International Political Economy (IPE)

chapter-3

• 3.1. Meaning and Nature of International Political Economy (IPE)

• there is no universal agreement on how IPE should be defined.
• International Political economy (IPE) is a field of inquiry that studies the ever-changing relationships
between governments, businesses, and social forces across history and in different geographical areas.
• the field thus consists of two central dimensions namely: the political and economic dimension.
• A political dimension accounts for the use of power by a variety of actors, including individuals,
domestic groups, states (acting as single units), International organizations, non-governmental
organizations (NGOs), and Transnational corporations (TNCs).
• All these actors make decisions about the distribution of tangible things such as money and products
or intangible things such as security and innovation.
• In almost all cases, politics involves the making of rules pertaining to how states and societies achieve
their goals.
 Cont…
• Another aspect of politics is the kind of public and private institutions that have
the authority to pursue different goals.
• The economic dimension, on the other hand, deals with how scarce resources are
distributed among individuals, groups, and nation-states. Today, a market is
not just a place where people go to buy or exchange something face to face with
the product’s maker.
• The market can also be thought of as a driving force that shapes human behavior.
When consumers buy things, when investors purchase stocks, and when banks
lend money, their depersonalized transactions constitute a vast, sophisticated web
of relationships that coordinate economic activities all over the world.
• 3.2. Theoretical perspectives of International Political Economy
• There are three major theoretical (often ideological) perspectives regarding the
nature and functioning of the International Political economy: liberalism, Marxism,
and nationalism (mercantilism).
•
Cont…
Mercantilism is the oldest of the three, dating back as early as the 16th century (perhaps even
earlier).
• Many scholars point to Friedrich List(1789–1846) as the intellectual father of the mercantilist
thought and it is a thought in response to classical economics and, more specifically, to Adam
Smith’s (1723–1790) liberal perspective.
• Marxism, by contrast, is the youngest of the three and is advanced by Karl Marx who also
emerged as a critique of classical economics.
• Since the mid-1980s, the relevance of the three 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 has
experienced a relatively 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.
• Marxism as a doctrine of how to manage an economy has been discredited but as an analytic tool
and ideological critique of capitalism it survives and will continue to survive as long as those flaws
of the capitalist system remain-e.g. widespread poverty side by side with great wealth, and the
intense rivalries of capitalist economies over market share.
 Mercantilism/nationalism:
• is a theoretical and ideological perspective which defends a strong and pervasive role of the
state in the economy – both in domestic and international trade, investment and finance.
• In arena of international trade, for instance, mercantilism emphasizes the importance of
balance-of-payment surpluses in trade with other countries and to this end it often promotes
an extreme policy of autarky to promote national economic self-sufficiency.
• As it developed in the 21st century, mercantilism (or neo-mercantilism) defended even a
much more sophisticated and interventionist role of the state in the economy-
• for example, the role of identifying and developing strategic and targeted industries (i.e.
industries considered vital to long-term economic growth) through a variety of means,
including tax policy, subsidization, banking regulation, labor control, and interest-rate
management.
• According to mercantilists, states should also play a disciplinary role in the economy to ensure
adequate levels of competition.
• The proof of the relevance of mercantilist thought in the contemporary international political
economy is found in the recent experience of the Japanese, South Korean, Taiwanese and
Chinese national political economies whose states fulfilled the above stated roles almost
perfectly.
• Instead of the term mercantilism, however, these states the East Asian economies (especially
Japan, South Korea, and Taiwan) used the term 'developmental state approach’ (a less
politically laden term) to describe the nature of their national political economy system.
 Liberalism
• is a mainstream perspective in International political economy and it defends the
idea of free market system (i.e free trade/trade liberalization and free financial
and Foreign Direct Investment (FDI) flows).
• Accordingly, removing impediments (barriers) to the free flow of goods and
services among countries is the foundational value and principle of liberalism.
• The consensus among advocates of free trade is 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.
• In other words, liberal political economists believe that by removing barriers to
the free movement of goods and services among countries, as well as within
them, countries would be encouraged to specialize in producing certain goods,
thereby contributing to the optimum utilization of resources such as land, labor,
capital, and entrepreneurial ability worldwide.
• 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.
• However, the theory of comparative advantage has been undermined by the
current wave of economic globalization.
 Cont…
• The growth of transnational or multinational corporations(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.
• As a result, despite global acceptance of the concept of free trade, governments
continue to engage in protectionism.
• For example, the European Union (EU) and the United States each support their
own commercial aircraft industries so that those industries can compete more
effectively in a market dominated by a few companies.

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, there
was a widely held belief that such phenomenon marks a clear failure and hence
death of Marxism.
• However, while it is certainly true that central planning in command economies
(which was what existed in Soviet Union and other so called socialist/communist
states-
 Cont…
•
they were not true communists though!)has proven to be a failure, it is not necessarily
true that all or even most of the Marxist critique of capitalism has been negated by any
historical and contemporary realities.
• In fact, according to advocates of Marxism just the opposite is the case. Global and
national income inequality, for example, remains extreme: the richest 20 percent of the
world’s population controlled 83 percent of the world’s income, while the poorest 20
percent controlled just 1.0 percent;
• Exploitation of labor shows no sign of lessening; the problem of child labor and even child
slave labor has become endemic and so on and so forth.
• Marxists then tell us that all of these crises are cut from the same cloth.
• In particular, they all reflect the inherent instability and volatility of a global capitalist
system that has become increasingly reliant on financial speculation for profit making.
• Some actors are always making huge sums of money from the speculative bubbles that
finance capitalism produces, and this is creating the illusion that everything is working
well.
• Give all the above realities about contemporary International political economy,
therefore, the report of Marxism’s death is greatly exaggerated.
• In addition to the above mentioned foundational theories of International Political
economy, the following three contemporary theories of International political economy
are also worth considering.
 Hegemonic Stability Theory (HST):
• is a hybrid theory containing elements of mercantilism, liberalism, and even
Marxism.
• Its closest association, however, is with mercantilism.
• The connection with mercantilism may not be immediately apparent, but it is not
difficult to discern.
• The basic argument of HST is simple: the root cause of the economic troubles that
bedeviled Europe and much of the world in the Great Depression of the 1920s and
1930s was the absence of a benevolent hegemon—that is, a dominant state willing
and able to take responsibility (in the sense of acting as an international lender of
last resort as well as a consumer of last resort)for the smooth operation of the
International (economic) system as a whole.
• In this regard, what then happened during the Great depression period was the old
hegemon, Great Britain, had lost the capacity to stabilize the international system,
while the new (latent) hegemon, the United States, did not yet understand the
need to take on that role—or the benefits of doing so-hence global economic
instability. During its explanatory power to the Great Depression, HST has thus
influenced the establishment of the Bretton Woods institutions (IMF and WB)- both
being the products of American power and influence.
 Cont…
• On this point, it is specifically worth noting that Great Britain was given an important
role to play but British interests and desires were clearly secondary. U.S. dominance
was manifested, in particular, by the adoption of the U.S. blueprint for the IMF.
• Structuralism:
• is a variant of the Marxist perspective and starts analysis from a practical diagnosis of
the specific structural problems of the international liberal capitalist economic system
• whose main feature is center-periphery (dependency) relationship between the Global
North and the Global South which permanently resulted in an “unequal (trade and
investment exchange.”
• The perspective is also known as the ‘Prebisch-Singer thesis’ (named after its Latin
American proponents Presbish and Singer) and it advocates for a new pattern of
development based on industrialization via import substitution based on protectionist
policies.
• During the 1950s, this Latin American model spread to other countries in Asia and
Africa and then the domestic promotion of manufacturing over agricultural and other
types of primary production became a central objective in many development plans.
 Developmental State Approach
• :Realizing the failure of neo-liberal development paradigm (in
the 1980’s) in solving economic problems in developing countries, various writers suggested
the developmental state development paradigm as an alternative development paradigm.
• The concept of the developmental state is a variant of mercantilism and it advocates for
the robust role of the state in the process of structural transformation.
• The term developmental state thus refers to a state that intervenes and guides the direction
and pace of economic development. Some of the core features of developmental state
include;
• Strong interventionism: Intervention here does not imply heavy use of public ownership
enterprise or resources but state’s willingness and ability to use a set of instruments such as
tax credits, subsidies, import controls, export promotion, and targeted and direct financial
and credit policies instruments that belong to the realm of industrial, trade, and financial
policy.
• 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 results that ensured the benefits of development
are equitably shared and consequently the population is actively engaged in the process of
formulating and executing common national project of development....etc.
 3.3.Survey of the Most Influential National Political Economy
systems in the world
• 3.3.1. The American System of Market-Oriented Capitalism
• The American system of political economy is founded on the premise that the
primary purpose of economic activity is to benefit consumers while maximizing
wealth creation; the distribution of that wealth is of secondary importance.
• Despite numerous exceptions, the American economy does approach the
neoclassical model of a competitive market economy in which individuals are
assumed to maximize their own private interests (utility), and business
corporations are expected to maximize profits.
• The American model like the neoclassical model rests on the assumption that
markets are competitive and that, where they are not competitive, competition
should be promoted through anti trust and other policies.
• Almost any economic activity is permitted unless explicitly forbidden, and the
economy is assumed to be open to the outside world unless specifically closed.
• Emphasis on consumerism and wealth creation results in a powerful pro-
consumption bias and insensitivity, at least when compared with the Japanese and
German models, to the social welfare impact of economic activities.
 Cont…
• Although Americans pride themselves on their pragmatism, the American
economy is based upon the abstract theory of economic science to a greater
degree than is any other economy.
• At the same time, however, the American economy is appropriately
characterized as a system of managerial capitalism.
• Put differently, the economy was profoundly transformed by the late
nineteenth-century emergence of huge corporations and the accompanying
shift from a proprietary capitalism to one dominated by large, oligopolistic
corporations.
• Management was separated from ownership, and the corporate elite virtually
became a law unto itself.
• Subsequently, with the New Deal of the 1930s, the power balance shifted
noticeably away from big business when a strong regulatory bureaucracy was
established and organized labor was empowered; in effect, the neoclassical
laissez-faire ideal was diluted by the notion that the federal government had a
responsibility to promote economic equity and social welfare.
 Cont…
• The economic ideal of a self-regulating economy was further undermined by
passage of the Full Employment Act of and the subsequent acceptance of
the Keynesian idea that the federal government has a responsibility to
maintain full employment through use of macroeconomic (fiscal and
monetary) policies.
• Although at the opening of the twenty-first century the federal government
retains responsibility for full employment and social welfare, a significant
retreat from this commitment began with the 1980 election of Ronald
Reagan as President of the United States and the triumph of a more
conservative economic ideology emphasizing free and unregulated markets
• Commitment to the welfare of individual consumers and the realities of
corporate power have resulted in an unresolved tension between ideal and
reality in American economic life.
• Whereas consumer advocates want a strong role for the government in the
economy to protect the consumer, American economists and many others
react negatively to an activist government because of their belief that
competition is the best protection for consumers except when there are
market failures.
•
 Cont…
• In addition, there has been no persistent sense of business responsibility to society or to
individual citizens.
• Japanese corporations have long been committed to the interests of their stakeholders,
including labor and subcontractors, and German firms acknowledge their responsibility to
society and are more accepting of the welfare state than are American firms.
• This explains why Japanese and German firms are much more reluctant to shift industrial
production to other countries than are their American rivals.
• However, over time, the balance between the ideal and the reality of the American economy
has shifted back and forth.
• In the 1980s, the election of Ronald Reagan as President and then his Administration’s
emphasis on the unfettered market diluted the welfare ideal of the earlier post–World War II
era.
• 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 federal agencies; furthermore, all of
those agencies are strongly affected by actions of the legislative and judicial branches of
government.
 Cont…
• In addition, the fifty states frequently contest the authority of the federal government over
economic policy and implement important policies of their own.
• Industrial policy represents another great difference between the United States and other
economies.
• Industrial policy refers to deliberate efforts by a government to determine the structure of the
economy through such devices as financial subsidies, trade protection, or government
procurement.
• Industrial policy may take the form either of sectoral policies of benefit to particular industrial or
economic sectors or policies that benefit particular firms; in this way such policies differ from
macroeconomic and general policies designed to improve the overall performance of the
economy, policies such as federal support for education and Research and Development (R &D).
• Although Japan has actively promoted sector specific policies throughout the economy, the
United States has employed these policies in just a few areas, notably in agriculture and national
defense.
• However, the United States in the 1980s took a major step toward establishing a national industrial
policy.
• The rationale or justification for industrial policy and associated interventionist activities is that
some industrial sectors are more important than others for the overall economy.
 Cont…
• The industries selected are believed to create jobs of higher quality, like those in
manufacturing, to produce technological or other spillovers (externalities) for the overall
economy, and to have a high "value-added.”
• These industries are frequently associated with national defense or are believed to
produce a highly beneficial effect on the rest of the economy; the computer industry and
other high-tech sectors provide examples of such industries.
• In general, however, the only justification for an industrial policy considered legitimate in
the United States is to overcome a market failure.
• In practice, most American economists, public officials, and business leaders are strongly
opposed to industrial policy.
• Their principal objection is that governments are incapable of picking winners; many
argue that politicians will support particular industries for political reasons rather than for
sound economic reasons.
• American economists argue that the structure and distribution of industries in the United
States should be left entirely to the market.
• This belief is supported by the assumption that all industries are created equal and that
there are no strategic sectors.
• Nevertheless, despite the arguments against having an industrial policy in America, such
policies have developed in the areas of agriculture, national security, and research and
development.
 3.3.2. The Japanese System of Developmental Capitalism

