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What is International Political Economy?

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What is International political economy?[edit | edit source]

What is international political economy? International political economy focuses on the politics of economic phenomena that transcend state borders, whether be they trade transactions, exports imports, protectionism, tariffs, non-type barriers, production, the way multinational corporations operate across state borders and finance; with finance, the way money and capital can cross state borders and also; but also labour and migration. Those two lasts have not really been covered by International political economy in great detail.

Thus, international political economy examines the interaction between the economy and politics in individual states and the international system.[5] It looks at the domestic sources of foreign economic policy: why a given state in a given international system pursues openness, closure, protectionism, liberalization, etc., and who are the winners and who are the losers from that transaction from those policies. That is the domestic sources of foreign economic policy. There is also the international system of domestic political economies. So, if since 2018, the dominant trend is openness, has been towards the breakdown of barriers to the free flow of trade investment and money, what are the consequences on the domestic political economy? These are the kinds of questions that relate to the term international or global in international political economy.

Political. Why? Because this is not just international economics and that is the main specificity of international political economy. Because international political economy introduces domestic and international political variables to understand the economic phenomena, it does so in particular in terms of the politics of international political economy. The main focus is the struggle between the winners and losers of globalization, or the winners and losers from a particular foreign economic or policy, or from a particular structure of the international of global capitalism.

Also, International political economy investigates the economic dimension of world politics. In the early days of the discipline scholars were mostly interested in global rivalries; state rivalries between the major powers, and what was the importance of economics to great power politics. That is still an issue, but today it is much less central than it used to be in the 1970s.

"Economy" obviously because international political economy is mostly about international economics, but also because international political economy draws on economic theories or other theories as there are various trends in international political economy. There are trends based on neoclassical or mainstream economic theories. There are also international political economy theories that are Marxists, institutionalists, and so based themselves on institutionalized economy, not neoclassical economics. The idea is that international political economy scholars try to draw on economic theory to build models used to predict the way political actors behave, their preferences, their strategies, etc. International political economy also draws on economic history. There is also a lot of it that draws on the knowledge produced by economic historians, mostly in relation to the period before the Second World War. Therefore, "economy" because of the main subject topics are economic process outcomes and policies.

Politics can be both domestic and international domestic in the sense that to determine the foreign economic policy of a given state; there is a struggle within the domestic political economy between different socioeconomic actors, between different ideologies. There are also international institutions like the General Agreement on Tariffs and Trade (GATT) or the World Trade Organization (WTO) who influence the way international political economy operates and the way international economic interaction processes operate; but also, the International Monetary Fund (IMF) the World Bank (WB), bilateral investment treaties or bilateral trade treaties and so on. There was also in the beginnings of disciplining the 1970s a lot made on how the politics of war interacted with the politics of international economics.

Wiipe - way capital flows.png

This graph shows the trade flows, the way capital flows, the volume of assets held by foreign actors in a given country and their impact on international politics. It also shows the way domestic political policies have an impact on the international political system and such things as the exchange rate regime, under evaluation or overvaluation of currencies, and crises. None of the two terms has primacy politics or economics. It is a constant interaction between the two. In international political economy, the attempt is therefore to understand the overall direction in which processes develop and outcomes are produced.

Subject Matter[edit | edit source]

If we look at trade, for example, why states are going to trade wars or into trade cooperation with each other? And, when they do so, who benefits and who loses out from outcomes? For example, why Trump has gone into a trade war with China and is threatening a trade war with the European Union? Over the last year, the Trump administration has raised tariffs on Chinese exports to the United States. Some experts have been very critical of the Chinese trade surplus with the United States and the German or the Eurozone trade surplus with the United States, and by extension have been very critical of the domestic economic policies that those states, the Eurozone and China pursue, and the way those policies interact with American domestic policy to produce trade deficits for the United States.

So who is pushing Trump to do that? Is there anyone pushing Trump to do that? Who is going to win from Trump’s tariffs, who is going to lose out from Trump’s tariffs and under what conditions would Trump reverse the trade war into which he has gone with China and the European Union and pursue cooperation in trade matters with those states?

