International Political

economy
Presented by: Ammarah Farhat Abbas
 Contents
• Theories in IPE: Mercantilism, economic liberalism, and neo-Marxism
• Theories of Imperialism.
• Dependence and Interdependence
 Points to Discuss ….!

• How do you gauge the economic performance of your

country?
• Do you want to own more and more wealth or do you want
government should keep money and meet my needs?
• CPEC: a political initiative or economic project?
• Why is China investing in CPEC Project?
• Why does the whole world deal in US Dollar?
 What is IPE?

• Study of the relationship;

1. b/w economics & politics
2. b/w state & market
• IPE examines how politics can be used to achieve economic goals
and how economics is utilized for political interests.
Where has this IPE concept come from?
 Trends that signified IPE?

• First, Economic transactions among states, including trade,

investment, and lending rose dramatically.
• Second, rising expectations from the national governments for
economic policies, people expect their governments will include
economic and social objectives as well in their foreign policy
thinking.
• Third, economic issues become more transparent to the
individuals and groups that are potentially affected by the decisions.
 Trends that signified IPE?

• Fourth, Globalization and its effects on the states has become

more defining features of IR.
• Finally the UNO, IMF, World Bank, and WTO all became the
important focus of the study.
 Trends that signified IPE?

• These institutions and frameworks of world economy have

their roots in the planning of new economic order - July 1944.
• Policy makers gathered at Breton wood (USA) with two
objectives;
• 1 to establish a stable global monetary system with open world
trading.
• 2 to rebuild the war-torn economies of the Europe.
 Trends that signified IPE?

• Three institutions were planned in order to promote a new world

economic order;
• IMF was created to ensure stable exchange rate and provision of
emergency assistance in temporary crisis.
• IBRD International Bank for reconstruction and Development
later on called World Bank was established to provide
investment and reconstruction in Europe, and other countries.
 Trends that signified IPE?

WB provides long term development loans for development in

poor regions.
• GATT General Agreement on Tariff and Trade established in 1947
and became forum of negotiations on trade liberalization.
• GATT was established to promote free trade.
 What was the Bretton wood system all
about?

• In 1944, it was agreed by 44 countries to ensure exchange rate

stability.
• Overseas currencies were fixed with dollar and dollars to gold –
35$/ounce.
• Dollar gold standard established.
 What was the Bretton wood system all
about?
• In 1958, this system became operational.
• Nixon Shock 1971, Nixon suspended this Dollar/Gold convertibility and
implemented wage and price controls on 15 August 1971
• This act by President Nixon brought Bretton Woods system to an end.
 Scope of the IPE …

states and markets

• States pursue power.
• Markets pursue wealth.
Tension between states and markets?
• States seek to increase power with tight control.
• Markets seek to reduce state power by denying interference.
 Approaches to IPE …

• To analyse IPE there are three approaches which outline the

specific actors, processes and level of analysis.
• 1 Mercantilist
• 2 Marxist
• 3 Econmic Liberalism
 Mercantilism

• A country’s power depends on its wealth to build strong military

and ability to purchase vital goods.
• State should build economy to pay for its military.
• Mercantilists advance their own states’ industries and avoid
economic dependence on others.
• Dependence = vulnerability, example …?
 Mercantilism

 Economic relations are also conflictual because states aims to

secure their interests at the expense of other states.
 Establish trade balance exports = imports.
 Trade surplus is always preferred.
 At least balance of trade must be ensured, if not surplus.
 Mercantilism

• Mercantilism … strong economy for military security.

• Neo-Mercantilism seeks prosperous economy for its own sake.
(Japan, Germany, South Korea)
• Trade surplus – having more money to spend on masses than
military.
 Marxism

There are a number of beliefs that shape Marxist interpretation of

political economic world;
• First, Individual may be naturally cooperative, but in society they
act in conflictual ways.
• Second, main conflict emerges in societal groups; owners of
wealth (Bourgeoise) and working class (Proletariat) over the
distribution of resources.
 Marxism

• Third, State act to support Bourgeoisie

State V/S Workers
• Fourth, in capitalist systems the owners of the capital accumulate
more resources at the expense of workers.
• Marxists believe that MNCs , world Bank and other financial
institutions are exploitative and instrument of imperialism.
• They promote permanent inequality.
 Marxism
• Because Michael Goldman believes, ‘banks and corporations are profit
seekers’.
• Marxists argue resources must be distributed on just basis in both within
society and Int. System.
• Marxists conclude that the structure of the national and int. economic order
must be changed.
 Economic Liberalism

• Economic globalization emerged in full bloom in 21st century.

• Its roots can be traced to 18th century economist Adam Smith.
• With the notion that human being act in rational way to maximize
benefit.
• Markets, then, enable common man to improve living.
 Economic Liberalism

• Market competition among buyers and sellers ensures low

prices.
• Low prices increases the consumer welfare.
• Vibrant Markets exemplify economic efficiency.
• For markets to function efficiently Economics and politics must
be separated as much as possible.
 Economic Liberalism

• Govt. should provide basic order in society.

• Govt. institutions must facilitate the free flow of trade.
• Liberals say “Economics determines politics”.
• Internationally, Govts. & int. institutions encourage the free flow of
commerce – resultantly interdependence lead to greater
economic development.
 Economic Liberalism

• MNCs are the vanguard of the liberal economic order.

