International Political Economy Essay Example

International Political Economy Essay The first chapter of the text deals with the fundamental nature of international political economy (IPE) and some analytical issues related to its multidimensional character. Chapters 2 through 4 are the core chapters of the text that explore the history and policies associated with the three dominant IPE perspectives, namely economic liberalism, mercantilism, and structuralism. These theoretical tools are useful in understanding many political, economic, and social issues in the global economy of the past as well as the present. Chapter 5 develops two alternative IPE perspectives—constructivism and feminism—that derive, in part, from the three main outlooks under study. ChaPter 1 What Is International Political Economy? We Are the 99%: A Haitian hillside. Georgina Allen When a philosopher has once laid hold of a favorite principle, which perhaps accounts for many natural effects, he extends the same principle over the whole creation, and reduces to it every phenomenon, though by the most violent and absurd reasoning. Our own mind being narrow and contracted, we cannot extend our conception to the variety and extent of nature . .  . David Hume, â€Å"The Sceptic† 2 The Darkness on the Edge of Town 3 the Darkness on the eDge of town What are the chances you will find a good paying job—or any job for that matter—when you graduate from college in the next few years? Have your parents or people you know lost their jobs, the family home, or a big chunk of their retirement savings? How are you adjusting to the financial crisis? Maybe things haven’t been that bad for you, yet! Reading the headlines of any major newspaper, you might sometimes worry that the world is on the brink of a global economic catastrophe, if not a second Great Depression. We will write a custom essay sample on International Political Economy specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on International Political Economy specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on International Political Economy specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The effects of the global economic crisis have made many people feel tense, fearful, and depressed. The collapse of the U. S. housing market in 2007 morphed into a credit   crisis that threatened some of the biggest banks and financial institutions in the United  States and Europe. Government leaders responded with a variety of bank rescue measures and so-called stimulus packages to restart their economies. These interventions angered many ordinary folks who felt that the bailouts rewarded bankers and CEOs who had caused the crisis in the first place. Meanwhile, many people around the world were forced out of their homes and became unemployed. They suffered cuts in social services, health care benefits, and education spending when governments were forced to trim budgets. As we write in late 2012, the hoped-for recovery has proved elusive. Unemployment in the United States is stuck at 7. 9 percent; in the European Union (EU), it has risen to 11. 6 percent (23. 4 percent for young people). Home foreclosures and stagnant incomes continue to place enormous strain on many families’ finances. The EU has fallen into another recession, with countries like Greece, Italy, Spain, and Portugal so deep in debt that they might slide into national bankruptcy, causing the EU’s monetary system to collapse. People seem to have lost confidence in national and international political institutions that underpin capitalism and democracy. Is this what the Great Transformation from industrial to post-industrial society was supposed to look like? Are globalization and the so-called â€Å"creative destruction† of new technologies shrinking the middle classes in Western countries and permanently shifting economic dynamism to Asia and Latin America? Adding to the sense of gloom are events around the world in the last few years. High oil prices have benefitted giant oil companies while hurting consumers. The giant British Petroleum (BP) oil spill precipitated an environmental catastrophe in the Gulf of Mexico. Japan’s Fukushima earthquake and tsunami damaged several nuclear power plants, causing release of dangerous radioactive material across a large swath of territory. High agriculture commodity prices have raised the cost of food and increased levels of world hunger. Because there has been little progress in reducing reliance on fossil fuels, capping carbon emissions, or investing in alternative energy resources, the threat of catastrophic climate change looms larger. And wars in Syria, Afghanistan, Somalia, and the Congo are destroying the livelihoods of millions of people. Hope on the Horizon? Is there only gloom and doom around the globe? Surely, no! As we discuss in Chapter 13, emerging powers such as China, India, Brazil, and Russia have dramatically reduced poverty in the last fifteen years and made it possible for hundreds 4 C h a Pte r 1 What Is International Political Economy? f millions of people to join the middle class. Fortunately, they continued to grow at a fairly robust pace after 2007; more jobs, investment, and consumption in these countries helped keep the rest of the world from falling into a deeper recession. For most of the last decade, sub-Saharan Africa has also grown surprisingly fast, thanks in part to high prices for oi l and commodities exports. And the European Union won the 2012 Nobel Peace Prize, a reminder