A similar question is what explains the interior economic nationalism of the 1920s and the 1930s, the fact that in the 1920s and even more so in the 1930s, states raised tariffs and raised trade barriers with each other, turned inwards resulting in trade volumes to collapse. What explains that and again who won out and who lost from that, who opposed it who favoured it. And why at that particular point in time was that policy pursued by a good number of states. And why is it that after 1945, after the war, the reverse took place? Again the same question comes up: who benefits, which domestic groups in which states benefit from the setting up of those institutions and that cooperation?

If we now look at investment or multinational corporations, the question is how multinational corporate activities affects the relation between states. So, what explains the conflict over Chinese toward foreign direct investment (FDI) into the United States? For example, there is the case of Huawei, a global provider of information and communications technology (ICT) infrastructure and smart devices, that is involved in the development of 5G technology.[6][7] The United States has blocked investments by Huawei in the United States and is pressuring the European Union to block investments by Huawei, and not just investments, but also participation by Huawei in projects conducted in the European Union.[8][9][10][11] What explains the fact that President Macron now, and Germany as well, are pushing for the idea that the European Union should set up a body to screen inward Chinese investment into the European Union and say which investment is going to be allowed and which investment is not going to be.[12][13] That is a new case in terms of international investments because the United States and the European Union were the sources of international investment so far.[14][15][16][17][18]

A typical question was about the relationship of international investment before the Second World War in colonialism, and the pattern of investment relationship at that time. Two thirds of the globe were under direct administration by the British Empire, the French Empire, Portuguese empire. What explains the fact that the United States was not, except the Philippine, colonial power and did not attempt to become one after the 1930s.

And what is the difference between that colonialism and global value chain (GVC) today in a world? What is the relationship between global value chains, so the way multinational corporations operate today, and regional trading investment agreements and blocks? Is there a relationship between the way international investment takes place today and the setting up of Mercosur, North American Free Trade Agreement (NAFTA), Association of Southeast Asian Nations (ASEAN) in the Southeast Asian region, the bilateral investment treaties agreed by Japan; is there a relationship between Russia investments in the setting of the European Union? International political economy deal with that kind of question.

We look more at countries that are a destination for foreign direct investment, what kind of relationship development countries develop toward foreign direct investment. There was a period, for example, between the 1920s and the 1970s where developing states tried to keep out foreign direct investment, multinational corporations. And, since the late and since the mid-1970s, there is a competition to attract capitals, attract international corporations.[19] So what explains that change in policy?

A typical question in terms of the international monetary system and the exchange rate regime is why it is that China and the European Union today that want to reform the international monetary system.[20][21]Mark Carney, the governor of the Bank of England stated in August 2019 that there should be a new international monetary system that is not dependent on the dollar, while the Chinese central bank has asked the same for the last 15 years.[22][23] Why previous international monetary systems, such as the gold standard and the Bretton Wood System, broke down and who benefited from that and who lost out. Also, why is that President Trump attacked the European Central Bank in September 2019?[24][25][26]

If we look at all of these things, international trade production, finance, what is their impact on domestic welfare systems and domestic politics? If you look at the history of that question in the 1920s and the 1930s, there were clashes between the rising union in trade unionism and socialism in the advanced countries and the gold standard. What explains that and how did that conflict play out historically; why is it that right populism like Trump today or like Marine Le Pen in France or other forces attack globalization and talk about economic nationalism?

Another typical question is, capital of financial liberalization does it lead to race to the bottom in terms of fiscal policies so that states compete with each other to attract investments by lowering their taxes, or does it stimulate greater demands for social protections to protect those segments of the domestic population that lose out from the process of liberalisation.

Some observations about international political economy[edit | edit source]

International politics scholars made three thematic distinctions: international trade; international production, international finance. Nevertheless, there is a fourth, one which is labor and migration because, of course, the way labor is organized, and the way labor moves across state borders are the main issue in international politics. It was even more of a making issue in the past than it is today. There is an unequal thematic focus.

There is also an unequal historical focus in terms of the way international political economy studies global capitalism. That is probably because the international political economy is conducted by political sciences today and is considered to be a subfield of political science at least in the American school. Political scientists mostly focus on the post-World War I period and in particular on the contemporary stage of the second globalization that began in the 1970s. Thus, they most look at contemporary development whereas the period before the Second World War is mostly studied by historians, although some of the leading scholars in international political economy have also produced studies on the pre-Second World War period.

