Introductionand Overview

Many personal decisions we make have economic importance for us, whether

we are choosing a career, purchasing goods, or investing in stocks. Collective

political decisions also affect us economically. For example, governments play

a major role in establishing tax rates; welfare payments; and economic,

social, and environmental goals. As global interdependence has increased,

the decisions of multinational corporations (MNCs) and international

organizations (IOs) such as the World Trade Organization (WTO) also have

a greater economic impact on us. Thus, international political economy (IPE)

is an important area of study. Chapter 1 introduces the subject of IPE, the

IPE theoretical perspectives, and the main themes of this book. Chapter 2

provides an overview of global economic relations before World War II

and the postwar institutional framework developed to manage the global

economy. For ease of reference, all terms defined in the glossary are in

bold print when they are first described in detail.

PART

I

2

We begin this introductory chapter with a brief discussion of the 2008global financial crisis, because it is affecting all the major substan-tive issue areas we examine in this book ranging from monetary

relations to trade, multinational corporations, and international development.The different accounts of the causes of the crisis also demonstrate how ourtheoretical views affect our interpretation of international events, and thisbook places strong emphasis on the role of theorizing in IPE.

Financial crises have occurred over the years, and the world has becomemore susceptible to them with the growth of financial market liberalizationsince the 1970s. However, the 2008 financial meltdown was the worst financialcrisis since the Great Depression of the 1930s, and it also resulted in a socialcrisis. Problems included a significant increase in unemployment rates andmajor reductions in the value of pension funds.1 The most immediate cause ofthe crisis was a subprime mortgage crisis in the U.S. housing market. Subprimemortgages are granted to people who do not qualify for regular mortgages atmarket interest rates because of their low incomes, poor credit ratings, or pooremployment prospects. In the 1990s, U.S. mortgage lenders provided low inter-est rates to entice people with poor credit ratings to borrow in the subprimemarket, and this led to a dramatic increase in U.S. home ownership. Theincreased demand for houses led to a building boom, which eventually resultedin an oversupply of houses and reduced U.S. housing prices in mid-2006. Mort-gages were also coming up for renewal at higher interest rates that subprimeborrowers could not pay, and they had to default on their loans. Because of thedecline in housing prices, the scores of subprime borrowers ended up owingmore than the value of their houses. Thus began the subprime mortgage crisis.The U.S. crisis became a global financial crisis in 2008, because the subprimemortgages had been repackaged and sold to investors around the world.

Introduction

1CHAPTER

What is International Political Economy? 3

Although the U.S. subprime mortgage crisis was the most immediate causeof the global financial crisis, two underlying causes were the inadequate regu-lation of banks and other financial institutions, and the imbalance in financialrelations between borrowers and savers. Some analysts argue that U.S. mone-tary and fiscal policies have allowed Americans to borrow too much and livebeyond their means, while others believe that excess savings in China and otherEast Asian countries have enabled these countries to buy U.S. Treasury bondsand finance U.S. overspending. In reality, imbalances created by excesses inboth U.S. borrowing and East Asian savings contributed to the financial crisis.This book, therefore, emphasizes the importance of examining a diversity oftheories in interpreting IPE issues and events. Although the most detailedexamination of the 2008 global financial crisis is in Chapter 11, we discuss theimplications of the crisis for various aspects of IPE throughout this edition ofthe book.

The study of IPE requires factual knowledge in a wide range of areas suchas trade, monetary relations, foreign investment, and development. However,people interpret the “facts” quite differently depending on whether theyview them “from a bank office in Zurich, a maquiladora [border factory] inMexico, a shantytown in Peru, a rice paddy in Sri Lanka . . . [or] a trade officein Washington, DC.”2 Our interpretation of the facts also depends on ourtheoretical views, and the only choice is whether these views are implicit orwhether we explicitly examine the theories we use to interpret issues andevents. Our theoretical views also determine what facts we consider impor-tant. For example, realist theorists focus on the power relations among devel-oped countries (DCs) in the North, while many critical theorists argue that theNorth’s exploitation of less-developed countries (LDCs) in the South is a morepressing issue. Although people tend to interact with those who share theirviews, this book focuses on a range of competing theoretical perspectives,because the study of IPE is “far too important and multifaceted to leave to oneanalytic or methodological perspective alone.”3 This book also emphasizes theinteraction between theory and practice: Theory shapes our practice of IPE,and practical experience leads us to reassess our theories. Before introducingthe main theoretical perspectives and themes of this book, we address thequestion “what is IPE?”

