INTERNATIONAL

POLITICAL
ECONOMY

Submitted to – Submitted by –

Prof. Kamal sir Mouli Jain

22/820

Section “A”
Write a critical essay on the evolution of International Political Economy
as an approach or theory.

INTRODUCTION

It is often said that the most effective way to understand complex issues is
through a broad and interdisciplinary approach. The field of International
Political Economy (IPE) embodies this principle, seeking to understand the
global economy by exploring the interconnectedness of politics, economics,
and society. IPE challenges the notion that politics and economics are
autonomous. Over time, IPE has evolved, reflecting the changing dynamics
between states, markets, and global institutions. By exploring key theories,
historical events, and other factors, IPE sheds light on how shifts in power,
economic strategies, and global cooperation have shaped the modern world
and continue to influence its discourse.

Meaning and approach of IPE

“The study of international political economy is the study of the battle between
the state and the market around the world.”

- Robert Gilpin

IPE can be understood in two ways –

1. As a subject matter or field of inquiry

2. As a method of inquiry

As a subject matter, IPE is the study of the interplay between Politics,

Economics, And Society on a global scale. It examines how political institutions,
processes, and power dynamics influence economic policies and outcomes,
and vice versa.
Key areas of study include –

- Trade relations
- International Finance ( IMF, World Bank, etc)
- Multinational and Transnational Corporations
- Globalisation
- Economic development and inequality, etc

In other words, IPE analyses how the above factors shape the behavior of
states and other actors in the international system.

As a method of inquiry, it draws on theories from economics, political

science, and sociology to understand complex global interactions.

1. POLITICAL DIMENSION
It means political decisions(state power) shape economic policies,
such as taxation, regulation, trade agreements, etc. Governments can
promote economic growth through infrastructure investments or hinder
it through restrictive policies.

2. ECONOMIC DIMENSION
It deals with how scarce resources are distributed among individuals,
groups, and nation-states. Economic conditions often drive political
behavior. High unemployment may lead to political unrest or the
election of populist leaders. For example, the recent Bangladesh crisis,
etc.

3. SOCIAL DIMENSION
It’s important to note that states and markets don’t exist in a social
vacuum. Social movements and public opinion can pressure political
leaders to adopt specific economic policies, such as environmental
regulations, women's rights, or labor rights.
 This triadic relationship underscores the complexity of global
governance and policy-making.

Main Perspectives of IPE

The three dominant perspectives of IPE are Mercantilism, Liberalism, And

Structuralism. Each focuses on the relationships among the state, economy,
and society in different ways.

MERCANTILISM

The earliest systematic theorizing in political economy is believed to

be of the classical mercantilists.
Time period - 16th to 19th century
Meaning - Mercantilism is an economic theory and practice,
advocating for state intervention in the economy to enhance national
power and wealth through the accumulation of precious metals,
favorable trade balances, and protectionist policies.
The CENTRAL IDEA was to promote national interests over others.

French jurist Jean Bodin outlined features of an ideal mercantilist

trade policy in the sixteenth century, which are as follows-
- low tariffs on imported raw materials and exported manufactured goods
- imposing high tariffs or outright bans on exporting raw materials and
importing manufactured goods.
 This way, Mercantilists viewed international trade as “A ZERO-SUM
GAME,” meaning that one nation's gain in trade is another's loss. This
perspective emphasized the competitive nature of global economic
relations where wealth and resources were limited.

Criticisms

1. David Hume's “price-specie flow mechanism” that mercantilist policy

would itself lead to a decline in exports and an increase in imports,
ultimately restoring balance in trade.
2. In "The Wealth of Nations," Smith, argued that mercantilist policies
limited productive capacity and hindered economic growth by restricting
the division of labor, innovation and efficiency.

• LIBERALISM
The liberal perspective in IPE emerged in the 18th and 19th centuries
as a reaction to classical mercantilism. It emphasizes the benefits of
free markets, limited government intervention, and the idea that self-
interest can lead to positive social outcomes.

It was influenced by Enlightenment thinkers and the rise of capitalism

in Europe.
Smith introduced the concept of the "invisible hand," suggesting that
when individuals pursue their own interests, they inadvertently
contribute to the public good. He advocated for minimal government
interference in trade and highlighted the importance of the division of
labor and innovation. He emphasised on “POSITIVE SUM GAME.”
For example, If a baker starts his bakery shop, it would help him earn
profits(his self-interest), help customers to get quality bakery goods
and many others would get employment. This way it would lead to the
collective good of all and balance in the society.
 David Ricardo introduced the “theory of comparative advantage”,
arguing that even if one country is more efficient in producing all
goods, it can still benefit from trade by specializing in the goods it
produces most efficiently relative to others. This specialization
increases overall economic efficiency and wealth.

JS Mill expanded on liberal ideas by emphasizing the social benefits

of free trade. He argued that it fosters cooperation among nations
and spreads progress and civilization.
To Mill, free trade is so powerful a mutual interest that it becomes
“the principal guarantee of the peace of the world.”

Contributions of Liberalism in IPE

• Liberalism in IPE laid the groundwork for significant policy changes,

such as the repeal of British gold export restrictions in 1821 and the
Corn Laws in 1846.
• It also contributed to the spread of international free trade and the
establishment of the international gold standard, in Karl Polanyi’s view
two of the “three classical tenets” of economic liberalism and the pre–
World War I international political-economic order.

