International Political Economy in Theoretical Traditions - Essay Example

International Political Economy Introduction The term “political economy” makes it clear that the phenomenon lies at the crossroads of politics and economics. In other words, political economy describes how political power influences economic results and how the economic factors affect politics. Thus, international political economy revolves around activities which take place among international actors like states, global corporations, international organisations, and social movements. Admittedly, there are a large number of theoretical frameworks in international political economy (IPE). Traditionally, the questions of international political economy have been discussed along three theoretical traditions. They are mercantilism, liberalism, and Marxism. Mercantilism and international political economy Admittedly, mercantilism advocates extensive state regulation of economic activity for the sake of national economy. That means mercantilism wants to have all economic activities subservient to the interests of the state. The theory argues that if there is no formal authority given to the state, the result will be a ‘state of nature’ which is marked by brutality. So, it is necessary to surrender individual preferences and likes to universal good. Thus, according to mercantilism, collectivism is more important than individualism, and strengthening of state’s power and wealth is the best way to ensure public welfare (Keegley and Blanton 2012, p.457). The early mercantilists took into consideration the fact that the wealth of a nation is measured in the form of the quantity of gold and silver in its public treasury. In order to strengthen the same, the government intervenes in the local and international economy. While the state activity in the domestic economy includes effective collection of revenues, the efforts in the international sphere appear in the form of protectionism. In other words, mercantilism argues that the solution to solve inequality for a state is to ensure balance of trade. In the words of Crane (1997, p. 35), a state is supposed to run a balance of trade surplus, maintain an inflow of specie, in order to retain its position in the international economy where all states are acting in self-interest. Liberalism and political economy Later on, Adam Smith started criticising the claims of mercantilism, and developed a new line of thinking. According to him (cited in Sally 2002, p. 112), the market has an ‘invisible hand’ of itself, which is sufficient to meet the self-interests. In other words, when markets function freely, based upon division of labour, there will be maximum efficiency and growth; and the claim is that the political intervention in the market only results in a weakening of the fortunate results of free markets (ibid). Thus, the liberalism draws out the implications of comparative advantage and free trade. When one moves from the national economy to the world economy, one can see that there is the possibility of reaching equilibrium in international economic relations without state interventions. According to the quantity theory of money, changes in reserves are directly linked to changes in domestic prices; that means if there is a market that is free from political influences, trade and payment imbalances will reach equilibrium automatically (Rosow 1997, p. 42). If this point is explained further, liberalism points out that growth and equilibrium should be reached through comparative advantage and free trade. That means, every nation is supposed to find and specialise in the area where it can introduce products with comparative advantage. Thus, liberalism is basically against the notion of war because war, or the use of power by states, is the result of misunderstanding of the national interests. According to liberalism, peace serves the interests of every country, and war or the use of force weakens the productive capability of every nation and drain wealth and power (Watson 2009, p. 37). In other words, liberalism claims that the free trade is based on mutual interest and hence, even without the presence of political institutions, it is possible to retain world peace. Marxism and IPE The basic assumption of Marx is that human motivations and orientations are purely dependent on the material environment that surrounds the people at the given point of time. Thus, Marx does not see people as absolute, rational egoists. According to Marx, human history is marked by various modes of production ranging from feudalism to capitalism. In other words, there will be periodical changes in the modes of production from time to time in human history. To illustrate, capitalism is marked by alienation of workers from their products of their labour and exploitation of workers (Burnham, n.d); and evidently, it is this class system which gives the necessary social situation required for the amassing of capital. This surplus gained through the selling of the products should be properly reinvested by the capitalists for survival. If they fail to accumulate, they are in danger of getting driven out of the market by competitors. However, despite this accumulation, capitalism is prone to crisis, breakdown, and revolution. In other words, in the opinion of Marx, there should be a growing inequality between the capitalists and the working class in order to facilitate revolution and new forms of production. Thus, through the concept of historical materialism, Marx puts forward the idea that every nation in the world must experience a stage of capitalist development. Admittedly, the points put forward by Marx were not sufficient to describe IPE, but his followers introduced better explanations and expansions for the IPE foundations laid by Marx (International Socialism, 2007). To illustrate, according to Lenin, accumulation of capital leads to another stage called imperialism at which capitalists try to expand internationally. It happens when the opportunities for continued growth are not available in the domestic market. Thus, capitalists start looking for foreign lands where