International Political Economy (IPE) has emerged as a significant academic discipline of Political Sciences that analyzes the relationship between economics and international relations. The discipline of International Political Economy focuses on critically analyzing how politics and economic policies affect international relations. Historical events provide evidence for determining the relationship between economics and politics that influences global policies and practices. They provide a broader understanding of international policies and reforms development based on economic and political issues. The current document analyzes the historical evolution of the modern international political economy critically to develop an in-depth understanding of the importance of International Political Economy (IPE). It further highlights the limitations of different dominant theoretical perspectives.
International Political Economy plays a significant role in forming an understanding of the political, social, economic, and cultural issues that collectively impact international policies and practices. Recent studies suggest that International Political Economy allows evaluating “the political actions of nation-states that affect international trade and monetary flow which in turn affect the environment in which nation-states make political choices” (Cohen 102). In other words, it could be said that International Political Economy allows individuals to understand key issues prevailing in international trade. It explains the reasons for one country to have flexible trade policies for a particular country and at the same time, stricter policies and tariffs for another country.
Tariff barriers are seen as a way of protecting domestic producers. The researchers claimed that tariff barriers are not just to protect the interests of local businesses, but they also involve complex political issues (Cohen 145). After the event of 9/11, a significant change in international economic policies was observed. It is considered a major issue in economic globalization that has restricted financial openness. One of the prominent examples that could be highlighted is the international involvement in Iraq and Afghanistan for many years that has affected relations between different countries. Several current political, economic, and social issues affect the openness and integration of the world economy. These issues emerged because of the conflict of interests and resource constraints that have altogether affected existing political and economic objectives of various countries.
International Political Economy can be traced back to the world oil crisis in the year 1973. It was claimed that the oil crisis was mainly due to the excessive emphasis of the United States on political and diplomatic history. Sir James Steurt (1761) put forward the first concept of International Political Economy in his book “An Inquiry into the Principles of Political Economy.” The actual term was introduced when the world oil crisis in 1973 affected the United States after the breakdown of the Bretton Wood System (Cohen 194).
International Political Economy has become one of the rapidly growing fields of social sciences. It allows investigating critical events and developing an understanding of international trade issues. The theoretical development of International Political Economy provides an overview of the historical development.
One of the prominent philosophies that were suggested about International Political Economy is realism. It is the oldest and most important philosophy in history from the perspective of International Political Economy. The foundation of this theoretical approach is based on the idea that the state is the main institution that creates wealth and power for ensuring the national security of the country. The state may exercise its military, democratic, social, economic, or cultural means to ensure sustainability (Cohen 32).
However, ‘national security’ is a broader term. It covers various threats and issues that this theory does not support. It could include threats from a foreign army, corporations, or products that the theory neglects. Therefore, it has been argued that the state intervention could only promote economic development, and it does not have control of external factors, including political pressures that the country faces. It is the limitation of this approach as it only focuses on International Political Economy based on national interest.
Adam Smith proposed elements of liberalism related to International Political Economy. Liberalism is based on the rationale that promotes an open market and free trade. The approach mainly deals with the economic system and markets, which is relevant to the study of the economy. However, International Political Economy focuses on individual country’s interests. The theory focuses on the idea that markets should be liberal, and the state intervention should be eliminated. It says that markets that are free or have lesser controls, regulations, and distortions caused by the government can operate effectively. It is because markets can identify the demand and supply of scarce resources, and they can take initiatives to close this gap and let the economy flourish eventually (Cohen 35). Liberals believe that if markets are given freedom, they can deal with conflicts and international affairs effectively. The liberal theory underwent several developmental phases. The major contributors to the theory were Adam Smith, David Ricardo, Keynes, and Friedrich Hayeks.
The Hegemonic Stability Theory
The Hegemonic Stability Theory could be identified as a variation of the liberal idea, and it is inclined towards Keynesian. The foundation of the theory is on the concept that the market is a social and economic organization. If a nation aims to attain economic sustainability and growth, then it is essential for the country to assure that its market progresses freely (Cohen 67). However, the theory also states that the government should control the performance of the market to attain sustainable equilibrium. It could be observed that the Hegemonic Theory supports the idea that state intervention is important to regulate the performance of the market to attain sustainable international markets (Cohen 67). The theory is one of the prominent theories of International Political Economy because it made a significant contribution during the Cold War. Also, the theory has its emphasis on the drivers and behaviors of a hegemonic state. The theory highlights that it is essential for a hegemonic state to stabilize demand and supply by controlling and measuring the performance of the market. It implies that if hegemony breaks down, then the international system will also break down. Therefore, the theory emphasizes on hegemonic stability to maintain effective hegemonic policies. In the modern global system, Hegemonic Stability is viewed as a cycle of long-term International Political Economy relationships that repeat themselves (Cohen 68).
The theory of Structuralism, which is also known as the Modern World System Theory, is based on Marxist’s ideology that focuses on IPE issues based on their occurrence (Guzzini 84). It highlights various factors, including the economic status, interests, and society form and structure an economy. Structuralism is based on the idea that well aware public can keep checks on the market and its participants. The theory is based on certain characteristics, including nation-states that are mutually independent, a single division of labor, nations dependent on mutual exchange, and the sale of commodities to generate profit. The Modern World-System Theory provides an in-depth understanding of the class relations and patterns of exploitation.
Based on the above information, it could be stated that the development of the modern International Political Economy was based on several historical events. However, the theories presented in this paper differ significantly from each other on the basis of their ideas and concepts. I believe that the theory of Mercantilism is the most debatable and powerful theory. It is because the theory focuses on the state, power, and security. Also, it highlights that the state is responsible for political stability and, therefore, the economic condition of a nation is highly affected by politics. Therefore, it is the responsibility of the state to make effective use of the nation’s wealth and power. It can help in achieving good use of resources and fair distribution of wealth in the country’s population. Also, it can increase the accountability of the government that undertakes these decisions. It also argues that free trade is a myth that cannot be attained in the real world. It is because various factors influence trade between countries and limit free trade. On the contrary, the Modern World Theory, which focuses on achieving hegemonic stability by promoting free market, seems irrelevant to the current international political scenario. In recent times, the United States’ economic and political policies are seen as supporting selfish hegemony.
Cohen, Benjamin J. International Political Economy: An Intellectual History. London: Princeton University Press, 2009. Print.
Guzzini, Stefano. Realism in International Relations and International Political Economy. New York: Routledge, 2013. Print.