WHAT IS INTERNATIONAL POLITICAL ECONOMY?IPE is concerned with the interaction between the state, a sovereign terri-torial unit, and the market, a coordinating mechanism where buyers andsellers exchange goods and services at prices determined by supply anddemand. We normally associate the state with the political pursuit ofpower, and the market with the economic pursuit of wealth. However, thestate also has an interest in accumulating wealth, and the market is nottotally removed from power considerations. An inherent tension existsbetween the state and the market because the market’s association with

4 CHAPTER 1 Introduction

economic openness and the removal of state barriers poses a threat tostate sovereignty.4 For example, the 1988 Canada–U.S. Free Trade Agree-ment (CUSFTA) established an open market between the two countries,which some Canadians considered a threat to their national sovereignty inenergy, foreign investment, and cultural industries. When the NorthAmerican Free Trade Agreement (NAFTA) replaced CUSFTA in 1994,Mexicans were concerned that it would encroach on their sovereignty inenergy and agriculture, and many Americans feared that NAFTA wouldlimit their control over employment and the environment. Despite the ten-sion between states and markets, they also have a complementary rela-tionship. Domestically, states protect private property rights and provideinfrastructure such as transportation and communications required formarket transactions. Internationally, states form agreements and organi-zations to promote economic openness and stability; and wealthier stateswith larger markets often have more military and political power. Asinterdependence has increased, states have been drawn into the competi-tive forces of the world economy. Thus, competition states seek toincrease their competitiveness by restructuring industry, deregulatingfinancial markets, and supporting research and development (R&D) inhigh-technology sectors.5 As we discuss, the rapid economic growth ofJapan and the East Asian newly industrializing economies (NIEs) from the1960s to 1980s was related to their symbiotic relationship with the com-petitive marketplace.

Although most scholars treat state–market interactions as the core IPEissue, they are also interested in other types of relationships. Primary amongthese is the interaction between the state and the multinational corporation(MNC), a central nonstate actor. In 2009, there were about 82,000 MNCswith 810,000 foreign affiliates. The exports by foreign affiliates of MNCsaccount for about a third of total world exports of goods and services, andthey employ about 77 million people.6 As is the case with states and markets,state–MNC relations are marked by both cooperation and conflict (seeChapter 9). Whether we focus on state–market or state–MNC relations, IPE isinterdisciplinary and draws on contributions from political scientists, econo-mists, sociologists, anthropologists, historians, and geographers. In their effortto cross disciplinary boundaries, IPE theorists criticize some economists foreconomism (i.e., for focusing too much on economics and too little on poli-tics) and some political scientists for politicism (i.e., for devoting too muchattention to politics and too little to economics).7 In addition to doing inter-disciplinary research, IPE scholars must also devote considerable attention todomestic–international linkages. Whereas domestic groups generally leavedecision making on international security matters to the government“experts,” they demand a greater role in international economic decisionsbecause they view trade and foreign investment as “bread and butter issues”that affect their economic welfare. In sum, IPE scholars have the daunting taskof focusing on both international and domestic relations and of crossing disci-plinary boundaries.

The IPE Theoretical Perspectives 5

THE IPE THEORETICAL PERSPECTIVESMany students tend to avoid “theory,” but without it we cannot assess thebroader implications of our statistical and factual studies. (We discuss the pur-pose of theory in more detail in the introduction to Part II.) IPE has beenmarked by a growing diversity of theories, and some critics point to our failureto develop an all-embracing theory to explain events. However, the existence ofdifferent theoretical perspectives should not be viewed as a weakness. Socialscience theory “is always for someone and for some purpose,”8 and the IPEtheoretical perspectives will never be entirely compatible because they are basedon different sets of values. When IPE emerged as a major field of study in the1970s, the three dominant perspectives were realism (or economic nationalism),liberalism, and Marxism, and IPE theorists tended to view them as separate“ideologies.”9 This book adopts a more updated approach to IPE theory in sev-eral respects. First, we do not view the IPE perspectives as separate ideologies,and we examine how they overlap and influence each other over time. Second,we view Marxism as less important today and supplement the third perspectivewith several “critical” perspectives. Some theorists question the value of usingthis typology for examining IPE theory today, but we believe it is still usefulbecause liberalism and realism continue to be the two mainstream perspectiveswith the most influence on the practice of IPE.10 Chapters 3 and 4 of this bookfocus on realism and liberalism, and Chapter 5 examines several perspectivesthat are critical of the two mainstream IPE perspectives.