Brief history of international political economy[edit | edit source]

Prehistory[edit | edit source]

Origin and meaning of international political economy[edit | edit source]

Jean-Jacques Rousseau, Discours sur l'oeconomie politique, 1758.

The discipline is born in the 1970s, but of course, social scientists studying the way global capitalism functions did not wait until the 1970s. There were studies on the way the international political economy of global capitalism works from the very beginning of global capitalism itself.

The phrase économie politique (translated in English as "political economy") first appeared in France in 1615 with the well-known book by Antoine de Montchrétien, Traicté de l'Œconomie Politique . Although Antoine de Montchrestien is traditionally considered one of the first to use this term in the aforementioned sense[27][28], Gregory King, an economic historian, indicates for his part that the first to use the expression "political economy" would be Louis Turquet of Mayerne in 1616 in his book The aristodemocratic monarchy; or the composed and measured government of the three forms of legitimate republics.[29][30] Later, in Discours sur l'oeconomie politique published in 1755, Jean-Jacques Rousseau gives the following definition for political economy: "the word comes from oeconomie (οἰκονομία) originally means only the wise and legitimate government of the house, for the common good of the whole family. The meaning of this term was later extended to the government of the large family, which is the State. To distinguish between these two meanings, it is called in the latter case, general or political economy; and in the other case, domestic or particular economy. It is only the former that is discussed in this article".[31] In the 19th century, the term "political economy" has been defined by Charles Gide in his book Principles of Political Economy as "the study of economic production, the supply and demand of goods and services and their relationship to laws and customs; government, the distribution of wealth and the wealth of nations including the budget".[32] The term stuck and then in the late 19th century the classical writers and political economists came along.

Why political economy? Originally, political economy meant the study of the conditions under which production or consumption within limited parameters was organized in nation-states. In that way, political economy expanded the emphasis of economics, which comes from the Greek oikos (meaning "home") and nomos (meaning "law" or "order"). Political economy was thus meant to express the laws of production of wealth at the state level, just as economics was the ordering of the home. That refers to the economic aspect of things and political.[33]

It is essential to understand that for authors until the late 19th century, there was no clear distinction, at least between politics and economics. It was two dimensions of the same issue that had to be understood, which were the way the social order evolved, its internal dynamics and the issues that it through.

Classical political economy[edit | edit source]

The key authors in classical political economy, at least today, is Adam Smith who wrote An Inquiry into the Nature and Causes of the Wealth of Nations published in 1776.[34][35] There is also David Ricardo, who was an English banker in London and who developed the theory of comparative advantage in his book On the Principles of Political Economy and Taxation published in 1817 which has become the key concept in international trade theory and international economics.[36] John Stuart Mill was an English liberal philosopher later in the 1840s, 1850s, 1860s and published in 1848 his book Principles of Political Economy, one of the most important economics and political economy textbooks of the mid-nineteenth century.[37] Friedrich List was a Prussian German-speaking historical economist in the 1840s and 1850s wrote a book called The National System of Political Economy (Das Nationale System der Politischen Ökonomie) published in 1841 within which he developed the "National System" of political economy.[38][39][40][41] Alexander Hamilton, the first Secretary of the Treasury of the United States, was a politician and produced a couple of reports for the early American republic that included some of the most famous statements about mercantilist policy and who is quite close to Frederic List. Hamilton has been portrayed as the "patron saint" of the American School of economic philosophy that, according to one historian, dominated economic policy after 1861.[42] He opposed the British ideas of free trade, which he believed skewed benefits to colonial and imperial powers, in favor of protectionism, which he believed would help develop the fledgeling nation's emerging economy.

Classical political economy was pre-disciplinary. What does that mean? It was a total social science that was not broken up into distinct disciplines, social science disciplines, which is the way contemporary academia and contemporary research is organized. These authors dealt with everything: the movement of prices, law, ethics; they tried to blend all of these issues into a single system of political philosophy. For Cohen in the textbook International Political Economy: An Intellectual History published in 2008, "all understood their subject to be something called political economy a unified social science closely linked to the study of moral philosophy".[43]

The Marginalist Revolution and Neoclassical economics[edit | edit source]

Why has this stopped in the 19th century? It happened in the 1870s with the so-called Marginalist Revolution that has given rise to classic neoclassical economics.[44] Neoclassical economics is today the dominant approach to the study of economic.