that—despite its serious economic and social problems today—the community has advanced the causes of â€Å"peace and reconciliation, democracy, and human rights† for more than sixty years. Along with these rays of hope are three interrelated global developments that merit discussion at the beginning of this textbook because they are profoundly shaping the international political economy: the Arab Spring, the European sovereign debt crisis, and the Occupy Wall Street (OWS) movement. Taking place on three different continents since 2011, they have shaken political institutions and spurred waves of political protests in response to a variety of social and economic ills. None of us knows how these momentous developments will play out, but we can be sure that they will affect our daily lives and pocketbooks for many years. Each is a double-edged sword: a potential harbinger of positive change and a potential foreshadowing of worse yet to come. In other words, each development can either help lead to a more stable, prosperous world in which human security is better guaranteed or render divisions within and between societies wider than before so that cooperative relations and a fairer distribution of resources remain ever more elusive goals. The Arab Spring took the world by surprise—a reminder that social scientists still do not have good tools to predict when and why large-scale changes will occur in complex socio-political systems. On December 17, 2010, a Tunisian street vendor named Mohamed Bouazizi set himself on fire in reaction to harassment by police officers. His death sparked street demonstrations that brought down the Tunisian government one month later. Protests spread like wildfires to other countries in the Middle East and North Africa. After eighteen days of mass demonstrations, Egypt’s authoritarian president Hosni Mubarak resigned on February 11, 2011, replaced by a military council. On February 15, residents of Benghazi, Libya, rose up against the regime of Muammar Qaddafi. Following months of NATO bombing and rebel fighting, Qaddafi was killed on October 20, 2011, and a National Transitional Council took power. The dramatic political protests—which captivated television viewers and Twitter-feed followers around the world—created an opportunity for a number of Arab countries to join the community of democratic nations. Yet the crackdown in Syria showed the world how determined some authoritarian leaders in the Middle East are to remain in power—even at the expense of killing tens of thousands of their own citizens. With  the genie of Arab political  opposition out of the bottle, countries in the Middle East and North Africa are rapidly changing. Fortunately, high oil prices and a return to relative stability in many places could improve conditions in 2013. Along with the Arab Spring came President Barack Obama’s withdrawal of all U. S. troops from Iraq at the end of 2011. An ignominious end to an imperial endeavor, the withdrawal seemed to signal that the U. S. public was no longer willing to pay for wars that drain the public treasury. President Obama refocused The Darkness on the Edge of Town 5 U. S. policy on fighting against the Taliban in Afghanistan and ratcheting up pressure on Iran to abandon its effort to develop nuclear weapons. Many analysts believe that Obama’s decisions reveal a significant weakening of U. S. influence in the Middle East. Perhaps to counteract this decline, Obama decided to bolster the American military presence in the Pacific by cultivating ties with countries afraid of China’s rise and stationing 2,500 troops permanently in northern Australia beginning in November 2011. A second development—the European sovereign debt crisis—relentlessly gathered steam after 2010 in the face of a prolonged recession that made it hard for some countries to pay back huge loans to domestic and foreign banks. European Union leaders had hoped to contain the debt problems in Greece and Ireland, but governments in Spain and Portugal also began to have trouble raising new money by issuing new government bonds. All four countries in 2012 had to get financial bailouts in exchange for adopting painful government spending cuts that contributed to high unemployment. Even with help from the European Central Bank, these countries have dire conditions that threaten the stability of the European financial system. Europe’s responses to its debt crisis have stimulated widespread social unrest. Severe austerity measures have spawned street protests throughout the continent and brought changes of government in Greece, Italy, and Spain. Some EU leaders and analysts believe that the crisis will spur European countries to form closer ties, while others foresee the death of the euro and the prospect of national bankruptcies as some countries refuse to pay back onerous loans. If problems worsen in France and Italy, the EU could unravel economically, causing another deep global recession. The crisis is forcing Germany to decide if it is willing to share the costs of making the EU stronger, or if it will pursue its purely national interests. The outcomes will likely cause changes in Europe’s traditionally generous social programs and in Europe’s influence in the world. A third development started as an anti-Wall Street protest in New York City’s Zuccotti Park on September 17, 2011. Two weeks later, the Occupy Wall Street movement had quickly spread to many major U. S. ities, with encampments and â€Å"general assemblies† in public