Analysis of the Theoretical Approaches to International Political Economics - Research Paper Example

Analysis of the Theoretical Approaches to International Political Economics International Relations: Global Political Economy Abstract This paper examines the concept of International Political Economy (IPE). It begins by evaluating the concept of International Political Economy and some of the key factors, mainly political, economic and historical elements. The paper goes on to focus on three main elements of IPE, International Trade, International Finance and Third World Development. These three elements are examined critically. Their strengths and weaknesses are examined and their role in IPE are identified in a very comprehensive manner. The paper concludes with the findings that these three elements of IPE are very important. However, there are issues of protectionism which affect any analysis of international trade. Also, there is an issue with the consistent application of standards in international finance around the world. Finally, the Third World comes with many issues that makes it difficult for it to be assessed meaningfully by IPE experts. Introduction International Political Economy (IPE) is a very broad discipline which explores different elements of the financial and economic aspects of international studies (Frieden and Lake, 2000 p3). This is done through an evaluation of various power and wealth distribution systems and methodologies that give an idea of how collective units of societies are faring in economic matters. Due to the broad nature of this IPE, it lends itself to numerous systems and methods of analysis and evaluation. This paper examines three of the main theories of evaluating international political economies; International Trade, International Finance and Third World development. The research undertakes comparative analysis of the main assumptions of these theoretical elements of IPE and evaluates how they operate. In attaining this end, the strengths and weaknesses of each of the concepts will be evaluated. Also, comparative analysis will be conducted on these three theories. The research will be done through the evaluation of secondary sources. It will involve the identification of key elements of these concepts. This will be followed by the researcher's opinions on their appropriateness and how well they operate in attaining the main ends of IPE on the global and inter-regional levels. Background of International Political Economy The evolution of International Political Economy as a discipline of social science and a branch of academia is credited to economists, political scientists and historians (Cohen, 2008 p6). This is because the concept of IPE attempts to integrate these three different fields to provide a system of analyzing economic systems and structures. Basically, economics provides the traditional measures and systems for the analysis of individual nations and groups of nations for the purposes of comparison and evaluation on a period-to-period basis and a region-to-region basis. Also, political science gives room for collective analysis and evaluation of the overall economies of nations and regions of the world. History is the basis for the evaluation of past trends and events and how they define economic activities on the international scene at different points in time. Gilpin on the other hand defines IPE from a very practical perspective. He states that international political economy is “the reciprocal and dynamic interaction of international relations and the pursuit of wealth and the pursuit of power” (Gilpin, 1975 p43). This definition seems to present IPE as a continuous and incremental increase in the knowledge of a given area and how political structures interact to determine the accumulation and distribution of wealth. Gilpin therefore presents IPE as a distinct discipline which integrates market structures and political analysis. In this view, the operations of political structures and elements of the economy provide the basis for the study of IPE. As such, IPE defines the sphere of international operations and the resultant effects of these operations (Keohane and Nye, 1997 p122). It is therefore natural that important elements of measuring economic activities like Gross Domestic Product and the like to be used as tools for measurement in IPE. Historically, the works of Post-Renaissance moralists like Adam Smith and William Petty sought to create universal economic wellbeing for people in different countries around the world. These theories formed the genesis of the theoretical framework of IPE (Cohen, 2008 p7). As the structures of public finance evolved, the split between the public sector and private sector became evident. As such, IPE focused on producing universal methods for the evaluation of public and private sector activities over different parts of the world. The Russian Revolution ushered in a new phase of IPE in which the ideas and concepts of Marxism sought to redefine the systems of international political economics. Thus, in the period after the Second World War, four main models of IPE evolved: 1. The British model 2. Soviet Marxist view. 3. American Westernized model. 