Theories of IPE and global integration

Following WWII and throughout much of the Cold War, international relations were largely viewed through the security lens. Scholars continued to neglect the impact of growing economic integration coupled with the increasing role that non-state actors played in international relations (Keohane & Nye, 2004, p. 503). The end of cold war and the collapse of the Soviet Union ushered the beginning of the era of globalization and heightened global interdependence (Spero & Hart, p. 92). These dramatic political changes had profound impact on the international economic system, which led to the shift in the type of governance from collective management by U.S., Soviet Union, and Japan, into more global economic governance that included more new state actors like China, India and Brazil.

However, even with the evolvement of International Political Economy (IPE); Realism, liberalism and Marxism remained three dominant ideologies that form the basis of its current theories, which include: Mercantilist Theory, Hegemonic Stability Theory, Regime Theory, Complex Interdependence, Neo-Liberal Development, Imperialist, and Dependency theory (Gilpin, 2004, p. 419). Economic nationalism, liberalism, and Marxism are mutually exclusive approaches to IPE. They are composed of “different assumptions and reach conflicting conclusions regarding the nature and consequences of a world market economy” (p. 431). Political realism in international relations formed the basis for economic nationalism or mercantilism (p. 432), while Marxism became the precursor for Lenin’s Imperialism, which converted Marxism, from “essentially a theory of domestic economy to a theory of international political relations” (pp. 426-429)

Although Lenin’s Marxism and political realism emphasize the primacy of the state and national security, Marxists believe that the state is “ultimately the servant of the dominant economic class”, while realists believe that the state is an “autonomous entity pursuing national interests that cannot be reduced to particularistic interests of any class” (Gilpin, 2004, p. 432). While political realism favors open competing markets, and liberal governments pursue policies favorable to industrial development, economic nationalism sees relative gain by the state is more important than mutual gains between the state and other states (p. 425)

Marxists believe that economics drives politics, and that political struggle arises from the conflict between different classes in society over the distribution of wealth (Gilpin, 2004, p. 420). Marxism viewed market economy as capitalism (p. 426), which is characterized by private ownership of the means of production (p. 427) driven by the strife for profits and capital accumulation in a competitive market economy. Marxism was built on the rejection of capitalist or liberal economy. It denied the ability of a capitalist economy to balance itself based on the supply and demand laws.

Moreover, Marxists criticized capitalism for its tendency to accumulate capitals by seeking profits without regards to the supply and demand laws, which will eventually slow down investments since returns will diminish (pp. 427-428). Therefore, Marxists argued that capitalism will eventually cause its own destruction through capital accumulation and the decline in the rate of return (profit), something that liberal economists themselves observed and feared (p. 439).

Furthermore, Marxism predicted that wage disparity among domestic classes in once society, and wealth inequality among states, in addition to the fierce competition by capitalist states over markets and capital outlets will cause a revolution replacing capitalism, where wealth trickles down with socialist economic system, where wealth is distributed. However, revolution based on sole economics reasons to restore peace and harmony never occurred (Mansour, MDY discussion post). Marx’s failed prediction of a violent revolution in Western Europe by the masses which would reject the capitalism in favor of socialism and later communism created a dilemma for the advocates of Marxism. Gramscianism attributed the failure to the hegemony of the political, cultural and legal superstructure over the socioeconomic base, which takes place in the form of civil institutions allowing individuals to express themselves and enjoy some autonomy away from the state, and can derail or delay an impending revolution (Cox, 2004, pp. 751-754). While some argue that Soviet-style communism was a deviation from the core beliefs of Marx and that’s why it failed (Economist, 2002, p. 3), others describe this deviation as “reshaping” by these countries like China and Soviet Union to serve their own national interests (Gilpin, 2004, p. 426)

In order to save Marxism and make it relevant; Lenin added political dimension to Marx’s ideology, which then became theory in international relations known as imperialism (Gilpin, 2004, pp. 428-429). Lenin’s added law of unequal development stipulated that capitalism does grow international economy but does not develop evenly. Therefore, he argued that revolution will occur because of political tension either among capitalist states competing for colonies to create economic dependency, or between capitalist states and poor countries fueled by inequality and exploitations (p. 430). Therefore, Marxists believe that since trade and economic interdependence is asymmetric then it can only cause conflict and insecurity. National economic priorities are then supported over economic integration (p. 443)

Contrary to Marxists’ predictions, capitalism was able to reform itself in the form of welfare capitalism which addressed several of Marx’s rightful criticisms. However, Lenin’s law of uneven development remains in force, which continues to raise concerns about the ability of welfare capitalism to survive in none-welfare internationalist capitalist world (Gilpin, 2004, p. 445).