spaces. Similar â€Å"occupations† occurred in Europe, Israel, Chile, and Australia. Although the majority of participants in the OWS social movement have been students, union workers, progressive activists, and the unemployed, their ideas seemed to resonate with a significant number of the middl e class. Calling themselves the â€Å"99%† (in contrast to the wealthiest 1 percent of Americans), OWS protestors criticized financial institutions, condemned Wall Street greed, and called for a reduction of corporate control over the democratic process. Although OWS encampments disappeared, the movement took up new campaigns in 2012, including efforts to stop home foreclosures and reduce student debt. What do these three developments have in common? While each has its own causes, the protestors collectively represent a reaction to corrupt government and growing inequality. In three large regions—the Middle East, Europe, and North America—movements sought protection from financial and cultural globalization that left people feeling at the mercy of market forces. In many cases, protestors felt that they were unfairly forced to bail out the wealthy but denied a chance to share many of the benefits of previous growth. Austerity policies that many governments 6 C h a Pte r 1 What Is International Political Economy? had adopted since 2008—and even earlier in the Arab countries—cut into a host of public social programs such as education and relief for the poor. Many disgruntled citizens disagreed with their leaders, who argued that such reductions were necessary to reduce the size of government, balance national budgets, and stimulate economic recovery. While Arabs claimed a political voice that had been squashed by decades of dictatorial rule, Americans and Europeans seemed to demand a new kind of politics freed from the grip of special interests and big money. In all three cases, elites who were supposed to be the experts on political and financial affairs suddenly were at a loss to explain why things had gotten so bad under their watch. With a loss of faith in Arab regimes, EU leaders, and U. S. bankers came a certain â€Å"denaturalization† of ruling ideologies such as economic liberalism. A new emphasis was placed on democratic participation and economic fairness. Despite a new zeitgeist in the air in three continents, old political and economic institutions were still resilient. Many regimes held firm in the Middle East. American banks grew even bigger after government bailouts, and more money than ever poured into the campaign war chests of Democratic and Republican political candidates. EU political elites continued to make deals that seemed designed to save big investors and banks rather than ordinary citizens. The alternatives to the old did not always promise a better future, either. In the aftermath of the Arab Spring, Islamists like Egypt’s new president Mohamed Morsi made their own undemocratic power grabs, seeking to impose religiously conservative policies and weaken women’s rights. Reactions against austerity in Europe strengthened extreme right-wing parties in Greece and France while fueling anti-EU or secessionist sentiments in the United Kingdom and Catalonia. And by refusing to organize and engage in â€Å"normal† politics, the OWS forces dissipated—leaving normal two-party gridlock in Washington after the November 2012 elections. The Road Ahead By discussing above the three big developments, as well as the problems and promises in the global economy, we have hopefully given you a sense of some of the important phenomena we seek to understand in international political economy. Not unsurprisingly, there are fierce debates about the causes of current crises and the best solutions to them. One of the arguments we make in this text is that to adequately describe and explain the current global financial crisis—or any of the other issues covered in the different chapters—we must use an analytical approach that synthesizes methods and insights derived from economics, political science, and sociology as conditioned by an understanding of history and philosophy. As you delve deeper into the material, you will learn a variety of theories and analytical tools that help us interpret the interrelationships of the state, arket, and society in different nations. The IPE method bridges different academic disciplines to better explain complex, real-world problems that span physical and intellectual boundaries. While this statement might sound a bit formal and confusing at this point, keep in mind that we do not think you need to be an economics major, a specialist in finance, The What, Why, and How of International Political Economy 7 or a Middle East expert to underst and the basic parameters of the global financial crisis or the Arab Spring. This book is written for students who have limited background in political science, economics, or sociology, as well as for those who want to review an assortment of topics in preparation for graduate school. In the next section, we look at how to study IPE—its three distinct analytical perspectives and a number of methodological issues with which IPE students should become acquainted. All the chapters in the book cover important theoretical and policy issues that have connections to the three developments we have mentioned—and to many more. In this way, we hope students might better understand different dimensions of the problems and then make some reasoned judgments about how to solve them. Later in this