The neoclassicals and the marginalists are, obviously, liberals. So there is a continuity between the liberal classical political economists and the marginalists. But, in terms of method and approach to the subject matter, there is a break, following a fundamental revolution taking place in the 1870s.

In terms of what is of interest to us, it has to do with the way the marginalists claimed that political economy should be broken up into politics on the one hand, and economics on the other hand. They postulate that political economy should be replaced by economics and the study of the way the economy works. They attempt to determine the laws that govern economic activity, and it should be modeled on the physical sciences, and the link to political considerations should be severed.

Marginalism as a formal theory can be attributed to the work of three economists, Jevons in England, Menger in Austria, and Walras in Switzerland. William Stanley Jevons first proposed the theory in articles in 1863 and 1871.[45] Similarly, Carl Menger presented the theory in 1871.[46] Menger explained why individuals use marginal utility to decide amongst trade-offs. Still, while his illustrative examples present utility as quantified, his essential assumptions do not. Léon Walras introduced the theory in Éléments d'économie politique pure, the first part of which was published in 1874.[47]

Of course, the discipline became much more normative in the sense that if an economist were to study the way the economy works, the primary issued would be what the best policy to follow according to the way the economy works is?

In 1890 Alfred Marshall, one of the most influential English liberal economist in Cambridge and the late 19th century early 20th published a key textbook in 1980 called Principles of Economics while the main textbook so far was Principles of Political Economy written by Mill.[48] From that point onwards, the disciplinary separation of the social sciences in academia ensued. There was sociology which is an empirical discipline developed by authors who went on workplaces, who went to look at the way family work, how the family structures worked and developed an empirically based discipline. There were the political scientists who looked mostly at the way political institutions and constitutional issues worked, and they were closer to constitutional law than political economy. And then, there were the economists, who started from axiomatic postulates and attempted to understand based on theoretical hypothesis.

Marxism, Leninism and dependency theory[edit | edit source]

There was also the discipline of international relations that developed sometime in the early 20th century. The field of international relations was preoccupied with high politics. It was in close relation to the study of geopolitics from the 19th century, and it mostly dealt with diplomacy, war and security. International relations did not look at the way economic relations between states took place because it was considered a low politics. With international relations, there was something related to high contexts.

From the late 19th century, the idea that political economy does not distinguish between the political and the economic disappeared. Of course, it does not entirely disappear because some counter-tendencies and exceptions remained influential even after the Marginalist Revolution.

Karl Marx in 1875.

The first obvious exception is the Marxists with the project to continue the work of Karl Marx on the capital. Marxists authors produced a theory on the way capitalism works as a total social reality and not just as an economic system but as a social order in and of itself. Marx's critical theories about society, economics and politics – collectively understood as Marxism – hold that human societies develop through class struggle. In capitalism, this manifests itself in the conflict between the ruling classes (known as the bourgeoisie) that control the means of production and the working classes (known as the proletariat) that enable these means by selling their labour-power in return for wages.[49][50] Marxism has had a profound impact on global academia and has influenced many fields.[51][52][53][54] The term political economy initially referred to the study of the material conditions of economic production in the capitalist system. In Marxism, political economy is the study of the means of production, specifically of capital and how that manifests as economic activity.[50]

In the Marxist tradition, we can notably cite two key authors. There is Rudolf Hilferding who wrote Finance Capital (Das Finanzkapital) in 1910[55][56], and Rosa Luxemburg, who wrote The Accumulation of Capital, first published in 1913, a book about imperialism within which she argues that capitalism needs to constantly expand into noncapitalist areas to access new supply sources, markets for surplus-value, and reservoirs of labor.[57][58]

There is also Lenin who published in September 1917 his book Imperialism, the Highest Stage of Capitalism. Drawing on the economic literature available to him in Zurich and drawing on the works of John Atkinson Hobson and Rudolf Hilferding on imperialism, Lenin sets out his views on the recent transformations of capitalism and their political consequences in the context of the First World War.[59] He argues that imperialism was a product of monopoly capitalism, as capitalists sought to increase their profits by extending into new territories where wages were lower and raw materials cheaper[60][61] with imperialism, the highest (advanced) stage of capitalism, requiring monopolies (of labour and natural-resource exploitation) and the exportation of finance capital (rather than goods) to sustain colonialism, which is an integral function of said economic model.[62][63] Imperialism, the Highest Stage of Capitalism became a standard textbook and propelled Lenin has a central figure in the debate about imperialism. Therefore, for the Marxists, imperialism is a structural feature of capitalism.