• At the end of World War II, American occupation officials advised the Japanese that they should
follow the theory of comparative advantage and hence concentrate on labor-intensive products in
rebuilding their economy.
• Japan’s economic and political elite, however, had quite different ideas and would have nothing to
do with what they considered an American effort to relegate Japan to the low end of the economic
and technological spectrum.
• Instead, the Japanese Ministry of International Trade and Industry (MITI) and other agencies of the
Japanese economic high command set their sights on making vanquished Japan into the economic
and technological equal, and perhaps even the superior, of the West.
• At the opening of the twenty-first century, this objective has remained the driving force of Japanese
society.
• In the Japanese scheme of things, the economy is subordinate to the social and political objectives
of society. 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, while also promoting internal
social harmony among the Japanese people.
• There has been a concerted effort by the Japanese state to guide the evolution and functioning of
their economy in order to pursue these sociopolitical objectives.
 Cont…
• These political goals have resulted in a national economic policy for Japan
best characterized as neo-mercantilism;
• it involves state assistance, regulation, and protection of specific industrial
sectors in order to increase their international competitiveness and attain
the “commanding heights” of the global economy.
• This economic objective of achieving industrial and technological equality
with other countries arose from Japan’s experience as a late developer
and also from its strong sense of economic and political vulnerability.
• Another very important source of this powerful economic drive is the
Japanese people’s overwhelming belief in their uniqueness, in the
superiority of their culture, and in their manifest destiny to become a
great power.
• 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.
 Cont…
• Each of these labels connotes particularly important elements of the Japanese
economic system, such as its overwhelming emphasis on economic
development, the key role of large corporations in the organization of the
economy and society, subordination of the individual to the group, primacy of
the producer over the consumer, and the close cooperation among
government, business, and labor.
• Yet, the term “developmental state capitalism” best captures the essence of
the system, because this characterization conveys the idea that the state must
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.
• Many aspects of the Japanese economy that puzzle foreigners are a
consequence of a powerful commitment to domestic harmony; and over-
regulation of the Japanese economy is motivated in part by a desire to protect
the weak and defenseless.
• For example, the large redundant staffs in Japanese retail stores developed
from an effort to employ many individuals who would otherwise be
unemployed and discontented.
 Cont…
• This situation is also a major reason for the low level of productivity in non-manufacturing sectors,
and it accounts in part for Japan’s resistance to foreign direct investment by more efficient foreign
firms.
• The Japanese system of lifetime employment has also been utilized as a means to promote social
peace; Japanese firms, unlike their American rivals, are very reluctant to downsize and lay off
thousands of employees.
• At the opening of the twenty-first century, however, Japan’s economic problems are causing this
situation to change.
• Nevertheless, the commitments to political independence and social harmony are major factors in the
Japanese state’s determination to maintain firm control over the economy.
• Following Japan’s defeat in World War II, the ruling tripartite alliance of government bureaucracies,
the governing Liberal Democratic Party (LPD), and big business began to pursue vigorously the goal of
catching up with the West.
• To this end, the state assumed central role in the economy and specifically the elite pursued rapid
industrialization through a strategy employing trade protection, export-led growth, and other policies.
• The Japanese people have also supported this extensive interventionist role of the state and believe
that the state has a legitimate and important economic function in promoting economic growth and
international competitiveness.
• The government bureaucracy and the private sector, with the former frequently taking the lead, have
consistently worked together for the collective good of Japanese society.
 Cont…
• Industrial policy has been the most remarkable aspect of the Japanese system of
political economy.
• In the early postwar decades, the Japanese provided government support for
favored industries, especially for high-tech industries, through trade protection,
generous subsidies, and other means.
• The government also supported creation of cartels to help declining industries and
to eliminate excessive competition.
• Through subsidies, provision of low-cost financing, and especially administrative
guidance by bureaucrats, the Japanese state plays a major role in the economy.
• In this regard the Japanese state’s extensive use of what is known as the “infant
industry” protection system deserves special attention.
• Among the policies Japan has used to promote its infant industries include the
followings:
 Cont…
• Taxation, financial, and other policies that encouraged extraordinarily high savings
and investment rates.
• Fiscal and other policies that kept consumer prices high, corporate earnings up, and
discouraged consumption, especially of foreign goods.
• 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 to the keiretsu and to inter firm
cooperation.
• Japanese industrial policy was most successful in the early postwar years when
Japan was rebuilding its war-torn economy.
• However, as Japan closed the technology gap with the West and its firms became
more powerful in their own right, Japan’s industrial policy became considerably less
significant in the development of the economy.
• Yet the population and the government continued to believe that the state should
play a central or at least an important supportive role in the continuing industrial
 3.3.3. 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.
• On the one hand, 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.
• Furthermore, except for the medium-sized business sector (Mittelstand), the
nongovernmental sector of the German economy is highly oligopolistic and is dominated
by alliances between major corporations and large private banks.
• 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.
• The German national system of political economy is representative of the “corporatist "or
“welfare state capitalism” of continental Europe in which capital, organized labor, and
government cooperate in management of the economy.
• This corporatist version of capitalisms characterized by greater representation of labor
and the larger society in the governance of corporate affairs than in Anglo-Saxon
shareholder capitalism.
• Although the continental economies differ from one another in many respects, in all of
them the state plays a strategic role in the economy.
•
 Cont…
• It is significant, especially in Germany, that major banks are vital to the provision of capital to
industry.
• While, in many European countries, employee councils have some responsibility for running the
company, in Germany labor has a particularly important role in corporate governance.
• Indeed, the “law of co-determination” mandates equal representation of employees and
management on supervisory boards.
• Although the power of labor on these boards can be easily overstated, the system is a
significant factor in Germany’s postwar history of relatively smooth labor relations.
• The most important contribution of the German state to the economic success of their
economy has been indirect.
• During the postwar era, the German federal government and the governments of the individual
Lander (states) have created a stable and favorable environment for private enterprise.
• Their laws and regulations have successfully encouraged a high savings rate, rapid capital
accumulation, and economic growth.
• Germany has a highly developed system of codified law that reduces uncertainty and creates a
stable business climate; the American common law tradition guides U.S. business, and the
Japanese bureaucracy relies on administrative guidance.
• At the core of the German system of political economy is their central bank, or Bundesbank.
• The Bundesbank’s crucial role in the postwar German economy has been compared to that of
the German General Staff in an earlier German domination of the Continent.
• Movement towards the European Economic and Monetary Union has further increased the
powerful impact of the Bundesbank.
•
 Cont…
• Although the Bundesbank lacks the formal independence of the American Federal Reserve, its
actual independence and pervasive influence over the German economy have rested on the
belief of the German public that the Bundesbank is the “defender of the mark” (euro) and the
staunch opponent of dreaded inflation.
• Indeed, the Bundesbank did create the stable macroeconomic environment and low interest
rates that have provided vital support to the postwar competitive success of German industry.
• On the other hand, the role of the German state in the microeconomic aspects of the
economy has been modest.
• The Germans, for example, have not had an activist industrial policy although, like other
advanced industrial countries, the government has spent heavily on research and
development.
• The German government has not also intervened significantly in the economy to shape its
structure except in the support it has given through subsidies and protection to such dying
industries as coal and shipbuilding and the state-owned businesses such as Lufthansa and the
Bundespost (mail and telecommunications).
• However, since the early 1990s, these sectors have increasingly been privatized.
• On the whole, the German political economy system is thus closer to the American market-
oriented system than to the Japanese system of collective capitalism.
 3.3.4. Differences among National Political Economy Systems

