Realism, Liberalism, and Marxism in International Political Economy

Introduction to 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, issues associated with international political economy have become increasingly important. International political economy is defined in its narrower sense as the "theory or study of the role of public policy in influencing the economic and social welfare of a political unit." In a broader sense, it encompasses public policy as it influences the economy on a global scale.

There are three primary theories within international political economy: realism, liberalism, and Marxism. This paper explores the manner in which these three conceptions differ, assesses how advocates of each approach the phenomenon of global integration, and investigates the merits and dangers of hegemonic stability in international trade.

Realism and Global Integration

According to a journal article 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 they pertain to international political economy: scientific realism and critical realism.

The scientific realism theory 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, scientific realism emphasizes the need to understand and know the truth based on objective measures independent of interpretive frameworks (Fabienne, 2001).

Critical realism, on the other hand, argues that there is a specific ontological foundation for international political economics, and that this foundation must be taken into consideration (Fabienne, 2001). When the foundation is properly accounted for, outcomes are consistently more successful. 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 international political economy. Nations, particularly the world's leading nations, are concerned not only with their own well-being but also with the plight of the entire global economy. Although some degree of global integration has always existed, it has become more prevalent in recent years because of advances in technology and communication.

According to a speech by Federal Reserve Chairman Ben S. Bernanke, technological advances continue to play an important role in facilitating global integration: "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, 2006).

Technology such as the internet has provided businesses, financial institutions, and individuals with the ability to connect, communicate, share ideas, form business relationships, and buy and sell goods and services across borders. In many ways, global integration is an extremely positive development because it improves economies throughout the world and thereby improves living conditions. However, there are also serious problems associated with it.

One of the primary problems is the security of information and goods as they are transported from country to country. Governments must ensure that they have enacted laws and standards that protect consumer information, particularly as it pertains to internet transactions. Nations must also ensure that imports and exports are safe for consumers. In recent years there have been several instances of companies exporting products that were dangerously defective, including goods containing lead paint. As the world becomes more integrated, nations must learn to work together to ensure the safety of people across all nations.

Proponents of the realist school of thought would focus on the actual, concrete issues involved in global integration. This would include practical concerns such as logistics, the security of 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 be grounded in the actual factors that contribute to it, and once those factors and their associated challenges have been established, analysts could produce more reliable forecasts of future economic events.

Liberalism and Free-Market Economics

As it pertains to liberalism and international political economy, Razeen Sally's Classical Liberalism and International Economic Order: Studies in Theory and Intellectual History offers a thorough overview. The work explains that there are various approaches to the theory of liberalism, but that all liberal theories share in common the freedom of the individual and the capacity and right of individuals to make their own choices — in contrast to socialism or communism. The manner in which these approaches are applied, and their underlying currents, can nevertheless differ greatly.

According to the author, there are four main approaches to the theory of liberalism. The first asserts that individual freedom is endowed by the creator — it is a gift from God. This aspect of liberalism is built upon the law of human nature, and those who hold it construct their arguments through natural law reasoning. Philosophers such as Thomas Hobbes and John Locke would likely embrace this school of thought.

The second school of thought asserts that liberalism is a theory appropriate not only for the present but for the future as well. Its premise is that liberalism is consistent with the "laws of history and progress." This approach aligns with the philosophical thinking of John Stuart Mill.

The third approach embraces the idea of the social contract, made popular by John Locke. The philosophy of the social contract asserts that the political and moral obligations of citizens are dependent upon a social agreement: if an individual acts outside the parameters of that "social contract," that individual should be held accountable.

The fourth aspect of liberalism is based on the doctrine of utility — that cost-benefit analysis is needed to determine what mechanisms are best for society as a whole. According to the author, this particular theory forms the foundation for welfare economics.

Each of these aspects of liberalism has 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 perhaps a more succinct and accurate way of describing liberalism as a theory of international political economy. Returning to one of the chief cornerstones of any liberal theory — individual freedom — the author argues that within classical liberalism, individual freedom is understood only within the context of laws that place certain parameters on that freedom.

In other words, classical liberalism holds that individual freedom must be governed by certain laws that protect both the individual and society as a whole. The individual retains the freedom to act as they please, provided their decisions and actions remain within established legal boundaries. As Razeen explains: "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, p. 17).

This foundation of individual freedom accompanied by boundaries can be applied directly to the economic environment. Within classical liberalism, individual freedom — governed by appropriate laws — encourages the freedom to produce and consume goods and services, forming the basis of a social order comprising an extensive division of labor and market exchange. As Razeen writes, "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).

