Downloaded by [University of Defence] at 01:53 24 May 2016 International Political Economy This book offers a completely new and unique introduction to the economics of international relations. It treats all the traditional major themes of inter- national relations theory while giving each a refreshing new twist with the incorporation of the influence of private power, particularly in the realm of war and peace. It reframes the history of the modern global economy and politics by thoroughly purging the myth of the market, a systematic blindness to private power. It not only draws on, but also illuminates major themes and empirical findings of comparative politics, business history, business strategy, business cycle theory, social evolutionary theory, as well as the practical wisdom of traders and investors. Part I introduces the major concepts of competing theories of international relations, emphasizing a unique approach: corporatism. Part II introduces the critical importance of dynamic and oppositional analysis of issues. Part III traces the rise of the modern world from the mercantilist period until the rise of modern corporate organizations and the demise of imperialism in the crucible of World War I. Part IV begins with the origins of the contemporary dominance of business internationalism before and during World War II, then analyses three major facets of the postwar era: the unification of much of Europe, the indus- trialization of the Third World, and the Cold War and its aftermath. The final chapter considers the present and future of a fairly peaceful yet economically unstable world. This book presents a refreshing and exciting portrayal of the global economy which challenges every major subject from money to markets to the business cycle. This book eschews the economics of dull averages to restore the drama of Downloaded by [University of Defence] at 01:53 24 May 2016 contending business forces struggling for wealth and, in the process, influencing war and peace. James H. Nolt is a Senior Fellow at the World Policy Institute in New York and Adjunct Associate Professor at New York University, USA. This page intentionally left blank Downloaded by [University of Defence] at 01:53 24 May 2016 International Political Economy The business of war and peace James H. Nolt Downloaded by [University of Defence] at 01:53 24 May 2016 First published 2015 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2015 James H. Nolt The right of James H. Nolt to be identified as author of this work has been asserted in accordance with the Copyright, Designs and Patent Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Nolt, James H. International political economy : the business of war and peace / James H. Nolt. -- First Edition. pages cm Includes bibliographical references and index. 1. International economic relations. 2. Economic policy. 3. Business cycles. I. Title. HF1359.N6496 2014 337--dc23 2014025515 ISBN: 978-0-415-70076-4 (hbk) ISBN: 978-0-415-70077-1 (pbk) ISBN: 978-0-203-79972-7 (ebk) Typeset in Times New Roman by Taylor & Francis Books Downloaded by [University of Defence] at 01:53 24 May 2016 Contents List of figures vii Preface viii Acknowledgments xi PART I Corporatist theory of international relations 1 1 Theories of international relations3 2 Polarized politics 14 3 Political economics 27 PART II Dynamic political economy 41 4 Strategic methodology 43 5 Strategic determination of the business cycle 60 6 International system dynamics 79 Downloaded by [University of Defence] at 01:53 24 May 2016 PART III From mercantilism to imperialism 95 7 The power of mercantilism 97 8 The hegemony of free trade 118 9 Imperialism and international polarization 134 vi Contents PART IV The rise of business internationalism 149 10 The business of World War II 151 11 European unification 169 12 The invention of economic development 179 13 Cold War polarization and security today 190 14 Global casino 202 Selected bibliography 221 Index 232 Downloaded by [University of Defence] at 01:53 24 May 2016 Figures 2.1 Modern faction or interest bloc theory mapped to Aristotle’s constitutional forms 18 4.1 Types and strategic functions of financial derivative contracts 55 4.2 Performance and strategy of firms 57 Downloaded by [University of Defence] at 01:53 24 May 2016 Preface It remains an oddity that although companies are among the most powerful institutions of the modern age, our histories still focus on the actions of states and individuals, on politics and culture, rather than on corporations, their executives and their impacts. – Nick Robins (2006: 18) Business crosses borders. It always has. Business is not the only motive for crossing borders. Armies, immigrants, tourists, missionaries, explorers, and others also cross borders, but all of these are also affected by business. Armies may be sent out to fight because of business motivations. No matter what the motive for war, business confidence and finance greatly affect the resources available to fight, and therefore affect who wins wars. Many of the individuals who cross borders are either sponsored by business or participating in business as employees, potential employees, or customers, including tourists. Therefore it is hard to imagine how there could be a reasonable theory of international relations, international politics, or international political economy without addressing the business role. Yet surprisingly many write about international relations today as if business is uninteresting. I aim to change that. This book is about international relations. However, unlike many authors, I conceive of relations among nations as not merely relations among govern- ments, but among all aspects of a nation, including especially the business organizations that collectively constitute most of a nation’s economic life and its day-to-day activity, both in work and leisure. This is a book about inter- national politics too, but politics here is understood as not merely what goes on Downloaded by [University of Defence] at 01:53 24 May 2016 in government, but the exercise of power both in civil society and government with special attention to business power. As the title says, this is a book about international political economy. Political economy is a term that became popular in the eighteenth and nineteenth centuries to refer to what now includes both economics and politics. Political economy also meant considering together the functions and interaction of government and business. Yet nowadays politics and economics are often seen as separate spheres of life and thus distinct and often mutually isolated branches of social science. This book endeavors to help reunite the study of politics and economies. Preface ix Like so many terms in politics and social science, “political economy” is used by different people to mean different things. One common usage of this term today is a label for studying political phenomena with the tool kit of contemporary microeconomic theory. That is certainly not what I am doing. The tool kit of microeconomic theory, designed to examine problems of choosing among alternatives given a budget constraint, can be useful for some problems, but not, broadly speaking, for politics or political economy the way I conceive these. My objections to microeconomic theory become most obvious in the first two parts, but are also evident in my treatment of business behavior in historical and political context in the second half of this book. Some have misunderstood my approach to label me as an “economic deter- minist.” On the contrary, I argue that political contestation among organized business interests often determines economic outcomes. Business acts politically. Any theory of the economy that does not recognize this – such as contemporary textbook economic theory – is doomed to fail. If anything I am a “political determinist.” Political struggle, public and private, determines much of what happens in the government and the economy. This is also a book about international political strategy, explaining how broad social forces and interests organize to win their social and political aims. If I am successful, a student of this book will be able to identify major international players, discern their interests, and assess how they might act politically to attain their aims. No one can ever reliably predict exactly what another person, political party, business bloc, or government will do in the future. Anyone who thinks they can will be a poor political strategist, as I explain in Chapter Four. Understanding politics is inevitably a combination of science and art. The science of politics is to define as well as we can the limits of the possible. What can be done? What patterns of behavior can we anticipate? Social science is a realm of probability, not certainty. The art of political strategy is to judge in a moment of imperfect knowledge the most effective course to take given your educated guesses about what is possible according to what others will do. Strategic action is necessarily rife with errors and misjudgments. Politics is a realm of myths and deception. Exercise of power, to be effective, often must be covert. What is transparent might be more easily countered.