• While national systems of political economy differ from one another in many important
respects, differences in the following areas are worthy of particular attention:
• (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.
• Although every modern economy must promote the welfare of its citizens, different societies
vary in the emphasis given to particular objectives; those objectives, which range from
promoting consumer welfare to pursuit of national power, strongly influence and are
influenced by such other features of a national economy as the role of the state in the
economy and the structure of that economy.
• As for the role of the state in the economy, market economies include the generally laissez-
faire, non interventionist stance of the United States as well as the Japanese state’s central
role in the overall management of the economy.
• And the mechanisms of corporate governance and private business practices also differ; the
relatively fragmented American business structure and the Japanese system of tightly
integrated industrial groupings (the keiretsu) contrast dramatically with one another.
• Very different national systems of political economy result from the variations in the basic
components of economies.
 Cont…
• The purpose of economic activity in a particular country largely determines the role of the state
in that economy.
• In those liberal societies where the welfare of the consumer and the autonomy of the market
are emphasized, the role of the state tends to be minimal.
• Although liberal societies obviously differ in the extent to which they do pursue social welfare
goals, the predominant responsibility of the state in these societies is to correct market failures
and provide public goods.
• On the other hand, in those societies where more communal or collective purposes prevail, the
role of the state is much more intrusive and interventionist in the economy.
• Thus, the role of such states can range from providing what the Japanese call “administrative
guidance” to maintaining a command economy like that of the former Soviet Union.
• The system of corporate governance and private business practices constitutes another
important component of a national political economy.
• American, German, and Japanese corporations have differing systems of corporate governance,
and they organize their economic activities (production, marketing, etc.) in varying ways.
• For example, whereas shareholders (stockholders) have an important role in the governance of
American business, banks have played a more important role in both Japan and Germany.
• In addition, regarding business practices, whereas the largest American firms frequently invest
and produce abroad, Japanese firms prefer to invest and produce at home.
• The policies of each government have also shaped the nature of business enterprise and
 3.4. Core Issues, Governing institutions and Governance of
International
Political Economy
3.4.1. International Trade and the WTO

• WTO
The World Trade Organization (WTO) is an international organization
which sets the rules for global trade.
• This organization was set up in 1995 as the successor to the General
Agreement on Trade and Tariffs (GATT) created after the Second
World War.
• It has about 150 members. All decisions are taken unanimously but
the major economic powers such as the US, EU and Japan have
managed to use the WTO to frame rules of trade to advance their
own interests.
• The developing countries often complain of non-transparent
procedures and being pushed around by big powers.
 Cont…
• What is International Trade? Most of you might have a basic understanding of trade but if
someone gives you his/her laptop computer in exchange for your brand new iPad it means
that you are engaged in trade.
• The exchange of a good or service for another illustrates a particular type of trade, referred
to as barter trade.
• In the contemporary period, however, the great preponderance of trade involves the
exchange of money for goods and services.
• This type of trade can take place entirely within a domestic economy or internationally. But
there are a number of critical distinctions between domestic and cross-border trade.
• While in cross-border trade the exchange of goods and services is mediated by at least two
different national governments, each of which has its own set of interests and concerns, and
each of which exercises (sovereign) authority and control over its national borders
• (In practice, this means that even the “free trade’’ we know it from the standard definition
of free trade as “The unrestricted purchase and sale of goods and services between
countries without the imposition of constraints such as tariffs, duties and quotas” is never
entirely free).
• Any ways, despite the long history of trade, it is important to recognize that the scope and
scale of cross-border trade is, today, immensely greater than at any other time in human
history.
• Why this is so? To the liberal economists, this is not a surprise because they are convinced
that cross border trade is beneficial, both for individual national economies and for the world
 Cont…
• But even in the general public (especially in wealthy capitalist economies),
most people acknowledge that the antithesis of trade—namely, autarky
(i.e., a policy premised on complete economic independence or self-
sufficiency)—is essentially impossible and self-defeating in the industrial and
post-industrial eras.
• Yet, one has to also bear in mind that there is still ongoing debate revolving
around both on practical political issues—e.g., who benefits and who is
harmed by trade—and also around deeper theoretical disagreements.
• As a result, it is common to observe in the world disputes and frequently
serious tensions over trade.
• This brings the question: “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.
 Cont…

• The tariffs were eliminated by mutual agreement in 2008; at the same time, both
Mexico and the U.S. also agreed that “import-sensitive sectors” could be protected with
emergency safeguard measures in the event that “imports cause, or threatened to
cause, serious injury to domestic producers”.
• In other words, the notion of free trade in NAFTA had and still have significant element
of protectionist /mercantilist policies such as a tax on specific imported goods (tariff),
prohibiting their importation (import ban), or imposing a quantitative restriction (import
quota).
• The latter two policies are examples of nontariff barriers, or NTBs. Other types of NTBs
include domestic health, safety, and environmental regulations; technical standards (i.e.,
a set of specifications for the production or operation of a good); inspection
requirements; and the like.
• Finally, it is always important to remind that the political and theoretical debate on
international trade will continue to mount high as the trade itself grows more and more.
• In this debate, the liberals’ argument would continue to center on the principle of
comparative advantage, while mercantilists and Marxists expound upon power
differentials between national economies, or on class inequality and exploitation.
 3.4.2. International Investment and the WB

• WB
The World Bank was created immediately after the Second World War in
1945.
• Its activities are focused on the developing countries.
• It works for human development (education, health),agriculture and rural
development (irrigation, rural services), environmental protection
(pollution reduction, establishing and enforcing regulations), infrastructure
(roads, urban regeneration, and electricity) and governance (anti-
corruption, development of legal institutions).
• It provides loans and grants to the member-countries. In this way, it
exercises enormous influence on the economic policies of developing
countries.
• It is often criticized foresting the economic agenda of the poorer nations,
attaching stringent conditions to its loans and forcing free market reforms.
 3.4.3. International Finance and the IMF

• IMF
The International Monetary Fund (IMF) is an international organization that oversees those
financial institutions and regulations that act at the international level.
• The IMF has 184 member countries, but they do not enjoy an equal say. The top ten countries
have 55 per cent of the votes.
• They are the G-8 members (the US, Japan, Germany, France, the UK, Italy,
Canada and Russia), Saudi Arabia and China. The US alone has 17.4 per cent voting rights.
• The global financial system is divided into two separate, but tightly inter-related systems: a
monetary system and a credit system.
• The international monetary system can be defined as the relationship between and among
national currencies.
• More concretely, it revolves around the question of how the exchange rate among different
national currencies is determined.
• The credit system, on the other hand, refers to the framework of rules, agreements, institutions,
and practices that facilitate the transnational flow of financial capital for the purposes of
investment and trade financing.
• From these two very general definitions, it should be easy to see how the monetary and credit
systems are inextricably related to one another.
• Yet, for a deeper understanding, let us separately discuss the main components of the monetary
and credit systems.
 3.5. Exchange Rates and the Exchange-Rate System

• An exchange rate is the price of one national currency in terms of another. For example, according to
July 2013 rate, one U.S. dollar ($1) was worth 98.1 Japanese yen (¥), while one British pound (£) was
worth 1.54 U.S. dollars.
• Yet, in August 1998, one U.S. dollar was worth 145.8 yen. Compared to the rate in July 2013, the
difference is then almost 50 percent.
• This implies that in August 1998, the yen was substantially “weaker” (the quotation marks are used
because a weak currency is not necessarily a disadvantage).
• What does this mean in concrete terms? Well, say you have $2,000.
• In 1998, if you had traveled to Japan you could have exchanged that $2,000 for 291,000 yen, but in 2013
that same $2,000 (to keep things simple, disregard inflation) could be exchanged for only 196,000 yen. In
short, you would have a lot less Japanese yen to spend in 2013.
• There are two main exchange rate systems in the world namely: fixed exchange rate and floating
exchange rate.
• In a pure floating-rate system, the value of a currency is determined solely by money supply and money
demand.
• In other words, this system exists only when there is absolutely no intervention by governments or other
actors capable of influencing exchange-rate values through nonmarket means.
• A pure fixed-rate system, on the other hand, is one in which the value of a particular currency is fixed
against the value of another single currency or against a basket of currencies.
• The question thus remains: How is the global financial system governed? The creation of the
International Monetary Fund (IMF) provided the answer for this question.
 Cont…
• The IMF, which was set up as an ostensibly neutral international financial institution,
was designed to clearly represent U.S. interests and power first and foremost, and
the interests of the other major capitalist countries (the developed economies)
• secondarily while governing the global finical system. This can be seen, more
concretely, from the way decision-making power within the IMF was designed-i.e.
voting power is determined by what the IMF calls a quota. A quota (or capital
subscription) is the amount of money that a member country pays to the IMF.
• Accordingly, the more a country pays, the more say it has in IMF decision makings.
And, it is the US that tops up in this regard.
• What are the existing problems in the current governance of international/global
trade, investment and finance?
• Do you think that global institutions such as the IMF, WB and WTO are relevant and
indispensable for governing international finance, international investment and
international trade?
• In other words, what do you think might things look like if there were no IMF, WB
and WTO?
 Summary
• This chapter dealt with four major issues in the arena of Intentional Political
Economy.
• It first discussed the meaning and nature of International Political Economy
including the problems surrounding its conceptualization.
• Secondly, it analytically distinguished the different foundational and
contemporary theoretical perspectives of International Political economy, i.e.,
mercantilism, liberalism, Marxism, structuralism, Hegemonic stability theory and
the Developmental state approach.
• Thirdly, it surveyed the most influential National Political economy systems in
the world.
• Finally, it identified and examined the core issues (i.e., International Trade,
International Investment and International Finance), governing institutions and
governance process of International Political economy.
 Globalization and Regionalism
chapter-4

