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Theories of International Political Economy

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This lecture is about theories of international political economy or global capitalism. We will first review historical debates on global capitalism that will cover mercantilism and liberalism. Those two are the prominent worldviews or general approaches to global capitalism and how individual economies relate to it. We will do that because those two mindsets approaches are still relevant today, not so much as theories in the analytical term, but as approaches to the way policies are made. We will look at how IPE emerged theoretically from early IPE. As IPE developed as a distinct academic discipline or subdiscipline in the 1970s, it largely did it out of debating international relations. In this regard, we will look at how debates in IR gave rise to IPE. We will look in more detail to perspectives in contemporary American IPE. The discipline can be broken up into two broad schools: the American and the British school. This course focuses mostly on the American school. Therefore, we will look at the American School’s theoretical perspectives over the last 30 years and apply it throughout the course.

Historical debates on global capitalism[edit | edit source]

Mercantilism[edit | edit source]

For Oatley, "mercantilism is a traditional school of political economy dating from (at least) the seventeenth century. It asserts that power and wealth are inextricably connected. Accordingly, it argues that governments structure their international economic transactions to enhance their power relative to other states and domestic society. Mercantilism thus depicts international political economy as inherently conflictual."[5]

In purely economic terms, mercantilism conceives how the struggle between states plays out in the international economic arena is by looking at the balance of trade. The key indicator of a state’s capacity to win or if a state is winning the economic conflict with other states is if exporting more than it is importing. Therefore, it is a state registering trade surpluses instead of trade deficits. The related aspect is the capacity of a state to master the advanced technologies of the day.

As humankind’s economic development was based on a continual process of developing technological and technical capacities, mercantilism came to assume that a state was powerful if it was at the technological frontier and if it had industries based on the most advanced technologies of the day.

This is important because the early mercantilism in the 16th and 17th century was more about controlling overseas markets through force and ensuring that the wealth could be extracted through that control mostly benefited the mother country. It wasn’t so much about mastering the process of technological development.

The origins of mercantilism[edit | edit source]

The origins of mercantilism but even liberalism go back to England. To a large extent, one can associate mercantilism with the East Indian Company’s practice that was the major mercantilist enterprise of the 17th century in England. Still, there were also East India companies in the Netherlands in front and alcohol.

Mercantilism is a doctrine developed first in England, and then it diffuses throughout Europe. The Netherlands, France, Austria, Prussia, the main powers of the day but mostly friends and the Netherlands were the main powers that had seagoing activities. However, France was mostly a terrestrial power, and the Netherlands was the typical seafaring power. France also had maritime activities and maritime capacities, and so it also developed mercantilism policy. Austria and Prussia were more landlocked powers, so they were less involved in this game in the 17th century. However, later, Prussia and Germany in the 19th century adopted a modified mercantilist policy or at least philosophy to organise their economic policy.

Topics[edit | edit source]

For mercantilism, there is an apparent link between state power and foreign trade.[6] Mercantilism and liberalism have two views about how state power and private accumulation relate. For mercantilism the two go together, they are interlinked.

The East India Companies were the typical manifestations of policy in the 17th century and the 18th century. England, the Netherlands, and France had one. Those companies dominated overseas along with distance trade with India. It is important to remember that those companies also exercise administrative control over territories, given control by the states with which they were related to the territories in which they developed their commercial activities. There is a very close link between power and plenty. The very organisation tasked with accumulating wealth abroad was also the same organisation tasked with the public administration of those territories.

The context of the emergence of centralised nation-states[edit | edit source]

The context is the context of the emergence of centralised nation-states. The early 17th century is the union between England and Scotland and the development of a powerful centralised state apparatus is in the United Kingdom. France is at the height of his absolute power under Louis XIV. The Netherlands developed from a set of loosely related provinces into an international state and so on.

Along with the emergence of centralised nation-states comes a process of great power competition among those states. Because this power becomes concentrated rivalry among those power centres. There is a search for new overseas markets and therefore, the first wave of colonial expansion.

The worldviews of the broader philosophical worldview underpinning mercantilism in the economic sphere are Machiavellian and Hobbesian real politics. These are the philosophical traditions that inform the tradition of realism in international relations. Mercantilism has clear intellectual links with the realist school of international relations.

Mercantilist’s Worldviews[edit | edit source]

In this worldview, international politics and international economics are seen as a zero-sum game. What does that mean? It means that what matters is relative gains in this game and not absolute gains.

A state’s calculation of one event having an economic transaction with another state is not so much how beneficial it will be to me. The question is, will this be more beneficial to me than to the other state? That is the basis on which economic transactions and economic relations between states are organized in this worldview.

It only makes sense going to a transaction if I will benefit more than my arrival. In which case, one wonders why would there be an economic transaction in the first place because if it is evident that the relative gains are on one side rather than the other, then there will always be a state that will refuse to engage in economic transactions. Therefore it is obvious that for mercantilists, foreign economic policy is more the affair of a single state trying to impose its policy on other territories rather than a process in which great engage each other in economic relations.

