Since the 1970s, the study of International Political Economy has increased due to a renewed view of the relationship between politics and economics (Dannehl). This topic holds promise of a better understanding of the international system. Traditional theories in politics and economics have limitations; IPE attempts to resolve these weaknesses.
Strict international political theory inhibits a clear view of the role economics play in the international system. Here the primary actor is “the state”, which is “associated with the political pursuit of power.” For the state, the preservation of sovereignty is paramount. States operate on both the domestic and international levels.
Economic theory, in turn, does not provide enough information on the role that politics plays in the international system. The main interest in economics is “the market,” which is concerned with “the economic pursuit of wealth.” The market contradicts the state, in that; it is linked to the freedom of movement of economic resources across state borders.
Neither economic theory nor political theory is equipped to explain the international system. Separately, each field provides valid data for actions within the international system; however, neither can supply a comprehensive response for the motivation of an international actor. Politics disregards the use of finance as a source of power, while economics ignores the use of political agendas to proliferate wealth.
The conscious disregard for the linkages between economics and politics, and the decision to study them as separable fields, is due to several factors. First, the liberal theory maintains that politics and economics are two distinct fields of study and that the state should play “a minimal role in the operation of the market” (Cohn 2015, p. 9). Today, universities continue this trend by locating the various fields of social sciences in different departments. Therefore, this misleading development is socializing students and educators to unconsciously overlook the parallel research connecting these fields.
The goal of IPE is to overcome the enduring separation of politics and economics by analyzing each situation with both fields in mind. Students of IPE understand that because reality is not black and white, an interdisciplinary field is needed to fully understand the so-called grey areas. It is not just politics and economics that play a key role either; IPE recognizes that “social, cultural … and developmental variations” also influence actors within the international system (Cohn 2015, p. 8).
IPE acknowledges that the state and the market are not the only actors in the international system. “[G]lobalization is not causing the state to wither away,” as predicted using historical structuralist theory (Cohn 2015, p. 11). Thus, IPE takes into account governmental, intergovernmental and non-governmental participants. These participants are not all rational, unitary actors as alleged in realist theory, either. They are interdependent entities, whose actions affect the decisions of others in political, economic and social policy areas.
Continuing with its interdisciplinary nature, “IPE is a field of study in which scholars apply a wide range of theories and analytical methods” (Cohn p. 16). Three theoretical perspectives dominate the study of IPE realism, liberalism and historical structuralism; each has its own applicability to the subject. The focus of this paper will now turn to which theory is overall the most pertinent to the study of IPE. With that, it will explore both the global and domestic spheres of IPE, with special attention paid to the United States (Dannehl 2015).
Realism is an highly applicable theory to IPE, when applied under certain conditions. The most limiting of the basic tenets of realism is its adherence to the state as the only viable actor in the international system (Cohn 2015). It is quite obvious in this new era of global capitalism that multinational (or transnational) corporations and other non-state actors hold a considerable amount of power, maybe even more than the states themselves. These MNCs control a great deal of finance, and consequently power, in the international system. Their assumption that the state is a unitary actor also presents an inadequacy in the relevance of realist theory to the international system. More and more, globalization is increasing interdependence among states. States as well as non-state actors have substantial influence among other actors with regard to both financial and political power.
What the realist perspective does bring to the table is a high regard for politics. They do pay a great deal of attention to political power in the international system. In that respect, their analysis of the Cold War using relative power gains (i.e., a zero-sum game) was a useful model. Their emphasis on state security, also contributed to the understanding of the Cold War period. Nevertheless, the realist view of politics tends to diminish its consideration for economics. That, along with their disregard for non-state actors, causes them to be ill equipped to examine the current state of the international system, because of the growing importance of MNCs in both the international financial and trade regimes. For instance, Cohn cites that “MNCs have growing influence on trade issues, and intrafirm trade within MNCs or related partners now accounts for about 40 percent of total world trade,” an extensive amount considering that leaves around 60 percent to be divided up among states and non-intrafirm trade (2015 p. 221). However it’s “major contribution … continues to be its role in brining ‘the state back in'” (Skocpol, in Cohn 2015 p. 80).
With respect to the United States, realists are divided among declinists and renewalists. Declinists believe that US hegemony has been declining for various reasons, including a tendency to overextend itself militarily and economically (Cohn 2015). Whereas, renewalist rationale states that although there has been a relative decline in US hegemony, it continues to be the dominant actor. They believe that the use of soft power is a crucial bargaining tool still held by the US. Realist analysis of the US using hegemonic stability provides a practical assessment, when one looks at the current affairs of the US in respect to the war with Iraq and the state of the economy. In addition, although it is being challenged in its role as international hegemon, it continues to be by far the largest contributor to the International Monetary Fund and a chief donor in major crises such as the recent tsunami in Southeast Asia.