After the war, Marxist theory, to some extent, became subsumed under anti-colonial preoccupations and gave rise to the dependency theory. Dependency theory was derived from Listian and Hamiltonian approaches to political economy. This theory was officially developed in the late 1960s following World War II, as scholars searched for the root issue in the lack of development in Latin America.[64] Dependency theory is, therefore, a Latin American phenomenon mostly because Latin America was the first segment of the old colonial world that became independent in the 19th century and so, theoretically, also was in the vanguard of the anti-colonial struggle.[65] For the dependency theory, these countries are integrated but are structurally placed in a state of continuous dependency by applying, for example, a ban on domestic production of products to be purchased from colonial companies. For André Gunder Frank, the dependence of the countries of the South can be explained historically by colonization (Asia, Africa, Latin America for example) and by unequal trade (by companies such as the Dutch East India Company or the English East India Company). For the Argentinean economist Raúl Prebisch, the wealth of rich countries is inversely proportional to that of poor countries. For dependency theorists, it is currently impossible for the countries of the South to develop without freeing themselves from the ties of dependency maintained with the North since the development of the countries of the North is based on the underdevelopment of those of the South. [66]

So Marxism and dependency theory were one major exception to the way the study of economics and politics was organized in academia after the marginalist revolution.

Institutional economics[edit | edit source]

Thorstein Veblen.

There is also the institutional economics tendency in the United States focusing on understanding the role of the evolutionary process and the role of institutions in shaping economic behavior.[67] Institutional economics emphasizes a broader study of institutions and views markets as a result of the complex interaction of these various institutions (e.g. individuals, firms, states, social norms).[68]

The foundations of this approach were laid by Thorstein Veblen who wrote strings of books in the early 20th century (The Theory of the Leisure Class, 1899, The Theory of Business Enterprise, 1904), and gave rise to what is today institutional economics whose most recent notorious exponent was Douglass North. Veblen was a radical figure and is referred to as belonging to as the Progressive Era, while the late 19th century were the years of populism. As much as Veblen was an economist, he was also a sociologist who rejected his contemporaries who looked at the economy as an autonomous, stable, and static entity. Veblen disagreed with his peers, as he strongly believed that the economy was significantly embedded in social institutions.[69][70]

Veblen was very much at the theoretical exponent of those developments. His most famous book is The Theory of the Leisure Class published in 1899 wherein he developed a social critique of conspicuous consumption, as a function of social class and of consumerism, derived from the social stratification of people and the division of labour, which are social institutions of the feudal period (9th–15th c.) that have continued to the modern era.[71]

Karl Polanyi develops an institutionalist conception of the institution. Because the market economy has failed to deliver on its promise of social harmony, because it has led to the social question, it has been necessary to regulate it and promote institutions that can counteract its destructive effects.[72][73] Karl Polanyi was an anthropologist who wrote a major work published in 1944 titled The Great Transformation which has a canonical status today in the discipline. It is a major work about how the classical liberal era of the late 19th century-early 20th century broke down in the interwar years. In this book, Polanyi deals with the social and political upheavals that took place in England during the rise of the market economy. He contends that the modern market economy and the modern nation-state should be understood not as discrete elements but as the single human invention he calls the "Market Society".[74] Polanyi being an anthropologist, did not share the premises of neoclassical economics and so produced works that were distinct from the work produced by the economists.[75]

Albert Hirschmann wrote canonical books in political science about how change happens in organizations published in 1970 titled Exit, Voice, and Loyalty.[76][77] By understanding the relationship between exit and voice, and the interplay that loyalty has with these choices, organizations can craft the means to better address their members' concerns and issues, and thereby effect improvement. Failure to understand these competing pressures can lead to organizational decline and possible failure.[78] He is very much an essential figure in institutional economics, in organization theory, in the international political economy today.[79][80][81]

Ernst Hass was a political scientist who wrote an early major work on European integration in the 1950s and then developed regional integration theory. He looked at the processes of economic integration notably in his book The Uniting of Europe published in 1958[82][83][84][85][86] and article International Integration: The European and the Universal Process published in 1961.[87] Ernst Haas has therefore made important contributions to theoretical discussions related to international relations and European integration. In this regard, he is the founder of neo-functionalism as an approach to the study of integration.[88]