• 4.1. Defining Globalization

• Globalization can be defined as a multidimensional process characterized by:
• (1) the stretching of social and political activities across state (political)
frontiers so that events, decisions, and activities in one part of the world come
to have significance for individuals and communities in other parts of the
world. For instance wars and conflicts in developing countries would increase
the flow of asylum seekers and illegal migrants in to the developed countries;
• (2) the intensification or the growing magnitude of interconnectedness in
almost every aspect of social existence from the economic to the ecological,
the spread of HIV-AIDS, from the intensification of world trade to the spread of
different weapons;
• (3) the accelerating pace of global interactions and process as the evolution of
worldwide systems of transport and communication increases the rapidity of
or velocity with which ideas, news, goods, information, capital and technology
move around the world;
 Cont…
• (4) the growing extensity, intensity, and velocity of global interaction is associated with a
deepening enmeshment of the local and global insofar as the local events may come to have
global consequences and global events may come to have serious local consequences creating a
growing collective awareness of the world as shared social space, i.e. globality or globalism.

• Although geography and distance still matters it is nevertheless the case that globalization is
synonymous with a process of time-space compression-literally meant that in the shrinking world
events or actions no longer coincides with the place in which it takes place.
• In this respect globalization embodies a process of deterritorialization, viz., as social, political,
and economic activities are increasingly stretched across the globe they become in a significant
sense no longer organized solely according to territorial logic. For example terrorist and criminals
operate both locally and globally.
• Another example is that under the condition of globalization, national economic space is no
longer coterminous with national territorial space since, as in the case of many U.S companies
based their headquarters in Europe.
• This indicates that, in the globalized world, territorial borders no longer demarcate the
boundaries of national economic or political space.
 Cont…
• This is not to argue that territory and borders are now irrelevant but rather to
acknowledge that under condition of globalization this relative significance, as constrains
of social action and exercise of power, is declining. Note only that the distinction
between the domestic and international, inside and outside the state breaks down.
• 4.2. The Globalization Debates
• Globalization is a contentious issue in international relations.
• There has been intense debate as to the direction, nature and effect of globalization on
states.
• In this regard, there are three perspectives: the hyper-globalists, the skeptics, and
transformationalists.
• Each perspective delivers a distinct response to the questions of: what is new about
globalization; and what are its political consequences for sovereign statehood?

• .2.1. The Hyper-globalists

• For the hyper-globalists, globalization today defines a new epoch in human history in
which nation states become obsolete to regulate their economy and boundary. This view
of globalization privileges the economic over the political, the market over the state, and
prefigures the decline of states. Advocates of this view argue that economic globalization
is bringing about a de-nationalization/ de-territorialization of economies through the
establishment of transitional networks of production, trade and finance.
 Cont…
• In this borderless economy national governments are relegated to little
more than transmission belts for global capital or ultimately powerless
institutions marginalized by the growing significance of local, regional and
global mechanisms of governance.
• In this respect the hyper-globalists share a conviction that economic
globalization is bringing about the decline of states.
• Under the condition of globalization, states becoming the site of global
and transnational flows and as opposed to the primary container of
socio-economic activity.
• Thus for the hyper globalists, the authority and legitimacy of states
thereby is undermined as the national governments become increasingly
unable to control the Tran boundary movements and flows of goods,
services, ideas and different socio-economic activities inside their
borders. The cumulative effects of these forces would make the state in
effective to full fill the demands of its citizens.
• Hyper-globalist further argue that globalization is imparting new liberal
 Cont…
• 4.2.2. The Skeptics
• The skeptics rejected the view of super- globalist as a myth, flawed and politically naïve
since it fundamentally underestimate the enormous power of national governments to
regulate international economic activities.
• For them, rather than being out of control, the force of globalization, which is
synonymous to internationalization, very much dependent on the regulatory power of
the state to ensure the continuation of economic liberalism.
• States are central actors and agents of globalization playing central role in shaping and
regulating the economic activities including the Trans-boundary flows of ideas, goods
and peoples.
• Skeptics also undermine the view that the world is interconnected and moving into a
village where by there exists a free flow of goods and services, investment and
circulation of money from one corner of the world in to another.
• For them, the so called globalization is not more than regionalization that is being
manifested in the emergence of financial and trading blocs in Western countries, North
America, in Asia and to some extent in Africa.
• For instance in Europe, there exists EU as site and expression of globalization; in North
America, there exist a trading bloc, NAFTA, ASEAN in Asia.
 Cont…
• And we have seen more interconnectedness at regional level lesser than at the global level. For that matter, Skeptics argues that there is no free flow of goods, resources, technology
and finance at the global level; instead we have regional based globalization.
• In this regard, it has become evident that the Western region is more intergraded and globalized than the other part of the world such as Africa and Asia.
• In fact these countries are in one way or another interconnected in terms of trade; yet we have seen less instantaneous flow of technology financial capital from the west to Africa
and other developing countries.
• Yet in terms of trade the developing countries are integrated to the western market whereby the developing countries supply their primary agricultural commodities to earn foreign
currencies.
• However such trade connection is not benefiting the developing nations.
• The Sceptics thus do not believe that globalization would help to narrow the economic and technological gap that is still prevailing between the Global North(developed Countries)
and The Global South(Developing countries).
• So, for the Skeptics, globalization brings nothing new, rather it is just the crystallization the already existing realities of the world which has been marked by the North-South gap
reflected in terms of the deeply rooted patterns of inequality and hierarchy.

• 4.2.3. The Transformationalist Central to the transformationalist perspective is the conviction that globalization is a critical driving force behind the rapid social, political and
economic changes which are reshaping societies and international politics. According to the proponents of this view ,the contemporary process of globalization are historically
unprecedented such that governments and societies across the globe are having to adapt to a world in which there is no longer a clear distinction between the international and
domestic affairs. At the core of the transformationist view is the belief that globalization is reconstituting or reengineering the power, function and the authority of the state, Even
though the state has ultimate legal power to control events inside its boundary,
it can’t command sole control over trans-boundary issues, actors, resource movements. Under globalization, national economic space no more coincides with state boundary. In
arguing that globalization is transforming or reconstituting the power and authority of national governments, they however reject both the hyper globalist view of the end of the
sovereign state as well as the Sceptics claim that nothing much has changed. Instead they assert that a new sovereignty regime is displacing traditional conception of state power as
an absolute, indivisible,
territorially exclusive power. Accordingly, sovereignty today is the best understood as “….less a territorially defined barrier than a bargaining resource for a politics characterized by
complex transnational network. Under globalization, there are non-state actors as Multinational Corporation, transnational social movements, international regulatory agencies.