chapter, we discuss the popular phenomenon of globalization as a way to introduce students to many of the political-economic conditions that led up to the global financial crisis. Many IPE experts have asserted that the economic liberal ideas behind globalization may have contributed to the crisis. Opinions differ, however, on whether or not the crisis signals the end of laissez-faire economic policies, or even the end of capitalism itself. he what, why, anD how of InternatIonal PolItICal eConomy Our discussion of the financial crisis and its consequences makes clear that today’s complex issues can no longer be easily analyzed and understood by using any single set of disciplinary methods and concepts. Those who study IPE are, in essence, breaking down the analytical and conceptual boundaries between politics, e conomics, and sociology to produce a unique explanatory framework. Following are several examples of questions that traditional academic disciplines might ask as they seek to explain the global financial crisis. Each discipline focuses on different actors and interests:  ¦  ¦  ¦  ¦  ¦ International Relations: How much has the financial crisis detracted from the ability of states to pay for military defense? How has the crisis affected the conditions of war or terrorism in poor states? As Europe, Japan, and the United States struggle, will emerging countries like China, India, and Brazil gain more political influence in international institutions? International Economics: How has the crisis impacted foreign investment, international trade, and the values of different currencies? Comparative Politics: What is the capability of political institutions within different nations to respond to the needs of the unemployed? What new political forces are emerging and with what effects on political coalitions? Sociology: How has the crisis affected consumption trends for different groups such as the upper, middle, and lower classes? How do the effects of inequality vary on the basis of ethnicity and gender? Anthropology: How have different societies in history dealt with crises related to how they allocate scarce resources? And how have these crises impacted their cultures, values, and societal norms? 8 C h a Pte r 1 What Is International Political Economy? Focusing on a narrow range of methods and issues enhances intellectual specialization and analytical efficiency. But any single discipline offers an incomplete explanation of global events. Specialization promotes a sort of scholarly blindness or distorted view that comes from using only one set of analytical methods and concepts to explain what most decidedly is a complex problem that could benefit from a multidisciplinary perspective. What Is International Political Economy? When defining IPE, we make a distinction between the term â€Å"international political economy† and the acronym IPE. The former refers to what we study—commonly referred to as a subject area or field of inquiry that involves tensions among states, markets, and societal actors. In this text, we tend to focus on a variety of actors and issues that are either â€Å"international† (between nation-states) or â€Å"transnational† (across the national borders of two or more states). Increasingly today, many analysts use the term â€Å"global political economy† instead of â€Å"international political economy† to explain problems such as climate change, hunger, and illicit markets that have spread over the entire world, and not just a few nations. In this book, we often use these two terms interchangeably. The acronym IPE also connotes a method of inquiry that is multidisciplinary. IPE fashions the tools of analysis of its antecedent disciplines so as to more accurately describe and explain the ever-changing relationships between governments, businesses, and social forces across history and in different geographical areas. What are some of the central elements of the antecedent fields of study that contribute to IPE? First, IPE includes a political dimension that accounts for the use of power by  a variety of actors, including individuals, domestic groups, states (acting as single units), international organizations, nongovernmental organizations (NGOs), and transnational corporations (TNCs). All these actors make decisions about the distribution of tangible things such as money and products or intangible things such as security and innovation. In almost all cases, politics involves the making of rules pertaining to how states and societies achieve their goals. Another aspect of politics is the kind of public and private institutions that have the authority to pursue different goals. Second, IPE involves an economic dimension that deals with how scarce resources are distributed among individuals, groups, and nation-states. A variety of public and private institutions allocate resources on a day-to-day basis in local markets where we shop. Today, a market is not just a place where people go to buy or exchange something face to face with the product’s maker. The market can also be thought of as a driving force that shapes human behavior. When consumers buy things, when investors purchase stocks, and when banks lend money, their depersonalized transactions constitute a vast, sophisticated web of relationships that coordinate economic activities all over the world. Political scientist Charles Lindblom makes an interesting case that the economy The What, Why, and How of International Political Economy is actually nothing more than a