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Chapter Three:
International Political
Economy (IPE)

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 2

Unit Objectives:
 After the completion of this unit , you will be
able to:
 Explain the meaning and nature of
International Political economy
 Identify and analytically distinguish the
most influential theoretical perspectives of
International Political economy
 Figure out the most common national
political economy systems/models in the
world and their major divergences
 Identify and examine the core issues,
governing institutions and governance of
International Political economy Damena Tolessa
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Meaning and Nature of International Political

Economy (IPE)
 There is no universal agreement on how IPE should be
defined.
 This in turn implies that defining the concept is not as
simple or straightforward as one might expect
 Definitions are important because it is the definitions that
tell us what to include in our analysis and what to leave
out.
 IPE ―is the study of the tension between the market,
where individuals engage in self-interested
activities, and the state, where those same
individuals undertake collective action. Damena Tolessa
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IPE….
 The above stated definition asserts two
significant subjects of International Political
Economy:
 (a) markets, which are composed of self-
interested individuals and
 (b) states, which are the primary political
institutions of the modern international system.
 Yet, the definition misses other important side
of the story
 We have also equally or even more powerful
(than states) non-state actors in global
politics
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IPE….
 IPE examines the interdependence of
politics and economics in the international
system.
 Like political economy, it views political and
economic reality as two sides of the same
coin.
 Like international relations, it generally adopts
a systemic perspective and views states as
primary actors.
 The study of IPE springs from an international
economy that transcends place within which
states, bound by territory, interact.
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IPE Questions :
 How does the international economy
affect domestic politics and/or domestic
economic realities (and vice versa)?
 Who benefits from activity/outcomes in
the international economy?
 • Can order be attained in the
international economic system?
 • Can collective action be achieved
within the international economy?

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 7

Theoretical perspectives of International

Political Economy
 Thereare three major theoretical (often
ideological) perspectives regarding the nature
and functioning of the International Political
economy:
 Liberalism ,
 Marxism, and
 Nationalism (mercantilism).

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Mercantilism/nationalism:
 Foundation: Adam Smith‘s (1723–1790 ;
 Friedrich List(1789–1846) as the intellectual father
of the mercantilist thought)
 Defends a strong and pervasive role of the state
in the economy – both in domestic and
international trade, investment and finance.
 Emphasizes on the importance of BoP surpluses in
trade with other countries and
 To this end it often promotes an extreme policy of
autarky to promote national economic self-sufficiency
 Defended even a much more sophisticated and
interventionist role of the state in the economy
 State should also play a disciplinary role in the
economy
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Mercantilism/nationalism…
 Mercantilistthought in the contemporary
international political economy is found in the
recent experience of the Japanese, South
Korean, Taiwanese and Chinese…
 However, these states the East Asian
economies used the term developmental
state approach‘

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Liberalism:
 Foundations: David Ricardo
 It defends the idea of free market system
 i.e free trade/trade liberalization and free
financial and Foreign Direct Investment (FDI)
flows).
 Advocate's of free trade believes that
 it reduces prices,
 raises the standard of living for more people,
 makes a wider variety of products available, and
contributes to improvements in the quality of goods and
services
 If countries focused on what they do best and
freely trade their goods with each other, all of
them would benefit.
 The concept that captures this idea is also
known as comparative advantage. Damena Tolessa
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Liberalism ….
 However,the theory of comparative
advantage has been undermined by the
current wave of economic globalization.
 The growth MNCs complicates global trading.
 The production of goods and services is strongly
influenced by costs, arbitrary specialization, and
government and corporate policies.
 These developments thus mark a shift from
the conventional theory of comparative
advantage to what is known as competitive
advantage.

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 12

Marxism

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Marxism
 Following the collapse of the Soviet Union in
the 1990‘s and the apparent embrace of the
free market economy by a significant number
of developing countries .
 Essential elements can be found in the
overall corpus of Marxist writings.
 Materialist approach to history
 General view of capitalist development
 Normative commitment to socialism

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Contemporary theories IPE

 Contemporary theories of International political
economy
1. Hegemonic Stability Theory (HST):
 Is a hybrid theory containing elements of
mercantilism, liberalism, and even Marxism.
 Its closest association, however, is with
mercantilism.
 HST emerged because of economic troubles that
bedeviled Europe and much of the world in the
Great Depression of the 1920s and 1930s
 During its explanatory power to the Great
Depression, HST has thus influenced the
establishment of the Bretton Woods institutions (IMF
and WB)
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 15

