Week 3: The Study of Global Political Economy and Its Historical Roots of Theoretical Traditions

Chapter by Matthew Watson

What is IPE ? - The study of the interaction of trade, finance, and the state; and how states respond politically to the (shock) effects of the global market.- One of the key features is the global security architecture or the network of economic and political institutions designed to promote free trade and capital flows. - Many issues are addressed, including unfair financial/trading practices, the North–South divide, and environmental problems.

The Study of Global Political Economy (1) - What is Global Political Economy?

In 1970s , as a sub-field of IR, IPE (or GPE) emerged in response to:

1. Changes and developments in the world and in world politics• End of fixed exchange rate system in early-1970s• Rise in commodity prices in early-1970s (i.e. OPEC

factor)• New International Economic Order (NIEO)

2. Trends and evolution in theory building• Questions about the dominance of the realist agenda

(inter-paradigm debate.) • Gaps in the agenda of the disciplines of International

Relations and Economics [ as a legacy of behavioralism]

1- Changes/developments in the world -End of fixed exchange rate

1- Changes/developments in the world - Rise in commodity prices

1- Changes/developments in the world -NIEO

• In October 1967, G-77 adopted the Charter of Algiers, highlighting

the shrinking share of developing countries in world trade due to

import barriers and long-term declines in the terms of trade.

• In April 1974 the G-77 adopted the Declaration and Programme of

Action for a NIEO despite lacking the support of the US and a small

group of advanced industrialized countries.

• Prescriptions were designed to stabilize and raise the prices of the

commodities. To improve the South's purchasing power, a new

institution was called for to govern the international commodity

trade.

Group of 77 Member Countries

2.Trends and evolution in theory building : Inter-Paradigm Debate

The Study of GPE (2)

– Central focus is the relationship between public and

private power in the allocation of scarce resources

• ‘who gets what, when, and how?’

– Interested in the problem of cooperation under anarchy

(the distribution of power within the global economy &

potential for collaboration)

– Much of the IPE has focused on the link between power

(i.e.hegemony) and collaboration (i.e.open global

economy)

"For the world economy to be stabilized, therehas to be a stabilizer, one stabilizer" (1973, p. 305).

“The 1929 depression was so wide, so deep and so long because the international economic system was rendered unstable by British inability and United States unwillingness to assume responsibility for stabilising it in three particulars: (a) maintaining a relatively open market for distress goods; (b) providing counter-cyclical long-term lending; and (c) discounting in crisis…. The world economic system was unstable unless some country stabilised it, as Britain had done in the nineteenth century and up to 1913. In 1929, the British couldn’t and the United States wouldn’t. When every country turned to protect its national private interest, the world public interest went down the drain, and with it the private interests of all…” (Kindleberger,1973)

" The Pax Britannica and Pax Americana,

like the Pax Romana, ensured an

international system of relative peace and

security. Great Britain and the United

States created and enforced the rules of a

liberal international economic order"

(Gilpin,1981,p. 144).

Under what conditions can independent

countries cooperate in the world political

economy? In particular, can cooperation take

place without hegemony and, if so, how? …

Cooperation can under some conditions develop

on the basis of complementary interests, and

that institutions, broadly defined, affect the

patterns of cooperation that emerge (Kehone,

1984,p.9).

Contemporary Perspectives/Approaches in GPE

• Contemporary perspectives are part of a longer tradition of thought– Important to understand historical roots of

contemporary theoretical approaches to GPE

• Contemporary perspectives/approaches identified in Gilpin’s seminal text:– Realism ( Statism , Merchantalism, Economic

Nationalism) – Liberalism– Marxism/Radicalism

Realist IPE

• Derived from realism in International Relations

• Ontological basis centred on “the state”• Underpinned by rational choice theory• State behaviour seen as maximizing national

interest, which is believed to be self-evident• Has questionable political economy

foundations

19th Century Economic Nationalism

• Friedrich List:– The state’s economic interests were to be

balanced between long-term and short-term goals– “The” national economic interest is comprised of

competing national interests– A nationalist, not statist, ontology– Not necessarily unsympathetic to free trade or

liberal economic policies– Caricatured Adam Smith’s arguments to serve

own political purposes

Mercantilism

• The British Mercantilist School– “Identified” by Adam Smith through crude

simplification of existing views• Designed to show where economic theory went wrong

• Key arguments/ideas:– Importance of a strong state that produced trade

surpluses– Imports were discouraged– Nation’s wealth measured by precious metals

Liberalism (Adam Smith’s) • Political critique of the corruption of the process of

government and simultaneous enrichment of private corporations

– BUT Smith believed government to be indispensable to the formation and reproduction of markets

• Moral critique that emphasized the virtue of “self command”, and respect for others, within a market economy: without self command, market economies would not succeed.