Along with that comes the idea of the national interest. The interest of the emerging centralised state apparatuses of the day prevails over into the individual interests, all right. There is no such thing as a civil society with its own distinct interests and rights that could be contradictory and conflictual and distinct from the interests of the state. There is the state, it has its own interest which is the national interest, and individuals within that state have to behave in a way that serves the national interest. It is a very liberal worldview, liberal in the sense that it is not an anti-individualistic worldview.

Main mercantilism figures: Thomas Mun and Jean-Baptiste Colbert[edit | edit source]

Among the main mercantilism figures is Thomas Mun. He was a private merchant and, most importantly, one of the East India Company’s directors. He was engaged in his practice and was also one of the theoreticians of mercantilism practice. Mun was a member of the Standing Committee on trade, a royal commission established in the 17th century to advise the kingdom about its foreign policy. Around 1630 he published England’s treasure by foreign trade which is a treaty on how the practice of foreign trade is to serve the accumulation of wealth for the service of the kingdom.

In England's Treasure By Foreign Trade published in 1664, Mun stated "Therefore, the ordinary means to increase wealth and treasure is by foreign trade. Wherein we must ever observe this rule; to sell more to strangers yearly than we consume of theirs in value."[7][8][9]

The mercantilist’s golden rule is a positive trade balance, which is to have a trade surplus. For Mun, the ordinary means to increase wealth was through foreign trade and not technological development.

Early mercantilism thought was not associated with the idea of a state being at the technological frontier and having industries based on the most advanced technologies of the day. It was a view of economic development as being exogenous to the domestic economy. Wealth was brought from abroad, and it wasn’t a process that was generated endogenously within the domestic economy.

Another main figure is Jean-Baptiste Colbert, who was Louis XIV’s finance minister. Today in France instead of speaking of mercantilism people speak of Colbertism for economic policies that have contemporary economic policies that have some affiliation with my country’s doctrines.

Colbert promoted state-led manufacturing: Import substitution and export promotion. The idea that there where there had to be policies to keep out imports and to encourage exports to foreign markets. Colbert also developed the idea that France had to have a favourable trade balance. He was also the founder of the French East India Company.

Interestingly, in Colbert’s case, there are the beginnings of something different in that he theorised the process of state-led manufacturing. The state had to intervene to build up productive and technological capabilities for the service of the nation and the kingdom. There, something is different from will develop later on in the doctrines of economic nationalism and national developmentalism.

Later related doctrines[edit | edit source]

They are not purely mercantilism, but that have a clear relationship to mercantilism and a clear affiliation with mercantilism.

Economic nationalism[edit | edit source]

Economic nationalism is related to Alexander Hamilton at Freidrich List. The context of economic nationalism is the 19th century and dominance of England and therefore Pax Britannica. It is associated with practice and theory of liberalism. Economic nationalism is responsible for the United States' hegemony in America, particularly after independence and after the North Victory in the Civil War in 1864. In Germany, particularly after the creation of the German customs union up to the German market's closure to foreign input in 1879.

Both of these processes are related to state-building independence. In the case of the United States because well, the colonies became states of their own sovereign state of their own. State-building after the Civil War because after the Civil War there is a process of centralisation of state power within the American Federation. Therefore the United States moves from being a collection of a decentralised collection of sovereign states to a rather centralised federation towards the late 19th century. Typically, in the 19th-century people would refer to the United States in plural. From the late 19th century early turn in the century onwards, it is more typical to talk about the United States in the singular.

In the case of Germany, the customs union in the early 1820s was seen as the premise towards German unification, a process that was inspired by the French Revolution and the doctrines of nationhood that came out of it and that diffused in Germany through the Napoleonic Wars. After the process of German unification in the 1860s that culminated in 1870 in the creation of the German Empire. There is something more than a process of state-building, there is a powerful state emerging on the European continent and displace France has the main power on the continent.

In both cases, and this is the break with early mercantilism, in both the United States and Germany, economic nationalism is seen as a means to promote state-led industrialisation and economic development through public infrastructure, investment and protectionism. In Germany and in the United States, rail networks’ development occurs in the late 19th century based on protectionism.

It has been seen as a way of meeting together with the national economy to enable national economic development. Alexander Hamilton was the first Secretary to the American Treasury. In that capacity, he wrote a report on the subject of manufacturers in 1791 entitled Report on the Subject of Manufactures that was presented to Congress and included all of these ideas.[10][11]

They were implemented wholeheartedly right away. The North had to win the Civil War before they could be implemented wholeheartedly. Still, they coexisted with South and liberalism and South and freetradism for three-quarters of a century.

National Developmentalism[edit | edit source]

A related doctrine to economic nationalism in the 20th century is national developmentalism. That is the 20th-century response to American hegemony and the ideologies that accompanied American hegemony after World War II, namely global liberalism, and liberal internationalism.

It is important to note that some version of national developmentalism was applied even by allies of the United States, particularly France, Japan and South Korea. But national developmentalism that was mostly applied in Latin America and India.

The main practice associated with national developmentalism is input substitution industrialisation which is the idea that if you want to develop your own industrial and technological capacity you have to keep out for at least a rather long timeframe industrial inputs from other countries that have already mastered the advanced technologies. Otherwise, you won’t be able to develop industries that master those technologies, and therefore you will be forever doomed to consume the advanced products of other countries.