Structuralism:
 variant of the Marxist perspective
 starts analysis from a practical diagnosis of
the specific structural problems of the
international liberal capitalist economic
system
 Main feature is centre-periphery (dependency)
relationship between the Global North and the Global
South which permanently resulted in an ―unequal (trade
and investment)
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 16

Developmental State Approach

 Is a variant of mercantilism
 it advocates for the robust role of the state in the process
of structural transformation.
 refers to a state that intervenes and guides the direction
and pace of economic development.
 core features of developmental state;
 Strong interventionism:
 Existence of bureaucratic apparatus to efficiently and
effectively implement the planned process of
development

 Existence of active participation and response of the

private sector to state intervention

 Regime legitimacy built on development resultsDamena that

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ensured the benefits of development …
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Survey of the Most Influential

National Political Economy
systems in the world

 TheAmerican System of Market-

Oriented Capitalism

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The American System …..

 Founded on the premise that:
 Economic activity is to benefit consumers
while maximizing wealth creation;
 The distribution of that wealth is of
secondary importance.
 The American economy does approach the
neoclassical model of a competitive market
economy
 The American neoclassical model rests on
the assumption that markets are
competitive
 where they are not competitive,
competition should be promoted through
antitrust and other policies. Damena Tolessa
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The American System …..

 The American economy is appropriately

characterized as a system of managerial
capitalism.
 The Economy was profoundly transformed by the
late 19th emergence of huge corporations and the
accompanying shift from a proprietary capitalism to
one dominated by large, oligopolistic corporations
 Management was separated from ownership,

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The American System …..

 The role of the American government in the
economy is determined not only by the influence of
the neoclassical model on American economic
thinking
 But also by fundamental features of the American
political system.
 Authority over the economy is divided among the
executive, legislative, and judicial branches of the
federal government and between the federal
government and the fifty states.
 Whereas the Japanese Ministry of Finance has virtual
monopoly power over the Japanese financial system
 In the United States this responsibility is shared by
the Treasury, the Federal Reserve, and several other
powerful and independent [email protected]
agenciesDamena Tolessa
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The Japanese System of Developmental
Capitalism
 Ever since the Meiji Restoration (1868), Japan‘s
overriding goals have been making the economy
self-sufficient and catching up with the West.
 In the pre–World War II years this ambition
meant building a strong army and becoming an
industrial power.
 Since its disastrous defeat in World War II
 however, Japan has abandoned militarism
 and has focused on becoming a powerful
industrial and technological nation
 These political goals have resulted in a national
economic policy for Japan best characterized as
neo-mercantilism Damena Tolessa
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 22

 It involves state assistance, regulation, and

protection of specific industrial sectors
 Many terms have been used to characterize the
distinctive nature of the Japanese system of
political economy:
 developmental state capitalism, collective
capitalism, welfare corporatism, competitive
communism, network capitalism and
strategic capitalism
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 23
Important elements of the Japanese
economic system
 Emphasis on economic development,
 the key role of large corporations in the
organization of the economy and society,
 resistance to FDI
 primacy of the producer over the consumer,
 the close cooperation among government,
business, and labor.
 state plays central role in the economy
 Trade protectionism , Export led growthDamena Tolessa
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“Developmental state capitalism”

 statemust play a central role in national
economic development and in the
competition with the West
 Despite the imperative of competition, the
Japanese frequently subordinate pursuit of
economic efficiency to social equity and
domestic harmony.
 Japanese provided government support for
favored industries,
 “Infantindustry” protection system deserves
special attention

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 25

The policies Japan has used to promote

its infant industries

 Taxation, financial, and other policies that

encouraged extraordinarily high savings and
investment rates.
 Fiscal and other policies
 Strategic trade policies and import restrictions that
protected infant Japanese industries against both
imported goods and establishment of subsidiaries
of foreign firms.
 Government support for basic industries, such as
steel, and for generic technology, like materials
research.
 Competition (antitrust) and other policies favorable
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The German System of Social Market Capitalism

 The German economy has some
characteristics similar to the American and
some to the Japanese systems of political
economy, but it is quite different from both in
other ways
 Germany, like Japan, emphasizes exports and
national savings and investment more than
consumption
 However, Germany permits the market to
function with considerable freedom; indeed,
most states in Western Europe are
significantly less interventionist than Japan
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 27

German system of…

 The German system of political
economy attempts to balance social
concerns and market efficiency.
 The German state and the private sector
provide a highly developed system of
social welfare
 “welfare state capitalism”

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 28

D/s among National Political Economy Systems

 (1) the primary purposes of the economic

activity of the nation,
 (2) the role of the state in the economy, and
 (3) the structure of the corporate sector and
private business practices.