Realists consider the state to be the principal actor in international rela-tions (IR). IR is a “self-help” system without a centralized authority in whichstates must build up their power or form alliances to prevent being dominatedby others. Thus, realists tend to see IR as a zero-sum game, in which one state’sgain is another state’s loss, and they focus on relative gains or the gains a stateachieves in relation to the gains of other states. In IPE each state tries tomanipulate the market to capture relative gains. Although realism tradition-ally has been the most important IR perspective, liberalism is the most impor-tant IPE perspective. To avoid confusion, we should note that the term liberalis used differently in IPE and in U.S. domestic politics. In the United States,“liberals” support greater government involvement in the market to preventinequalities and stimulate growth, while “conservatives” support free marketsand minimal government intervention. Orthodox liberals in IPE are more akinto U.S. conservatives, because they favor free markets, private property rights,and only a limited government role in economic activities. However, Keyne-sian liberals are more accepting of government intervention (see Chapter 4).Liberals are more optimistic than realists about the prospects for cooperationamong states, and they believe that international institutions can help promotecooperation. Thus, liberals view economic relationships as a positive-sumgame, in which all states benefit, even if they do not benefit equally.

Chapter 5 of this book discusses four critical perspectives that questionthe mainstream liberal and realist views of the world, and see the mainstreamas favoring some groups or issues and marginalizing others. The historical

6 CHAPTER 1 Introduction

materialist perspective encompasses the largest group of critical theories.Stemming partly from Marxism, historical materialism is “historical” becauseit examines structural change over time, with an emphasis on class and some-times North–South struggles. The perspective is “materialist” because it examinesthe role of material factors, especially economic factors, in shaping society.11

The current system is marked by the dominance of capitalism, with the capitalistclass (the bourgeoisie) exploiting the workers (the proletariat). In addition tohistorical materialism, Chapter 5 also discusses three other critical perspectives:constructivism, feminism, and environmentalism.

Although the realist, liberal, and critical perspectives provide us withalternative lenses for viewing IPE issues (such as trade and monetary rela-tions), the margins separating these perspectives have become blurred asthey have evolved and influenced each other over time. Hybrid theories andapproaches such as regime theory, hegemonic stability theory, and construc-tivism are also linked with more than one perspective. Furthermore, theliterature examining the relationship between domestic institutions and IPEdoes not fit easily into a single perspective. In addition to the main theoret-ical perspectives, this book discusses the hybrid theories and approaches,and domestic–international interactions.

PURPOSES AND THEMES OF THIS BOOKThis book provides a comprehensive approach to the study of IPE. Part II dis-cusses the theoretical perspectives, and Part III examines substantive issuesincluding monetary relations, global and regional trade, investment, develop-ment, and foreign debt and financial crises. We provide historical backgroundand also focus on current developments such as the global financial crisis; thegrowing influence of emerging powers including China, India, and Brazil; theeffect of environmental changes; and the role of oil and other energy resourcesin the global political economy. To understand the broader implications ofthese issues, the chapters in Part III direct the reader to the interaction betweentheory and practice. To help draw connections between theory and the sub-stantive issues, this book focuses on three major themes: globalization,North–North relations, and North–South relations.

GlobalizationThe first theme of this book is globalization, which involves the broadeningand deepening of interdependence among peoples and states. Broadeningrefers to the extension of geographic linkages to encompass virtually all majorsocieties and states, so that policies and events in one part of the world canhave a significant impact on distant locations. Deepening refers to the greaterfrequency and intensity of state and societal interactions. Although the statecontinues to be the most important actor in IR, modern telecommunicationsand transportation have increased connections among people with less regardto territorial boundaries. Thus, states are confronting a more complex

Purposes and Themes of This Book 7

environment in which international organizations (IOs), MNCs, and non-governmental organizations (NGOs) have important roles. Theorists do notdefine globalization in a consistent manner, and they have differing viewsregarding the causes and effects of globalization. Whereas some theoristsargue that globalization stems from technological advances, others emphasizethe role of the state, the capitalist mode of production, and cultural and social-psychological factors.12 We discuss the different definitions of globalizationhere, and focus on the causes and effects of globalization in Chapters 3–5.