system for coordinating social behavior! What people eat, their occupation, and even what they do when not working are all organized around different agricultural, labor, and relaxation markets. In effect, markets often perform a social function of â€Å"coordination without a coordinator. †1 Third, the works of such notables as Charles Lindblom and economists Robert Heilbroner an d Lester Thurow help us realize that IPE does not reflect enough the societal dimension of different international problems. A growing number of IPE scholars argue that states and markets do not exist in a social vacuum. There are usually many different social groups within a state that share identities, norms, and associations based on tribal ties, ethnicity, religion, or gender. Likewise, a variety of transnational groups (referred to as global civil society) have interests that cut across national boundaries. A host of NGOs have attempted to pressure national and international organizations on issues such as climate change, refugees, migrant workers, and gender-based exploitation. All of these groups are purveyors of ideas that potentially generate tensions between them and other groups but play a major role in shaping global behavior. How to Study IPE: Contrasting Perspectives and Methodologies The three dominant perspectives of IPE are economic liberalism, mercantilism, and structuralism. Each focuses on the relationships between a variety of actors and institutions. A strict distinction between these perspectives is quite arbitrary and has been imposed by disciplinary tradition, at times making it difficult to appreciate their connections to one another. Each perspective emphasizes different values, actors, and solutions to policy problems but also overlooks some important elements highlighted by the other two perspectives. Economic liberalism (particularly neoliberalism—see Chapter 2) is most closely associated with the study of markets. Later we will explain why there is an increasing gap between orthodox economic liberals (OELs), who champion free markets and free trade, and heterodox interventionist liberals (HILs), who support more state regulation and trade protection to sustain markets. Increasingly, HILs have stressed that markets work best when they are embedded in (connected to) society and when the state intervenes to resolve problems that markets alone cannot handle. In fact, many HILs acknowledge that markets are the source of many of these problems. Many liberal values and ideas are the ideological foundation of the globalization campaign. They are derived from notable thinkers such as Adam Smith, David Ricardo, John Maynard Keynes, Friedrich Hayek, and Milton Friedman. The laissez-faire principle, that the state should leave the economy alone, is attributed to Adam Smith. More recently, economic liberal ideas have been associated with former president Ronald Reagan and his acolytes, who contended that economic growth is best achieved when the government severely limits its involvement (interference) in the economy. Under pure market conditions (i. e. , the absence of state intervention or social influences), people are assumed to behave â€Å"rationallyâ₠¬  (see Chapter 2). 10 C h a Pte r 1 What Is International Political Economy? That is, they will naturally seek to maximize their gains and limit their losses when producing and selling things. They have strong desires to exchange and to generate wealth by competing with others for sales in local and international markets. According to OELs, people should strongly value economic efficiency— the ability to use and distribute resources effectively and with little waste. Why is efficiency so important? When an economy is inefficient, scarce resources go unused or could be used in other ways that would be more beneficial to society. This idea has been applied to the new global economy and is one of the basic principles behind globalization. Mercantilism (also called economic nationalism) is most closely associated with the political philosophy of realism, which focuses on state efforts to accumulate wealth and power to protect society from physical harm or the influence of other states (see Chapters 3 and 9). In theory, the state is a legal entity and an autonomous system of institutions that governs a specific geographic territory and a â€Å"nation. † Since the mid-seventeenth century, the state has been the dominant actor in the international community based on the principle that it has the authority to exercise sovereignty (final authority) over its own affairs. States use two types of power to protect themselves. Hard power refers to tangible military and economic assets employed to compel, coerce, influence, fend off, or defeat enemies and competitors. Soft power comprises selective tools that reflect and project a country’s cultural values, beliefs, and ideals. Through the use of movies, cultural exports and exchanges, information, and diplomacy, a state can convince others that the ideas it sponsors are legitimate and should be adopted. Soft power can in many ways be more effective than hard power because it rests on persuasion and mutual exchange. For example, Nobel Peace Prize recipient Barack Obama partly regained some of the world’s support for the United States through a discourse emphasizing multilateral cooperation. Structuralism is rooted in Marxist analysis but not limited to it (see Chapter 4). It looks at IPE issues mainly in terms of how different social classes are shaped