This is my final paper I wrote for my Political Science class last semester. It is about all of the International Political Economy perspectives we learned throughout the semester and how we could improve them. This showcases several qualities including my writing ability, critical thinking skills and how I can look to improve already accepted ideas.
23 April 2010
Improving Perspectives of International Political Economy
International Political Economy is a collection of aspects from economics, political science, sociology, history and some philosophy. With information coming from multiple sources there are bound to be numerous different perspectives of IPE. The three most common and well known perspectives examined will be liberalism, mercantilism and historical structuralism. Being that these are the three most accepted perspectives suggests that the majority of the views within these theories are strengths. However, with so much information, there are bound to be weaknesses and flaws found within these theories as well. There are always ways to improve on these the weaknesses and theories in general. International Political Economy deals with three main approaches: liberalism, historical structuralism and mercantilism. Each theory has its own strengths and weaknesses, but the way to improve them all is not to fix each individual weakness but to combine the strengths of all the perspectives into to create an entirely new theory.
Liberalism is often described as the IPE perspective that focuses on the individual and the primacy of freedom or liberty in the book “Introduction to International Political Economy” by David Balaam and Michael Veseth. Individual freedom and capitalism are the overarching ideas found within the idea of liberalism. Capitalism is commonly referred to as a market-based economic system where free-markets and competition are the governing factors. Within the discipline of capitalism, Adam Smith is arguably one of the most significant figures. Smith created the idea of “the invisible hand”, or the idea that an “invisible hand” that guides the economy and common good. The market is self regulated so the state government is never needed to intervene. Another, more commonly used tern for this idea is laissez-faire.
Most economic liberalists and capitalists believe in a certain eight basic tenants that govern the economy. The first of these ideas is self-interest, meaning that everyone looks out for themselves first before considering anyone else’s interests. Next is the idea that markets organize and are the forum where individuals and firms engage in economic activity. Following this is the thought that private property and privatization is the right of all of the individuals in the market. Next is the fifth concept that competition is what regulates the market and the economy. Within this idea is the view that sellers must compete for customers through price and non-price competition while using the resources efficiently. The sixth basic tenant states that economic freedom is the right of all individuals to choose their job and enterprise into any market. In addition to this is the seventh principle of consumer sovereignty, which reiterates Smith’s idea that the consumer is the most important part of the economy. The consumer decides what resources will be used by who, for who and when. Finally, is the eighth idea, or laissez-faire, which proposes that the economy is better off without government intervention.
Another well known and one of the most influential and important political economists and economic liberals of the 20th century was John Maynard Keynes. His theory states that there is a positive but very limited role for the state to play in domestic and international affairs. This is best shown in the meeting of the Allied Forces countries and the Bretton Woods System (BWS) after World War II. The Keynesian Compromise was an aspect of the BWS that stated, “nations retained the ability to intervene in their domestic economies bur are limited in this by their agreement to limit interference in the international economic markets,” (Balaam 48). Liberals also believe in the hegemonic stability theory and they claim that the international system is more stable with the presence of a hegemon. The hegemon, or dominant power, sets the rules and regulations and has the ability to enforce them. Within all of these concepts it is clear that liberalism has many strengths including laissez-faire, the eight basic tenants, and the hegemonic stability theory.
However, even with these strengths, liberalism also has many flaws and weaknesses.
“But the liberal preoccupation with economic success leads to a lopsided focus upon rational, economic individuals in free markets with full information to make their maximizing decisions. Social contexts, “irrational” cultural traditions, collective habits, hierarchical markets, and the normal absence of full information all become “exogenous” variables for liberal economics, variables too easily left out of their equations for not being easily quantifiable or explainable in terms of strict, individualistic, economic rationality. The state is understated, the market is over-marketed.” (Isaak 22)
First, Smith’s theory of the “invisible hand” is based on the assumption that people make rational choices that serve their own best interests. People do not always make rational choices and can destroy the entire market in doing so. Also, even if people are rational and believe they are making the correct choices, the information they use to make those decisions may be skewed so the decisions made could, again, be inaccurate. Two of the basic tenants of capitalism are self-interest and economic freedom. Thus, individuals are free to do whatever they please with their money. This brings up the point that paradox of thrift can cause a melt-down of the entire system. If one individual saves much more of their income, they may be more secure economically. However, if everyone does this, the combined actions can cause a recession and everyone then loses their economic security. The roaring 20’s and then The Great Depression of the 1930’s is a prime example of this paradox of thrift. One of Keynes’s ideas that is contrary to liberalism was the “failure of the invisible hand”. Also using The Great Depression as an example, Keynes stated that “individuals and markets tend to make decisions that are particularly unwise when face with situations in which the future is unknown and there is no effective way to share risks or coordinate otherwise chaotic actions,” (Balaam 47). Furthermore, the Austrian economist Karl Polanyi made an amazing argument claiming that if the market really was self regulating like liberalists say that it does, it would protect its workers from unfair management practices that inevitably happens.
