THE NEW GLOBAL ECONOMIC ORDER- GILPIN

Although globalization had become the defining feature of the international economy
at the beginning of the twenty-first century, the extent and significance of economic
globalization have been greatly exaggerated and misunderstood in both public and
professional discussions; globalization in fact is not nearly as extensive nor as
sweeping in its consequences (negative or positive) as many contemporary
observers believe. Throughout most of the last half of the twentieth century, the Cold
War and its alliance structures provided the framework within which the world
economy functioned. With the end of the Cold War, American leadership and the
close economic cooperation among the capitalist powers waned. Simultaneously, the
market-oriented world grew much larger as formerly communist and Third World
countries became more willing to participate in the market system; this has been
exemplified by the much more active role taken by the less developed countries
(LDCs) in the World Trade Organization (WTO).

Underlying the expansion of global trade have been a number of developments.

Since World War II, trade barriers have declined significantly due to successive
rounds of trade negotiations. Despite these developments, most trade takes place
among the three advanced industrialized economies—the United States, Western
Europe, and Japan, plus a few emerging markets in East Asia, Latin America, and
elsewhere. Most of the less developed world is excluded, except as exporters of food
and raw materials. Since the mid-1970s, financial deregulation and the creation of
new financial instruments, such as derivatives, and technological advances in
communications have contributed to a much more highly integrated international
financial system. The volume of foreign exchange trading in the late 1990s reached
approximately $1.5 trillion per day.

This financial revolution has linked national economies much more closely to one
another and increased the capital available for developing countries.Whereas, for
some, financial globalization exemplifies the healthy and beneficial triumph of global
capitalism, for others the international financial system is “out of control” and must be
better regulated. Either way, international finance is the one area to which the term
“globalization” is most appropriately applied. The term “globalization” came into
popular usage in the second half of the 1980s in connection with the huge surge of
foreign direct investment (FDI) by multinational corporations. Although the end of the
Cold War provided the necessary political condition for the creation of a truly global
economy, it is economic, political, and technological developments that have been
the driving force behind economic globalization. The compression of time and space
resulting from these technological changes has significantly reduced the costs of
international commerce. Globalization has also been produced by international
economic cooperation and new economic policies. Under American leadership, both
the industrialized and industrializing economies have taken a number of initiatives to
lower trade and investment barriers.

Many observers believe that a profound shift is taking place from a state-dominated
to a market-dominated international economy. Humanity, many argue, is moving
rapidly toward a politically borderless world. As deregulation and other reforms have
reduced the role of the state in the economy, many believe that markets have
become the most important mechanism determining both domestic and international
economic and even political affairs.

Although most economists and many others welcome this development, critics
emphasize the “high costs” of economic globalization, including growing income
inequality both among and within nations, high chronic levels of unemployment in
Western Europe and elsewhere, and, most of all, environmental degradation,
widespread exploitation, and the devastating consequences for national economies
wrought by unregulated international financial flows. These critics charge that
national societies are being integrated into a global economic system and are
buffeted by economic and technological forces over which they have little or no
control.

The idea that globalization is responsible for most of the world’s economic, political,
and other problems is either patently false or greatly exaggerated. In fact, other
factors such as technological developments and imprudent national policies are
much more important than globalization as causes of many, if not most, of the
problems for which globalization is held responsible. Most national economies are
still mainly self-contained rather than globalized; globalization is also restricted to a
limited, albeit rapidly increasing, number of economic sectors. Moreover,
globalization is largely restricted to the triad of industrialized countries—the United
States, Western Europe, and, to a much lesser extent, Japan—and to the emerging
markets of East Asia. Most importantly, many of the attacks on globalization by its
critics are misplaced; many, if not most, of its “evils” are really due to changes that
have little or nothing to do with globalization.