An associated theory is the theory of national developmentalism is dependency theory mostly associated with the figure of the Argentinian economist Raul Prebisch. Prebisch published in 1950 The Economic Development of Latin America and Its Principal Problems which gave birth to the that the Prebisch–Singer hypothesis which argues that the price of primary commodities declines relative to the price of manufactured goods over the long term, which causes the terms of trade of primary-product-based economies to deteriorate.[12] Prebisch’s work was written as a report to the United Nations, and for a long time between the 1950s and 1970s, the United Nations was driven by the conflict between American liberalism and developing world developmentalism.

Liberalism[edit | edit source]

According to Oatley, liberalism is "a traditional school of a political economy that emerged in Britain during the 18th century as a challenge to mercantilism liberalism asserts that economic activities aim to enrich individuals and that the state should thus pay to play little role in the economic system. Liberalism gave rise to the theory of comparative advantage. It suggests that international political economies are cooperative rather than conflictual."

On almost every item, the definitions of mercantilism and liberalism stand opposed. Wealth and power are not inextricably related. The state’s role is not to be an active promoter of economic development but a passive promoter because it has to guarantee property rights, basic infrastructure, etc. It has to stay out of foreign trade, out of industrial investment on home and so forth.

Clearly, liberalism is based on the idea that international politics is not a zero-sum game, but it is a positive-sum game. What matters when states enter into economic transactions with each other is how much they will gain out of that, irrespective of how much another the other state will gain out of that. That is the idea of absolute gains as opposed to relative gains for mercantilist theorists. Cooperation becomes much more plausible because after all at the end of the day what matters is how much extra economic welfare do states gain from internationally economic interactions and not how much relative gains they gain out of them.

Origins[edit | edit source]

This theory emerged in the 18th and 19th centuries in England. The first prominent figure of liberalism is Adam Smith, and the other major figure is David Ricardo. They develop a critique of what they called the rent-seeking mercantile system. In Adam Smith’s case, he associates this critique of mercantilism with a critique of colonialism in North America. He was in favour of independence for the American colonies.

Topics[edit | edit source]

The core of liberalism is the idea of individual interest and rights and the link between that and collective welfare. Collective welfare is promoted not because a state that embodies the collective welfare takes care of that, but because egoistic individuals pursue their own interests. And they have a right to do so, and by interacting with each other in persons of their own interests, they increase the collective welfare, which is the path to the accumulation of collective wealth.

They theorised the idea that there has to be freedom of prices, so freedom of import. Prices are not distorted artificially by artificial means of keeping out some goods from the market to others’ benefit. They also theorised the superiority of markets and competition to organise economic activity and economic development.

The government in Adam Smith is not absent. It has a critical role to play. The state is an organiser of markets and guarantees individual economic freedoms of property rights. The state is there to make sure that markets function correctly, so the state has to break up rent-seeking behaviours, rent-seekers and monopolies and so on. The state has to guarantee property rights so that individual rights are protected, and there is no predatory behaviour on the market because otherwise, market mechanisms are distorted. There is a clear connection between that kind of liberalism and the antitrust tradition that develops later on in the late 19th century in the United States of America. Controversially, in the United States, the antitrust tradition is a populist movement.

Context[edit | edit source]

The context is the American and French revolutions with the end of absolutism and the beginnings of mass democracy and the rule of law. In the case of the French Revolution, there is a contradiction because, at the same time, French Revolution promoted the idea of nationhood, the idea of national interest, the idea of a national community, it also promotes the ideals of mass democracy and individual freedoms as well as the rule of law.

Worldviews[edit | edit source]

The Enlightenment's worldviews are liberty and property associated with the English philosopher Lockes from the 17th century and then taken up by the French philosophers and the French-speaking philosophers. With the revolution rationality and Kant, the idea is opposed to the Hobbesian view of the world based on destructive and aggressive instincts that are lodged in every human being. For liberals, human beings are rational individuals. Rational beings can tell that their individual welfare is tied together with others' individual welfare in society and, therefore, tend to cooperate.

For them, international politics is a positive-sum game that is out there to amenable interstate cooperation.

Main figures: Adam Smith, David Ricardo, and Richard Cobden[edit | edit source]

Adam Smith was first and foremost the main figure of liberalism. He was also an advisor to national politicians and his major work in relation to political economies the 'An Inquiry into the Nature and Causes of the Wealth of Nations published in 1776.

"If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country will not thereby be diminished, but only left to find out how it can be employed with the greatest advantage."

That prefigures the idea of comparative advantage, although Adam Smith did not have a theory of comparative advantage. For Adam Smith, international trade was based on absolute advantage. It was good for a country to trade if it made something better than another country made. If a state could produce a good more efficiently than another country produced a good. Therefore two countries could specialise in those goods.

National wealth is not associated with trade surplus to accumulate wealth because wealth is produced through the process of exchange. Therefore, it is sufficient that the trade balance is in balance with other countries. It is through the process of exchange that wealth is accumulated.

David Ricardo is the other prominent figure and theoretician. Ricardo was a banker in London in the city, an economist, and a member of parliament. In 1817 he wrote Principles of political economy and taxation in which he explicitly theorises comparative advantage. He is also a critic of the Corn Laws that were passed in the early 1810s and are tariff on the inputs of grain to protect domestic grain producers. Riccardo also campaigned for free trade in the abolition of tariffs.

