1 The origins and core ideas of international political economy
Chapter learning outcomes
The main aims of this chapter are to enable the reader to:
â Give a brief account of the origins of international political economy (IPE) and its changing identity as an academic field of endeavour.
â Explain why the roots of IPE in International Relations are significant for its current agenda and strengths, but also its weaknesses, of the field as it has evolved.
â Make sense of how IPE evolved as a critique of IR.
â Suggest how IPE was then reintegrated with political economy, economics and economic history, as well as business studies, and with what effects.
â Explore the core contemporary theories of mainstream IPE, the most influential ideas from neo-liberalism and neo-realism, as well as from classical liberal and neo-liberal economics from classical Marxism and theories of trade and economic growth.
In doing these tasks, you will find it helpful to remember that later chapters will also develop the core theories as we go along.
Introduction
In this chapter, the sources of IPE are examined, a brief history of the field is offered, and the main theories that have shaped contemporary mainstream IPE are outlined and explained. Because these were rooted in the academic study of International Relations (IR), we look very briefly at the IR theories that shaped the origins of IPE, but the reader is asked to remember that this is an IPE text and that to get a fuller picture of IR as a subject of study they need to look at an IR text. Some readers will be studying IR as well as IPE, or as an overall framework for the analysis of IPE, but others will not; and we hope readers will allow us to engage with both groups of users of this text. This chapter goes on to examine the leading conventional theories in IPE, meaning those that reflect both dominant ways of teaching the subject and those that have most claim on the research literature in the field. The chapter does not examine more critical ideas of IPE, although some of these have become widely used and so could also be described as âmainstreamâ, because they are the subject of Chapter 2. This distinction between âmainstreamâ and âcriticalâ literatures will seem unnatural to some readers because there is some overlap between the two, and because it seems to arbitrarily force a distinction on those entering a complex field of study. But it makes sense in so far as: (i) it is how the subject is often taught; and (ii) it is helpful as you begin a study â and this is an introductory text â to break the field down into manageable elements, even if you subsequently bring these elements together in a different way when you have started to get a more sophisticated understanding.
Before we get into the theory, it would be good just to indicate the basic scope of the world economy, how large it is and which are the key actors. If you use this text sometime after the following information was published, it will be easy to check and update these figures for yourself, and to see how much has changed. As you probably realise, a trillion (tr.) is a number with twelve noughts after it â a thousand billion.
Table 1.1 Basic information on the world economy 2016 (all figures in $US at purchasing power parity)
| All money values in $US tr. at purchasing power parity | Notes |
No. of UN member states | 198 | Depending on definitions, there are a number of states not in the UN and the European Union is a key actor in the world economy but not a state |
Size of the world economy (world GDP) | 79.8 tr. | |
Size of global finance transactions | 180tr. (approx.) | This is harder to assess and more controversial than world GDP |
Largest actors by GNP | China 19.5 tr. European Union 19.1 tr. United States 17.9 tr. India 8.0 tr. Japan 4.7 tr. | |
Largest actors â finance | United States European Union Germany Japan UK China | |
Largest external debtors | United States 17.2 tr. European Union 13 tr. UK 9.2 tr. Germany 5.6 tr. France 5.5 tr. Japan 5.2 tr. | |
Largest global South economies (by GNP) | | Developed in Chapter 8 |
Largest multinational companies (MNCs) (by turnover) | | Developed in Chapter 3 |
Source: IMF World Economic Outlook, 2016; CIA World Factbook 2016; MNC data from Forbes online.
You probably have a good sense of how diverse the world economy is, and also of how many non-state actors â banks, multinational companies, lobbies, environmental groups, international institutions and so on â have power and leverage within the world economy alongside states. So throughout this text, we are talking about a world that has not just many actors, but many types of actors. You probably also have a sense that power is distributed among these actors very unevenly. Apple, Google, the leading world banks, the leading oil corporations, hyper-rich individuals, owners of media corporations, owners of patents and copyright all have power beyond the wildest dreams of the smaller states in the world system. They may also often vie with the largest state actors for influence. But remember too that power takes many forms â it is not just, or even primarily, the capacity to force others to do what you want. It may be more persuasive rather than forceful or violent; it may be a psychological relationship, a battle of wills rather than resources; power relates to legal capacity or legal authority, although they are not direct equivalents; and power also lies deeply in key structures of relationships, including structures of domination and structures of interdependence. This last kind of power, usually known as âstructural powerâ, is a key to the understanding of IPE. All this is to say that IPE is interesting and exciting because it tries to make sense of a diverse and complex world.