CRITICISMS

While liberalism brought significant insights to IPE, it faced criticisms

particularly from those influenced by mercantilist ideas. They are as
follows -

Friedrich List criticized liberalism for focusing too much on individual

self-interest and assuming it can create the public good on its own.
He advocated for a nationalist approach that highlights the state's role
 in promoting economic growth, for example, supporting “infant
industries”.

MARXISM

The Marxist perspective on IPE centers on the critique of capitalism

and its inherent inequalities. Marx viewed history as a series of
economic stages such as primitive communism, slavery, feudalism, and
capitalism where each mode of production shapes social relations and
class dynamics which will ultimately lead to communism. He argued
that capitalism, driven by the pursuit of profit, results in the
exploitation of workers and creates a divide between the bourgeoisie
and the proletariat.

Marxists assert that capitalism leads to imperialism, which creates

global inequalities and fosters class struggle on an international scale.
Marx believed capitalism influences not just economics but also politics
and social structures.

Critics of Marxism argue that it can be overly deterministic, suggesting

that economic forces alone dictate social change, overlooking the roles
of culture, politics, and human agency. Additionally, they point to the
adaptability of capitalism, which has shown resilience in the face of
crises and social movements and continues to date.

KEYNESIANISM

Keynesianism originated in response to the economic crises of the 1930s,

particularly the Great Depression when John Maynard Keynes argued that
markets do not naturally lead to full employment and equilibrium. He
emphasized the importance of state intervention such as increased public
spending, reduced taxes, etc to manage aggregate demand, advocating for
government involvement in the economy to stimulate growth during the
downturn.

Critics of Keynesianism argue that it can lead to excessive government

intervention, and high inflation potentially distorting markets and creating
long-term inefficiencies. Additionally, some contend that it may not address
deeper structural issues within the economy, such as income inequality or
systemic risks.

POST-WORLD WAR SCENARIO AND BRETTON WOOD SYSTEM

After World War II, the global political and economic landscape transformed
significantly, impacting the International Political Economy (IPE):

1. Rise of U.S. Hegemony: The U.S. emerged as the dominant global

power, shaping the post-war order. It led to the creation of institutions
like the International Monetary Fund (IMF), World Bank, and General
Agreement on Tariffs and Trade (GATT) to promote economic stability
and free trade among countries, leading to a paradigm shift in
International Political Economy.

2. Bretton Woods System: The Bretton Woods system, established in

1944, had a profound influence on the International Political Economy
(IPE) by creating a framework for global economic governance and
stability in the post-World War II era. It created a framework of fixed
exchange rates tied to the U.S. dollar, which was convertible to gold.
It aimed to provide monetary stability and foster economic growth. The
system lasted until 1971 when the U.S. abandoned the gold standard.

NEO-LIBERALISM AND GLOBALISATION

Neoliberalism emerged as a response to economic stagflation in the

1970s and a critique to Keynes. It tried to revive classical liberalism with
greater emphasis on FREE TRADE AND GLOBALIZATION. Scholars like
Robert Keohane and Joseph Nye, gave “complex interdependence
theory”, emphasizing the role of globalization in international arena and
focused on the importance of international cooperation and institutions in
managing global interdependence.

Realists like Kenneth Waltz argue that neoliberalism underestimates the

enduring importance of state power and security, being overly optimistic
about international cooperation in a fundamentally competitive global
system.

NEO- MERCANTILISM

The neo-mercantilist perspective in IPE emphasizes state power and

national interests over market dynamics. It emerged as a response to
Populism and the need to protect the domestic economy from the
negative impacts of globalization. Today both developed and developed
countries practise neo-mercantilist policies to protect its national interests.
For example, BREXIT, etc. PROTECTIONISM is its most important
feature.

Thinkers like Robert Gilpin argue that state power remains central in
shaping economic outcomes, challenging the liberal view of declining
state autonomy due to globalization.

Critics, like Ha-Joon Chang criticizes liberal policies as "kicking away the
ladder," arguing that they hinder the developmental catch-up of emerging
economies. Other critiques include Jonathan Kirshner, etc.

CONTEMPORARY MARXISM

The neo-Marxist perspective in IPE views global capitalism or

globalization as a system of domination and exploitation, where core
countries benefit at the expense of peripheral countries. Key concepts
include dependency theory and world-systems theory. Thinkers like
Immanuel Wallerstein focus on the role of exchange in maintaining this
unequal system, while Robert Cox, influenced by Gramsci, emphasizes
the role of ideology and civil society in sustaining global hegemony.

Thus, over the years, IPE has continuously evolved, adapting to the
shifting global landscape and reforming itself to meet the needs of each
era, striving to remain relevant and effective.

CONCLUSION

Conclusively, the evolution of International Political Economy (IPE)

illustrates the complex relationship between political and economic forces
shaping global interactions. From early mercantilism and liberalism to
critiques from Marxism, IPE has adapted to historical shifts like the Great
Depression and globalization. The emergence of various perspectives
such as neoliberalism, economic nationalism, and neo-Marxism, Feminist
IPE and Green IPE highlights ongoing tensions between state and market
relations. Thus studying IPE is quite essential for understanding
contemporary global challenges influenced by trade and states.

REFERENCES

Gilpin, Robert (2001), "The Nature of Political Economy", in Global Political Economy:
Understanding the International Economic Order, Princeton, N.J.: Princeton University
Press, pp. 25-45.

Balaam, David N. and Bradford Dillman (2014), "What Is International Political

Economy?", in Introduction to International Political Economy, 6th edition, Boston:
Pearson, pp. 2-24.

Paul, Darel E., Introduction: “Theories of International Political Economy” , in The

theoretical evolution of IPE, 3rd edition, oxford university press, pp. 1-39.