At one end of the spectrum are extreme or hyper-globalists, who believethat globalization involves the creation of a “borderless world” in whichMNCs lose their national identities, and regional and global markets replacenational economies. For example, Kenichi Ohmae asserts in The End of theNation-State that “traditional nation states have become unnatural, evenimpossible, business units in a global economy.”13 When there is no longerstate interference, Ohmae argues, MNC decisions and consumer choices willresult in the rational allocation of global resources. We devote more attentionto the views of internationalists and moderate globalists than to hyper-global-ists, because there is little evidence that globalization is causing the state towither away.14 Internationalists are at the other end of the spectrum fromhyper-globalists. Although they recognize that interdependence is increasingand that nonstate actors have a role in IPE, they believe that the world is nomore “global” than it was in the nineteenth century. The international econ-omy in the view of internationalists “is still fundamentally characterized byexchange between relatively distinct and national economies.”15 Althoughsome internationalists acknowledge that globalization today may be differentbecause of the greater speed and volume of transactions, they see globalizationmainly as an economic phenomenon and argue that “in most areas of worldpolitics . . . states are still the principal authorities.”16 Internationalists viewthe disastrous events of September 11, 2001, and the subsequent U.S. turntoward unilateralism as evidence that globalization has produced no signifi-cant change, and that violence, geopolitics, and the national interest continueto be central concerns.17

Moderate globalists take a position between hyper-globalists and interna-tionalists. Although they reject the hyper-globalist view that the state is nolonger a viable actor, they differentiate international relations among statesfrom global relations that take place without regard to territorial boundaries.Global linkages in finance, trade, investment, and communications haveexisted in the past, but they now occur more frequently, intensely, and on awider scale. For example, the Internet provides instantaneous linkages aroundthe world; MNCs control economic resources greater than those of manystates; and global problems such as ozone depletion, climate change, moneylaundering, and market volatility are increasing. Although states continue tobe important, they must share the stage with private actors such as MNCs andNGOs, and with systems of transnational, global, and regional governance.Nevertheless, the world is globalizing, rather than fully globalized, and terri-torial and supraterritorial relations coexist.18

8 CHAPTER 1 Introduction

This book provides evidence that both the internationalist and moderateglobalist positions have some validity, depending on the issue areas and coun-tries being studied. Relying on these two approaches, we briefly discuss someimportant points about globalization:

� Globalization is not a uniform process throughout the world. Its effectsare more evident in major urban centers than in rural areas, remoteislands, and the poorest countries.

� Globalization is not causing the state to wither away. Although the state’sautonomy is eroding in some important respects, states are adopting newand more complex functions to deal with an interdependent world andthey continue to have choices in the policies they adopt.19

� Globalization can result in fragmentation and conflict as well as unityand cooperation; for example, the formation of regional economicblocs in Europe, North America, and East Asia is associated with anincrease in global competitiveness. Although competitiveness is a“contested concept” with various meanings, this book shows that itcauses states to be concerned with their relative positions in the globaleconomy.20

� Interdependence and globalization are not unique to the present-dayworld, and it is possible that international events could reverse thecurrent moves toward globalization. For example, there was a highdegree of interdependence in trade and foreign investment before WorldWar I which declined during the interwar period and began to increaseagain after World War II.

Despite the historical fluctuations, globalization is more encompassingtoday than it was at any time in the past. With advances in technology, com-munications, and transportation, state activities are being internationalizedto a degree not previously experienced. Global interdependence today isalso qualitatively different than previously. Although a number of corpora-tions globalized their activities during the nineteenth century, the role ofMNCs in generating foreign investment, trade, and technology is a modern-day phenomenon.21 The geographic reach of the capitalist economic systemis also encompassing the entire globe, with LDCs and the transitioneconomies of Eastern Europe and the former Soviet Union (FSU) becomingmore involved in the global economy. For the first time, membership in theInternational Monetary Fund (IMF), World Bank, and WTO is becomingtruly global.22 This book examines the implications of these changes andthe differing views as to whether globalization is a positive or negativeprocess.