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 29

Core Issues, Governing

institutions and Governance
of International Political
Economy

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 30

International Trade and the WTO

 What is International Trade?
 International trade is the inter-country flow of
goods and financial resources.
 It is considered to be part of the production
structure (a set of relationships that determine
what is produced, where, by whom, how, for
whom and at what price) of political economy.
 When elements of this structure cross
international boundaries the result is
international trade, which assumes forms of
interaction between states and other actors
such as international business.

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 31

Int.l trade
 How is international/global trade
governed?”
 One most common answer is the idea that
Global/Regional Free Trade Agreements govern it-
 i.e institutions like World Trade Organization
(WTO) and
 North American Free Trade Agreement (NAFTA) or
similar other organizations.
 How does this work? In the case of NAFTA- a
trade agreement among the U.S., Canada, and
Mexico- for example, ―free trade‖ was initially
meant a lesser degree of governmental
constraints in cross-border trade but not an
elimination of government action.
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World Trade Organization

 Is an international organization which
sets the rules for global trade.
 This organization was set up in 1995 as
the successor to the GATT .

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International Investment
and the WB

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International Finance and

the IMF

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Exchange Rates and the

Exchange-Rate System

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 47

Chapter Four:
Globalization and
Regionalism

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 48

Objectives
 After successfully completing this chapter students
should be able to:
  Conceptualize the concepts of globalization and
regionalism
  Expose themselves with the contemporary debates on
the essence and direction of globalization
  Develop a position regarding the essence and effects
of Globalization
  Analyze the impacts of globalization on Africa, Ethiopia
and the developing world
  Explain the theoretical caveats and practice of
regionalism and regional integration
  Explain the mutual interaction between regionalism
and globalization
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49

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Definition of
Globalization
 The term globalization derives from the word
globalize, which refers to the emergence of an
international network of economic systems.

 It
is the process of interaction and integration
among people, companies, and governments
worldwide.

 The worldwide movement toward economic,

financial, trade, and communications integration.
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 51

Definition of Globalization

 In general terms globalization is an economic,

political, technological, and socio-cultural process
where the importance of state boundaries decreases
and the countries and their people live in an
integrated global system.

 The term has become particularly popular in IPE and

in cultural studies.

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 52

Definition of
Globalization

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Dimensions of Globalization

 Three main dimensions of globalization:

Economic Dimensions of Globalization

Socio-cultural Dimensions of Globalization

Political Dimensions of Globalization

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Economic Dimensions of
Globalization
 Economic globalization is one of the most frequently
used in discussions of development and trade.

 It is a process by which the economies of the world

become increasingly integrated leading to global
economy.
 It include : global finance and economy, multinationals,
networking, international trade and business, new labor
markets, new development cooperation
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 55

Political Dimensions of Globalization

In political science, globalization idea has been
significant in thinking about ideology and in political
behaviour in terms of issue areas such as geopolitics and
human rights.

In terms of the environment and human rights clear

evidence of the need for global codes of conduct.

It include human right, international terrorism, war and

new security problems

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 56

Socio-cultural Dimensions
of Globalization
Social globalization means processes whereby many
social relations become relatively delinked from
territorial geography, so that human lives are
increasingly played out in the world as a single place.

Cultural globalization refers to an emerging “global

culture”, in which people more often consume
similar goods and services across countries and use
of common language.
 Examples: use of English.
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 57

History of Globalization
 It is hard to determine a specific moment when
globalization started or to describe exact stages of its
historical development.
 History shows no obvious time on which everyone will
agree.
 Although considerable groundwork for globalization was
laid in earlier times, the noun “globalization” entered a
dictionary for the first time in 1961.

 Generally speaking, commentators have linked

globalization:
 - to the rise of the information society,
 - the beginning of late capitalism,
 - the end of communism, and even the end of history.
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 58

Global players or Institution of globalization

 Global players of globalization may be

divided into three categories:
 leading actors, or global corporations;
 supporting actors, or international
governmental organizations (IGOs); and
 international non-governmental organizations
(NGOs).

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Global corporations /multinational corporations

 Global corporations, or multinational corporations
(MNCs), are defined as companies that have their home
(or headquarters) in one country, but have operations
and investments in many others.

 Examples of such corporations are the major

automobile manufacturers such as Ford, General
Motors, and Toyota; high-tech companies like IBM, Intel,
and Motorola ……….