The sources of IPE
As just noted, International Political Economy has its main origins as an academic field in a series of difficulties in international relations in the 1960s. Perhaps it ought to have had its roots in political economy, or in economics. But that was not what happened. As a result, IPE owes many of its methods, key questions and theoretical approaches â and some of its limitations â to IR. What happened next was that scholars in the field, such as Razeen Sally and Justin Rosenberg at the London School of Economics, Robert Gilpin and Craig Murphy in the United States, A. Claire Cutler in Canada and many others, tried to correct some of the distortions produced through IPEâs origins in IR. They drew on resources in politics, political sociology, global history, as well as from classical political economy and international economics. Philosophical debates about methods and approaches in social understanding have also shaped IPE throughout its history. Business history and business studies too have shaped the evolving field of IPE (see Chapter 3), and IPE specialists who ignore the role of firms and the experiences of managers run the risk of losing touch with some of the most important realities shaping global relations. This âcorrectionâ against the initial dominance of an IR agenda has been an ongoing process. Some colleagues might say it is still incomplete; or that it has not gone far enough. But these concerns undoubtedly shaped and continue to shape the agendas and theoretical foci of IPE.
So although âpolitical economyâ had been a key area of enquiry and policy debate since at least the early eighteenth century in many countries, IPE began in the form we now understand it at the end of the 1960s, when a group of scholars, mainly in the US and UK, but also in France and in the global South, found the US-dominated mainstream approaches in current academic international relations inadequate. âInadequateâ precisely because it seemed to so underestimate the importance of trade, finance and exchange as well as work and labour and development alongside the more traditional diplomatic and military agendas of IR. Whether we like it or not, IPE has its origins in a critique of IR. Equally, though, it also has its origins in a series of practical concerns shared by many policy makers as well as academics, not only in the developed Western countries, but perhaps even more in the global South. In this section, we look first at the theoretical issues between IR and IPE. We then explain how much of the substance of IR remained in much IPE. Only then do we explain the policy debates that helped to give a compelling impetus to IPE as it emerged in the English-speaking world and elsewhere. But this is at least as important as the other sources. Susan Strange, one of the founders of IPE, always argued that IPE should be an âeclecticâ field, drawing its examples as well as its theoretical approaches from as wide a range of sources and examples as possible. This diversity of approach as well as of subject matter is worth remembering. Strangeâs contribution is outlined in more detail later. Along with Strange, key figures in the emergence of IPE at the time included Joan Edelman Spero (author of the first widely used text in the field), Robert Gilpin (the most influential writer from a liberal perspective in the United States), Raymond Vernon (author of one of the most influential studies of the rise of the global multinational firm) and Robert Cox (Canadian scholar who reshaped IPE through a systematic adaptation of the ideas of the scholar and activist Antonio Gramsci to IR and IPE after leaving a long career as an international civil servant which influenced his theoretical ideas).
Influential economists equally significantly shaped IPE as it emerged. Discussions of trade, finance and investment, as well as the growth of advanced technology industries and the main patterns of globalisation have naturally been dominated by international economic political and social relations. But many more recent economists have had a number of reasons for a relative neglect of political economy. Like mainstream IR scholars, many economists have struggled to sustain the argument that economics is a separate independent subject, a âtrue disciplineâ not dependent on others. Economists â or some of them at least â have retreated into a world of mathematical modelling and mathematic proof, which has made the field more difficult to relate to peopleâs everyday experience of life; they have done this not out of perversity, but in pursuit of a particularly rigorous kind of quasi-scientific knowledge. Reliable knowledge claims, they argued, could only be built on methods similar to those used by ânatural sciencesâ such as physics. These scholars held that to question the bases of economics as a âpositivistâ field was to betray it. Political economy, they suggested, was less rigorous because it tried to be inclusive of economic, social, political and cultural realities. They believed that the more economists could cut out any significant âexogenous factorsâ and concentrate on giving complete explanations of economic phenomena in terms of economic factors that could be quantified, the stronger their knowledge claims would be. Political economists have always made the opposite claim; that sound explanations had to rest on taking all the relevant issues and factors into account and that explanations and understandings of IPE had to be more broadly based â politics, sociology, anthropology, statistics, ethics and economics must find a common space if the subject is to fulfil its promise. This argument is separate from the question of whether IPE can be more âscientificâ or whether it might draw more on a range of methods and ideas. This is not an argument to take on right at the start of the subject, but you will find that it runs through many of the debates that we elaborate throughout this book. It is also a debate to be wary of in so far as you may, depending perhaps on what you have already studied, have an instant reaction to support one side or another. But you would be well-advised to keep a more open mind: this is a philosophical argument to which there is no single âright answerâ.