• In this sense world order can no longer be conceived as purely State-Centric or even primarily state managed as authority has become increasingly diffused amongst public and
private a agencies at the local, national, regional and at global levels i.e. down ward, up rewards and sideways. This does not mean that the power of national government is
necessarily diminished but on the contrary it is being redefined, reconstituted and restructured in response to the growing complexity of process of governance in a more
interconnected world.
 Cont…
• 4.2.3. The Transformationalist
• Central to the transformationalist perspective is the conviction that
globalization is a critical driving force behind the rapid social, political and
economic changes which are reshaping societies and international politics.
• According to the proponents of this view ,the contemporary process of
globalization are historically unprecedented such that governments and
societies across the globe are having to adapt to a world in which there is no
longer a clear distinction between the international and domestic affairs.
• At the core of the transformationist view is the belief that globalization is
reconstituting or reengineering the power, function and the authority of the
state,
• Even though the state has ultimate legal power to control events inside its
boundary, it can’t command sole control over trans-boundary issues, actors,
resource movements.
• Under globalization, national economic space no more coincides with state
boundary.
 Cont…
• In arguing that globalization is transforming or reconstituting the power and
authority of national governments, they however reject both the hyper globalist
view of the end of the sovereign state as well as the Sceptics claim that nothing
much has changed.
• Instead they assert that a new sovereignty regime is displacing traditional
conception of state power as an absolute, indivisible, territorially exclusive
power.
• Accordingly, sovereignty today is the best understood as “….less a territorially
defined barrier than a bargaining resource for a politics characterized by
complex transnational network.
• Under globalization, there are non-state actors as Multinational Corporation,
transnational social movements, international regulatory agencies.
• In this sense world order can no longer be conceived as purely State-Centric or
even primarily state managed as authority has become increasingly diffused
amongst public and private a agencies at the local, national, regional and at
global levels i.e. down ward, up rewards and sideways.
• This does not mean that the power of national government is necessarily
diminished but on the contrary it is being redefined, reconstituted and
restructured in response to the growing complexity of process of governance in
 4.3. Globalization and Its Impacts on Africa
• Despite the ambiguities of the concept, the essential nature of globalization
is the compression of space and time, so that people from distant areas are
able and in fact obliged to interact with one another intensively and in a
wide range of areas.
• As a result, the world becomes one, and interactions among diverse people
begin to look like those within a village.
• Thus terms such as "One World” and “Villagization” are sometimes used as
synonyms for globalization.
• In its contemporary form, globalization is driven by a variety of forces.
• These are financial or the flow of financial resources, economic with
particular reference to the flow of goods and services and, to a very limited
extent, labor, technology, especially transport, communications and
information technology, the spread of culture from one corner of the world
to the other, and the global diffusion of religious ideas as well as ideologies.
• Other aspects that are unique to the present form of globalization are the
Americanization of the world, the propagation of a universal paradigm for
economic and political development, and the dominance of unilateralism as
a way of conducting international relations.
 Cont…
• The Americanization of the World is the result of the huge and
unprecedented gap between the United States and its nearest rival in each
and every sphere, military, economic, technological and cultural, which is
in turn transformed into the unequaled American influence on
international issues and decision-making, including those within the
purview of major international institutions such as the United Nations
System, the Breton-Woods institutions, and the World Trade Organization.
• Globalization has therefore increasingly taken the appearance of the
transformation of the international system from a multi-polar or bipolar
system to an imperial system under American hegemony.
• Within this system, decisions and outcomes are largely the result of
American unilateralism.
• A major consequence of this is the propagation of a universal paradigm for
both economic and political development, in the form of the so-called
Washington Consensus, whose main features are market forces and liberal
democracy, without regard to the historical and cultural specificities of
individual countries.
 Cont…
• In sum, globalization seems to be leading inexorably to the homogenization of the world, with
the United States as the model and the standard by which all other countries are to be judged.
• Participants were unanimously of the view that globalization is inevitable and its consequences
pervasive.
• However, asymmetry in the distribution of power results in different perceptions and
evaluation of the impact of globalization, especially with respect to the distribution of the
benefits of globalization.
• In the case of Africa, its position in the international system has been considerably weakened
by the fact that it has been losing the race for economic development in general, and human
development in particular, to other regions.
• This poor performance by African countries accounts in part for the political and social
instability and the rise of authoritarian regimes that have characterized much of postcolonial
Africa further weakening the ability of African countries to deal effectively with globalization.
• The cold war has had significant consequences for Africa. During its height in the 1960’s and
1970’s, the cold war witnessed the emergence of authoritarian regimes in most African
Countries in the form of one-party or military regimes.
•
 Cont…
• This was largely a result of the support of the two blocks to keep African
countries in their respective camps.
• In any event, both one party and military regimes inhibited the
emergence of democratic governance and developmentally oriented
regimes in Africa.
• With the end of the cold war, support has been withdrawn by the major
powers for many African countries considered no longer of strategic
importance.
• This has entailed an increase in the number of so called “failed states” in
Africa during the last two decades.
• This development has also been inimical to the emergence and
consolidation of effective Democratic and developmentally oriented
regimes in Africa.
• In addition, the end of the cold war has witnessed an over-all decline in
the strategic importance of Africa.
• This has, in turn, substantially reduced Africa’s international negotiating
power and its ability to maneuver in the international system with a view
to gaining a modicum of freedom of choice, autonomy and leverage in its
dealings with more powerful actors.
 Cont…
• In sum then, the cold war and its demise has worked against democracy and
economic development in Africa.
• The problem therefore lies in Africa’s position in the global system and not in
the specific form taken by globalization.
• Specific impacts of globalization on Africa can be identified.
• In the political sphere, the most important consequence is the erosion of
sovereignty, especially on economic and financial matters, as a result of the
imposition of models, strategies and policies of development on African
countries by the International Monetary Fund, the World Bank and the World
Trade Organization.
• On the other hand, globalization has promoted greater respect for human
rights and contributed to the development of an African press.
• This has opened African countries to far greater scrutiny than in the past,
making it somewhat more difficult for African governments to get away with
blatant and excessive abuses of democratic governance and transparency.
• However, this positive development is negated by the fact that these principles
of democratic governance and transparency tend to be applied selectively and
subjectively. More important is the fact that globalization for the most part
does not facilitate the establishment of the economic conditions necessary for
genuine democracy and good governance to take solid roots and thrive.
 Cont…
• In this regard globalization has negative impacts on the development and
effective governance of African States.
• One form of this is the reduction of the capacity of governments to determine
and control events in their countries, and thus their accountability and
responsiveness to their people, given the fact that the context, institutions
and processes by which these decisions are taken are far from democratic.
• In addition, the fragmentation of national economies, polities, societies and
cultures that are triggered by globalization weaken national consciousness and
cohesion, leading to social divisiveness and instability, which in turn facilitate
the emergence of authoritarian rule.
• Strong countries are, however, in a better position to fend off these negative
consequences and may even see their democracies strengthened.
• One major positive impact of globalization on Africa is that it has made
available information on how other countries are governed and the freedoms
and rights their people enjoy.
• It has also opened African countries to intense external scrutiny and exercised
pressure for greater transparency, openness and accountability in Africa.
• However, most of the forces unleashed by globalization have had a negative
impact on the growth and consolidation of democratic governance in Africa.
•
 Cont…
• Among these are the following:
• While calling for greater accountability and responsiveness of leaders to their
people, globalization has often pressured African leaders to adopt policies and
measures that are diametrically opposite to the feelings and sentiments of the
vast majority of their people.
• This has led to the rise or reinforcement of authoritarian regimes.
• A good recent example of this is the pressure on many African governments to
take certain measures in the fight against terrorism at the behest of external
powers;
• By defining basic and generally accepted principles of democratic governance,
such as good governance, transparency and accountability, in narrow terms,
conditioned by particular historical, political, social, and cultural factors, while
leaving little or no room for adapting them to different societies and cultures,
democracy takes on the image of something alien and imposed from the
outside.
• Support for the fundamental principles of democracy is thus undermined,
cynicism arises, and the effort itself fails to develop roots in the countries to
which they are being artificially transplanted.
• Globalization leads to the development of anti-developmentalism by declaring
the state irrelevant or marginal to the developmental effort.
 Cont…
• Development strategies and policies that focus on stabilization and privatization, rather than
growth, development and poverty eradication, are pushed by external donors, leading to greater
poverty and inequality and undermining the ability of the people to participate effectively in the
political and social processes in their countries.
• Welfare and other programs intended to meet the basic needs of the majority of the population
are transferred from governments to non-governmental organizations that begin to replace
governments in the eyes of the people.
• As a result, governments lose what little authority and legitimacy they have. The consequent gap
between government leaders and the public leads to alienation of the population from the politica
process and creates a favorable environment for the emergence of non-representative
governments.
• By imposing economic specialization based on the needs and interests of external forces and
transforming the economies of African countries into a series of enclave economies linked to the
outside but with very little linkages among them, divisions within African countries are accentuated
and the emergence of national consciousness and the sense of a common destiny is frustrated.
• Democracy, with its emphasis on tolerance and compromise, can hardly thrive in such an
environment. Further, because the economic specialization imposed on African countries makes
rapid and sustainable growth and development impossible, conflicts over the distribution of the
limited gains realized from globalization become more acute and politicized
 Cont…
•
.Vulnerable groups, such as women, the youth, and rural inhabitants, fare very
badly in this contest and are discriminated against. This further erodes the national
ethos of solidarity and reciprocity that are essential to successful democracies.
• Globalization, by insisting on African countries opening their economies to
foreign goods and entrepreneurs, limits the ability of African governments to take
proactive and conscious measures to facilitate the emergence of an indigenous
entrepreneurial class.
• Consequently, due to their weakness and incapacity to operate on a national basis,
rather than being forces for national integration and consolidation as was and is
the case of European and American entrepreneurs, African entrepreneurs
reinforce social divisions based on ethnicity, religion, race, language, culture, and
location.
• Economically, globalization has, on the whole, reinforced the economic
marginalization of African economies and their dependence on a few primary
goods for which demand and prices are externally determined
• .This has, in turn, accentuated poverty and economic inequality as well as the
ability of the vast number of Africans to participate meaningfully in the social and
political life of their countries.
• Economic and social stagnation has also triggered a substantial brain drain from
Africa, further weakening the ability of African countries to manage their
 Cont…
• As a result of the cultural domination from outside that goes with
globalization, African countries are rapidly losing their cultural identity and
therefore their ability to interact with other cultures on an equal and
autonomous basis, borrowing from other cultures only those aspects that
meet its requirements and needs.
• Finally, while the scientific and technological forces unleashed by globalization
have facilitated to some extent access by Africans to advanced technology and
information, this has been at the expense of stultifying the indigenous
development of technology and distorting patterns of production in Africa,
notably by utilizing capital as against labor intensive methods of production,
which in turn increases unemployment and poverty.
• Overall therefore, the negative consequences of globalization on Africa far out
way their positive impact.
 4.4. Ethiopia in a Globalized World

• Ethiopia is one of the countries marginally integrated to the capitalist system

during the post Cold War era.
• Despite the 17 years interruption during the Derg period, Ethiopia continued
to be marginally integrated to the post-Cold War global capital.
• This has multiple implications to the way globalization influenced the country.
• In the post-1991 period Ethiopia found itself facing the challenges of
democratization and the reconstruction of the post-conflict society.
• This was coincidentally interfaced with the advent of globalization. The course
Ethiopia took to federalize and democratize, for instance the FDRE
constitution, bears the mark of globalization.
• The marginal integration, according to the late Prime Minister of FDRE Meles
Zenawi, have saved the country from being adversely affected by the
onslaught of global capital on the countries of the south; and the global
financial crisis that plagued the western market and those countries whose
markets are integrated to the Western market system.
• This owes to the cautious developmental state political economy EPRDF
pursued during the last decade.
 Cont…

• Yet, Ethiopia like any other country found itself facing a fast track of
multidimensional changes that positively and negatively affected its
place in the globe.
• For instance, the triumph of western free market economy and
liberal democracy has put the country’s defiant political economic
policy in a head-on collision course with the requirements of Briton
woods institutions and western powers.

• This indeed has its mark on the development aid and loan Ethiopia
managed to secure to finance its national development projects
and design its own economic policy independently.
• Nevertheless, with meticulous planning and strategic thinking,
Ethiopia achieved amazing economic transformation and gained a
lot from the positive opportunities of globalization.
• It has also benefited from the technological and knowledge transfer,
 Cont.
• The other side of the globalization coin shows negative impacts on Ethiopia.
• Among others, the expansion of information communication opened the
historically closed doors of Ethiopia to new religious and secular values that
affected the religiosity and social solidarity of its people. This is reflected in
the rise of religious radicalism of every sort and posture.
• Socio-cultural impact of western values is amply observed in urban centers.
Furthermore, the globalization dynamics contributed to the rise radical
nationalism and ethnicity.
• The prevalence of human trafficking and migration is partly attributable to
the onset of globalization.
• To sum up, Ethiopia has benefited less from globalization than its negative
influences.
• Discuss the positive or negative impacts of globalization on the developing
countries in general and Africa/ Ethiopia in particular by looking at their:
Economy, Politics, Culture , Security.
 4.5. Pros and Cons of Globalization

• Globalization has its merits and demerits.