Liberals also believe that the relations between states, markets and societies are always positive-sum games where everyone is better off and can get more in than they put in. However that is contradicting itself with another view of liberalism. Again, assuming that a person is acting rationally, that person does not care if the other person is better off or not as long as he or she has benefited. So that means that not all interactions can be positive-sum every time. In regards to the hegemonic stability theory, the problem that will always exist is the free rider. The free rider takes advantage of the collective goods provided by the state without paying for it and the costs of the free rider have to be dispersed to all of the firms that do pay. With the evidence against the “invisible hand”, the two tenants of self interest and economic freedom, and positive-sum games it is apparent the flaws found within the idea of liberalism.
Mercantilism is very different from liberalism in the fact that instead of holding the individual and the market first, it puts security above everything else. Another theory that is frequently paired with mercantilism is realism because they are very similar with few variations. “… mercantilists focus on strategies to strengthen the capacity of the state through a dynamic and successful economy,” (Watson 23). The history behind this theory allows for individuals to understand its main intentions. The theory is a full cycle theory that came about during the rise of modern Europe. In a state, the individuals and economy wanted to be secure. Security and stability during this period meant having a strong army. However armies were expensive and in order to support this militia there had to be a stable economy. Ultimately, the armies made the country secure, bringing the cycle full circle.
Another important aspect of mercantilism is colonialism. States use their economic and military power if needed to control trade. A colonialist state goes out and takes “colonizes” land and then uses their natural resources and labor resources to make the mother country’s industries and economy more secure. Alexander Hamilton, a famous economic nationalist in the late 1700’s, and Friedrich List, a German political scientist, argued some essential ideas for the security of the nation. Hamilton said that for new emerging industries and economies, the government should give subsidies to domestic manufacturers to undercut foreign competitors. List added to this idea by making the claim that, “The power of producing is… infinitely more important than wealth itself,” (Balaam 25). List had the idea of productive power in which education and technology are the two most important aspects in creating that wealth in a new economy. Finally the strategic trade policies are important to maintaining the wealth and power a state has built up. The state should put effort into creating a comparative advantage in trade and in production. Comparative advantage keeps income and profits high while keeping costs down thus maintaining wealth, power and security. From the history of mercantilism, the idea of colonialism, and the importance of strategic trade policies, it is obvious the strengths of mercantilism.
Mercantilism is the best overall theory due to the fact that the beliefs and views work, despite the flaws of the real world and the frequently and irrationality of the individuals in it. However, there are a few weaknesses with the theory as a whole. One major flaw is clearly displayed in tenant realism. The international system of states is always on the brink of conflict and chaos. This constant cycle of chaos and peace due to the fact that the interests of countries force them to compete with each other for the scarce resources of the world. With the government putting so much pressure on itself, the individuals, and the companies the society is always on the verge of collapse. It is not the goal of the government to control every aspect of every industry. Instead, the state wants to control certain industries and have influence in the economic planning of the rest. Even if all of the firms within state state are under the control of the government, some industries will find ways around the control policies to make huge profits. For example, the illicit and illegal economy, and more specifically the drug trade from Mexico and Canada into the United States. Despite the current rules and regulations in place, the United States has not prevented the sale of illegal drugs. The few flaws, including tenant realism and the inability to regulate all parts of the economy, display the little shortcomings of mercantilism.
