International Political economy.

Theories in IPE: Mercantilism,

economic liberalism, and neo-
Marxism
Theories of Imperialism.
Dependence and Interdependence
 Points to Discuss ….!

Why is China investing in CPEC Project?

The behaviour of Rodrigo Duterte?

Why does the whole world deal in US Dollar?

 What is IPE?
Study of 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 is this IPE concept come from? and
how it has grown so important to study IPE?
 Trends signifying 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.
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.
These institutions and frameworks of world
economy have their roots in the planning of new
economic order which took place in 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.

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.
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 about?
In 1944, it was agreed to fix currencies at a certain
value.
US promised to convert dollars to gold $35 (28 grams)
per ounce.
Dollar gold standard established.
US in 1971 suspended this convertibility of the dollar
to the gold $ 35 per ounce. (Vietnam war)
This paved the way for major currencies to float
instead of their fixed values.
 Scope of the IPE …
states and markets
States are associated with pursuit of power
Markets are associated with pursuit of wealth

Tension between states and markets?

States seek to increase power.
Markets seek to reduce state power. (interference)
To analyse IPE there are three traditional
approaches which outline the specific actors,
processes and level of analysis.

1 Mercantilist
2 Marxist
3 Liberal
 Mercantilism/Statism
The theory that a country’s power depends on its
wealth to build strong military forces and purchase
vital goods.
State should build its economy to pay for its military
and enhance state security.
Mercantilists advance their own states’ industries and
avoid economic dependence on others.
Dependence = vulnerability (American energy needs)
Economic relations are conflictual as states aims to
secure their interests at the expense of other states.
 Two Ways to increase a nation’s wealth/power

1. Acquire gold and silver as much as possible.

2. Establish trade balance exports = imports.

Trade surplus is preferred. More Exp. less Impo.

Balance of trade must be either surplus or

balanced.
Mercantilism … strong economy for military security.

Neo-Mercantilism seeks prosperous economy for its

own sake. (Japan, Germany, South Korea)

Means having a trade surplus – more exports than

imports having more money to spend on masses.
Marxism/Neo-Marxism
There are a number of core beliefs that unite Marxist
and neo-Marxist interpretations;

First, Individual may be naturally cooperative, but in

society they act in conflictual ways.

Second, main conflict emerges in societal groups;

owners of wealth and working class over the
distribution of resources.
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.
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.
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.
Govt. should provide basic order in society.

Govt. institutions must facilitate the free flow of trade.

Liberals see Economics as determining politics.

Internationally, Govts. & int. institutions encourage the

free flow of commerce – resultantly interdependence
lead to greater economic development.
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.
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).
 In contemporary era;
The concept of free market and capitalist economy is
championed by Thomas Friedman (world is flat 2005)

This view is promoted by global financial institutions,

and MNCs.

Friedman argues that free trade, private property

rights, and free market will lead to a richer, more
innovative, and more tolerant world.
 Key Concepts in Economic Liberalism
Liberal economics is based on the concept that
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.
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.
Goods and services must be bought and sold in
free market.
IPE an overview:
Variables Mercantilism Economic Marxism
Liberalism
Relationship b/n Politics decisive Economics autonomous Economics
economics and decisive
politics
Units of analysis States Individuals Classes

The nature of Conflictual zero- Cooperative positive- Conflictual

economic sum game sum game
relations
Economic goals State power Maximum individual Class interests
well-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.”
 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.
Developed by a U.N. Director Economic
Commission for Latin America in late 1950s, Raul
Prebisch.
Peripheral countries?
Nations that are weaker or less developed like
Haiti, Zimbabwe, Somalia, Afghanistan, etc.
Core countries?
Nations that have major influence and are the
most advanced, USA, UK Germany Canada
France etc.
Peripheral countries are dependent on core
countries.
Dependent nations’ development will remain
stagnant while core nations will 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.
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.
DT emerged as the result of a larger movement
asking question;
“Why are so many countries not developing”?
Answer;
“They are not pursuing the right kind of economic
policies”.

But the answer is;

“there are different kind of states with different
functions”.
Three core assumptions of DT

1- International division of labour between the

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.
 2 - Class Distinction.

Rich economic elite all cooperate with one another

to ensure they stay in power and increase their
wealth.

They collaborate each other to keep the system

going.
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
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.
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.
 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.
 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.
 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.
Questions