Karl Deutsch wrote a significant study of the way political integration takes place in the 1950s.[89] Karl Deutsch studies integration processes with the broader context of international relations. He argues that international integration is a process implying the concomitant convergence of states and societies resulting in a process of intensive communication giving birth to the emergence of ‘community feeling' and therefore to the set up of institutions and regulated practices to ensure long-term peaceful interactions.[67] This analytical framework is first developed in Political Community and the North Atlantic Area: International Organization in the Light of Historical Experience published in 1957[90][91][92][93] and later in The Analysis of International Relations published in 1978.[94]

Karl Deutsch and Ernst Hass are neo-functionalist theorists of the European integration and will later inspire notably Robert Keohane and Joseph Nye who will found the international relations theory of neoliberalism, developed in their book Power and Interdependence published in 1977.[95][96][97][98]

Then there is one major exception with John Maynard Keynes, who was an economist, and a policymaker. Keynes developed the premises of what later became Keynesianism, which is a revised version of neoclassical economics in particular about the way the macroeconomy works. His ideas will fundamentally change the theory and practice of macroeconomics and the economic policies of governments. For Keynesians, markets left to their own do not necessarily lead to the economic optimum. Therefore, the state has a role to play in the economic field, particularly in a framework of recovery policy.

Keynes spent a lot of his energy in the 1920s writing political tracts attacking the policies that were pursued by the major powers in Versailles and then their domestic and foreign economic policies. He will notably publish A Revision of the Treaty in 1922 to advocate a reduction of German reparations and in A Tract on Monetary Reform published in 1823 he denounces the post-World War I deflation policies.[99] He was the first in the 1920s to say that the structures of the classical era should not be reproduced because there were shifts in domestic political economies notably arguing against a return to the gold standard at parity as it ran counter to the need for domestic policy autonomy.

Alongside Keynes, there is Jacob Viner who was a Canadian economist in the US Treasury Department during the administration of Franklin Roosevelt, and Charles Kindleberger, an economic historian known for the hegemonic stability theory and who started his career as an advisor to the US Treasury in the 1940s. Viner is one of the pioneers of theory of the firm, and was the first to distinguish between short-term and long-term cost curves in the article Cost curves and supply curves published in 1932.[100] He was also a notorious opponent of John Maynard Keynes during the Great Depression. For him, Keynes's analysis was containing omissions and would not stand in the long run. As to Kindleberger, is one of the major administrators of the Marshall Plan, the plan that the United States came up with to reconstruct Western Europe after the Second World War. He served as the Acting Director of the Office of Economic Security Policy at the Department of State between 1945 and 1947. Kindleberger is a significant figure in early international political because he wrote the classical analysis of why global capitalism broke down in the 1930s in The World in Depression 1929–1939[101] and Manias, Panics, and Crashes which is the account of the way money and credit mismanagement has contributed to financial crises over centuries.[102][103][104] He is also known as the father to the hegemonic stability theory which is the first major global theory in international political theory that structured the debate. The key idea is that in order for a global economic and political system to work well, there must be a hegemonic power capable of making the necessary decisions to regulate the economy. Therefore, the collapse of an existing hegemon or the state of no hegemon destabilize the international system.[105][106]

Birth of the discipline of International Political Economy[edit | edit source]

Why was international political economy born in the early 1970s? The first thing is the historical context of the early seventies and how international politics influenced international economy of that time. The economic life of the 1970s was greatly affected by continuously unstable dynamics which resulted in structural changes of the capitalist world economy and notably a change in the dominant policy stance from Keynesianism to neo-conservative monetarism.[107]

