International Political Economy

International Political Economy

In recent years the presence of a global economy has become more apparent. Financial institutions throughout the world are now connected through a vast computerized network. As a result of this global economy issues associated with the international political economy has become an increasingly important issue. The purpose of this discussion is to explore the manner in which the three conceptions of the international political economy (Realism, Liberalism, Marxism) differ. The research will also focus on how the advocates of each assess the phenomenon of global integration. Finally the discussion will investigate the merits and the dangers of hegemonic stability in international trade? The discussion will begin with a description of international political economy.

International Political Economy

Political economy is defined as the "theory or study of the role of public policy in influencing the economic and social welfare of a political unit ("Political Economy")."

In a broader sense international political economy encompasses public policy in influencing the economy on a global scale. As it pertains to international political economy there are three primary theories. These theories are realism, liberalism, and Marxism.

Realism

According to a journal article found in the Cambridge Journal of Economics Realism is not a new economic theory. However in recent years the idea of realism within the context of international political economy has reemerged. There are two primary schools of realism as it pertains to international political economy. These two schools are scientific realism and critical realism.

The scientific realism theory of international political economy asserts that in order for economic study to be logical it must be based on economic realities as opposed to more abstract reasoning. In addition realism emphasizes the need to understand and know the truth based on objective measures independent of science (Fabienne, 2001).

On the other hand, critical realism argues that there is a specific ontological foundation for international political economics. As such this foundation must be taken into consideration (Fabienne, 2001). When the foundation is taken into consideration outcomes are consistently successful. According to the author this form of economic realism is a self-contained concept but lends itself to the ideas presented by Roy Bhaskar (Fabienne, 2001).

In recent years global integration has become a major issue in the realm of the international political economy. Nations, particularly the worlds leading nations, are not only concerned with their on well being but also in the plight of the entire global economy. Although there has always existed some amount of global integration, this integration has become more prevalent in recent years because of advances in technology and various methods of communication.

According to a speech made by Chairman Ben S. Bernanke technological advances continue to play an important role in facilitating global integration. For example, dramatic improvements in supply-chain management, made possible by advances in communication and computer technologies, have significantly reduced the costs of coordinating production among globally distributed suppliers (Bernanke, 2001)."

Indeed technology such as the internet, has provided businesses, financial institutions, and individuals with the ability to connect, communicate, share ideas, create business relationships, buy and sell goods and offer a plethora of services. In many ways global integration is an extremely positive situation because it improves economies throughout the world which improves living conditions. However, there are also some serious problems associated with global integration.

One of the primary problems existing today as it pertains to global integration is the securing of information and goods as they are transported from country to country. As it pertains to securing information governments throughout the world have to ensure that they have adapted laws and standards that protect the information of customers, specifically as it pertains to internet transactions. As it pertains to goods nations have to ensure that both imports and exports are safe for consumers. In recent years there have been several occurrences of Chinese companies that have exported products that were extremely dangerous including lead paint. As the world becomes more integrated nations have to learn to work together to ensure that people from all nations are safe.

As it pertains to global integration, proponents of the realism school of thought would seek to focus on the actual or "real" issues occurring as it pertains to global integration. This would include practical concerns such as logistics, the security of various economic and business mechanisms, the influence of certain industries on the economy and the overall health of the global economy. A realist approach to global integration would have as a foundation the actual factors that contribute to global integration. Once these factors and the issues that effect them have been established, analysts could produce successful forecasts of future economic events.

Liberalism

As it pertains to liberalism and the international political economy, a book entitled Classical Liberalism and International Economic Order: Studies in Theory and Intellectual History gives a thorough overview of liberalism. The book explains that there are various approaches to the theory of liberalism. However he asserts that all liberalists theory have in common the freedom of the individual and that capacity and right of individuals to make their own choices. This is in juxtapose to socialism or communism. However, the manner in which these theories are applied or the underlining currents of liberalism theory can differ greatly.

According to the author there are four man approaches to the theory of liberalism. The first approach asserts that individual freedom is endowed by the creator -- it is a gift from God. This aspect of liberalism is built upon the foundation of the law of human nature. It is from this vantage point that those who believe in this aspect of liberalism build their argument through logical reasoning. Philosophers such as Thomas Hobbes and John Locke would likely embrace this school of thought.

The Second school of thought as it pertains to liberalism asserts that liberalism is a theory that is appropriate not only for the present but for the future as well. The premise for this aspect of liberalism is the idea that liberalism is consistent with the "laws of history and progress. This approach to liberalism is consistent with the philosophical thinking of John Stuart Mill.

The third approach to liberalism embraces the idea of the social contract made popular by John Locke. The Philosophy of the social contract asserts that political and moral obligations of citizens are dependent upon a social contract. That is if an individual conducts himself in a manner that is outside of the parameters of a "social contract" that individual should be punished.

The fourth aspect of liberalism is based on the doctrine of utility. That is, this aspect of liberalism asserts that cost benefit analysis is needed in determining what mechanisms would be best for society as a whole. According the author this particular theory is the foundation for welfare economics.

Each of these aspects of liberalism have been utilized in the context of individual nations and in the broader sphere of international political economy. However, the author explains that classical liberalism is probably a more succinct and accurate way of describing liberalism as a theory of international political economy. The author goes back to one of the chief cornerstones of any theory of liberalism which is individual freedom. The author argues that within the sphere of classical liberalism individual freedom is only understood within the context of laws that place certain parameters on that freedom.