• Merits
• Among the leading merits of globalization are the expansion of democratic culture, human right
and the protection of historically minority and subaltern groups.
• Innovation in science, medicine, and technology and information communication has enabled the
improvement of quality of life.
• Agricultural technological expansion resulted in the lifting out of millions of people out of poverty.
The technological and social revolution significantly contributed to advancement of human
security and safety.
• Moreover, the free movement of good, service, people, ideas, expertise, knowledge and
technology across national borders strengthened international interdependence. This in turn
contributed to the birth of a new sense of global society and the perspective of global citizenship
that contradicts the classical idea of citizenship limited national borders and defined by
nationalism and patriotism.
• The emergence of the idea of global civil society also pertains to this phenomenon. States ceased
to be the sole actors and referents of international relations and diplomacy, and conception of
security as well.
• Along with it emerged the responsibility of states to protect their citizens and the shared
responsibility of the global society for protecting vulnerable groups from human right violations
and victimization.
• Furthermore, economist characterize the rapid economic growth in some countries of the south to
globalization.
 Cont…
• Demerits
• globalization is not also without its demerits. Some commentators say that there is no
serious problem against globalization but against a certain type of globalization imposed by
the global financial elite. They recognize the prevalence of a gnawing gap between rich and
poor became considerably
• Yet, this is an understatement of the challenges imposed by globalization. It is an aspect of
Western imperialism of ideas and beliefs eroding and inroading the sovereignty of non-
Western countries.
• For example, while wealth and power of the multinationals seems to have increased
significantly, neither they nor national governments have so much control over macro-
economic forces as they would like.
• Global capital and international financial institutions like WB and IMF made free inroads
into countries of the south influencing the economic and political dynamics of negatively.
• With technological advancement, climatic, environmental and technological risks have
multiplied.
• Globalization, in the sense of connectivity to the global economic and cultural life, brings
with it a different order than what it was before threatening the continuity of non-Western
age-old traditions, way of life and cultural values.
• Besides, the globalization has made the globalization of risks, threats and vulnerabilities like
global terrorism, religious fundamentalism, proliferation of Small Arms and Light Weapons
 Cont…
• Moreover, globalization has stimulated the emergence a
simultaneous but opposite process of Globalizations,
which involves a process of integration to the world and
differentiation to the local.
• This process has contributed to the rise of radical
nationalism and ethnicity, which set the context for the
emergence of the era of identity and identity conflicts.
• In general, without denying the opportunities of
globalization, countries of the global south have faced
multidimensional economic, political, socio-cultural,
security and military challenges induced by
globalization.
4.6. 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).
• Regionalism consequently refers to intensifying political and/or economic
processes of cooperation among states and other actors in particular geographic
regions, which can be developed either 'from below‘
• i.e. from the decisions by companies to invest and by people to move within a
region or 'from above‘
• i.e. from political, state-based efforts to create cohesive regional units and
common policies for them; or from both approaches.
• Regionalism normally presents the sustained cooperation (either formal or
informal) among governments, non-governmental organizations, or the private
sectors in three or more countries for mutual gains (Allagappa 1994; Palmujoki
2001; Griffiths and O'Callaghan 2004).
• Buzan et al (1998) categorized region into two types in accordance with its
contexts. In the societal context, unit means nation and region is the set of
adjacent nations.
• Meanwhile, in the political context, unit is identified with state and region means:
 Cont…
• Sub-region means part of such a region, whether it involves more than one state
(but fewer than all of the states in the region) or some transnational composition
(some mix of states, parts of states, or both).
• Micro-region refers to the subunit level within the boundaries of a state (Buzan
et a 1998: 18-19). These literatures led to a conclusion that a spatial concept is
the essence of regionalism.
• In this regard, the states that share geographical proximity and a degree of
mutual interdependence will participate in their regional groupings (Karns and
Mingst 2005).
• However, without regionness or regional awareness the proximity of countries in
the given regions cannot be referred to as a key driving force to regionalize with
intimate neighboring countries.
• Regionalization can be conceived as the growth of societal integration within a
given region, including the undirected processes of social and economic
interaction among the units (such as nation-states; see Hurrell 1995a).
• As a dynamic process, it can be best understood as a continuing process of
forming regions as geopolitical units, as organized political cooperation within a
particular group of states, and/or as regional communities such as pluralistic
security communities (Whiting 1993
 Cont…
•
Similarly, the term regionalism refers to the proneness of the governments and peoples of two or
more states to establish voluntary associations and to pool together resources (material and
nonmaterial) in order to create common functional and institutional arrangements.
• Furthermore, regionalism can be best described as a process occurring in a given geographical
region by which different types of actors (states, regional institutions, societal organizations and
other non-state actors) come to share certain fundamental values and norms.
• These actors also participate in a growing network of economic, cultural, scientific, diplomatic,
political, and military interactions (Mace and Therien 1996).
• The occurrences of regionalism have mushroomed across all parts of the world. In contrast, the
theories to explain these developments are limited (Soderbaum 2003).
• Most of the theories have been developed under the dominant European contexts. This is due
largely to the location of regionalism and its successful story has been in the specific context of
Europe.
• Later, we experienced the successful regional grouping in North America. By and large, these
developments are considered as Western approaches to regionalism.
• As a result, these theories are hardly relevant to the development of regionalism outside the West
including the region of Southeast Asia (Hurrell 1995).
• Therefore, this section is an attempt to demonstrate theories that explain the possibilities of the
formation of regional grouping as much as possible. While it does not avoid the influence of the
Eurocentric approaches, it seeks to book beyond the European success to include other aspects as
well.
 4.6.1. The Old Regionalism

• For many scholars, regionalism, as a voluntary and comprehensive process, is

predominantly a post-World War II phenomenon.
• It emerged in Western Europe in the late-1940s, subsequently spreading to the
developing world.
• Old regionalism lost much of its dynamism in Europe in the early 1970s and gradually, also
in the developing world.
• As will become evident below, it is relevant to try separating the European-centered
debate from the debate in the developing world.
• Regional Integration in Europe and Beyond Old regionalism has its roots in the
devastating experience of inter-war nationalism and World War II.
• It is therefore closely linked to the discussion about ‘regional integration’ in Europe, in
particular to the formation of the European Communities.
• In contrast to earlier discussions that centered on mercantilism and competing alliances,
post-War scholars usually viewed the (Westphalian) nation-state as the problem rather
than the solution, and the purpose of regional integration was to achieve and
consolidate peace and stability.
• Immediately after the Second World War, there was a lot of discussion about European
regionalism, not least about reconstruction and reconciliation between France and
Germany.
• A series of initiatives were launched, which resulted in the European Coal and Steel
Community (ECSC) in 1951.
• The long-term goal was more ambitious, and in 1958 the European Economic
Community (EEC) and the European Atomic Energy Community (EAEC) were integrated
into the EC through the Treaty of Rome.
 Cont…
• As Breslin et al. (2002: 2) point out, they “used the European experience as a
basis for the production of generalizations about the prospects for regional
integration elsewhere”.
• This resulted in difficulties in identifying comparable cases, or anything that
corresponded to their definition of ‘regional integration’.
• The treatment of European integration as the primary case or
‘model’ of regional integration still dominates many of the more recent studies
of regionalism and regional integration,
• Regional Integration in Africa
• There was also an old (or classical) debate in the developing world, especially
in Latin America and Africa, but to some extent also in Asia and other
developing regions.
• As previously indicated, the discussion about regionalism in the developing
world was closely linked to colonialism/anti-colonialism and the quest to
facilitate economic development in the newly independent nation-states.
• Many of the discussions about regionalism in the developing world were
heavily influenced by the structuralist tradition of economic development,
pioneered by Gunnar Myrdal, Arthur Lewis, and Raúl Prebisch.
 Cont…
• In sharp contrast to the European debate, which focused heavily on regional
integration, the keywords here were development, state promoted
industrialization and nation-building, first and foremost through protectionism and
import-substitution.
• The Latin American structuralist discussion about underdevelopment reflected
specific economic experiences in various countries, particularly in terms of trade
problems.
• The depression of the 1930s also had severe impact on Latin American development,
creating pressure for change.
• Encouraged by the United Nations Economic Commission for Latin America (ECLA)
and its dynamic Executive Secretary, Raúl Prebisch, the vision was to create an
enlarged economic space in Latin America in order to enhance import substitution
regionally when it became exhausted at the national level.
• Liberalized intra-regional trade in combination with regional protectionism seemed
to offer large economies of scale and wider markets, which could serve as stimulus to
industrialization, economic growth, and investment (Prebisch 1959).
• From this perspective, the rationale of regional cooperation and integration among
less developed countries was not to be found in functional cooperation or marginal
economic change within the existing structure, but rather, through the fostering of
‘structural transformation’ and the stimulation of productive capacities
(industrialization), whereby investment and trading opportunities were being
created.
 Cont…
• The structuralist school thus shifted its focus away from economic integration as
means for peace and political unification, to one of regional economic
cooperation/integration as means for economic development and state-formation.
• The dependent variable, as well as the underlying conditions for regionalism, was
so different that it called for a different theory, according to which Europe and the
developing world were not comparable cases (Axline 1994: 180).
• This type of regionalism resulted in the creation of the Latin American Free Trade
Association (LAFTA) in Montevideo in 1960.
• LAFTA was a comprehensive and continental project and included all countries on
the South American continent plus Mexico.
• However, in spite of some early progress and lively theoretical discussion, which
has become internationally known as central to the history of economic thought
the old regionalism in Latin America made little economic impact and was never
implemented on a larger scale.
•
 Cont…
• Regionalization in Latin America during 1960s and 1970s did not materialized because of
conflict and military dictatorship.
• Yet, at discourse level it was robust that it had ample include on the dynamics of
regionalization in Africa.
• The debate between the Federalist Casablanca and Monrovia groups had also its own
influence.
• The major ideological influence on regional cooperation and integration, however, is
embodied in the founding principles of OAU and later AU such as Lagos Plan of Action (1980)
and the Abuja treaty (1991).
• The major purpose of regionalization was to resist colonial and post-colonial influence,
protectionism and realizing import substitution.
• Among the various state led regional organizations in Africa were the CFA (Community of
French Africa), East African Community (EAC) and SACU (Southern African Community
Union).
• The SADCC (The Southern Africa Development Coordination Conference, a predecessor of
the SADC) was established to against the influence of Apartheid and external dependency
(Söderbaum, 2015).
 4.6.2. New Regionalism
• The prospects of the fall of the Berlin Wall together with the 1985 White Paper on
the internal market and the Single European Act resulted in a new dynamic process
of European integration.
• This was also the start of what has often been referred to as ‘new regionalism’ on a
global scale.
• The new regionalism referred to a number of new trends and developments, such as
the spectacular increase in the number of regional trade agreements,
• an externally oriented and less protectionist type of regionalism, an anti-hegemonic
type of regionalism which emerged from within the regions themselves instead of
being controlled by the superpowers,
• the rise of a more multi-dimensional and pluralistic type of regionalism, which was
not primarily centered around trading schemes or security cooperation and
• with a more varied institutional design, and the increasing importance of a range of
business and civil society actors in regionalization.
• What do the terms ‘Regionalism’ and ‘Regional integration mean?
Discuss the difference between Old regionalism and New regionalism
Compare the European and African experiences of regional integration
 Cont..
• Many scholars emphasized the fact that the new wave of regionalism
needed to be related to the multitude of often inter-related structural
changes of and in the global system in the post-Cold War era, such as:
– the end of bipolarity,
– the intensification of globalization, the recurrent fears over the stability of
the multilateral trading order,
– the restructuring of the nation-state, and
– the critique of neoliberal economic development and
– political systems in developing as well as post communist countries (cf.
Gamble/Payne 1996; Hettne et al. 1999).
• According to Söderbaum, the difference between old and new
regionalism can be summarized as provided in the table below: See
the table in the module
 4.7. Major Theories of Regional Integrations
4.7.1. Functionalism