4. Chinese Marxist/Third World model. The British colonial models and systems of evaluating the IPE was based on an imperialist system. The Soviet system sought to provide an evaluation of the prosperity that the working class and society attained as a whole rather than the public sector as it became the norm in British imperialist thought. On the other hand, America emerged as the champion of global free enterprise. The American view of IPE was tilted towards one that supported multinational corporations and the private sector (Gilpin, 1975). Finally, the Third World model of IPE championed by the Chinese sought to support the rapid development of nations in the developing world. Due to the divisions and disintegration of dominant thought in IPE, there is an inherent issue of subjectivity and the shift of focus in the creation of IPE theory. This is because the focus of various blocs of nations might differ and this might affect consistent application of principles and ideas in IPE. The rest of this project will focus on the issues with the use of international trade, international finance and third world development as tools in the examination of IPE. It will do this by evaluating the various aspects and elements of these methods and how it affects the outcome of IPE drives. International Trade International trade refers to the exchange of goods services and capital across borders (Cohen, 2008). This forms a fundamental component of International Political Economy because it is steeped in the politics of trade deal that cuts across public and private sectors of countries around the globe. There are a lot of interactions between various actors in international trade. The main actors are governments and businesses involved in such trades. International trade became widespread after years of globalization and internationalization which gave the impetus for the increase of the volume in trade across borders. The history of international trade dates back to the years of the silk route which involves famous names like Marco Polo and the like (Brecher and Harvey, 2002). However, the formation of modern nations after the Renaissance of Europe. The growth in international trade in the 20th century is often credited to the unprecedented growth in industrialization that occurred in that century. This as supported by the growth of transnational corporations and multinational companies that benefited from harmonized trade standards, easy transportation and better technology. As such, international trade forms a significant part of international political economy in today's world. Early economists based their analysis of international trade on the concept of comparative advantage, whereby nations produced excessive volumes of items because it was in abundance in their country. These excesses were exported in return for imports that are not very common in the home country. As the concept of international trade increased, there was a trend of restricting international trade volumes through tariffs and protectionist policies to raise funds for governments and also protect local producers (Brecher and Harvey, 2002 p246). This is one of the main issues in international political economy. This is because there is a high degree of subjectivity in setting these tariffs. These restrictions in international trade naturally leads to conflicts between nations and difficulties in analyzing international political economics. This is because some nations that are more powerful are likely to harass less powerful nations through tough tariffs. This makes it complicated to analyze and evaluate international political economic trends. In order to bridge the gaps, there are two theories that are used to examine and assess international trade to provide economically viable methods of analyzing IPE matters. The first is Comparativism and the second is Hegemonic Stability Theory (Brecher and Harvey, 2002 p247). Under comparativism, the state's role in international political economy is acknowledged. As such, all analysis places a high degree of emphasis on the policies and systems of tariffs and protectionism that exists in a given society. The issue with this concept is that it gives room for so many different policy frameworks which makes international political economic analysis a little complicated and cumbersome. It is not easy to get a universal approach and this affects consistency and provides complex methods of comparisons. The hegemonic stability theory attempts to examine the distribution of power in a given society. The theory argues that there is the need for openness in international trade in order to attain the needed goals of comparisons and analysis. So this theory attempts to eliminate the protectionism and tariff systems of nations and view nations as equal players. However, in reality, this rarely happens and international trade is often restricted through some duties and tariffs. The trend of tariffs and protectionism has been quite disturbing in IPE. Many people have spoken against them and efforts have been made to get to a hegemonic status where these tariffs and trade blocks are to be reduced. The General Agreement on Tariffs and Trade (GATT) gave way to the formation of the World Trade Organization (WTO) in 1995 (Jorgensen et al, 2006). The main features of the World Trade Organization is to reduce tariffs and ensure that trade is conducted in an atmosphere where trade wars are restricted and a more egalitarian relationship exists between nations. Also, the WTO aims at promoting free trade and it seeks to end conditions and terms that are put before nations in order to promote order and successful sales of goods and services across borders. In spite of all its efforts, the World Trade Organization has not been successful in attaining its objectives. There is still a high