The end of the Cold War and the growth of economic globalization coincided with a
new industrial revolution based on the computer and the rise of the information or
Internet economy. Technological developments are transforming almost every aspect
of economic, political, and social affairs as computing power provides an impetus to
the world economy. Economic regionalism has spread in response to these political,
economic, and technological developments. Compared to the earlier regional
movement of the 1950s and 1960s, the new regionalism has much greater
significance for the global economy. The movement at the beginning of the
twenty-first century is nearly universal. These developments have made the
governance of the global economy a pressing issue. Effective and legitimate
governance requires agreement on the purpose of the international economy.
The global economy and the rules governing it, they believe, should be guided by the
policy prescriptions of neoclassical economics and be based on market principles.
Free trade, freedom of capital movements, and unrestricted access by multinational
firms to markets around the globe should be the goals of international governance.
With the triumph of the market, economic logic and the relative efficiencies of
national economies should determine the distribution of economic activities and
wealth (and, of course, of power) around the world. Critics of globalization, on the
other hand, challenge this emphasis on the importance of free trade and open
markets. Despite the growing importance of the market, historical experience
indicates that the purpose of economic activities is ultimately determined not only by
markets and the prescriptions of technical economics, but also (either explicitly or
implicitly) by the norms, values, and interests of the social and political systems in
which economic activities are embedded. Although economic factors will play an
important role in determining the character of the global economy, political factors
will be of equal, and perhaps greater, importance. A true “political economy” is
prerequisite to an improved comprehension of the implications of new developments
for international economic affairs.

INTELLECTUAL PERSPECTIVE

In 1987, I identified three ideologies or perspectives regarding the nature and

functioning of the international economy: liberalism, Marxism, and nationalism. Since
the mid-1980s, the relevance of these perspectives has changed dramatically. With
the end of both communism and the “import-substitution” strategies of many less
developed countries (LDCs), the relevance of Marxism greatly declined, and
liberalism, at least for the moment, has experienced a considerable growth in
influence. Around the world, more and more countries are accepting liberal principles
as they open their economies to imports and foreign investment, scale down the role
of the state in the economy, and shift to export-led growth strategies.

Nationalism or, more specifically, economic nationalism, is also composed of both

analytic and normative elements. Its analytic core recognizes the anarchic nature of
international affairs, the primacy of the state and its interests in international affairs,
and the importance of power in interstate relations. However, nationalism is also a
normative commitment to the nation-state, state-building, and the moral superiority of
one’s own state over all other states

GILPIN’S PERSPECTIVE: STATE-CENTRIC REALISM

Realism is a philosophical position and an analytic perspective; it is not necessarily a

moral commitment to the nation-state. Many realists, in fact, lament a world in which
the nation-state is not adequately restrained by international rules and moral
considerations. Nor is realism a scientific theory. As a philosophic or intellectual
perspective, realism is not subject to the Popperian criterion of falsifiability and, like
other philosophic positions such as liberalism and Marxism, realism can neither be
proved nor disproved by empirical research. all realists share a few fundamental
ideas such as the anarchic nature of the international system and the primacy of the
state in international affairs. However, one should distinguish between two major
realist interpretations of international affairs, that is, between state-centric and
system-centric realism. State-centric realism is the traditional form of realism
associated with Thucydides, Machiavelli, and Morgenthau, as well as many others; it
emphasizes the state (city, imperial, or nation-state) as the principal actor in
international affairs and the fact that there is no authority superior to these sovereign
political units; this position asserts that analysis should focus on the behavior of
individual states. Systemic realism, or what is sometimes called structural realism or
neorealism, is a more recent version of realist thought and is primarily associated
with Kenneth Waltz’s innovative and influential Theory of International Politics
(1979).11 In contrast to state-centric realism’s emphasis on the state and state
interest, Waltz’s systemic version emphasizes the distribution of power amongstates
within an international system as the principal determinant of state behavior.

While I do assume that the territorial state continues to be the primary actor in both
domestic and international economic affairs, I do not contend that the state is the
only important actor. Other significant players include the World Bank, the
International Monetary Fund (IMF), and the Commission of the European Union.
Despite the importance of these other actors, however, I emphasize that national
governments still make the primary decisions regarding economic matters; they
continue to set the rules within which other actors function, and they use their
considerable power to influence economic outcomes.