In this natural system, all individuals who choose to conduct their affairs within the parameters of the law can freely pursue whatever interests they desire and compete with others to establish industries and enterprises (Razeen, 1998).

Liberalism differs from realism in that it rests on several presuppositions. The primary presupposition is the belief that when given freedom within an appropriate structure, individuals will make choices that provide economic benefit not only to themselves but to the entire society in which they live. This belief is grounded in the idea that human beings have a natural propensity to create businesses that provide goods and services, so long as they exist in an environment that affords them sufficient freedom. In many ways, liberalism is a more abstract theory than realism, since it is based on social theory rather than the concrete economic realities emphasized by realism.

As it pertains to global integration, proponents of liberalism are likely to encourage free-market economics. They would take an approach to global integration that emphasizes capitalism and the belief that markets will "work themselves out." In a free-market economy where individual freedom is emphasized, they would contend, the best innovations, businesses, and services will survive while weaker enterprises deteriorate — and there is no need to "save" industries that cannot compete.

This idea is premised on the notion that in a free-market economy only those goods and services that are genuinely needed will survive, because competition is prevalent and individuals have the freedom to choose. Within the context of global integration, therefore, only those industries that are truly necessary will ultimately succeed — and these are precisely the industries worth sustaining.

Liberalism would also be attentive to the social issues that exist throughout the world, because its presuppositions allow no clean separation between economics and the social conditions present in any given society. A free-market economy depends upon a society that is relatively stable in terms of governmental oversight. Liberalism emphasizes individual freedom, but only within the context of established parameters set by government. A government must be stable if it is to develop and enforce such laws. Countries that encourage individual freedom but maintain unstable governments are unable to thrive economically, because there is no institutional foundation to support enterprise and industry. Proponents of liberalism would therefore focus on ensuring that the societal and governmental structures of nations within the global community are stable.

Conclusion

The research found that realism has as a foundation facts concerning the state of the international political economy. This theory asserts that in order for economic predictions to be accurate, they must be based on actual economic conditions and not on abstract beliefs about economic or political conditions. As it pertains to liberalism, the research concluded that this theory is grounded in the premise of individual freedom governed by laws and parameters, and insists that such freedom encourages industry and the development of enterprises. This theory is rooted in the broader philosophy of social contract theory. Finally, the research found that Marxism, in the context of political economy, holds that the value assigned to goods is based on how much it costs to produce them.

The research further found that these theories differ in their approach based on the philosophical foundation of each. Realism is grounded in economic actualities, whereas liberalism rests on presuppositions about human nature and social contract theory. Marxism departs from both by centering analysis on the labor process. These differences are most evident in the philosophies upon which each theory is built.

As it relates to global integration, proponents of each theory would approach the phenomenon differently. The realist approach would examine the practical concerns associated with global integration — such as security and logistics — and investigate the industries that most significantly affect global economic activity. The liberal approach, by contrast, might focus on the socio-political conditions facing certain regions of the world, seeking to stabilize them on the premise that individual freedom combined with appropriate laws catalyzes economic success. The Marxist approach, in turn, would emphasize labor and the costs of production as the primary concerns within global integration.

As it pertained to hegemonic stability in international trade, the research confirms that the theory asserts the dominance of large countries in global economic affairs is necessary to provide the guidance and security that smaller countries need in order to compete globally. The hegemon is beneficial in that it enables smaller economies to participate in international trade; it is disadvantageous in that smaller economies often become dependent on the larger countries, leaving them vulnerable when those dominant economies falter.

Bernanke, Ben S. "Global Economic Integration: What's New and What's Not?" Speech at the Federal Reserve Bank of Kansas City's Thirtieth Annual Economic Symposium, Jackson Hole, Wyoming, August 25, 2006.

Fabienne, Peter. "Rhetoric vs. Realism in Economic Methodology: A Critical Assessment of Recent Contributions." Cambridge Journal of Economics 25 (2001): 571–589.

Milner, Helen V. "International Political Economy: Beyond Hegemonic Stability." Foreign Policy, No. 110, Special Edition: Frontiers of Knowledge (Spring 1998): 112–123.

Prychitko, David L. "Marxism." The Concise Encyclopedia of Economics. Library of Economics and Liberty.

Razeen, Sally. Classical Liberalism and International Economic Order: Studies in Theory and Intellectual History. London: Routledge, 1998.

"Political Economy." Merriam-Webster Dictionary.