The comparative advantage Ricardo developed is different from the absolute advantage. The key idea is that countries should specialise what their best producing within their own economy, not what they are best at producing across the globe. Even if a country is less efficient at producing something that another country produces, it should still produce it if it is more efficient and produces that good rather than another good within the domestic economy.

The third figure is Richard Cobden. Cobden was a Manchester manufacturer and a member of parliament. He was the Manchester School of Liberalism leader and the anti-Corn law league, which succeeded in 1846 at repealing the Corn laws and abolishing the tariff on grain imports. With him was inaugurated the great cycle of free trade.

The idea is that free trade promotes equality because free trade in that context amounted to cheaper food prices for workers in urban centres that were developing fast in the United Kingdom at the time. Therefore it reduced inequality because workers would see by the simple abolition of tariffs their purchasing power goes up, even if their wages stayed the same. They would see their purchasing power go up to the detriment of the landowners because the landowners would no longer be able to sell their produce at the prices they sold before; they would either be wiped out as they were or they would have to sell a lower price. Therefore there was a transfer of welfare of economic value from the landowners to the workers. So that was the idea on which covenants at that free trade promoted equality in the context of the 19th century in England.

Later related doctrine and manifestation[edit | edit source]

Classical liberalism of the pre-1914 global economy was relatively free trade capital flows in the gold standard. The current stage of globalisation, with the advance of free trade and free capital flows and the associated ideology of Washington consensus theorised in 1990 by John Williamson. He theorised that the essential recipe for economic developments is to liberalise one’s economy, privatise it, and deregulate it.

General consideration[edit | edit source]

There is a parallel between the mercantilism, nationalism versus liberalism debate in classical political economy and the debate between realism and neoliberalism in international relations and IPE.

Both mercantilism, nationalism and liberalism are schools of thought that provide powerful doctrines and worldviews that are still forming economic policy. For instance, in France today, when it comes to discussing industrial policy, everyone talks about Colbert and thinks inspiration in the way Colbert promoted industry in the 17th and 18th centuries in France.

These schools of thought are less useful as analytical frameworks. They are much more normative in orientation and positive. They seek to fathom the world based on a certain number of preconceptions of how societies organise and function. As analytical frameworks, they are not very useful.

Modern IPE has attempted to develop a more positive and analytically oriented approach to understanding and analysing how the global economy and global capitalism work. The main benefit of this is that it allows for analysis that understands why it is possible to have mercantilist and liberal elements coexisting one next to each other in the same system.

That means that modern IPE is based on identifying the political and economic building blocks or variables on which global capitalism is based and functions. It also attempts to identify the way those variables interact with each other. The three main categories are variables that IPE uses are:

  • interests, whether the economic actors that make up the system and what kind of interests they have. It rejects the idea that something called a national interest is overarching and so forth. It also rejects the idea that all individuals have the same basic interests that are at the basis of the liberal notion of homo economicus was that is the basis of new classifications.
  • institutions: institutions have an independent influence on how economic interaction between states in global capitalism is organised.
  • Ideas that have an independent influence on the way foreign economic policies are made and how states interact with each other in the international political economy.

Theoretical evolution[edit | edit source]

The first theory, mercantilism dates back to 1620s, liberalism to the 1770s, economic nationalism attributed to Alexander Hamilton to the end of the 1790s and beginning early 1800s. With Marxism and neoclassical economics, it leads up to the 1870s. In a way, Marxism sees itself as the continuation of classical political economy, whereas in neoclassical economics sees itself as a bifurcation inspired by the positive sciences.

Then there is a new version of all those theories coming up. From the early 1900s, IR liberalism and idealism spring up. The high point of IR liberalism and idealism is in the 1920s and the League of Nations. Since the 1930s realism and new realism began to develop and developed as a critique of idealism and a critique of the League of Nations' failure. The major work The Twenty Years' Crisis: 1919–1939: An Introduction to the Study of International Relations written by E. H. Carr. The critic is that with the League of Nations, the war did not stop between the main powers between 1919 and 1939. Politics Among Nations: The Struggle for Power and Peace written by Hans Morgenthau published in 1948 is another major work which introduces the concept of political realism, presenting a realist view of power politics.

Since the 1970s and this is closely associated with IPE development, neoliberal institutionalism has developed. Neoliberal institutionalism to a large extent informs how IPE tries to analyse global capitalism and the functioning of the international community.

It is important to be able to locate in time when such a theory emerges and become dominant and declines.

Neorealism[edit | edit source]

From early IR to IPE, how did we move from a situation in which realism was the main way international relations were studied to the detailed IPE development in the 1970s and the 1990s?

Neorealism was the dominant IR paradigm of the 1930s and the 1970s. It is important to put that in perspective with real-world developments. Because that intellectual hegemony coincides with the interwar breakdown of global capitalism and the rise of economic nationalism, national developmentalism and the primacy given to domestic policy autonomy over external stability that characterised the period between the early 1930s and the early 1970s. Both one part of the interwar collapse and embedded liberalism. Although it was a compromise between domestic policy autonomy and external stability, it gave primacy to domestic policy.