It is easy to see the liberal influence in the world economy. The significance of non-state actors, in international regimes and international organizations, in liberal theory adds a more accurate portrayal of the dynamic within the international system. “Liberals are pluralist by nature, so they focus on a wider range of actors and levels of analysis” (Cohn 2015, p. 89). One key significance in liberalism is that because it was ascribed to during the postwar era to such a large extent, many of the institutions in the international system are liberal in philosophy. These institutions perpetuate liberalist ideals, although not in the most textbook of prescriptions. In short, they are being used as a device to manipulate and exploit LDC resources by the larger, more powerful nations. Financial responsibility to the IMF by LDCs requires states to make the move to an open market; orthodox liberals assume that this will help them to improve their world status. The downfall of this conjecture is that they do not consider power relationships among states and the benefits will more than likely be more lucrative for the larger state or even to the multinational corporation.
In the market realm, both domestically and internationally, liberalism still believes in the free market. Each form of liberalism (orthodox, institutional and neo-orthodox) promotes that goal and offers varying prescriptions. Each of these models is applicable to economies the world over, from those with extensive welfare systems (institutional/interventionist) to open economies (orthodox and neo-orthodox). In this capacity, they do take into consideration the role of the state, however minimal. Liberals are criticized because “liberal theory … does not sufficiently explore the capacities or constraints of the state” (Cohn 2015, p 109). Frankly, the liberal perspective is the most applicable of theories because each institution within the domestic and international system is established upon liberal principles, even though reality does not necessarily follow theory entirely.
The applicability of liberal theory to the United States is illustrated in its view on open markets. Since its inception, the role of the US Government in the economy has ranged from non-involvement to intervention, both of which are contained in the varieties of liberalism. The US is also involved in liberal institutions on the regional and international levels. Regionally, the United States is involved with the North American Free Trade Agreement, which is motivating free trade across the borders of Canada, Mexico and the United States. Liberals view NAFTA as a stepping stone to free trade; for instance, it is the first FTA that did not give treatment to the LDC (Mexico) and its binational, dispute-settlement panel (Cohn 2015, p. 290). In addition, the US was instrumental in creating some of the other supranational institutions, such as the WTO, the IMF and the World Bank.
Historical structuralism is highly applicable to both the international and domestic spheres if one focuses on the exploitation argument. It is considered somewhat of a reiteration of the realist argument, in that, it agrees that economic relations are both conflictual and zero-sum in nature; however, they include non-state actors (Cohn 2015). It is true that throughout history, states and entities within the core have used the periphery to further their own agendas; for instance, new markets for their products, low-cost labor or for the procurement and management of natural resources. This logic is attributed to dependency theory. One problem with dependency theory is its preoccupation with capitalism and economic exploitation, other forms such as “unequal power among states” (Cohn 2015, p. 125). It is important to note that within world-systems theory that states are measured by their power position within the economy, therefore they are set on an equal footing as other actors in the international system.
Both domestically and internationally, historical structuralists make the argument that wealth distribution is polarized between the classes. They do believe that this division of wealth can only disappear through the movement towards socialism. As has historically been the case, socialism is great in theory but will not be realized. Achieving the ends proposed by historical structuralism is its main weakness, nearly every projected outcome has not been achieved. With socialism, it was not able to be applied in the form intended by Marx, each time human self-interest got in the way. For Marx, human self-interest was the problem with capitalism, in reality it is the problem with all institutions created by humans. In this way, “historical structuralism provides an important alternative prospective to the liberal and realist views” (Cohn 2015, p. 135), but it cannot be any more than an alternative perspective. Historical structuralism focuses too much upon capitalism as the root of all that is evil, without focusing on other power motives. Above all, its theoretical applicability has consistently been wrong in its forecasts for the future.
The problem with each theory is that they are not carried out in the intended format. Realism does take note of human corruption, but it has trouble explaining certain phenomena. Liberalism tends to overlook the hidden agendas, because it sees the good in all of humanity. Historical structuralism also takes note of corruption, but they view the corrupt as business versus labor or strong versus the weak. It is corruption and greed, which motivates many actors in the system. And in that respect, liberalism is eliminated from being the most applicable theory to IPE. Left with realism and historical structuralism, it is realism that predominates the international system. Its main problem is that it interprets the state as the only actor in the international system, if it could forgo that tenet and more loosely interpret state as a body (i.e., both state and non-state actors), then its applicability would increase. What it does most accurately is perceive the self-interested motives that underlie the system. Although, the system is set up with liberal principles, liberalism does not explain ulterior intentions for their implementation.