According to Gilpin (2004), liberal economy is committed to the open market and the price mechanism (p 421). Its basic premise is that the open market should be governed by rational and maximizing laws that are impersonal and politically neutral; therefore, economics is separate from politics (pp. 422 & 423). In a liberal economy there is no connection between economic growth and political development, although they can be influenced by each other (p. 423) Liberalism entrusted the market to correct and balance itself based on the supply and demand (P. 422). However, liberalism did not rule out government’s intervention to “police and maintain the market system” (p. 421) and impose regulations in case of market failure. However, the fundamental premise of liberalism is that the individual consumer, firm, or household is the basis of society.

Martin Wolf (2003) argued that the market economy rests on valuable moral qualities, which create opportunities for economic prosperity and free and democratic societies. However, opponents consider the social inequality and the self-interest maximizing behavior created and condoned by capitalism the center of their criticism of the market economy.

Wolf saw nothing surprising in self-interest based economic transactions, which he considered an innate human behavior (p. 2). He added that the vast opportunities created by market economy allow people to engage in non-wealth motivated activities like charities and NGOs. Moreover, in a free prosperous society; elected governments can interfere on the behalf of the people to impose regulations against practices by individuals or companies which don’t adhere to the rules of competition or violates environmental standards (p. 4)

Moreover, as Wolf contended, market economy is the foundation for democracy (Wolf, 2003, p. 3), and that all democracies have market economies, although not all market economies are quite yet democratic. John Ikenberry (1999) explained how open markets become a “kind of democratic solvent, dissolving the political supports of autocratic and authoritarian governments”. Ikenberry quoted sociologist Seymour Martin Lipset in 1950s who argued that economic development tend to make education more accessible, which in turn increases the demands for political participation and openness (pp. 3 & 4)

Furthermore, open markets seem to create economic prosperity based on competition among individual businesses, companies and governments to seek self-interest. Naturally, the benefits of competition are not, and should not be, distributed equally. Therefore, knowing the several benefits of the market system; inequality cannot be considered immoral but rather a motivation for better performance and more efficiency (Wolf, p. 3).

Liberal theorists, like Joseph Nye and Robert Keohane (2004), offered a theory of Complex Interdependence as an alternative to explain cooperation and state behavior. They tried to blend the wisdom in both realism and idealism by developing a coherent theoretical framework for the political analysis of interdependence (p. 504). Therefore, liberals argue that global integration and economic interdependence based on mutual benefits of trade will foster peaceful relations among nations, and consequently a liberal international economy will have a moderating influence on international politics (Gilpin, 2004, pp. 423-424).

However, one major criticism to liberalism is its full reliance on the market to correct and balance itself and its basic belief in the rationality of the market in absence of often needed government regulations that ensure market stability. Robert Gilpin described this as unrealistic approach by liberalism (p. 433). Judging liberalism by its results; the current global economic recession is a vivid example of the downsides of unregulated liberal economies.

Economic nationalism’s main objective is industrialization, through which states maintain its autonomy and strength especially its military power. Being based on political realism, economic nationalism believes that the tendency of state to compete among each other for economic resources is inherent in the international system (Gilpin, 2004, p. 425). Because of this competition, economic nationalists consider relative gain to be more important than mutual gain. Therefore, primacy of the state, its national security and military power remain the central idea of economic nationalism (p. 424). According to Gilpin, 2004, political realists believe that the process of uneven growth “generates conflict between rising and declining states as they seek to improve or maintain their relative position in the international political hierarchy” (p. 441). He added that if this conflict is not resolved, it can lead to “hegemonic war”, to decide which state will be dominant in the international hierarchy.

Similar to Marxists, economic nationalism considers global interdependence is asymmetrical, and it constitutes a source of continuous conflicts and insecurity (Gilpin, 2004, p. 426). Nationalist writers emphasize on national self-sufficiency and geographical location rather than economic interdependence, despite of deepening interconnectedness and complexities of global economy. Even among capitalist societies, the advent of national welfare states has accentuated the economic conflicts between domestic and international policies (p. 446).Furthermore, Gilpin warned the future of the open market economy is threatened unless the conflict between domestic autonomy and international norms is resolved. He argued that cooperation among capitalist states and coordination of their domestic policies is required to ensure the integrity of the market and avoid an imminent break down as Lenin predicted (p. 448).

