International Political Economy - Essay Example

International Political Economy By: + Challenges Facing International Political Economy The relationship between politics and economics are interrelated in that they affect each other by either controlling the policies or practices. International Political Economy is currently widely appreciated as a subject of high theoretical research and applied policy analysis. It sorts to identify the relation between political influence and the global economy in terms of nation-state political actions and their effects to the international trade and monetary flow. Consequently, this influences the environment in which entrepreneurs make economic choices and nation-states make political choices1. As the International Political Economy grows and becomes stronger it is difficult to ignore certain aspects in relation to international economic and international politics without the consideration of mutual influence. As globalization continues to expand, both political and economic forces play a great role in shaping the outcomes of international economic affairs. Today the world faces numerous political, economic and social challenges as it integrates into the International Political Economy. Based on these challenges, policy makers, economists and the civil society have studied the issues and challenges that the International Political Economy is currently facing, the root causes, effects and possible remedies. This is essay will dwell on the three main challenges facing the International Political Economy the roots, causes and possible remedies that could solve these issues2. The International Political Economy is faced by many challenges and problems but the three main challenges include, structural problems in the International Political Economy, financial resources and economic reforms challenges and finally globalization. These challenges have been studied by scholar who have dwelled on the implications of these challenges to nations as case studies in terms of poverty reduction, corruption eradication, stability of their economy and the influence and efforts that the International Political Economy bodies have offered to settle such challenges in those countries3. Structural problems in the International Political Economy are the major challenge that faces the International Political Economy. The International Political Economy structure focuses on how individuals, states, and markets globally are interconnected to each other and the arrangements that led to their interconnection. The International Political Economy ’s problem initially developed with the introduction and development of international trade and international finance whereby economists and political analysts approach them in completely different ways and points of view. International trade is the centre of International Political Economy analysis due to the economic and political importance it presents mainly being that is represents trade, a mirror that acts to reflect the market tensions and important state market tensions in that era. The root cause of international trade posing as a challenge is because, at the state level, nations thinks and act in terms of population and geography, two factors that are relatively stable and define the nations domain while on the international level markets are defined by the exchange and extent to which the forward and backward linkages are derived from. These market borders are transparent, porous and dynamic in nature are rarely coincide with state borders thus international trade becomes an object of political scrutiny. This difference results in the scrutiny of political analysts in that they view domestic trade as fundamentally diverse from international trade while on the other hand economic theorists view no distinction between the two. Political analysis argue that international trade rises many questions concerning national interests in terms of military security and security of the nations economy. Their view is that the complete impacts of exports and imports on a states national security depends highly on to whom and under what terms are the goods being exported to or imported from. High exports can at times be perceived as aggressive policies by the target nations which could in turn be taken as possible security threat. A recent political problem experienced by Japan and China in respect to the USA in terms of extremely large bilateral surplus of exports compared to imports has also caused the rise of the political analysis concern over international trade. The post-war international trade organizations such as General Agreement on Tariffs and Trade (GATT) and WTO that where developed to enhance free trade by4 progressively reducing barriers hindering it eventually created an environment for the immergence of retaliation and destructive competition since economic and political stands and viewpoints concerning international trade ended up competing for attention. In theory, the creation of regional alliances such as the North American Free Trade Area (NAFTA)5 and other unions such as EU (European Union) creates both economic and political benefits while at the same time presenting both political and economic costs in that; in politics there is democracy deficit a problem viewed as a security threat since policy decisions are made above the nation-state level and economically in that the regional free trade in never consistent with global free trade thus a problem of inefficiency emerges resulting to wastage of scarce resources and eventually a reduction in the global welfare. International Finance is also part of the structural problem that defines challenges facing the International Political Economy. This includes the financial analysis of exchange systems, portfolio capital, international capital movements, debt flows and the domestic and international organizations and political structures they relate to. Although international finance is perceived as purely economical and less political compared to international trade, scholars have presented evidence that defers to the notion. The initial concern presented by analysis in relation to international finance is the implications of the International Political Economy in technical matters such as the development and running of international economic institutions. The structure presented by the Bretton Wood agreement designed a monetary system constructed on the dollar-gold standard thus all international currencies where fixed and exchanges in terms of the US dollar which by that time was defined by a fixed amount of gold6. Since the US dollar was the key reserve currency, the duty of managing the international monetary system by default was left to the United States. Although the United States was