degree of protectionism in many parts of the world. This is often done through strong and powerful nations that can always get their way in debates with the World Trade Organization. Additionally, some nations are unfairly disadvantaged in international trade. Due to this, they can only play according to the terms of dominant countries and dominant blocs. This leaves international trade with a high degree of issues which affect important elements of consistency. Due to the disparities, the use of international trade as a basis for IPE is highly limited. This is because the figures generated are highly unreliable. This is mainly because the information delivered by such models of analysis are prone to politics, manipulation and control of trade routes and system. This affects IPE as a science and makes it less effective in providing empirical results for important analysis. International Finance International finance is another important component of IPE. It includes the monetary and macro economic interactions amongst nations to provide aggregate information and data for IPE decisions (Germain, 1997 p5). International finance is about the various interactions of a economies in a consolidated format. International finance traces its history back to international agreements and accords that have been signed between nations to work within certain frameworks in international financial interactions. These agreements have paved the way for a world order which ensures that business activities in nations are interrelated in many ways and forms. In stock exchanges around the world, traders rely on “news of profit warnings, credit ratings, share offers, mergers and acquisitions in the base country and around the world” (Langley, 2002 p1). This implies that activities in foreign countries have immediate effects on the global political economy. This is due to international organizations, national governments, technology and the financial press (Fictner, 2007 p2). For example, the foreign currency exchange market is very reactive to incidents that occur. In mid-May 2012, news that Greece would leave the Eurozone created so much panic that the Euro currency fell significantly within an hour after it was announced. Also, when the United States announces its non-farm payrolls, the value of the dollar changes immediately because speculators and other assets are transferred immediately after the figures are released. This shows that there is a serious connection between nations and states around teh globe. In assessing the impact of international finance on IPE, Cohen (2002 p429) states that the Bretton-Wood agreement ushered in a new order of international finance to thrive. The Bretton-Wood system set up rules for commercial and financial relations in the world's industrial nations in the 1940s. It took effect after the Second World War when America replaced Britain as the global superpower. The main idea of the Bretton-Woods accord was to create a system of international finance and rebuild the post-war economies. This led to the establishment of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) now part of the World Bank Group. The agreement came with a monetary policy which tied the value of currencies around the world to the US Dollar. Although this changed in the 1970s where the gold standard came to place, the US Dollar remains a major standard for international transactions. Currencies' worth are meant to be determined by the forces of demand and supply. Basically, international finance is an important method of keeping nations and economies in check. It provides the grounding for the proper control of resources and finances in the public sector of nations. Governments are supposed to cut their public sector spending and ensure that the value of their currency is stable. If they spend too much, the currency will have to be devalued and this has implications on the international market. As such, it provides a system to ensure that governments and nations comply with certain important standards that help to promote uniformity and fiscal/economic discipline. This created a system for the replication of the monetary system of balance of payment which began in the Netherlands in the 1600s. In spite of its advantages, the concept of international finance has major challenges and issues. First of all, it can be used as a system for international manipulation. Rich and powerful nations can always abuse it and this will affect their potency as tools for IPE. Nations like Zimbabwe which came under severe sanctions after expelling its White farmers of British descent have shattered economies simply because of manipulations in international finance. In some countries where the informal sector is stronger, there is an inherent problem for such nations to balance their national accounts. This is because the informal sector is generally not connected to centralized financial systems. As such, these nations will always have shortfalls in their activities and this will present them as nations with weak economies. This means that consistency in the use of methodologies in international finance is quite an issue since circumstances vary from country to country. Thirdly, the collection of data for the proper evaluation of international finance is problematic. Although there are standards and rules, there are still wide variations in national accounting and finance systems. This makes the concept of international finance a little less effective as a global tool for analysis of different