by the dominant economic structure. It is most closely associated with the methods of analysis many sociologists employ. Structuralists emphasize that markets have never existed in a social vacuum. Some combination of social, economic, and political forces establishes, regulates, and preserves them. As we will see in the case of the financial crisis, even the standards used to judge the effectiveness of market systems reflect the dominant values and beliefs of those forces. The Benefits of IPE Each perspective in IPE sheds light on some aspects of a problem particularly well, but casts a shadow on other important aspects. By using a combination of the three dominant IPE methods and concepts (outlined in Table 1-1), we can move to the big picture—the most comprehensive and compelling explanation of global processes. Not surprisingly, mixing together the disciplines of economics, political science, and sociology gives rise to an analytical problem: It is difficult to establish a single explanation to any IPE issue because each discipline has its own set of analytical concepts, core beliefs, and methodologies. Does this weaken the utility of IPE? Not at all. We must recognize that IPE is not a â€Å"hard science†; it may never The What, Why, and How of International Political Economy 11 able 1-1 Conflicting Political economic Perspectives about state–market relations in Capitalist societies Monetarism (Orthodox Economic Liberals) Main Ideas about Capitalism â€Å"Laissez-faire†; minimal state intervention and regulation of the economy Keynesian (Heterodox Interventionist Economic Liberals) The state primes (injects money— liquidity) into the economy to restore confidence in it and to stabilize it Efficiency mixed with a variety of state political and social objectives D evelopmental State Model (Mercantilism) Socialism (Structuralism) Social Democracy (Structuralism) The state plays a proactive role in the economy to guide and protect its major industries The state controls the economy. Prices set by state officials. Emphasis on state planning and agenda setting The government cooperates with businesses to promote economic growth and distribution Values Economic efficiency, technology, open and integrated international markets, globalization Adam Smith, David Ricardo, Friedrich Hayek, Milton Friedman, â€Å"the Chicago School† National security, Equality state-managed economy, relative equality Equity and relative equality Thinkers John Stuart Mills, John Maynard Keynes, Robert Reich, Joseph Stiglitz, Dani Rodrik, Jeff Sachs States use monetary and fiscal policies. Promote â€Å"fair trade† policies that include some protectionist measures Deepak Lal, Jagdish Bhagwati Germany, India, Mexico Friedrich List, Alexander Hamilton, Ha-Joon Chang Karl Marx, Vladimir Lenin, Mao Zedong, Fidel Castro James Galbraith, Robert Kuttner Policy Tools Preferably few. Monetary and fiscal policies necessary at times to help market function well. Free trade Protectionist industrial and trade policies oftentimes necessary to make markets work and enhance national wealth and welfare Ha-Joon Chang Japan, South Korea Monetary, fiscal, and fair trade policies that redistribute income to everyone in society States use monetary and fiscal policies to redistribute income Trade Policy Experts State Examples Doug Irwin, Martin Wolf Hong Kong, U. S. , Great Britain Walden Bello, Benjamin Barber Former East Germany, China before 1982 Amartya Sen Sweden 12 C h a Pte r 1 What Is International Political Economy? stablish a comprehensive theory with easily testable propositions about cause and effect. The world is a messy laboratory. Social science has always reflected this in explanations of human behavior. IPE today represents an effort to return to the  kind of analysis done by political theorists and philosophers before the study of human social behavior became fragmented into the discrete fields of social science. Both Adam Smith and Karl Marx, for example, considered themselves to be political-economists in the broadest sense of the term. One of our goals is to point out ways in which by mixing the elements of different disciplines we are better able to explain the global political economy. One of the ways of doing this is to think of the antecedent disciplines of IPE as varieties of plants. Just as new plant varieties are produced by splicing parts of them together, since the early 1970s the mixing of disciplinary approaches has gradually helped an appreciation of the traditional idea of international political economy re-emerge, resulting in a productive and powerful hybrid field of study called IPE. So what does the new mixture look like? To help answer this question, Susan Strange suggests that we focus on a number of common analytical and conceptual issues that cut across disciplinary boundaries. For her, the starting point for studying the connections and relationships between states, markets, and society is to focus on the question of cui bono? Who benefits from complex interactions in the international political economy? 5 One good example is Pietra Rivoli’s book The Travels of a T-Shirt in the Global Economy that examines a â€Å"commodity chain. 6 Rivoli traces a T-shirt from the time the cotton in it is grown in West Texas, to textile manufacturing in China, to sales in the United States, and then on to Africa, where many donated T-shirts end up being sold in local markets. Her work examines the process by which a T-shirt is made, transported, marketed, and then