The last major theory of IPE is historical structuralism. It accounts for the political and economic interconnectedness between certain entities of society. Examples of these entities are the global North and South, the proletariat and bourgeoisie, and core and periphery states. The two primary people credited with structuralism are Karl Marx and V.I. Lenin. They believed in the relationship between the bourgeoisie and proletariat. The bourgeoisie are the capitalist, landowning class that owned the means to production where as the proletariat is the working class. “From a Marxist perspective, for instance, ‘the market’ is a metaphor for the alienation that is imposed on workers who have to sell their labour power to those who own the means of production. As it is the owners who benefit most directly from the system of forced labour, ‘the market’ is also a metaphor for an exploitative system that extracts surplus value from the workforce,”(Watson 167). They also believed that imperialism was very important. Marx and Lenin thought an area and its people were subordinated to the will of the foreign state was a good way to be healthy economically. Along with this, Marx and Lenin started the dependency theory. Essentially this theory is a relationship where the core (developed nations) tries to keep the periphery (underdeveloped nations) poor and dependant on core nations for such things as technology, trade and finance. Another strengthening theory, developed by Wallerstein and Chase-Dunn, is the modern world systems theory. It was developed on Marxist and Leninist ideas. It states that there is “a single division of labor whereby nation-states are mutually dependent on economic change; the sale of products and goods for the of profit; and, finally, the division of the world into three functional areas or socioeconomic units, which correspond to the roles that nations within these regions play in the international economy,” (Balaam 71). The three areas are core, periphery and semi-periphery states.
The idea of historical structuralism is the weakest of the three approaches to IPE. The concept of historical structuralism was based on countries where the government was a dictatorship and they had total control over the people and the means to production. The main problematic ideals of this theory crumble when the lower class rises up or attempts to rise up and overthrow the standing government or upper class. The bourgeoisie and proletariat are constantly fighting in the countries where the government controls the people. The bourgeoisie always tries to hold the lower class down with low wages and bad working conditions. Furthermore, the proletariat is always trying to organize, rise up, and revolt against the upper class. Marx and Lenin viewed this relationship along with competition as a negative-sum game; everyone fairs worse in the end. Also, imperialism only works if the subordinate people do not try to rise up and revolt.
Within each of these theories there is room for significant improvement. In order to make these improvements, it is necessary to focus on making minute changes to the weaknesses in hopes of improving the theory as a whole. However, the way to improve the multiple theories is to create an entirely new and better theory where the theories are broken apart and the focus becomes combining the strengths. A capitalist and free market economy is the best way to spur economic growth in developed or developing nations. Competition, privatization and consumer sovereignty are all important aspects for successful economies and states. Instead of Smith’s “invisible hand”, Keynes’ ideas about states having the ability to regulate their own domestic economy but not in international markets is also important. States should be able to regulate working conditions and wages so firms cannot exploit their workers. Also, states should be able to give tax subsidies to domestic producers to stimulate the economy. However free trade and no tariffs on imports are needed to keep up competition. Countries and firms should strive for their own comparative advantages in industries when they can to increase profits and decrease costs. Besides these main three theories, there are several others that make significant claims that could be added to the combined theory. Some of them make strong claims even though they are not grouped into the common “main” theories. Though it may not always be beneficial, rational choice and public choice analysis occur whether
“The economy will always be discussed and debated, and there will always be a need to explain how economic relations are constituted and why they take a particular for at a particular moment of time,” (Watson 240). IPE collects information from several different disciplines, and with this combined knowledge creates a strong structured analysis of politics and economics. Liberalism, mercantilism, and historical structuralism are all very sound, long lived and well respected theories. With the many strengths and weaknesses found in each of the theories, it is obvious that there are benefits to each theory individually. However, in order to improve the concepts of liberalism, mercantilism, and structuralism, it is best to combine the three theories and use the strengths to create an entirely new, solid political and economic theory. Watson also goes on, on page 244 saying, “The future of IPE lies not so much in critiquing current conditions of existence within the international economy… but lies in deepening the analytical basis of that critique, which will involve reformulating the foundations of the subject field as a whole.”
Balaam and Michael Veseth. Introduction to International Political Economy, Fourth Edition. Tacoma, Washington: Pearson/Prentice-Hall Publishing, 2008. Print.
Isaak, Robert, A. International Political Economy: Managing World Economic Change. Englewood Cliffs, New Jersey: Prentice-Hall Publishing, 1991. Print
Watson, Matthew. Foundations of International Political Economy. New York, New York: Palgrave Macmillan Printing, 2005. Print