investment opportunities, new markets, or raw materials are available. However, the internationalization of capital is often hindered by the state territories, and the capitalists overcome these hindrances using their influence and power. However, sooner or later, the national monopolies will start competing with each other, resulting in the Great Power war. Thus, Lenin too agrees with Marx in the fact that due to increased capitalist investment, every nation will undergo capitalist development (Jeong, 2011). Thus, the result will be an economic delay or dilemma which Europe will face. The theory of hegemonic stability In fact, the hegemonic stability concept is the creation of Charles P. Kindleberger in the early postwar era. According to the theory, the hegemon is a rich, powerful and influential state which undertakes the task of offering public goods to the international system. Such public goods vary from stable money, security, and a free trade, which every nation can freely enjoy. Admittedly, it is costly to ensure all these facilities. However, the hegemon still gains and prospers because of its dominant position in the world economy. When the world prospers, the hegemon too prospers. In fact, the hegemon is promoting the provision of public goods in order to ensure its long term survival in the dominant position (Media Wiki, 2010). Thus, one gains the insight that according to the theory of hegemonic stability, it is necessary to have a hegemon in the world to organize and coordinate the provision of international goods (Guzzini 1998, p. 143). In fact, this theory is supported by the example of the existence of the Dutch, The British, and the U.S during different periods of time. It also becomes evident that whenever this dominance of the hegemon is questioned or threatened, the international system falls into total anarchy and conflict (ibid). This, in turn, results in a fall in peace, growth, and prosperity. A comparison of the various perspectives Thus, it becomes evident that the various theoretical frameworks possess totally different views regarding international political economy. So, the solutions they suggest too considerably vary in nature. To illustrate, according to Marx, there is a historical materialism, and the means of production will change from time to time. That means all the world states will gain some prosperity through capitalism at one stage. However, as capitalism is based on alienation of workers from the products of their work, and exploitation of workers, there will be increasing unrest, followed by revolution. It is this revolution that will help reduce inequality in both domestic and international sphere. Thus, according to Marx, the struggle between classes and the consequent revolution is the way to equality. In the words of Marx, state is only an apparatus used by the capitalists to retain their power in capitalism. On the other hand, mercantilism believes in the active intervention of the state in both domestic and international economy. The theory argues that every state should develop such policies which are totally aimed at the welfare of the state. Thus, the solution to inequality, according to mercantilism, lies in ensuring a balance of trade through state intervention so that the state manages to get some trade surplus. On the other hand, liberalism is against any state intervention. Instead, it points out that the economy has its own system to reach equilibrium of trade, and this equilibrium will serve the interest of all. In other words, the market should be free from political influences to reach equilibrium through free trade and comparative advantage. However, the concept of hegemonic stability has introduced a view that is totally different. The theory points out that it is necessary for the world economy to have some dominant or ‘hegemonic’ states, which ensure basic requirements like free trade, stable money and security. It seems that the hegemonic stability supports the rationality of imperialism. The point is that when a dominant nation ensures that such an economy prevails, all other nations get a chance to prosper along with the hegemon. Thus, the situation benefits all and reduces inequality. Conclusion In total, both mercantilism and hegemonic stability think active governmental intervention is necessary to reduce inequality in international political economy. While the former says governments should act in self-interest, the latter says there should be one government that takes a dominant position to ensure free trade, stable money, and security. However, liberalism believes in the autonomy of market without governmental interventions, and lastly, Marx think equality can be brought about through revolution. References Burnham, P., n.d. Marx, international political economy and globalization. Marx, IPE and Globalization, pp. 103-112. [Online] Available at [Accessed 19 June 2012] Crane, G. T. and Amawi, A., 1997. The Theoretical Evolution of International Political Economy: A Reader. New York: Oxford University Press. Guzzini, S., 1998. Realism in International Relations and International Political Economy: The Continuing Story of a Death Foretold. London: Routledge. International Socialism, 2006. Marxist political economy and the crisis. A Quarterly Journal of Socialist Theory. [Online] Available at [Accessed 19 June 2012] Jeong, S., 2011. Lenins economics: A Marxian critique. Research in Political Economy, 27, pp. 223-254. Keegley, C. W. and Blanton, S. L., 2012. World Politics: Trend and Transformation. USA: Cengage Learning. Media Wiki, 2010. Hegemonic stability theory. [Online] Available at [Accessed 19 June 2012] Rosow, S. J., 1997. Echoes of commercial society: Liberal political theory in main stream IPE. In K. Burch and R. A (Eds) Denemark Constituting International Political Economy, p. 35. USA: Lynne Rienner Publishers. Sally, S., 2002. Classical Liberalism and International Economic Order (Routledge Advances in International Political Economy). UK: Taylor & Francis. Watson, A. M. S., 2009. The Child in International Political Economy: A Place at the Table. New York: Routledge. Read More