 What distinguishes global corporations from domestic

corporations is that the former compete globally, while
the latter compete only in their domestic market.
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Global corporations /multinational corporations

 Most MNCs, like Coca-Cola and General

Motors, began their commercial history as
domestic companies and then expanded
abroad for a number of reasons.
 for additional markets,
 for raw materials,
 to take advantage of lower wages in order to keep
costs down

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 61

Supporting Actors /International

Governmental Organizations
 International governmental organizations (IGOs) are
governmental organizations formed by agreements or
treaties among nations.

 There are about 6,500 IGOs in existence today. Some of

the most prominent are :
 The International Monetary Fund (IMF);
 The World Trade Organization (WTO);
 The United Nations,
 The Asian Development Bank and the European Bank for
Reconstruction and Development and others
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Non-Governmental Organizations

 Non-governmental organizations (NGOs) are private

organizations that pursue activities to protect the
environment, provide social services, and undertake economic
and community development.

 These organizations are independent from governments. Since

they are not funded by governments, they depend upon
charitable donations and voluntary service.

 NGOs have been classified according to whether they provide

relief, such as humanitarian aid, or help in economic
development; whether they are religious or secular oriented; or
whether they are more active in the private or the public
sector.
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 63

Argument for and against of Globalization

FOR AGAINST
 Globalization creates  Globalization leads to
employment and income income Inequality and
poverty.
 Foreign subsidiaries in  Globalization is being
developing countries exploited by
provide investment and multinational
employment and pay high corporations;
wages to workers. globalization exploits
workers.
 Globalization advances  Globalization causes
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living standards. financial instability.
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Argument for and against of Globalization

FOR AGAINST
 Globalization creates jobs.  Globalization exports
jobs.
 Global companies are  Global companies place
working hard to improve environmentally degrading
their environmental industries in developing
performance. countries.

 It is foolish to believe that a  Globalization will result

world of 6 billion people will in the end of cultural
somehow form a diversity.
monoculture.
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 65

Debates on globalization
 Is globalization a new process or a
continuation of the past?
 Is globalization connecting all or has
marginalizing effect?
 Is globalization leading to homogenization
of culture or heterogeneity?

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 66

Debates on
globalization
In this regard, there are three perspectives:
 1. The hyper-globalists,
 2. The skeptics, and
 3. Transformationlist.

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 67

The hyper-globalists
 In the present era we observe an existence of a single
global economy integrating the world's major
economic regions.

 Today it is global finance and corporate capital, rather

than states, which influence organization, location
and distribution of economic power and wealth.

 Multilateral institutions of global economic
surveillance, especially the G7, IMF, World Bank and
WTO, function to manage this growing 'global market
civilization'.
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 68

The hyper-globalists

In this 'runaway world'

nation states
can no longer
effectively manage or regulate
their own national economies

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skeptics
 Globalization is a phenomenon connected to
the richest countries
 There is no unified global economy
 The world is breaking up into several major
economic and political blocs
 Too much emphasis on footloose capital and a
new global capitalist order

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Transformationlist
 Globalization determines new international
order
 International relations are influenced by
globalization
 States have to adjust their role to the new
situation
 New institutions come into picture and new
regulations must be applied

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3 schools of thought – summary

 1. Hyperglobalizers
 one single global economy; end of state
 2. Skeptics
 3 major economical regional blocs; states
less important

 3. Transformationalists
 new international order; states still
important and in control of economy

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 75

Major attitudes to word globalization

 Always two major attitudes

1) PRO globalization

2) ANTI globalization

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PRO globalization

 Globalization is an excellent process of

the world development

 Only in the globalization effects can we

find the future of international relations

 It is a time of new world order adjusted to

new situations

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Anti-Globalization 77

Movement
 The anti-globalization
movement developed in the
late 20th century to fight the
globalization of corporate
economic activity and the
free trade with developing
nations that might result from
such activity.

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 78

Anti-Globalization Movement
 Globalization is all the evil in today’s
world and cares only about money
 It divides the world into rich and poor (North
and South of the world)
 It is the cause of all the global problems
 Members of the anti-globalization movement generally
advocate anarchist, nationalist, socialist, social
democratic or environmentalist alternatives.

 Although supporters of the movement often work

together, the movement itself is diverse.
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 79

Defining Regionalism and Regional

Integration
 Region can be defined as a limited number
of states linked together by a geographical
relationship and by a degree of mutual
interdependence (Nye, 1968).

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