The dollar crisis of 1968-1971 and the decision of President Richard Nixon to terminate the convertibility of gold on 15 August 1971 that had been established under the IMF caused the end of the Bretton Woods system.[108][109] A dollar standard was then created in December 1971 with the Smithsonian Agreement whereby the currencies of a number of Western countries were fasten to the US dollar.[110][111][112][113] The oil crises of 1973 and 1979 resulted in the West to more restrictive monetary policy to better fight inflation. In the 1970s, the so-called Japanese economic miracle took place making Japan a major trading nation and industrial competitors for Western countries. Between 1946 and 1976, Japan sustained economic growth by 55 fold while its exportation known a truly phenomenal growth.[114][115] The movement of exchange rates also increased considerably in the early part of the post-Bretton Woods era.[116][117][118] For smaller or more outward-looking economies, the floating exchange rate is disruptive. The same is true for developing countries that are concerned about the floating exchange rate for the stability of their economies. With the transition to the floating exchange rate, some countries of the world and especially countries that claim to compete for the dominance of the international financial market are liberalizing their international capital transactions. The most important changes are taking place in the United States, which is trying to regain ground following the abolition of capital controls and is committed to the liberalisation of the financial sector. For other countries, we see a "back and forth" during the 1970s even with regard to capital flow controls, not to mention the liberalization of their financial sector.[119]

That context led scholars in the fields of economic, political science and economic history to attempt to bridge the gap between international politics and international economics. They saw themselves as intellectual entrepreneurs who wanted to create something new.

The discipline was born independently at the same time both in the United Kingdom and the United States. Of course, the developments in the United States are more relevant and also the course here at the University of Geneva is much more aligned on development in the American trends of international political economy.

In the United States, two scholars played a central role in the development of the discipline. Those were Robert Keohane and Joseph Nye, the author who notably coined the term soft power in the late 1980s. They were political scientists who were influenced by the functionalists and co-founded the international relations theory of neoliberalism, developed in their 1977 book Power and Interdependence.[120] In the early 1970s, they took over the journal peer-reviewed academic journal International Organization and shifted away its focus from the study of international organizations to the study of international political economy.[121][122] They organized two key conferences, and specifically, that dealt with world politics and the concept of interdependence. After 1975, International Organization becomes the main outlet for international political economy in the United States.[123] From then onward, international political economy is more or less identified with the journal to the extent that some people refer to as the American School as the International Organization School.[124]

Pretty much at the same time, Susan Strange, who was a professor of international relations in the London School of Economics, played a central role in developing international political economy as a field of study in Britain.[125] She notably published in 1970 the article International Economics and International Relations: A Case of Mutual Neglect which was a kind of manifesto calling for international economists and international political scientists to work together and to try and bridge the gap between international economics (IE) and international relations (IR).[126] According to her, scholars from both traditions were neglecting fundamental changes in the world economy arguing that a more modern approach to the study of the global economy was needed. Therefore, for Strange, international political economic was 'middle ground' between economic and political analysis of international affairs.[127]

Evolution: American school vs British school[edit | edit source]

How those two schools developed? In International political economy: a tale of two heterodoxies published in 2001, Murphy and Nelson refer to the development of the international political economy as a tale of two heterodoxies divided into American and British schools.[128] Why heterodoxy? Because international was heterodox in relation, both to mainstream economic and to mainstream political science.[129]

In reccent years, the American international political economy has tried to mimic the methods of mainstream economics. This comes most of the time in form of using quantitative or statistical methods in order to allow for law-like generalizations. There are very broad divergences in the sense that American international political economy is very much state-centric, privileging sovereign governments above all other units of interest and conceiving of itself as a branch of international relations while British School by contrast, treats the state as just one agent among many.[130] Actors are not driven by norms or ideas but essentially by material interests. As a consequence, different actors pursue different goals. To summarize, the American school analyze actors as rational and goal-oriented, adopting a utility-maximizing behavior and thus self-interested individuals. Therefore, international political economy is considered as the political economy of international relations in the United States. It is state-centric with the main preoccupation to determine how states behave in terms of international economics. American international political economy is suspicious of normative judgements. It is more preoccupied with explaining how the system works rather than with criticizing the way the system works and prescribing alternative ways in which the system should work. It has tried since the mid-1980s more or less to mimic the positivist and quantitative bias that is a methodological hallmark of mainstream political science in particular mainstream economics, and neoclassical economics.

In The Transatlantic Divide: Why Are American and British IPE so Different? and The transatlantic divide: a rejoinder Benjamin Cohen who was one of the major characters in developments of international political economy from the early 1970s, he explained this by saying that it is because, from the mid-1980s, international political economy authors wanted to enjoy the same kind of prestige.[131][132] So they try to mimic their methods their methodologies in order to advance their careers.