What were the main theoretical aspects of realism and neorealism?

The basic premise is that being some national system is anarchic. What does that mean? It means that there is no world government, there is no world rule of law, and therefore there is no mechanism to impose cooperation among sovereign states. Interaction between sovereign states is not based on the rule of law. It is not based on norms on rules and whatever it is based on raw power. The way states interact with each other is extremely different from how individuals interact or groups of individuals interact within a given state. The basic concept here is external sovereignty.

Therefore the basic variable that determines how the international system and by extension of the international particular economy works is the distribution of power among states.

If the basic way in which state interacts, how they relate to each other in power returns, and how power is distributed among them is the main determinant of how they interact. There is also the theory about what is the distribution of power that is most likely to lead to stability: unipolar, bipolar, multipolar, etc. Realists don’t agree with each other, but the basic terms of the debate are the same.

Along with this external sovereignty is also the idea that states are unitary actors with national interest. That national interest determines their behaviour. This is an extension of the idea of sovereignty. There is one sovereign state, and the realists take that to mean that the state is a single actor with a single way of perceiving things of understanding things and defining its own interest. For most realists, the national interest is first and foremost the preservation of state sovereignty. Then hinges on the accumulation of power and so the national interest is about accumulating power within the international system. Here and this is not the case with neoliberalism, states are not driven by contradictions and different bureaucracies within the state apparatus. All work towards the same goal. There is no contradiction between state managers, they don’t pursue different goals, and civil society interests do not permeate the states. They are not amenable to be influenced by the interest group.

Relative gains and international relations are a zero-sum game. International relations are basically conflictual. Neorealism is in line with the basic tenets of mercantilism and economic nationalist stock. If economic power is the main variable, then it is important to master the day’s advanced technologies. What matters is having a share as big as possible of global production and global trade as a state can. Those are indicators of power for realists as they are former mercantilists and economic nationals. There is also a focus for realists on high versus low politics. High politics is anything it has to do with war, security and diplomacy, whereas low politics is politics has to do with economic aspects of international life.

Neoliberalism and its critics in the 1970s[edit | edit source]

The main dimensions of neoliberalism were criticised heavily in the 1960s and the 1970s. Notably, IR is basically conflictual in line with mercantilism and economic nationalism and focuses on high versus low politics.

The main breach in academia’s intellectual hegemony began in the 1950s and the 1960s with many cooperation cases and not rivalry in international relations. The main one was the détente which is the process of thawing of relations between the USSR and the USA and by extension between the USSR block and the American-dominated block. That included the SALT agreements inter alia. There were also many other instances of integration among states through trade cooperation within the GATT and the Comecon in the Soviet bloc. There is also the European integration which is very important because just a few years after Germany has occupied France, there was an agreement between those two states to begin to build a European federation. As the process of European integration developed after the Treaty of Rome in 1957 and throughout the 1960s successfully, there was this idea that international politics does not have to be conflictual and cases of deep cooperation amongst states can take place. This challenge the idea that international relations are basically conflictual.

The idea that neorealism is in line with the basic tenets of mercantilism and economic nationalism thoughts were challenged by the gradual opening of national economy throughout the 1960s and the 1970s. That provided the basis for the takeover of the fourth stage in the history of global capitalism, namely the second globalisation from the 1970s onwards.

It is the case that despite the fact that and better liberalism was to a large extent dominated by economic nationalism closure and so on, it also so very rapid rates of growth in international trade international investment and from the late 1960s onwards international capital flows.

These developments challenged the notion that the future of global capitalism’s future would be inextricably linked to the practice of economic nationalism that prevailed in the 1930s. That challenges the idea of the alignment between neorealism and economic nationalism.

High politics’ primacy over low politics came on the challenge because low politics became much more salient throughout the 1960s. First, because of the end of the Bretton Woods system. In the 1970s the group of 77 developing nations within the United Nations in the 1970s demanded the setup of a new international economic order which is the idea that international economic relations should be organised differently from the blueprint that was set down by the United States in the late 1940s. Finally, after the Bretton Woods system’s collapse, the high salience of European monetary cooperation and integration issues came to play a significant role.

The combination of these factors from the mid-1960s to the early 1980s showed that low politics issues could be very important in the way states interact with each other in the international system.

These three challenges created the first breach in the academic hegemony of realism within international relations. But neorealism was not dethroned overnight. The development of IPE in the 1970s was very much influenced by the debates over the pattern of neoliberalism. The first major questions and major theoretical perspectives that were thrown out by the development of IPE had clear links to the main questions asked by neorealists in their attempt to understand the international system.

The first one was the challenge to the idea that international relations were conflictual. One of the main debates was whether states cooperate. Still, in other cases, they do compete what determines when it is that states compete and when it is that states cooperate.

In the 1970s IPE focused on the interstate level. To typical IR questions such as how does the distribution of power affect international relations, there are the associated IPE questions that dominated the seventies in the eighties. To the question of how the distribution of power affects international relations, the associated question became what determines international economic stability or crises and what determines economic openness or closure. To the question is cooperation possible under anarchy, the modified IPE questions were just to external imbalances to ensure stability, who makes sure that there is a cooperative outcome that ensures there is stability in the system and who sets for an economic policy.

