governments, which enables the nation to design economic policies on the subject of international trade (Frieden and Martin 120). Thus, a nation’s domestic institutions play a fundamental role in determining the policies of the government concerning international trade. The fundamental factors of interests, institutions, and information are critical in analysing the domestic-international interactions (Frieden and Martin 120). These three factors play a crucial role in determining the international policies on trade and the foreign policy that a nation adopts. Scholars point out to the influential role played by economic and political players in a countrys economic policy decisions, which is a result of the interests of these players (Frieden and Martin 120). In effect, the interests of the political and economic players are responsible for defining domestic policies, which lead to policies regarding international trade and foreign policy based on the interests of these players. Furthermore, institutions play a role in aggregating the interests of these economic and political players, which is akin to delegation of decision making responsibilities to other actors (Frieden and Martin 120). In this case, this meets the definition of international political economy that focuses on a nation’s politics since it involves the interests of political players and economic players in defining the policies a country adopted towards their foreign policy and international trade. In addition to interests and domestic institutions, information structures in a country affect the choices of a nation’s policies and its bargaining power in the global economic world (Frieden and Martin 121). In this case, information regarding international trade and policies in other nations enabled political and economic actors to implement policies based on the information their structures offered them while bargaining was a result of information a nation had in relation to another country. One approach to domestic-international interaction confines itself with identifying effects of the international economy on three aspects of domestic information, interests, and institutions that influence domestic policies (Frieden and Martin 121). However, Trentmann cautions, “The formation of interests is not an unmediated process by which economy imprints itself on the mental landscape of the individual” (226). On the whole, the international economy can influence a government’s foreign policy in two different ways. In this regard, the first approach identifies the preferences of a nations political and economic actors based on the global economy (Frieden and Martin 121). In this case, it is evident that there are players in a nation who hold a stake in the governance and formulation of policies regarding economic policies and foreign policies. In effect, any global economic trend that might have an effect on their resources influences their decisions in pushing for favourable policies. These players might be multinational firms in a country or any other interests group that push for enactment of legislations that have an effect on their interests. Frieden and Martin noted that the international economy had the possibility of making previously sensible policies untenable (121). In this case, it is evident that globalization makes it impossible for a government to control trade beyond its borders. In effect, replacing policies, related to a nation’s exercise of control, with other policies that are more feasible is highly unlikely. In another approach, which describes international political development, globalisation influences the views of a nation towards policies related to welfare states or policies similar to those that provided for a welfare state (Frieden and Martin 122). For example, it is evident that globalization has limited the role of the government in taxing the capital of business organizations. In this regard, this limits the governments role in instituting policies meant to tax capital since globalization inhibited the policies similar to those practised in a welfare state. Conversely, Garret suggested, that the effects of globalization were less limiting and effectively allowed governments to institute economic policies for international trade (qtd. in Frieden and Martin 122). Nevertheless, it is evident that the two arguments share the common ground that globalization influences the choices a government made regarding policies that affected both national and international policies towards trade. On the other hand, turning around these approaches defining the effects of international factors on domestic interests and institutions can define the changes international economic institutions had on the information available in a nation, which affected the choices of policy in a nation as determined by the domestic players (Frieden and Martin 122). Case in point, the World Trade Organization (WTO) is one of the international economic institutions that can alter a nations economic situation by influencing the policies of the nation. In this regard, the WTO mounts pressure on exporters to lobby against their nation’s policies towards trade in order for them to access international markets (Frieden and Martin 122). In effect, the WTO, in this case, is the international political institution that puts pressure on a section of an interest group in a country. Thus, the interest group, which might be a group of exporters, lobbies its governments to change domestic policies on international trade, or even foreign policy, to enable the group gain access to international markets. Other than the WTO, there are other additional economic institutions that influence the domestic policies of a nation regarding international trade and foreign policy. These institutions include the International Monetary Fund and the World Bank, which offer loans and aid to a country. However, it is obvious that the two institutions primarily offered their services to nations with conditions meant to influence the policies of the governments regarding governance, trade, and foreign policies. An embargo is an economic tool used to influence a government to change policies due, which effectively is a result of international political economy. In this case, nations use trade embargoes to influence changes in other nation’s policies. Case in point, nations joined efforts in a joint embargo against South Africas apartheid regime and linked the governments apartheid policy with international trade (Veseth 5). In this case, nations were able to inhibit the amount of imports that South Africa obtained while uniformly reducing the amount of exports the country shipped to other nations that participated in the embargo. In this case, the embargo pushed the apartheid government to change its domestic policies regarding segregation. In another illustration of the use of embargoes, the United States embargoes on Cuba ensured the country re-evaluated its domestic and foreign policies (Veseth 5). In conclusion, it is evident based on the foregoing that an individual should seek to study the interactions between domestic factors with international factors in terms of trade and foreign policy in order to understand international political economy. In addition, it is evident that politics and economy go hand in hand with the two interacting mutually. In effect, describing international political economy involves considering a sequence of aspects, which are mutually interactive and interrelated with each aspect complementing the other. In view of this fact, describing the international political economy will involve identification of the socioeconomic interests in a group, an individual, or a government. In addition, it will involve the identification of the organization of a group and the organization of the group. Furthermore, it will involve identifying the general interests of a group and approaches an interest group uses to express itself in terms of domestic laws and legislation. Based on identifying each group and its dynamics, a description of international political economy will also include identifying the interaction level of a nation at the international level. In this regard, this approach emphasises on information in the international arena regarding relationships of countries. In addition, international institutions such as the WTO, IMF, and the World Bank play a pivotal role in defining policies of a nation in a variety of ways, which effectively defines international political economy since an international institution has the capability of influencing a nation’s policy. On the other hand, economic tools such as embargoes help define a nation’s policies towards governance, foreign policy, or even international trade. Overall, describing the international political economy will involve describing the interaction between the economy and politics in the global world. Works Cited Frieden, Jeffrey A., and David A. Lake. International Political Economy. 4th ed. New York: Bedford/St. Martins. 1999. Print. Frieden, Jeffrey A., and Lisa L. Martin. International Political Economy: Global and Domestic Interactions. Harvard University. N.d. Web. 28 April 2012. . Trentmann, Frank. “Political Culture and Political Economy: Interest, Ideology and Free Trade.” Review of International Political Economy, 5.2 (1998): 217-251. Jstor.org. Web. 28 April 2012. . Veseth, Michael. International Political Economy. Encyclopedia of Life Supports Systems (EOLSS). 2002. Web. 28 April 2012. < http://www.eolss.net/Sample-Chapters/C14/E1- 35-02.pdf>. Read More