• Functionalist viewed regionalism as a functional response by states to the problems that

derived from regional interdependence.
• It was seen as the most effective means of solving common problems.
• Regionalism has started from technical and non-controversial issues and has spilled over
into the realm of high politics and redefinition of group identity around the regional unit
(Hurrell 1995).
• According to functionalism, the task of policy makers is to encourage the states to
peacefully work together.
• The like-minded states would spread the web of international activities and agencies in
which and through which the interests and life of all states would be gradually integrated
from one activity to others (Mitrany 1946).
• Regional organization was then built up to cope with one common problem and spill over
to other problems and areas of cooperation, which will deepen integration among member
states.
• Therefore, 'spillover' is the key explanation of _functionalist regionalism.
• According to fiurrell (1995), there were two sorts of spillover.
• First, functional spillover whereby cooperation in one area would broaden and deepen
further areas; and
• second, political spillover whereby the existence of supranational institutions would set in
motion a self-reinforcing process of institution building.
 Cont…
• The end-result would be a shift in loyalties from nationalism towards
regionalism, a new center whose institutions possesses or demands
jurisdiction over the preexisting national states (Ernst 1958; Hurrell 1995).
• Accordingly, the functionalist and neo functionalist approaches presume that
cooperation across national borders particularly in the economic field spreads
out to other sectors.
• This spillover effect leads finally to the formation of supranational institutions
and to the diminishing role of the nation-state (Palmujoki 2001).
• Karns and Mingst (2005) argue that functionalism is applicable at both regional
and global levels; and later mention that the overwhelming number of
international governmental organizations (IGOs) could be classified as
functional.
• That is, they have specific mandates, link to economic issues, and limited
memberships, often related to geographic region.
• Notably, their statement could be deliberately illustrated by Thomas George's
(1997) position.
 Cont…
• In this regard, the process and dynamics of cooperation under neo-
functionalist approaches will work automatically to cope with the facing
issues.
• As a result, political decisions are needed at any key point and these may or
may not be taken (Karns and Mingst 2005).
• Therefore, functional spillover has to be in tandem with political spillover in
order to reinforce each other.
• George states that functionalism is a global approach rather than a regional
approach and neo-functionalism is derived from the functionalist doctrine
and was applied in a regional context with some modifications.
 4.7.2. Neo-functionalism
• Neo-functionalism emerged in the 1960s based on the key works of Ernst Haas and
Leon Lindberg.
• The model of integration is based on the following basic principles.
• Neo-functionalism included clear departures from transactionalism, federalism and
functionalism, which made it clearly a distinct and independent theoretical entity.
• First, the clearest difference existed between neo-functionalism and
transactionalism.
• Transactionalism had defined integration as a condition, and the attainment of
integration was measured by the existence of a 'security-community'.
• Neofunctionalists, on the contrary, defined integration as a process: 'Political
integration is the process whereby political actors in several distinct national
settings are persuaded to shift their loyalties, expectations and political activities
towards a new centre, whose institutions possess or demand jurisdiction over the
pre-existing national states.
• The end result of the process of political integration is a new political community,
superimposed over the pre-existing ones.'(Haas 1968, 16). Another distinguishing
principle of neo-functionalism, as identified by Ben Rosamond is the emphasis on
political agency in integration process (Rosamond, 2002). It considers integration as
a process with special focus on political integration. According to Lindenberg, the
following preconditions for the success of an integration process.
 Cont…
• These conditions included according to him:
• 1) Central institutions and central policies should be established and
developed, because only they can assure that someone represents and
promotes the 'regional view' as well as solves disputes between member
states;
• 2) Their tasks and capacity to implement those tasks should go well beyond
the mandate of normal international institutions;
• 3) Their tasks should be inherently expansive;
• 4) There should be some link between the interests of member states and
the process of integration. (Lindberg 1963, 7-13).
• An important concept is spill over, originally coined by Haas, refereeing to the
process of integration from the political sphere into other aspects of life.
• Lindberg considers integration as “inherently expansive task” that has to
begin from the political sphere.
• The spill over according to Lindberg is a condition that a given action leads to
a certain goal and that arranges a condition for the creation of a new action.
Similarly, spill over in regional integration follows the same logic of
embarking a certain action that achieves a degree of integration and creates
a condition for integration at advanced and wider scale. In effect, it deepens
the process of integration
 Cont…

• Inter-governmentalism Inter-govemenmetalism or liberal

intergovernmentalism
• is a theory and approach that focus on the state for integration to succeed.
• It approaches the question of the state in an integration process from the
perspective of traditional international relations.
• It thus considers the state mainly as an actor in the international system and
the integration process to be a process in that system.
• According to Moravcsik integration can be considered as part of the rational
choice of state actors.
• This rationalist framework disaggregates the process of integration into three
stages: national preference formation, interstate bargaining and institutional
choice.
• In the first stage, the degree of integration depends on the interests of
influential domestic constituents exercising pressure over their governments.
• Moravcsik (1993) explains that “the foreign policy goals of national
governments vary in response to shifting pressure from domestic social
groups, whose
preferences are aggregated through political institutions”. For example,
national governments may pursue international agendas in the fields of trade
 Cont…
• Nevertheless, he argues that national preference formation regarding cooperation
in the field of foreign and defense policy is subject to geopolitical interests,
revolving around a state’s ideological commitment.
• The problem with this approach is that international relations have not given much
weight to the domestic level or the society in the state's foreign policy decisions .
•

Supra-nationalism
• In order to understand the supranational perception of European integration, we
must first study the original theory from which this line of thought has been
derived: Neo-functionalism.
• The roots of Neo-functionalism lie most visibly in the works of Haas (1958) on
European integration (Rosamund, 2000), who has developed three mechanisms
through which he thought European integration progresses:
• first, positive spillover effects; second, a transfer of allegiances from the
national to the supranational political arena; and third, a ‘technocratic
automaticity,’ referring to an increasingly autonomous role of supranational
institutions in promoting further integration.
• The spillover effect occurs when integration between states in a particular sector
incentivizes integration in other sectors too. One incentive is, for example, that the
optimization of common benefits of integration in the original sector requires
integration in other sectors (Lindberg, 1963).
 4.8. Selected Cases of Regional Integration
• Regional integration across the world followed divergent trajectories. Yet, it
was mainly influenced by the development in Europe.
• Owing to the ample influence of the European experience, one can reasonable
say that the idea of regional integration is Eurocentric.
• In this section are briefly discussed three cases of regional integration namely
the European Union, Association of South East Asian States (ASEAN) and
African Union.
• The European Union began as European Economic Community underwent
changes and transformation creating common market, currency, institutional
and policy harmonization that at last became the European Union as one
consolidated regional organization.
• It continued to influence the experiment of regionalism in the rest of the
world.
• AU evolved from the Organization of African Unity, which expired after
realizing the objective of ensuring the decolonization of all African countries.
• The AU imitating EU was established to realize the unification of African
markets towards eventual political unification.
 Cont…
• Since its establishment in 2002, the AU have achieved a lot in terms of opening African
Free trade Areas, the issuance of visas on arrival and the strengthening of regional
organizations like SADC, ECOWAS, COMESA and the EAC.
• The ASEAN was founded in 1967 and established a preference area in 1977, and the Asian
Free Trade Area in 1992.
• In the first two decades after the Second World War (1945-1965) the region was shaped by
nationalism, decolonization, great power intervention and failed attempts at regional
cooperation.
• This resulted in the attainment of independence of states in the region namely Vietnam in
1945, Indonesia in 1949, the Philippines in 1946, Myanmar in 1948, Cambodia and Laos in
1953, Malaysia in 1957, Singapore in 1963, and Brunei in 1984 respectively.
• The main motive was not economic goal rather than political and security motives for
regional solidarity.
• The economic achievements in the region was not induced by the integration, though.
After the economic crisis of 1997, the region has advanced its economic goals and created
APFTA in the region.
 Cont…
• The second mechanism refers to a process by which domestic interest groups
shift their activities from the domestic to the international realm.
• Often times national institutions provide less effective ways for interest groups
to pursue their end goals than international institutions do.
• Finally, the third mechanism is a process in which established supranational
institutions develop an interest of their own: encouraging deeper and broader
integration.
• In the European case, the European Commission, established to coordinate
and implement integration strategies, has an intrinsic interest to expand its
competencies.
• In sum, Haas first sees integration as a process led by elitist groups, like leaders
of industry associations or political parties, who recognize a lack of
opportunities in pursuing a shared interest at the domestic level and then push
national governments to transfer policy competence to a supranational body.
• Then, once supranational institutions are created, international
interdependence grows, and interest groups or political party leaders can shift
their loyalties away from national institutions by choosing to pursue their
interests through newly established international institutions.
 4 .9 .R e gio n alizti o n ve rsu sG lo b alizti o n an d Stae