As neorealism hegemony was challenged, the challenge brought and in the 1980s other aspects of the neorealist paradigm came under attack. Another dimension was introduced to IPE in the 1980s. It is a fundamental dimension because this is the main focus of American IPE with foreign economic policy's domestic sources. That was based on the challenge to the idea of States as unitary actors and behave according to the national interest. That is not self-contradictory.

To typical IR questions such as what is the national interest, the modified IPE question would be who sets for an economic policy. The assumption being that different groups of actors may have different interests. So there may be a conflict over who sets for an economic policy whereas for their realists, and that is not even a question, state managers who are imbued with state rationality and whom all push in the same direction set for an economic policy. A second typical IR question is openness and closure in line with the national interest that became who benefits from openness and closure. Openness and closure do not necessarily align with the national interests with which all domestic groups align, but can be to the benefit some groups into the detriment of others. Therefore, there is a conflict over whether a state should open its economy up or barricade itself behind protective barriers.

This is how theoretically IPE emerged based on a challenge to the hegemony of realism and neorealism within international relations discipline.

Power and hegemonic stability[edit | edit source]

The theoretical perspectives[edit | edit source]

We are now going to look at these different theoretical perspectives within American IPE. We will look first at the theoretical perspectives that have to do with the systemic level, which is the level of interaction between states. The second part will be about the domestic sources of foreign economic policy. Finally, we will present an overview of the main theoretical perspectives in American IPE such as it has developed since the 1970s.

The link between power and hegemonic stability[edit | edit source]

The first debate that clearly had to do with the systemic level was the foundational debate on the international political economy. It was the debate about the link between power and hegemonic stability and what became known as a hegemonic stability theory with both its liberal and realist variants.

This debate was launched by the publication of Charles Kindleburger’s book World in Depression, 1929-1939 published in 1973. Kindleberger a liberal reading of economic stability theory. Kindleberger was very much a new dealer who was involved with the administration of the Marshall Plan in Europe in the late 1940s. He was imbued with the liberal internationalist spirit that informed American foreign policy from the 1940s onward.

Kindleberger studied why the Great Depression happened in the 1930s, and he attributed it to what IPE scholars refer to as a hegemonic transition. This is the idea that Pax Britannica was on the decline and had almost disappeared in the 1930s, but Pax Americana was not yet there. In the vacuum between the two conditions were created for the break-up of the fragmentation of global capitalism and that contributed to the Great Depression. For Kindleberger, it was a way of indicating what he did when he was in the Treasury Department in the 1940s because the policy he pursued as a US state official was liberal internationalism. He was in marked contrast to the isolationist policies of the 1930s.

Stephen Krasner published in 1976 State Power and the Structure of International Trade which is an article about the determinants of free trade openness.[13] Krasner attempts to find a correlation between the rise and decline of precision American hegemony and the trend towards open and closure in the world economy. Krasner being realist, he associates openness with the rise and stability over hegemonic power.

In both versions of the theory, the basic idea is that international economic stability and openness and an open international economy both require action by one hegemonic power: Pax Britannica before the First World War Pax Americana since the Second World War.

Theoretically, the assumption that there had to be one hegemonic power came under attack in the 1980s. Some people said that theoretically, it is possible to have a bipolar world that is still stable because both of these powers provide the public goods that underpin the global system’s stability. That’s very much a theoretical debate that doesn’t have a historical application. Therefore, it is not that important in the development of a demonic stability theory.

Very quickly the debate about the conditions of stability mutated into a debate about the conditions of stability of the contemporary international political economy because along with the dollar crisis of the 1970s a debate about the decline over American hegemony has emerged. In the 1970s 1980s, most scholars were convinced that American hegemony was on the decline. Some predicted the collapse of the dollar standard and so on, in particular realists. A major book by historian Paul Kennedy published in 1988 titled The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000. Kennedy attempts to show how America was on the verge of a breakdown of hegemonic positions within the international system just as Britain, the Netherlands, France and so on before it had gone through the same process. It should be noted that this book was published two years before the collapse of the Soviet bloc. It is a major thesis rejected now. There is a debate about the state of American power today within IR, but the consensual position is an American hegemony is still very much alive.

The key thing about the development of American IPE is the debate on the decline of the US hegemony throughout the debate about the conditions that couldn’t ensure continued stability despite the fact that there was no longer one hegemonic power willing to provide that stability and to bear the cost of providing that stability.

That debate is best captured by the book by Robert Keohane titled After Hegemony: Cooperation and Discord in the World Political Economy. That is a key statement of neoliberal institutionalism. The basic argument is that the sets of relations and institutions established by hegemon to ensure stability will live on after the decline of that hegemon’s power because for the other states in the system the maintenance costs of that regime are lower than the costs that a breakup of that regime would entail. This is a kind of inertia that characterises the institutions set up by the hegemon. That will ensure that stability will prevail even though the hegemon is still not around to enforce those relations and those institutions.

International Institutions[edit | edit source]

International Institutions - Aggarwal and Dupont in Ravenhill.png

This table is a summary of how neoliberal institutionalism theoretically developed.