Gilpin argued that although Marxism’s and Realism’s approaches to International Political Economy are evolving national identities and domestic priorities, they differ in their assessment of the motivation for economic dynamics within society and internationally. Marxists believe that classes’ struggle will bring harmony and peace following the inevitable revolution against capitalism, whereas Realists believe that the anarchy of the international system and the self-centered nature of human beings make such struggle unlikely to happen (p. 432). Whether or not economic interdependence leads to political conflicts or harmony remains continuous issue among Marxists, liberals and nationalists (Gilpin, 2004, p. 442)

Among the factors that determine the outcome economic interdependence among competing welfare capitalist states is the existence of absence of a hegemonic liberal power that can establish and manage the international trading system (Gilpin, 2004, p. 443). Robert Ethane in 2004 argued that cooperation is not antithetical of hegemony; on the contrary, hegemony depends on certain kind of asymmetrical cooperation, which successful hegemon support and maintain. (Keohane, p. 489). As Robert Gilpin in 2004 indicated, when the domination of this power waned and they are challenged by rising powers, trade conflict increases (p. 443).

Therefore, the theory of hegemony stability stipulated that for a liberal economy to develop and stabilize it requires a hegemonic power, however, its mere existence is not dependant on the presence of absence of this power (Gilpin, 2004, p. 477). Gilpin argued that for a hegemon to be able to lead and manage global economy, its power must be considered legitimate by the rest of the world (p. 478). The hegemon must also be able to impose order and prevent cheating, free riding and exploitation by some states over others, enforce the rules of liberal economy, and encourage others to share the costs of maintaining the system (p. 479)

Meanwhile, the same dominant power that hegemon relies on to induce order in the global economy can also be exploited to manipulate the system and interrupt international trade and finance. Moreover, trade conflicts could arise when a declining hegemon engages in protectionist behavior through subsidies and other trade barriers to shield domestic market from global competition, according to Gilpin (p. 443). He also added that declining rate of economic growth, as it is the case of the U.S., intensifies international trade competition. Another reason for developed countries to use protectionist measures and subsidies is to undermine other countries’ comparative advantage in one particular sector. For example, many developing countries, especially in the Sub-Saharan Africa, have comparative advantage over the U.S and other developed countries in the agricultural products mainly because of the abundant natural resources and cheap labor. Therefore, the U.S. farm subsidies and agricultural trade barriers by rich countries remain one most complicated issues undermining global trade.

Fareed Zakaria, 2008, explains eloquently that the real challenge for the future of American power is not its own decline but rather the rise of the rest. Zakaria predicts the power of the U.S. will ultimately be balanced by new rising nations and that the U.S. will face a choice of whether it stabilizes the world order by accepting a world with a diversity of voices and viewpoints. Or it can watch the world it helped to build over last 60 years to be slowly torn apart by greater nationalism, diffusion, and disintegration. Unlike the downfall of the British superpower trigged by its economic failures, the largest challenges facing the U.S. and seem to be undermining its hegemony are political rather than economic. Zakaria explains that although the economic problems in the U.S. today are real, but different policies can quickly put the economy back on track, however, the U.S. political system is dysfunctional and unable to make simple reforms that can secure the country’s future. He argues that Washington seems largely unaware of the new world rising around it and shows few signs of being able to reorient its policies for the new age.

To conclude, Realism, liberalism and Marxism’s approach to international political economy is based on different assumptions and reach different conclusions. Political realism formed the basis of economic nationalism or mercantilism whereas Marxism became the precursor of Lenin’s imperialism and dependency theory. Liberals believe economy should be free from the influence and interests of politics, while Lenin’s Marxism and political realism emphasize the primacy of the state and national security and. Marxists believe that economics drives politics. Marx’s failed prediction of a violent revolution in Western Europe by the masses which would reject the capitalism in favor of socialism and later communism created a dilemma for the advocates of Marxism. Contrary to Marxists’ predictions, capitalism was able to reform itself in the form of welfare capitalism which addressed several of Marx’s rightful criticisms. However, Lenin’s law of uneven development remains in force, which continues to raise concerns about the ability of welfare capitalism to survive in none-welfare internationalist capitalist world. However, the future of the open market economy is threatened unless the conflict between domestic autonomy and international norms is resolved. He argued that cooperation among capitalist states and coordination of their domestic policies is required to ensure the integrity of the market and avoid an imminent break down as Lenin predicted. Whether or not economic interdependence leads to political conflicts or harmony remains continuous issue among Marxists, liberals and nationalists. Among the factors that determine the outcome economic interdependence among competing welfare capitalist states is the existence of absence of a hegemonic liberal power that can establish and manage the international trading system. Meanwhile, the same dominant power that hegemon relies on to induce order in the global economy can also be exploited to manipulate the system and interrupt international trade and finance.

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