A Central Theoretical Issue of International Political Economy

I.                   Introduction

In 1970’s there is a new branch of social science developed as a reaction toward the failing Bretton Woods system. Economic disruption of such magnitude led scholars to increase the extent of their attention regarding international relations and its relationship with politics and economy. Within the years the followed, this increased attention produced a new academic discipline called the International Political Economy. The discipline discusses the way political forces shape economic systems through complicated direct and indirect means. Due to the vastness of factors that come to play within the discipline, academic boundaries of IPE are considered flexible and often generate debates between scholars and observers.

Globalization and increasing complexity of international economies further develop the importance of IPE. Nevertheless, due to the rather more abstract nature of the discipline compare to other economic and even political sciences, IPE’s role in terms of practical use is often questioned. Therefore, in this paper, I am discussing the core issue that reflects the significance (or insignificance) of IPE in today’s highly competitive and rapidly changing economic environment. The core issue within IPE is the ‘correlation between politics and economy’. If such correlation is proven strong, then the study of IPE should not be discouraged in our economic and time-efficient world.

II.                Correlation Between Politics and Economy

Simply defined, IPE scholars stated that politics and economy are always interrelated through many aspects of economic or political activities or situations. Some of the activities or situations that connect politics and economy are: international trade, international finance, global markets and trans-border economic problems. Some of these connections are easy to see while others might need more attention in order to understand the series of linkages.

In international trade, the government could easily affect the direction of a nation’s economic development by increasing trade barriers or decreasing them. In international finance, a government could increase or decrease uncertainties by establishing a certain monetary policy. An open-attitude from the government or a good political alliance between governments could enhance the development of global markets previously untouched. Furthermore, a long-existing business problem between communities of different economies could be settled by political actions.

III.             Historical Evidence

III.1.   Prior to Governments

History itself could testify for the affects of politics toward the economy, as well as the influence of economy toward political actions. In the beginning of economic and societal lives, people had no choice but to submit to the law of the jungle where the strong rule and the poor suffer. It is one of the oldest economic concepts to understand that there are some people wanting to live based on the wealth produced by others. Therefore, the economy was also as brutal as the jungle itself as stealing, whether they are covert or out in the open, was hard to contain.

III.2.   Post Government

These conditions changed as people started to establish the oldest forms of government which is supported or feared by the people. There were laws and regulations. But yet, these rules are made by a few people claiming themselves as superior than others. Thus, stealing are still very much often, but worst, they are done by the rich hiding behind unjust laws. For example, the medieval aristocracy lived in luxury off the farmers who were not allowed to quit from their jobs. When these farmers rebelled, we stated to direct our ways to the era of democracy.

III.3.   Democracy

In 1776, the American government was created under the intention of defending property rights of common people. Economic policies were set in order to ensure that prosperity is not only owned by those feeding from the laborers but also owned by the laborers themselves. The idea is that people should earn their welfare, and on that basis, many policies were created, for example, the gold standard. Afterwards we have experienced various types of changes in the economy, from the groundbreaking level to the simple changes of policies. These changes have led people of United States from a scattered economy into the most powerful economy in the world.

III.4.   Analysis

If we are to see the stages in which our society has developed as elaborated above, then we can see that every political decision has a powerful economic effect. And just like the rebellions of the working class, economic conditions can also inflict political shifts. We have tried to deny this relationship, but the evidence are too many and people who are trying to fix the economy without acknowledging the implications of politics within economy usually fails or achieve little. People who are aware of this relationship could sometimes try to develop a government which is free from politics. Some are still doing it now, but our records revealed that there is not a single time in our history where politics and economy is not so closely intertwined.

The motivation that fueled efforts of separating economy from politics is easy to understand. As long as special interests are still very much influential in politics and economy, the kinds of robbery and thievery as elaborated in the previous chapters are still very much possible even in the modern setting of our economy. There are various examples of this, like when business people contribute money to support a politicians’ campaign so that they can pay him back in form of ‘favors’, and when officers of a drug company covertly pay the FDA to approve their drugs. However, IPE stated that to create a politically free economy is impossible, but instead, we could design a political structure that will produce the best effect toward the economy.