Neo-liberal institutionalism is about international institutions and how international institutions can be designed to advance cooperation between states. There are five ways in which institutions can be designed to ensure that those aspects of cooperative behaviour are guaranteed.

The first one is the payoff structure. The payoff structure basically is a fancy way of saying the list of preferences in descending order that states have about how international economic relations should be organised. The payoff structure has to match. This is very much based on game theory. A lot of neoliberal institutions are based on game theory.

The idea is that preferences among states have to match. If they don’t spontaneously match, there has to be a process through which they can be broad closer together with a way through which states can agree to forgo their first preferences in favour of other preferences but can enable the international system to work based on cooperation. Institutions do that by facilitating issue linkage. Linkage is a major feature of the theory of interstate bargaining. Institutions are meant to make sure that when states sit down at the bargaining table, they sit down to talk about both good exchanges and financial services, and so on. So states can make concessions to each other across a spectrum of items that make up the bargaining agenda.

The next issue on which cooperation depends is transaction costs. Transaction cost is a concept that comes from economics. It is the idea that for market transactions to be beneficial, there are costs associated with realising a market transaction, and the costs have to be lowered for the transaction to be worth it. A key transaction cost obviously is distance. There are other types of transaction costs that have to do with the information. International institutions are there to set standards and ensure that parties in international economic transactions can have confidence that the goods and services they exchange leave up to a minimum set of standards.

Institutions also provide a forum for negotiations. They make it easier for states to come to the bargaining table. In contrast, without international institutions and fora for negotiations, it might prove difficult for states to find their way to the bargaining table.

Appropriate strategies are the fact that states need to know that if they make a concession they will get a concession back and anticipate the reaction by another state to a decision that they will take. That is the issue of reciprocity. If we look at the feature the principles of the WTO, reciprocity is one of them. If you give something to a state, you expect the same thing back which facilitates the exchange of concessions.

Information problems, from economics, is mostly information imperfection. It is when parties to a transaction are not fully aware of the transaction’s different aspects. What institutions do is to monitor and gather information to make it available to all parties involved. They can bring down information asymmetries and information imperfections. So they are producers and distributors of information regarding international economic transactions.

Finally, what scholars in IR refer to as the shadow of the future is the idea that a state will interact with another party differently if it knows that down the road the sate will have to repeat the interaction and it will have to transact with that party again. Institutions do that by raising defection costs and tie countries together. Defection costs are the reputation costs that are associated with the WTO, for example, making known to the world that the American or Chinese government has broken the rules.

Unpacking the ‘National Interest’[edit | edit source]

We will open up the black box of the state and the national interest and understand and identify foreign domestic sources of foreign economic policy.

One aspect of that is identifying the actors that collectively act to influence the definition of foreign economic policy. One way of looking at that is by classes or production factors in some cases, capital labour and landowners. Another is by broad sectors of economic activity. That can be export-oriented sectors of the economy, input competing sectors of the economic sectors that compete with inputs from abroad, non-tradable sectors that do not engage in international trade, the financial sector, the capital intensive industrial sector and so on.

Sectors are a finer grain characterisation of the way economic actors grouped together than classes. Classes are the more macro level, sectors are the more massive level. There are also firms, which is the very individual level, the micro-level. There are distinctions between large transnational corporations, small-medium enterprises (SMEs). Cooperation is also operated through supply chains and others are. Within the same branch of activity, there may have conflicting interests.

Another aspect of this is how our preferences are aggregated. It is not because actress exists that they have the same capacity to come to an agreement about what their collective interest is and also to pursue that interest with state managers. That refers to collective action theory and the concept of organisational capacity. The idea is that the larger the group’s size, the more difficult it is to find a consensual position and pursue collective activity, advance that collective interest and the asymmetry between different groups, and so on.

Small groups of very large actors have greater organisation capacity than big groups of very small actors. Typically the distinction is between monopolistic corporations, on the one hand, and consumers that are each individual in the economy. Therefore they have very little collective organisational capacity.

Another aspect that determines how preferences are aggregated is domestic institutions. The basic distinctions are the distinction between democratic and authoritarian regimes but also within democratic regimes the distinction between majoritarian versus proportional electoral institutions, but also within democratic regimes the way in which bargaining institutions allow for coordination or competition in which setting systems.

Explaining US foreign economic policy[edit | edit source]

We will take a look at explaining the US foreign economic policy in the twenties, thirties and the seventies.

The first article illustrating this example is Sectoral Conflict and Foreign Economic Policy, 1914-1940 written by Frieden on the US interwar policy.[14] Frieden explained the conflict between isolationism and liberal internationalism in US foreign policy in general. Frieden says this is not about schools of thought within the American state apparatus or within the American party system. This was first and for most about a split within the US’s business community. In particular between the internationalised interests within the American capitalist class and the domestically oriented interests within the American capitalist class. He shows that throughout the twenties and the thirties there was a conflict between those two. Gradually the internationalised segment of the American capitalist class won the day because it gradually became more important in terms of the overall domestic economy. There was a crisis that crystallised the conflict between the two. Therefore throughout the second part of the thirties, the liberal internationalists gradually managed to take over the United States’ foreign policy.