• They organize Production, marketing, and investments on global
scale.
• British East India Company, Hudson Bay Company, Dutch
East India Company in 17th and 18th century are the prime
examples.
 Economic Liberalism

• There are more than 75,000 MNCs, with over 820,000 affiliates,
employing 90 million people accounting for 75% of the world
gross product.
• Before WWII, they were in manufacturing sector (Toyota, Ford,
General motors, Sony, Siemens, Bayer, Nestle etc)
• Now, they are in financial services, (Citigroup, ICI bank USA, Deutsche
Bank, Fuji Bank).
 Key Concepts in Economic Liberalism

• Liberal economics is based - states differ in their resource

endowment; land, labor and capital.
• Wealth can be maximized if int. trade is made possible.
• British economist David Ricardo (1772-1823) developed the
“comparative advantage”.
• That is, states should produce and export those products which
they can produce most efficiently, relative to others.
 Key Concepts in Economic Liberalism

• Each state differ in the ability to produce something Pak in arms

Japan in machines and electronics, b/coz of labor force, natural
resource base etc.
• Under the principle of absolute advantage USA should produce
both cars and trucks and export to Canada.
• Under comparative advantage US should produce cars and
Canada produce trucks.
 IPE an overview:

Variables Mercantilism Economic Liberalism Marxism

Relationship b/n Politics decisive Economics autonomous Economics decisive

economics and politics

Units of analysis States Individuals Classes

The nature of Conflictual zero-sum Cooperative positive-sum Conflictual

economic relations game game

Economic goals State power Maximum individual well- Class interests

being
Theories of Imperialism
 Dependency Theory

Dependency is ….?
• “Structure of the world economy such that it favours some
countries at the expense of others and limits the development
possibilities of the subordinate economics”
• “Is a notion that resources flow from a ‘periphery’ of poor &
underdeveloped states to a ‘core’ of wealthy states enriching the
core at the expense of periphery.”
 Dependency Theory

Karl Deutsch summarizes;

• Theory says that poverty of the underdeveloped countries is the
result of the present international economic system that has
underdeveloped the poorer nations of the world, keeping them as
poor as if they were still colonies.
 Dependency Theory

• Developed by a U.N. Director Economic Commission for Latin

America in late 1950s, Raul Prebisch.
Peripheral countries Nations - less developed and weaker.
Haiti, Zimbabwe, Somalia, Afghanistan, etc.
Core countries Nations great, major, and advanced power.
USA, UK Germany Canada France etc.
 Dependency Theory

• Peripheral countries are dependent on core countries.

• Dependent nations’ development will remain stagnant while
core nations continue to develop.
• Economies of the peripheral countries relies on export of raw
material to developed countries.
• Developed countries import that raw material from poor
countries and sell them the finished goods on very high prices.
 Dependency Theory

• Case Study: Haiti, A “peripheral nation”.

• Belonged to France 1660-1804.
• During French rule it produced 60% of Europe’s coffee and
49% sugar.
• Much of the population has been impoverished.
 Dependency Theory

• DT emerged as the result of a larger movement asking question;

“Why are so many countries not developing”?
“They are not pursuing the right kind of economic policies”.
• But the real answer is;
“there are different kind of states with different
functions”.
 Three Core assumptions of DT

1- Int. division of labour between countries.

• CC dominate the industry and technology and control capital
intensive industries.
• Whereas countries in the periphery are dependent upon resource
extracting economies, agriculture and providing cheap labour.
 Three Core assumptions of DT

2 - Class Distinction.
• Rich elite cooperate with one another to ensure - they stay in power
and increase their wealth.
• They collaborate with each other to keep the system going.
 Three Core assumptions of DT

3- Global Capitalism
• In this system liberal economic theory dominate.
• They all serve the interests of the core countries
“The situation is like “all roads to Rome”
• In this system MNCs, Banks like World Bank, IMF all serve the
CC richest people and countries even global media etc.
All three concepts serve only CC
 As a matter of fact

• They do not promote development or equal opportunities instead

system promote dominance and exploitation.
• This system is designed in such a way that no Peripheral country can
develop.
• This is called “underdevelopment”.
So, this system prpmote underdevelopment …..!!!
 Interdependence

• Interdependence means mutual dependence/mutual reliance.

• People and govt. are affected by what happens in elsewhere (9/11).
• Higher level of transactional relations means higher
interdependence.
• This also reflects the process of modernization since 1950.
• Industrialization pushed his notion ahead.
 Interdependence

• Throughout history states have sought power by military means &

territory.
• But in an industrialized world economic development and foreign
trade is more persuasive than military force with low costs as well.
• Cost of using force have been increased and out comes have been
decreased.
 Interdependence

Changing character of economic production

• Historically prior to 1950s, Possession of resources and territory
was source of strength.
• Now qualified labour force, information, technological and
financial capital is the source of power.
• Increased division of labour increased the interdependence.
 Interdependence

War fighting has changed

• During cold war USA and USSR burdened themselves with high
military expenditure.
• According to Rosecrance, Interdependence has made this
traditional threats less attractive.
• David Mitrany, Greater interdependence leads to greater peace.
 Interdependence

But
• Interdependence must not be asymmetric or negative.
• Asymmetric interdependence benefits the industrialized and
poor economies suffer.
• Note: Interdependence is a liberal theory which is capitalist in
nature and asymmetric interdependence always serve the purpose
of large country with imperial designs.
Thankyou 