• The way regionalization, globalization and the state interact have various forms
based on the issues under consideration.
• For instance, the nature of interaction among the three on issues of economics
and security greatly differ.
• Therefore, it is vital to differentiate the issues before addressing the nature of
interaction.
• For instance, when trying to assess the complex relationship between
regionalization and globalization,
• one might conclude that the trend toward economic regionalism is perhaps
more mixed than the trend toward security regionalism:
• In the international economy, globalization and regionalization appear to be
pushing states in different directions, but there is today no major impetus
toward globalization in the security arena, perhaps with the exception of
nuclear issues such as nonproliferation (Lake 1997).
• Hence, the regionalization of security is not a universal trend like the formation
of economic regions.
 4.10. The Relations between Regionalization and Globalization

• There are three possible options regarding the mutual relations between
regionalization and globalization, especially in the economic dimension:
• (1) regionalization as a component of globalization (convergent trends); (2)
regionalization as a challenge or response to globalization (divergent trends);
(3) regionalization and globalization as parallel processes (overlapping trends)
(Mittelman 1996a).
 Regionalization as a Component of Globalization: Convergence
• Regionalism is emerging today as a potent force in the processes of
globalization.
• If globalization is regarded as the compression of the temporal and spatial
aspects of social relations, then regionalism may be understood as but one
component, or ‘chapter’ of globalization (Mittelman 1996a, 189).
• According to this view, by helping national economies to become more
competitive in the world market, regional integration will lead to multilateral
cooperation on a global scale, the adoption of liberal premises about
cooperation, and the opening of the local economies.
• Thus, the process of regional integration can be interpreted as part of the
international (or global) economic order at the end of the twentieth century; if
impelled by raw material forces (of the market), then it becomes a result and a
component of globalization (see Reynolds 1997, 1).
• Moreover, since globalization unfolds in uneven rather than uniform dynamic
patterns, it may reveal itself in processes that are less than geographically
global in scope.
• Therefore, globalization may be expressed through regionalization (Holm and
Sorensen 1995, 6–7).
 Regionalization as a Challenge or Response to Globalization:
Divergence
• Is regionalism a means toward something else other than globalization?
• Can regionalism lead to a more pluralistic world order populated by diverse and distinct
patterns of socioeconomic organizations that are accountable to their populations? (See
Mittelman 1996a, 189).
• Unlike the first trend, the impetus toward regionalization might stem in this case from a
reaction and challenge to the amorphous, undemocratic, and inexorable economic rules of
globalization.
• This reaction can be motivated by either nationalistic/mercantilistic or pluralistic/humanistic
concerns (in some cases, even by both).
• In the first place, by creating trade blocs and integration
frameworks based on mercantilistic premises, regionalism opposes the neoliberal ‘harmony of
interest’ view of the world economy in favor of national (and regional) loyalties and
frameworks.
• Conversely, the drive toward the formation of regions might be also motivated by the denial
of a single universal culture (and ideology) and the promotion of alternative or pluralistic
forms of social and political organizations other than the nation-states at the regional level.
 Regionalization and Globalization as Parallel Processes: Overlap

• When we refer to the world economy, it encompasses the trends of both regionalization—i.e., the
division of the international economy into the mega-regions of North America (or the Americas),
Europe, and East Asia—and globalization (see Wyatt-Walter 1995).
• Conversely, in the international (global) security arena, it is more difficult to assess the (co)existence
of security communities and security complexes without an overall dimension of global security,
which is less evident.
• Thus, rather than reacting to each other, a third possibility is that regionalization and globalization
might act as parallel or overlapping processes in the two issue-areas of economics and security.
• 4.11. Regionalization, Globalization and the State
• Bringing the forces of nationalism and the possible role(s) of the nation-state into the equation
creates the following possible linkages:
– (1) nation-states oppose globalization (divergent trends);
– (2) nationalism and the formation of new states are encouraged by the forces of globalization
(convergent trends);
– (3) nation-states oppose the forces of regionalization (divergent trends);
– (4) nationalism and the nation-states can be strengthened through regionalism (convergent
trends);
– (5) regionalization coexists with nationalism and with globalization (overlapping trends);
– (6) nation-states mediate between trends of regionalization and globalization (overlapping
trends); and
– (7) nation-states oppose globalization through regionalization (divergent trends).
 Nation-States and Nationalism as Rival Processes of Globalization

• Processes of disintegration, fragmentation, autarky, and localization diverge from the

overall trend of globalization.
• For instance, the blossoming of statehood may be a response to the homogenizing forces
of globalization (Holsti 1996a, 22).
• The persistence or resurgence of nationalism can be regarded as a response to the
alienating forces of the global market, by relocating or bolstering legitimacy and loyalties
at the national or even sub-national levels, in direct contradiction to the transnational or
supranational logic of economic globalization.
• Globalization as a Force of Nationalism and the Formation of New States
• Through a process of technological dissemination, globalization might actually promote
nationalism and the formation of new states.
• Hence, globalization and nationalism might converge, through a new (global) revolution of
‘rising expectations,’ which encourages states to cope with and to manage the forces of
globalization.
• Here lies an interesting paradox: Although forces of globalization seem to undermine state
sovereignty, technological changes might also improve the material conditions for the
enhancement or resurgence of nationalistic trends.
• Thus, globalization creates new strategies and roles for the nation-state (Drezner 1998, 210
and 218).
 Cont…
• Nation-States as Rival Forces of Regionalization
• Nation-states might oppose forces of regionalization that attempt to transcend the power
(and authority) of the state in a supranational direction by setting limits and constraints to
the development of a regional identity and supranational institutions.
• Thus, states will regard regional and sub-regional integration frameworks through the
prism of international organizations with a limited mandate in terms of intervention,
domestic jurisdiction, and the exercise of sovereignty.
• Regionalism as a Force of Nationalism and the Nation-States
• As mentioned above, regionalization in a given region might result from mercantilistic or
nationalistic tendencies of the member-states that see frameworks of regional integration
as a means to pool and increase their national power resources.
• In this sense, the logic of the ‘new regionalism’ is not very different from that of the ‘old’
security alliances.
• In both cases, the goal is to guarantee the bloc (region) members greater security in their
international relations in a context of increasing vulnerability of either the world economy
or global security (Axline 1996, 199).
 Cont…
• Coexistence between Regionalism, Nationalism and Globalization
• In this case we have neither convergence nor divergence but rather coexistence—the
three processes are taking place simultaneously.
• Thus, there might be parallel processes of globalization and continuing trends of
fragmentation and disintegration.
• Historically, political fragmentation, often manifested by the quest for national self-
determination and the creation of new states, has been a trend with as much
significance as the (parallel) forces of economic globalization (Holsti 1996a, 21–22).
• In this perspective the effects of globalization upon regionalization and especially on
the nation-state are rather indeterminate: “the structural logic of globalization and
the recent history of the global economy can be read as providing rationales for‘high
stateness’ as well as ‘low stateness” (Evans 1997, 64).
• Whether processes of globalization might undermine the role and actions of the
nation-state remains to be seen and should be examined in particular regional
contexts.
• Nation-States as Mediators between Regionalism and Globalization
• States are active players in the world arena, and their policies are probably the single
most important determinant of the scope and direction of both regionalization and
globalization (see Holm and Sorensen 1995, 7).
• The stronger the states, the more capable they are in coping with the intricacies of
 Nation-States Opposing Globalization through
Regionalism
• Nationalism and globalization are linked dialectically.
• Globalization does not imply necessarily the erosion of the nation-state’s
authority but rather a needed change in state strategies and redirection of
state energies.
• Conversely, state strategies and state actions can determine the future
directions of globalization.
• One possible option open for states to cope with globalization is by enhancing
processes of regionalization,
• such as the creation of free trade areas that recreate a double (and
contradictory) logic of economic relations: liberal at the intraregional level but
protectionist/mercantilist toward other rival regions or ‘blocs.’
 Summary
• This chapter dealt with the concept and practice of regionalism, Globalization and its impact on
the nature, role and constituency of the modern state.
• In so doing, the various conceptual definitions of region, regionalism and regionalization are
discussed.
• EU, AU and ASEAN are briefly discussed as examples of regionalism in Europe, Africa and Asia.
• Also, globalization, its evolution, impact, actors and aspects are discussed in a way it elucidates
the globalization as a complex multidimensional phenomenon affecting states and societies of the
post-modern world differently.
• Accordingly, Ethiopia and globalization is briefly discussed as show case of how differently
countries of the south are affected by the advent of globalization and its underbelly phenomenon,
globalization.
• Finally, the chapter wraps up by discussing the complex interaction among the regionalization
globalization-the state triad.
• To make the discussion lighter, the interaction is presented in three dyads: regionalization-
globalization, globalization-state, &regionalization-state.
• The interaction reveals that there is a complex dynamic involved based on how international
economic issues and regional security issues play out.
• Mainly it involves element of convergence, divergence and overlap.
• Finally, the impact of regionalization and globalization on state sovereignty is detailed exposing
how it works for and against the idea of sovereignty.