advantaged, the Bretton Woods System gave a dilemma in that the United States had to decide between putting its domestic needs before its international responsibilities thus the US was eventually forced to remove the link between the dollar and gold. This demonstrated that the International Political Economy has power over the international finance set by the international monetary system and thus the nation-state level politics are bound to feel threatened by it. The second instance to show the influence of international finance in International Political Economy is the development and growth of the Euro. The Euro is a currency adopted by majority of the European Union members7, thus is acts as both as political and economic. However the primary basis for the unification of the currency was political in nature since it was bound to bind Germany to the European Union partners and hence prevent it from shifting to the Eastern and Central European relations. Although scholars argue that the unification and adoption of a single currency was more aimed at more political reason other than restraining Germany, it also had an economic advantage in that it would remove the need for economic tools such as monitory policy adjustments and exchange rate adjustment. It was beneficial in that is a nation was in a crisis and needed help, it would lower its interest rates to simulate investment without incurring much loss and stimulate the purchase of domestic products. The fixation of the exchange rate dictated that no Euro nation would have an independent monetary policy. This presents a nation with a need to revise its domestic monetary policies thus illustrating how complex the political economy of international money is. The possible remedies in relation to structural problems, financial resources and economic reforms challenges of the International Political Economy, lie in the development of policies that will govern the utilization of international trade and international finance whereby despite of the conflicts in both political and economic fields the roles in resource allocation, the market and the nation-states since they are interdependent if the world is to witness a successful implementation of an International Political Economy. Market partnerships with mixed economic systems should be developed to initiate the movement of countries with different economic systems to adopt a liberal economic system. The nation-states should have reforms and policies that reduce domestic control and intervention of politics in international markets to deploy an efficient International Political Economy. Globalization is another aspect that poses as a challenge to International Political Economy, the core aspect of globalization is to promote the development of a ‘borderless world’ through technological changes and the change of government regulations concerning globalization. Globalization is a both a political and economic concern in that political interference is needed to allow the growth and spread of globalization while on the other hand the economic side of it highly depends on the growth of globalization to reach global markets. This is issue is thus causing a problem in International Political Economy due to nation-state regulations for example, globalization would not have developed as fast in the 1970s if freedom was not granted to market operators and the abolishment of post-war capital controls. However as globalization is increasingly being accepted in the world, a new form of political globalization (global politics) in on the rise resulting to nation-states ignoring political borders. Political powers are continue to immerge and their political activities extend across the nation-states political borders thus nation-states have less control of the domestic trade which could lead to the political powers exploiting the nation-states resources, interests, domestic privileges and their legitimate realm of authority. For example the influence of western powers has resulted to some countries have decided to counter the influence through the rise of rebels and ‘freedom fighters’ such as in the Middle East. Although there are some global issues that have emerged in the past that require the coordination of states and overriding of nation-state political borders such as environmental degradation, human rights and nuclear safety whereby one state cannot be left to handle and regulate the use on its own since it can lead to diverse and devastating effects that could affect the entire world such as the development of nuclear weapons, the ‘political globalization’ also poses a threat in that the regulation of these issues is handled by a large political power which mostly makes decisions based on its domestic interests. On the other hand the, the limitation imposed on these issues poses as an economic challenge in other instances. For example, since he use of nuclear energy is restricted, a country cannot benefit from cheaper nuclear powered power plants to increase the development of its economy without the consent of the ‘global political power’ which in most cases results to a denial of use due to domestic interests. Generally, the spread of globalization today is not viewed as simply an invasion into the markets of nation-states but as also an encroachment of the political stability experienced by sovereign states. Globalization has brought with it the erosion of state sovereignty such as the change of their monetary policy leaving them at the mercy of the global economy. Although the development of regional organizations and international agencies is on the rise to ‘protect’ the privileges and sovereignty of nation-states, they are also under the control of a political power and its actions are highly influenced by it. This is a major problem in the International Political Economy since some nation-states are retaliating from opening their markets for globalization in the feat of losing control of their democracy, morals and governance as demonstrated by countries in the Middle East8. The challenge of globalization is a difficult one since it grows on a daily basis, the best remedy that the International Political Economy can try to implement is to make sure that global political influence is limited. In conclusion, the International Political Economy faces a lot of challenges most of which are minor9, and can be easily remedied with the implementation of regulations on a global level the realization of a purely independent and free International Political Economy is not far not is it close because it has to overcome all of its challenges first. Bibliography Balaam, D. and Dillman, B. (2011). Introduction to international political economy. Boston: Longman. Coe, N. (2012). 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