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Section 1: History and Theories of International Political Economy 1 Section 1: History and Theories of International Political Economy 1 The Study of International Political Economy Robert Gilpin he Study of international political economy (IPE) is of necessity highly dependent on the theories and insights of neoclassical economics. However, IPE and neoclassical economics ask different questions as T 1 they apply their own mode of analysis. whereas economics is primarily con- cerned with efficiency and the mutual benefits of economic exchange, inter- national political economy is interested not only in those subjects but also in a broader range of issues. IPE is particularly interested in the distribution of gains from market activities; neoclassical economics is not. Although, at least over the long term, every society gains absolutely from the efficient function- ing of international markets, the gains are seldom distributed equally among all economic actors, and states generally are very much concerned over their own relative gains. Whereas economists regard markets as self-regulating mechanisms isolated from political affairs, specialists in IPE are interested in the fact that the world economy has a considerable impact on the power, values, and political autonomy of national societies. States have a strong in- centive to take actions that safeguard their own values and interests, espe- cially their power and freedom of action, and they also attempt to manipulate market forces to increase their power and influence over rival states or to favor friendly states.2 Whereas economists and economic analysts are generally indifferent to the role of institutions in economic affairs (due to their focus on the market), the nature of the international institutions and those international regimes that govern international markets and economic activities constitute a central con- cern of international political economists. As regimes may significantly affect the distribution of gains from economic activities and the economic/political autonomy of individual states, states – especially powerful states – attempt to influence the design and functioning of institutions in order to advance their own political, economic, and other interests. Thus, the study of international political economy presumes that states, multinational corporations, and other powerful actors attempt to use their power to influence the nature of interna- tional regimes.3 Source: Robert Gilpin, Global Political Economy: Understanding the Internationl Economic Order (Princeton: Princeton Univercity Press, 2001), pp. 77–102. 4 History and Theories of International Political Economy Distribution of Wealth and Economic Activities Whereas the science of economics emphasizes the efficient allocation of scarce resources and the absolute gains enjoyed by everyone from economic activi- ties, state-centric scholars of international political economy emphasize the distributive consequences of economic activities. According to economics, exchange takes place because of mutual gain; were it otherwise, the exchange would not occur. IPE’s state-centric interpretation, on the other hand, argues that economic actors are attentive not only to absolute but also to relative gains from economic intercourse; that is, not merely to the absolute gain for themselves, but also to the size of their own gain relative to gains of other actors. Governments are concerned about the terms of trade, the distribution of economic returns from foreign investment, and, in particular, the relative rates of economic growth among national economies. Indeed, the issue of relative gains is seldom far from the minds of political leaders. The significance of relative gains for economic behavior and in the calcu- lations of nation-states was recognized at least as early as the economic writ- ings of the eighteenth-century political philosopher David Hume (1711–76). Hume’s mercantilist contemporaries argued that a nation should seek a trade and payments surplus, basing their arguments on the assumption that it was only relative gains that really mattered. In today’s language of game theory, international commerce during the mercantilist era was considered to be a zero-sum game in which the gain to one party necessarily meant a loss to another. Hume himself demonstrated the folly and self-defeating nature of this mercantilist argument by introducing the “price-specie flow mechanism” into economic thought.4 Subsequently, formulation by David Ricardo (1772– 1823) of the law or principle of comparative advantage revealed that every nation could gain in absolute terms from free trade and from an international division of labor based on territorial specialization. Subsequent modifica- tions of Ricardo’s theory suggested that states were also interested in the relative gains from trade. Ricardo’s demonstration that international eco- nomic exchange was not a zero-sum game but rather a positive-sum game from which everyone could gain led Paul Samuelson to call the law of com- parative advantage “the most beautiful idea” in economic science. However, both absolute gains and the distribution of those gains are important in inter- national economic affairs. A number of political economists have addressed the issue of absolute versus relative gains in international affairs, and the ensuing debate has largely centered on Joseph Grieco’s argument that states are more concerned about relative than absolute gains and that this creates difficulties in attaining inter- national cooperation.5 Although I know of no political economist who dis- misses altogether the role of relative gains in international economic affairs, scholars of IPE do differ on the weight each gives to relative versus absolute gains. Whereas many scholars stress the importance of relative gains, liberals emphasize the importance of absolute gains and believe that Grieco has over- stated the significance of relative gains. Absolute gains, they argue, are more Gilpin The Study of International Political Economy 5 important than Grieco’s analysis suggests, and therefore international coop- eration should be easier to attain than he postulates. While Grieco’s emphasis on the importance of relative gains is, I believe, basically important, and states do, in general, prize relative gains, sometimes even at the expense of absolute gains, this argument cannot be elevated into a general law of state behavior.6 One can say about this generalization in political economy no more than Kindleberger has said of most generalizations in economics: “It depends!” The importance of absolute versus relative gains in state calculations is actually highly dependent upon the circumstances in which a specific trade- off occurs. While it may be true that states can never be totally unconcerned about the distributive consequences of economic activities for their relative wealth and power, they frequently do, largely for security reasons, ignore this concern in their dealings with others. During the height of the Cold War, for example, the United States fostered the economic unification of Western Eu- rope for political reasons despite the costs to its own economic interests. Ken- neth Waltz has noted that the conscious decision of the United States in the late 1940s to build the power of its European allies at a sacrifice to itself was a historically unprecedented action.7 States are particularly interested in the distribution of those gains affecting domestic welfare, national wealth, and military power. When a state weighs absolute versus relative gains, military power is by far the most important consideration; states are extraordinarily reluctant, for example, to trade military security for economic gains. Modern nation-states (like eighteenth-century mercantilists) are extremely concerned about the consequences of interna- tional economic activities for the distribution of economic gains. Over time, the unequal distribution of these gains will inevitably change the interna- tional balance of economic and military power, and will thus affect national security. For this reason, states have always been very sensitive to the effects of the international economy on relative rates of economic growth. At the beginning of the twenty-first century, concern is focused on the distribution of industrial power, especially in those high-tech industries vitally important to the relative power position of individual states. The territorial distribution of industry and of technological capabilities is a matter of great concern for every state and a major issue in international political economy. National Autonomy One of the dominant themes in the study of international political economy (IPE) is the persistent clash between the increasing interdependence of the international economy and the desire of individual states to maintain their economic independence and political autonomy. At the same time that states want the benefits of free trade, foreign investment, and the like, they also desire to protect their political autonomy, cultural values, and social structures. However, the logic of the market system is to expand geographically and to incorporate more and more aspects of a society within the price mechanism, 6 History and Theories of International Political Economy thus making domestic matters subject to forces external to the society. In time, if unchecked, the integration of an economy into the world economy, the intensifying pressures of foreign competition, and the necessity to be effi- cient in order to survive economically could undermine the independence
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