British international political economy is the opposite on pretty much every score.[133] British international political economy refers to itself as the global political economy, to begin with, and not the international political economy most of the time. Again because global and not international because it is not state-centre. It is very much preoccupied with the erosion, the place that the state occupies within the international system and the rise of importance of non-state actors in the international system works.

British international political economy is also the home for contemporaries. British international political economy is a broad church in terms of methods and terms of schools of thoughts. It is methodologically and thematically eclectic, and it looks at all kinds of issues with our drawing limits. For British School, the approach is more interpretative and critical. The different trends reject the positivist assumption that the purpose of social science is to identify causal relationships in an objective world. They seek in the wider range of approaches in the field of social science for alternative theories and explanations (e.g., historical sociology structuralism and poststructuralism, feminism, cultural studies, etc).[134] British School approaches have produced a more profound toolkit to analyze international political economy.[135] If in the United States, international political economy has been mostly seen as a sub-specialty of the study of the field of International Relations, British international political economy does not consider itself as a branch of international relations. Thus, in many places in the United Kingdom, international political economy is stored into departments that do not teach international relations. Moreover, the British international political economy has a much more ambitious agenda in the sense that it introduced the concept of globalization but also approaches such environmental culture and feminist political economy.

Old vs New International Political Economy[edit | edit source]

American international political economy can be split up into the old and the new international political economy.[136][137] The old international political economy based itself on methodologically loose attempts and holistic understandings of the international political economy. From that, the old international political economy of the 1970s gradually moved towards a more positivist and behavioralist direction. From the mid-1980s, international political economy became mainly concerned with positivist explorations of the individual dimensions of the system or with what some authors refer to as Mertonian middle-range theory.[138] There is also a shift from qualitative to quantitative methodologies.

The primary debate in the old international political economy was the debate about complex interdependence, hegemonic stability theory and hegemonic decline. There was a major debate about whether the United States was in hegemonic decline in the late 1970s and 1980s, and another one about international organizations and the governance of the global system. The main focus of the discipline was the international level.

The main aspects of the new international political economy focus on the domestic sources of foreign economic policy. In contrast, the new international political economy attempts to determine the relationships between key individuals, political, and economic variables in the system. It is a more-integrated type of analysis, which explicitly sought to trace the connections between political and economic factors.[139]

Keohane, who was the founder of the old international political economy, in the article The old IPE and the new. Review of International Political Economy published in 2019, sustained attention to issues of structural power and the synthetic interpretation of change.[140] There are debates within the American international political economy itself about which direction the discipline should take.

Open economy politics is the name given by contemporary practitioners of American international political economy to their approach.[141] It adopts the assumptions of neoclassical economics and international trade theory.[142] The main idea is that today international political economy tries to determine the relationships between three distinct variables, namely domestic interests, domestic and international institutions, and international bargaining between states. For contemporaries, the combination of those three variables determined the way the international political economy functions.

The key protagonist in the old international political economy was Robert Keohane, a political scientist and neoliberal institutionalist. There is also Stephen Krasner a neorealist academic who focused on international regimes, and he is a leading figure in the study of Regime theory. Peter Katzenstein was credited with introducing the issues of domestic variables and ideational variables into the study of international political economy in the early 1980s.[143] For him, until the end of the 1970s, the litterature on foreign economic policy has discounted the influence of domestic forces.[144][145] For Katzenstein, international and domestic factors have been closely intertwined in the historical evolution of the international political economy since the middle of the XIXth century. He argues that the domestic structure of the national state is an essential explanatory variable of the interrelation between international interdependence and political structure.[146] There is Charles Kindleberger and also Robert Gilpin who wrote a string of books that became classic.

Americans are almost exclusively in international relations, and most come from Ivy League universities. Furthermore, it is mainly a group of people associated with a legit university in the United States. Those academics are close to policymaking circles as well, whereas actors in the British international political economy come from different horizons. Two institutions are particularly important in the field of international political economy: one is the London School of Economics of course, and the other one is the University of Warwick. It should be highlighted that there are also the Canadians who try to bridge the gap between the Americans the British.[147] International political economy in Canada is defined by its pluralism with several Canadian academics keeping a foot in each camp drawing from the American school's emphasise on scientific positivism and empiricism, and the British school-style historicism.[148] The Canadian approach is based on eclecticism combining rigorous observational studies and theoretically informed analyzes with a keen appreciation of the positions of history, institutions and ideas.

Annexes[edit | edit source]

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