• GPE commentators typically ignore Smith’s The Theory of Moral Sentiments

Absolute Advantage vs. Comparative Advantage – Specialization

Absolute Advantage: One nation can produce

more output with the same resources as the

others.

Comparative Advantage: One nation produces a

good of a lower opportunity cost than the

other. Exp: Doctor & Nurse

Marx’s Political Economy• Critique of the social basis of capitalism– The autonomy of individuals is constrained by the

need to reproduce the capitalist system• Capitalism depends on an ever more-finely detailed

division of labour• Capitalism dehumanizes individuals (“alienation”)

– Workers’ interests do not coincide with interest of the capitalist system • “False consciousness” as a means of procuring consent• The logic of extracting “surplus value” from labour

results in a procedural injustice

Surplus Value Difference between a worker's wages

(exchange value) and the value of goods and services she/he produces (use value). Since use value is higher than the exchange value, workers produce a positive surplus value through their labor. Marx used surplus value as a measure of worker exploitation (or profit) by capitalism.

Read more: http://www.businessdictionary.com/

Modern Marxists (1)

• Seek to uncover exploitative dynamics in capitalist society, and to present them as infringements of global justice

• Structuralist approach conceives of world economy as a single, integrated capitalist system

– E.g. Lenin• Imperialism is the “highest stage of capitalism”• Capitalism had become a world system

– Dependency Theory (e.g., dos Santos)– World Systems Theory (e.g., Wallerstein)

“Imperialism emerged as the development and direct continuation of the fundamental attributes of capitalism in general. But capitalism only became capitalist imperialism at a definite and very high stage of its development…when the features of a period of transition from capitalism to a higher social and economic system began to take shape and reveal themselves all along the line. Economically, the main thing in this process is the substitution of capitalist monopolies for capitalist free competition…Monopoly is the transition from capitalism to a higher system. “ ( Lenin, p. 88.)

Dependency Theory• Developed in the 1960s and 1970s to account for

structural inequalities in global wealth and power.• The dependency theorists not only rejected

modernisation theory but also radically undermined Marx’s view that capitalism is able to promote development.

• Dependency refers to externally imposed structurally unequal relations between the core and the periphery.

• The result is chronic underdevelopment.

The Brandt Line

World Systems Theory• Primary unit is world-system that is ‘capitalist world-

economy’ refers to the inter-regional and transnational division of labor, which divides the world into core, semi-periphery, and the periphery countries.

• Core countries focus on higher skill, capital-intensive production, and the rest of the world focuses on low-skill, labor-intensive production and extraction of raw materials.

This constantly reinforces the dominance of the core countries.

• Nonetheless, the system is dynamic, in part as a result of revolutions in transport technology, and individual states can gain or lose the core (semi-periphery, periphery) status over time.

The Western interpretation of its own "Rise of the West" has suffered from a case of "misplaced concreteness." What should become increasingly apparent is that "development" was not so much "of the West" as it was of and in the world economy. "Leadership" of the world system has been temporarily "centered" in one sector and region ,only to shift again to one or more others. That happened in the nineteenth century, and it appears to be happening again at the beginning of the twenty-first, as the "center" of the ‘world economy seems to be shifting back to the"East." (Frank,p.8)

Modern Marxists/Critical Theory (2)

• Robert Cox– Made a distinction between

• “Problem solving” goals of non-radical approachesand

• Transformative goals of critical approaches–Question the political and moral legitimacy of the foundations of the world ( i.e. value free social science) –Aspirations for a “better” world free of the logic of economic exploitation – a continuation of the political Marx

Methodological Distinction to Sub-Divide the Field

• “IO School” / “American School”• Emphasizes the “scientific” method• Adopts rational choice framework• Links economic outcomes to interests• Much more restricted scope of study

• “British School”• Emphasizes the normative method• Focuses on the social construction or origins of

economic interests and identities• Economic behaviour is understood to be more than a

purely rational response to external circumstances• Focuses on the “bigger picture”

Alternative Distinctions

Conclusion

• Simple, clear-cut divisions obscure the complex and diverse theoretical underpinnings of IPE as a field of study

• A more accurate understanding of the historical roots of contemporary theories suggests that the categorization of contemporary theories is a problematic exercise