Helen Milner published in 1988 Resisting protectionism: Global industries and the politics of international trade which is a study on protectionism versus free trade both in the interwar period and in the 1970s.[15] She shows that the conflict between protectionism and free trade had to do with the extent to which American cooperations in different sectors of the economy had become internationalised or not. Milner shows that first between the twenties and the seventies, the American economy's overall exposure to the international economy had gone up and explains why in the seventies protectionism did not prevail as opposed to the twenties overall. Then she shows that even within periods, the same distinction applies. Even in the twenties in that minority of sectors in which cooperation have already become transnational internationalised, free trade prevailed over protectionism. It is a very similar argument that Frieden puts forward that applied to trade policy, whereas Frieden has a broader scope.

Other aspects of domestic politics[edit | edit source]

Another aspect of domestic politics that obviously has been studied and affects how global capitalism functions is institutions. Scholars distinguish between authoritarian and democratic regimes and then within regimes between majoritarian and proportional systems. The basic idea is those authoritarian and majoritarian systems (majoritarian systems are for example the House of Representatives in the United States, the House of Commons in the United Kingdom, the National Assembly in France as opposed to proportional systems like the German federal parliament).

The main assumption and idea is that authoritarian majoritarian regime are more amenable to be captured by special interests and therefore they are more likely to pursue protectionism. Whereas proportional single constituency electoral systems like the American presidency for example, are most sensitive to pressure by non-concentrated groups like consumers, they are more likely to pursue openness because openness is the policy that benefits consumers the most it lowers prices.

Another aspect is so-called to level games. The idea that there is an interaction in the way the interstate system functions and the way the domestic system functions. Executives’ governments that find themselves between those two levels, the domestic and the interstate level, can both benefit. They can argue to their domestic constituents that the interest system constrains them in a way that means that they have to the policies that are not necessarily popular with domestic electors. Still, they can do the same at the interstate level where they can argue in bargaining processes that they are willing to make concessions. Still, they won’t have a majority to ratify those concessions domestically because they are not popular. Therefore they can use that as a bargaining chip in interstate negotiations.

Political factors theorised in American IPE[edit | edit source]

Political factors theorised in American IPE.png

That is a list of the main factors that have been theorised and continue to a large extent to be theorised in American IPE. We can see that there is a blend of ideas coming from realism and from and from neoliberalism, particularly neoliberal institutions. Clearly, the idea that the distribution of power within the international system affects the way the international political economy works is still very much around. Scholars still debate to a lesser extent than what they did in the 1970s, but they still debate that aspect of the problem.

B is the way international institutions affect the way the international political economy works. The basic question is how can international institutions be made to promote cooperation and therefore openness.

C is the way strategic behaviour between states can lead to cooperation or conflict.

D is how domestic interests influence the way foreign economic policies made and how states interact with each other.

E is a sub-theme of d, which is the organisational capacity of domestic interests and how it affects the way domestic interests can influence an economic policy and have domestic institutions.

Annexes[edit | edit source]

References[edit | edit source]

  1. Profil de Christakis Georgiou sur le site de l'Université de Genève
  2. Profil de Christakis Georgiou sur le site de Mediapart
  3. Publications de Christakis Georgiou sur Cairn.info
  4. Publications de Christakis Georgiou sur Academia.edu
  5. Oatley, T. (2018). International Political Economy. Routledge. https://doi.org/10.4324/9781351034661
  6. Viner, J. (1948). Power versus Plenty as Objectives of Foreign Policy in the Seventeenth and Eighteenth Centuries. World Politics, 1(1), 1–29. https://doi.org/10.2307/2009156
  7. Thomas mun: England’s treasure by foreign trade (1664) from Thelatinlibrary.com website: http://www.thelatinlibrary.com/imperialism/readings/mun.html
  8. Perrotta, C. (2014). Thomas Mun’sEngland’s Treasure by Foreign Trade: the 17th-Century Manifesto for Economic Development. History of Economics Review, 59(1), 94–106. https://doi.org/10.1080/18386318.2014.11681258
  9. Muchmore, L. (1970). A Note on Thomas Mun’s “England’s Treasure by Foreign Trade.” The Economic History Review, 23(3), 498. https://doi.org/10.2307/2594618
  10. IRWIN, D. A. (2004). The Aftermath of Hamilton’s “Report on Manufactures.” The Journal of Economic History, 64(3), 800–821. https://doi.org/10.1017/s0022050704002979
  11. Nelson, J. R., join(' ’. (1979). Alexander Hamilton and American Manufacturing: A Reexamination. The Journal of American History, 65(4), 971. https://doi.org/10.2307/1894556
  12. Prebisch, R. (1950). The economic development of Latin America and its principal problems. Economic Commission for Latin America. Retrieved from https://repositorio.cepal.org//handle/11362/29973
  13. Krasner, S. D. (1976). State Power and the Structure of International Trade. World Politics, 28(3), 317–347. https://doi.org/10.2307/2009974
  14. Frieden, Jeff. “Sectoral Conflict and Foreign Economic Policy, 1914-1940.” International Organization, vol. 42, no. 1, 1988, pp. 59–90. JSTOR, https://www.jstor.org/stable/2706770.
  15. Milner, Helen V. Resisting protectionism: global industries and the politics of international trade. Princeton, N.J: Princeton University Press, 1988. Print.