In other words classical liberalism asserts that individual freedom must be governed by certain laws that protect the individual and society as a whole. The individual still has the freedom to do as they please just as long as their decisions and actions are not outside of the established laws. The author further explains that "this latitude of action encompasses a positive aspect of individual freedom, for, acting in his own interest, or that of his family, friends or acquaintances, man discovers an inestimably vast range of present and future actions, allowing for the powerful expression of his individuality in all departments of life (Razeen, 1998, 17)."

The book explains further that the aforementioned foundation of individual freedom accompanied by boundaries can be applied to the economic environment. That is, as it pertains to economic transactions the classical liberalism belief holds that individual freedom (governed by the appropriate laws) encourages the freedom to produce and consume goods and services -- the basis of a social order comprising an extensive division of labour and market exchange. Hence the normative core of classical liberalism is the approbation of economic freedom or laissez faire -- Adam Smith's 'obvious and simple system of natural liberty' -- out of which spontaneously emerges a vast and intricate system of cooperation in exchanging goods and services and catering for a plenitude of wants (Razeen, 1998).

Additionally every preferred system is taken away and the easy system of natural liberty is established (Razeen, 1998. In this natural system all individuals who choose to conduct their affairs within the parameters of the law can freely pursue whatever interests is desired (Razeen, 1998. The individual can endeavor in whatever way he sees fit. This freedom allows individuals to compete with others and establish industries or economies.(Razeen, 1998

With this understood liberalism is different from realism because it has several presuppositions. The primary presupposition is the belief that when given the freedom and the structure the individual will make choices that will provide economic benefit not only to himself but to the entire society in which he lives. This belief is based on the idea that human beings have a natural propensity to create businesses that provide goods and services so long as they are in an environment that gives them the appropriate amount of freedom. In many ways liberalism is a more abstract theory than realism mainly because it is based on social theory as opposed to the concrete truths espoused by realism.

As it pertains to the application of liberalism within the context of global integration, proponents of liberalism are likely to encourage free market economics. That is they are likely to take an approach to global integration that emphasizes capitalism and the belied that the markets will "work themselves out." In other words they would contend that in a free market economy where individual freedom is emphasized, the best innovations, businesses and services will survive while the weaker businesses will deteriorate and there should not be a fight to "save" the businesses or industries that are weak.

This idea is based on the premise that in a free market economy on the industries (ie goods and services) that are needed are going to survive. This is because competition is prevalent and people have the freedom to choose what they want and what they do not want. As such within the context of global integration only those industries that are truly necessary will be able to succeed and in the end these are the only types of industries that really need to survive because they are needed.

Liberalism would also be concerned with the social issues that exists throughout the world. Interests in the social climate is relevant because of the aforementioned presuppositions of liberalism there can be no separation between economics and the social conditions that are present in any given society. The social condition is important because a free market economy is dependent upon a society that is relatively stable in terms of governmental oversight.. Remember liberalism emphasizes individual freedom but only within the context of established parameters. These parameters are established by government. A government must be stable if they are to develop and enforce such laws. Countries that encourage individual freedom but have unstable governments are not able to thrive economically because there is no way to support enterprises and industry. As such proponents of liberalism would focus on ensuring that the societal and government structure of nations within the global community are stable.

Marxism

The final school of thought associated with international political economy is Marxism. A chief cornerstone of Marxism is labor value theory (Prychitko). This theory asserts that "the value of a commodity can be objectively measured by the average number of labor hours required to produce that commodity (Prychitko)." In other words the value of goods is based on how much it costs to produce the goods. This particular theory is different from the prevalent economic theory which asserts that the value of a good is based on how much consumers will pay for the good (Prychitko). Marxism is also based on the principle of labor power. According to the article

Labor power is the worker's capacity to produce goods and services. Marx, using principles of classical economics, explained that the value of labor power must depend on the number of labor hours it takes society, on average, to feed, clothe, and shelter a worker so that he or she has the capacity to work. In other words, the long-run wage workers receive will depend on the number of labor hours it takes to produce a person who is fit for work (Prychitko).

Marxism is different from both realism and liberalism. It is different from realism in that it does not have the same type of scope. Marxism is based primarily on the issue of labor, whereas realism focuses on international political economy from a broader context. In addition, Marxism differs from liberalism in the way that it views the value of goods.

Within the context of liberalism the value of goods is based on how much consumers will pay for them not how much they cost to produce.

As it pertains to global integration Marxism would focus primarily on labor and perhaps reducing the costs associated with production.

Marxism is not necessary a theory that is currently popular within the context of global integration. It seems that liberalism and realism are the most prevalent theories in international political economy.

The merits and dangers of Hegemonic Stability ion International Trade

According to Milner (1998) the Hegemonic Stability Theory argued that the over- whelming dominance of one country was necessary for the existence of an open and stable world economy. Such a hegemon served to coordinate and discipline other countries so that each could feel secure enough to open its markets and avoid beggar-thy-neighbor policies (Milner, 1998,)."

This particular theory also argues that the weakening of a hegemon can lead to instability, economic closure, and the development of competing regional blocs (Milner, 1998).

On the one hand the merits of hegemonic theory in international trade is that countries that large powerful countries that are stable economically and governmentally have the know how to develop and enforce trade policies that are efficient and encourage the economic growth of smaller countries. In doing so the entire global economy grows and it better off. The danger of hegemonic stability is that one or two nations are in control of a vast amount of wealth and if these nations have financial trouble or any other type of instability, smaller nations may suffer greatly.