national economic systems. In other nations, particularly in the developing world, there is a big risk for people in government to forge figures when they are not available. This is because there is a strong desire to show that these nations are at par with other nations around the world. Third World Development The Third World is used to classify and identify nations that are amongst the poorest in the world. After the Second World War, the United States led the consolidation of European nations west of the Soviet occupied territories through the Marshall Plan and the North Atlantic Treaty Organization. This expanded to include Japan and some other friendly nations which became known as the First World. On the other hand, the Soviets consolidated the Eastern European states as well as other nations into the Second World which consisted mainly of Socialist and Communist states. Although China was a Communist state, it had differences with the Soviet Union and broke off to build strong links with nations that were not under either the First or Second World classification. This led to the consolidation of many nations in Africa, Asia and Latin America in the Non-Aligned Movement. Third World Development has been a major problem for IPE matters. This is because it is made up of nations that have serious problems with backwardness and development. The human development index per capita is very low and economic output is very low with extremely high variations and ranges. Due to this, discussions on such countries cannot be carried out in a meaningful manner. This leaves a big gap in IPE analysis. There is a serious problem with data in the Third World. Most countries in this zone continue to rely on pre-colonial economic activities. These activities are in the informal sector and as such, there is a major problem in collecting data and comparing the data with that of developed countries in the Second or First World. Also, the problem of colonialism, illiteracy, improper governance and the Cold War has left a culture of dependence in the Third World. These nations have to rely on nations in the First and Second World for loans. Due to this, there is a major complication in analyzing such nations and their economic trend for integration into the IPE framework. Another issue with the Third World is the problem of debt and debt management. Most of the nations are highly indebted. And they pay a lot of their money to service the interest on their huge debts. As such, it is difficult for these nations to be integrated into the IPE framework. Although nations in the First World have done a lot to cancel some of these debts, it is argued that these debt cancellations come with huge structural reforms which leads to cuts on important social services like education and health (Nagle and Guinness, 2011 p417). Also, these debt reliefs do not help to counter corruption which is often the cause of the woes of these nations. Due to this, there is a trend of issues related to the Third World and Developing World. Conclusion International Political Economy provides a framework for the study of political, economic and historical elements of nations within the framework of international relations. It is meant to provide a holistic picture of economic activities in a global or international context over a given period of time. The main tools for this analysis include international trade, international finance and world regional categorization. International trade shows trends and activities in relation to imports and exports. This comes with a major issue with trade barriers and protectionism. International finance is steeped in agreements for international trade made amongst nations. In spite of its importance, there are issues with consistency and the universal application of international finance standards. Although categorization of the world into regions makes it easy for analysis, the Third World provides a major challenge to IPE. The Third World nations have major issues that like debt problems, illiteracy and low human development indices that makes it difficult for IPE analysis to be done in such nations. References Brecher, M, and Harvey F. P. (2002) Conflict, Security, Foreign Policy and International Political Economy. Detroit: University of Michigan Press. Cohen, B. J. (2002) “International Finance” Handbook of International Relations London: SAGE Publication. Cohen, B. J. (2008) International Political Economy: An Intellectual History Woodstock, Oxfordshire: Princeton University Press. Fichtner, J. (2007) The Role of London as an Offshore Financial Centre Berlin: GRIN Verlag. Frieden, J. A. and Lake, D. A. (2000) International Political Economy: Perspective on Global Power and Wealth London: Routledge Publishing. Germain, R. D. (1997) The International Organization of Credit: States & Global Finance Cambridge: Cambridge University Press. Gilpin, R. (1975) US Power and the Multinational Corporations: The Political Economy of Foreign Direct Investments New York: Basic Books. Jorgensen, K. E., Pollack, M. A. And Rosemond, B. (2006) Handbook of All European Union Politics London: SAGE Publication. Keohane, R.O. & Nye, J.S. (1997) “Interdependence in World Politics.” The Theoretical evolution of international Political Economy: a reader. New York: Oxford University Press Langley, P. (2002) World Financial Orders: An Historical International Political Economy London: Taylor & Francis Group. Nagle, G., and Guinness, P. (2011) Geography London: Hodder Education. Read More