Scholars from economics, which was after all originally called âpolitical economyâ, have therefore shaped IPE equally significantly. Historically-minded colleagues continue to draw on their work in a critical evaluation of where IPE is to this day. So the work of Mandeville (late seventeenth century; the creator of what came to be called the theory of the âhidden handâ in economics, where individualsâ pursuit of their own interests could have the overall effect of promoting a general good), Adam Ferguson (mid-eighteenth century; creator of the concept of civil society), Ricardo (early nineteenth century; trade theory and the mechanics of market behaviour), Malthus (early nineteenth century; economics as the âgloomy scienceâ especially with respect to population and the exhaustion over time of available resources) were among the most important economic theorists. They looked back to earlier thinkers who would not have described themselves as âpolitical economistsâ, but whose ideas shaped the field. These included (a short selection of a potentially long list) Aristotle, who coined the Greek word from which we take the word âeconomicsâ and who saw economic management as a form of practical knowledge akin to furniture making or shipbuilding, complex, skilled, but capable of being passed on and subject to rational analysis and judgment. It also includes the medieval Islamic scholars Ibn Battuta and Ibn Khaldun, usually described as geographers, but political scientists and historians too. The two Arab scholars travelled widely and established an agenda of comparative recording as accurately as they could of what they observed in economy, agriculture, state finance and debt management as well as trade and the exchange of ideas as well as services. One could add many classical observers to this list, as well as leading political philosophers such as Locke and Hobbes, but the most influential scholar, who has some claim to be the effective founder of modern economics, is the Edinburgh polymath Adam Smith, whose The Wealth of Nations (1776) not only dominated the agendas of economic thinking, but also identified trade and international exchange as key elements in all economic relations. Smith developed the idea of the division of labour, the way the structures of production shape the efficiency (or inefficiency) of economic activity and the ways in which changes in technology and labour processes feed into the profitability of both agriculture and industry. Smith may indeed have been the first to try to treat agriculture and industrial production as susceptible to the same kinds of analysis and explanation in detail; he certainly made a considerable contribution to the methodologies of economics, including quantitative work, as well as to its more general ideas.
There is no better illustration of Smithâs enormous influence than the first volume of Marxâs Capital (1861), which is intended to be a critique of then conventional economic thinking, taking Smith to task in particular. But it is impossible to read Marx without also recognising that he pays enormous tribute to Smith as the most profound thinker and the most careful analyst of global economic behaviour before him. It has often been said that all subsequent political economy is a dialogue with the ghosts of Smith and Marx, which does not, of course, imply by âdialogueâ a high level of agreement. Later economists have kept a dialogue between economic analysis and international political economy open, and the most influential of these are discussed throughout this study. As IPE has evolved, its scholars have found resources in the writing of these older scholars, and sometimes turned to ideas once rejected as incoherent or unusable to explain more recent events or crises. Smithâs contribution will be more fully examined shortly.
IPE as a critique of IR
If IPE emerged as a critique of IR, as has just been suggested, it is important to briefly outline the state of play in International Relations theory at the time that it emerged. Before the mid-twentieth century, IR was rarely taught as a distinctive subject in its own right with its own agenda, intellectual boundaries and theories; more usually, it was understood as a branch of politics (or political science), drawing on the theories of politics, including the classical Greek and Renaissance writers as well as more contemporary theorists. But the case was regularly made that politics and IR formed a distinctive discipline with their own methods and methodologies, owing little or nothing to psychology, sociology or cultural studies and only a little to ec...