My interpretation of international political economy assumes that the interests and

policies of states are determined by the governing political elite, the pressures of
powerful groups within a national society, and the nature of the “national system of
political economy.” My state-centric position assumes that national security is and
always will be the principal concern of states. In a “self-help” international system, to
use Kenneth Waltz’s apt expression, states must constantly guard against actual or
potential threats to their political and economic independence.

Constructivism’s principal critique of realism is that realism is purely materialistic and

analyzes the political world only in terms of technological forces, physical
circumstances, and other objective factors; realists are said to be overly deterministic
and to portray a political world over which human beings have no control (or
“agency”). Constructivism, on the other hand, is said to emphasize the role of ideas,
social structures, and human volition in political affairs; people can construct a better
political and more humane universe than that described by realists. Classical
realists from Thucydides forward have emphasized the role of ideas and “identity” in
political affairs. What better example than the powerful idea of nationalism and the
importance of national identity that have been staples of realist thought since
Machiavelli and Hobbes. One of the key ideas in constructivist analysis of
international affairs is the idea of identity, or how a society defines itself; for example,
whether a society is democratic or authoritarian in nature affects its behavior.
According to constructivists, realists neglect the importance of identity and focus only
on material interests and power considerations. In some cases, this criticism is valid.
In general, realists do stress “interest” over “identity.” However, many state-centric
realists recognize the importance of identity in state behavior; for example, the
nature of the domestic political system. As I have already mentioned, I myself
emphasize the importance of the national system of political economy in determining
the economic behavior of individual states.

Political and economic identities or ideologies can have a strong influence on

national behavior. Certainly, one can not explain the Cold War without reference to
the ideological conflict between the democratic-capitalist identity of the United States
and the totalitarian communist identity of the Soviet Union. The sociopolitical nature
of a society, the national ideology, and the political identity all contribute to a society’s
definition of its interests and influence its behavior. Realists disagree, however, with
the constructivist’s position that identity is the most important or the only determinant
of a nation’s foreign policy.

The state-centric interpretation of international political economy (IPE) rejects a

belief popular among many scholars, public officials, and commentators that
economic and technological forces have eclipsed the nation-state and are creating a
global world economy in which political boundaries and national governments are no
longer important.21 It is certainly true that economic and technological forces are
profoundly reshaping international affairs and influencing the behavior of states.
However, in a highly integrated global economy, states continue to use their power
and to implement policies to channel economic forces in ways favorable to their own
national interests and the interests of their citizenry. Many commentators correctly
point out that the nation-state in the last quarter of the twentieth century increasingly
came under attack from within and from without. Yet the nation-state remains of
supreme importance even though there is no certainty that it will exist forever, the
world is witnessing rapid increase in the number of nation-states accompanied by
creation of powerful military forces. Moreover, if and when the nation-state does
disappear, it will be displaced by some new form of formal political authority.

Ralph Hawtrey demonstrated the relationship of economic affairs and national

security, at least over the long term, is reciprocal. The international political and
security system provides the essential framework within which the international
economy functions; domestic and international economies generate the wealth that
is the foundation of the international political system. The ways in which the world
economy functions are determined by both markets and the policies of nation-states,
especially those of powerful states; markets and economic forces alone cannot
account for the structure and functioning of the global economy. The interactions of
the political ambitions and rivalries of states, including their cooperative efforts,
create the framework of political relations within which markets and economic forces
operate. States, particularly large states, establish the rules that individual
entrepreneurs and multinational firms must follow, and these rules generally reflect
the political and economic interests of dominant states and their citizens. However,
economic and technological forces also shape the policies and interests of individual
states and the political relations among states, and the market is indeed a potent
force in the determination of economic and political affairs. The relationship of
economics and politics is interactive.