IV.             IPE on Liberalism, Realism and Marxism

IV.1.   Liberalism

            The International Political Economy has three types of answers in order to manage the relationship between politics and the economy. The first solution is the liberal approach. Under the liberal approach, the most favored policy is minimal or zero government regulation in trade. The government’s function is only to maintain physical security of goods and ensure a physically safe environment to trade, and not to participate in economic activities in any way (Doyle, 1986).

            This perspective can be traced back into the work of Adam Smith which discovered the presence of an invisible in the market where a free market mechanism will turn selfish behaviors toward the best possible economic outcome for the society at large. This perspective is predominantly used in the west, only disputed in the 1940’s by the Keynesian camp. In the 70” however, the Keynesian consensus was successfully challenged and the country went back to the market economy as suggested by Adam Smith.

            Today however, there is no market in the world that used the free market economy ideology as pure as described by Adam Smith, but the United States remain the closest economy the described settings.

IV.2.   Realism / Mercantilism

            Realism on the other hand, is quite a different way of looking at the economy. Under the realism approach, the use of coercive power is perceived as a necessity in any settings, including the economy. It is said that Mercantilistic states try to create wealth and power in order to preserve and protect national independence and security. In this setting, the main concern in the welfare of the nation itself and everything else come second. Therefore, economy, which is considered the strongest influential power in a society after the military, should be managed toward the good of the nation. Aggressive trade tariffs are usually employed to advantage the domestic industry at the expense of foreign nations (Carr, 2001).

In IPE, believers of this perspective rejected the theory that free trade will lead to long-term peace and even see the idea as a dangerous propaganda. The government should instead, use policies like protectionism in trade, monetary measurements and even colonialism, to ensure: trade surplus, independence and wealth as goals of the economy. International trade was considered a calamity because the economy must now be exposed to related foreign trade risks.

As the world changes however, mercantilists evolve to become neo-mercantilist who use export subsidies, import tariffs and quotas to achieve: peaceful international trade, economic security and independence. In this new mercantilist setting, people see international trades as win-win phenomena where firms are allowed to collaborate depending on market forces. Their protectionist nature is transformed into policies where the government protect national interests by protecting new industries from foreign competition by applying high tariffs until these new industries are capable of competing with foreign players. There are questions however, regarding the compatibility of this particular approach on managing politics-economy relationship to the globalization concept itself.

IV.3.   Marxism

            The last approach on how to manage the political-economic relationship is the Marxist view. Under this view, a strong protection from market forces by means of high tariffs and other controls are preferable. This perspective of politics-economics relationship was last used in the Soviet Union. After the collapse of the nation in 1991, no major economy has been practicing the Marxist ideology. The Marxist ideology is till considered an alternative approach by the IPE because it has the potential of lowering income gap and ensuring that the poorest people are not that different with the richest. The problem with the concept is in its implementation. In turns out that without a powerful and continuing supply of information from all parts of the economy, allocation of economic resources will also be poisoned by corruptive actions. In fact, considering the high degree of governmental power in the society, the possibility of corruptive actions is higher than any other approach in the IPE. (Keck, 1998)

IV.4.   Other Approaches

There are actually other known approaches offered by IPE to manage the politics and economy relationship, like the feminist approach and the constructivist approach. The feminist approach offered the feminine perspective over the economy, which is considered not sufficiently considered in most governments. The constructivist on the other hand, believe that all elements of the society, whether they are in the form of ideas (anarchy, Islamic, Christianity, freedom), identities (American, foreigners, etc) and norms must have a place in the government (Hansen, 2006). Both of these approaches are considered unusual, but nevertheless, are mentioned in the IPE.

Bibliography

Carr, Edward Hallett. 2001. The Twenty Years’ Crisis, 1919-1939: An Introduction to the Study of International Relations. Edited by M. Cox. Hampshire; NY: Palgrave,

Doyle, Michael W. 1986. “Liberalism and World Politics.” The American Political Science Review 80 (4):1151-1169.

Hansen, Lene. 2006.Security as Practice, New York: Routledge

Keck, Margaret E. 1998. and Kathryn Sikkink. Activists Beyond Borders, Ithaca, NY: Cornell University Press.