North–North RelationsThe second theme of this book concerns relations among economically devel-oped countries in the North. The DCs in Western Europe, North America,and Japan are the only group of states with the wealth and power to look

Purposes and Themes of This Book 9

after international management of the global economy. Thus, internationalmanagement has been primarily a North–North issue, even though emergingLDCs in the South such as China, India, and Brazil are posing a growingchallenge to Northern management. This book discusses two factors thatcontribute to international economic management: hegemony and interna-tional institutions.

The United States was the undisputed leader or hegemon in the earlypost–World War II period because of its economic and military power. Animportant measure of economic power is the gross domestic product (GDP),the total value of goods and services produced within a country’s bordersduring a given year. The GDP records income in terms of where it is earnedrather than who owns the factors of production. Thus, a country’s GDPincludes the interest and profits domestic and foreign companies and indi-viduals earn in the country; it does not include income the country’s resi-dents earn abroad. In contrast to the GDP, the gross national product (GNP)records income according to who owns the factors of production rather thanwhere the income is earned. Thus, the GNP is the total value of goods andservices produced by domestically owned factors of production in a givenyear. GNP is derived by adding the income a country’s residents earn fromforeign activity to the GDP and subtracting the income foreigners earn fromactivity in the country. For example, the income a U.S. resident earns inFrance is part of the U.S. GNP but not the U.S. GDP; this income by contrastis included in the French GDP but not in the French GNP. A number ofstates and IOs now use a third indicator of total output, the gross nationalincome (GNI), instead of the GNP. In practical terms, the GNI is equal to theGNP—it simply measures the income produced by the GNP rather than thevalue of the product itself.23 This book usually uses the GDP, because mostcountries use the GDP as their main measure of national economic activity.However, a country’s GDP and GNI (or GNP) normally do not differgreatly, and we use all of these measures, depending on the source of thedata. Whether we use the GDP or GNI, the United States was clearly theeconomic hegemon after World War II. During the war the U.S. GDP hadincreased by about 50 percent, whereas Western European states had lostone-quarter of their GDPs on average and the Soviet Union and Japaneseeconomies were severely damaged. In 1950, the U.S. GDP was about 3 timeslarger than the Soviet Union’s, 5 times larger than Britain’s, and 20 timeslarger than Japan’s. Western Europe and Japan were also highly dependenton U.S. aid and foreign investment for their postwar reconstruction.24

During the 1960s, the United States’ relative economic position vis-à-visother DCs began to decline as Western Europe and Japan recovered from thewar. The extent of the U.S. economic decline and the possibilities for U.S.hegemonic renewal are matters of intense debate, partly because IR theoristsoften focus on different aspects of hegemony. In the security area, for example,U.S. hegemony has clearly increased since the breakup of the Soviet bloc andSoviet Union. However, most would agree that the relative economic power ofthe United States has declined since the end of World War II. In 1971, the

10 CHAPTER 1 Introduction

United States shifted from having annual balance-of-trade surpluses to havingbalance-of-trade deficits (i.e., imports greater than exports), the United Stateshas become a major recipient as well as a source of foreign direct investment,and there has been a considerable loss of confidence in the U.S. dollar as thetop international currency. The United States remains a major force in theglobal economy, and in 2004 it accounted for about 25 percent of worldGDP.25 However, this book discusses the fact that the relative U.S. economicdecline has resulted in a gradual shift from unilateral U.S. to collective man-agement of the global economy.

Another factor in global economic management is the role of internationalinstitutions. Under U.S. and British leadership, three international economicorganizations were established in the 1940s to help manage the globaleconomy: the International Monetary Fund (IMF), the International Bank forReconstruction and Development (IBRD or World Bank), and the GeneralAgreement on Tariffs and Trade (GATT). The DCs were the dominanteconomic powers in these organizations, and they also created some smallerinstitutions largely limited to DC membership, including the Organization forEconomic Cooperation and Development (OECD) and the Group of Seven(G7)/Group of Eight (G8). In 1995 the WTO replaced the GATT as the mainglobal trade organization. This book examines the role of these institutions inmanaging the global economy.

Despite the joint efforts of DCs to manage the global economy, they alsohave some significant differences. Three major economic blocs have emergedin Europe, North America, and East Asia with the decline of U.S. economichegemony and the end of the Cold War. The competitiveness among thesethree blocs has major consequences for the future of the global economybecause they encompass much of the world’s economic, technological, scien-tific, and military power.26 Differences over security issues such as the 2003U.S.-led war against Iraq have further exacerbated the divisions among DCson economic issues. Thus, the second theme of this text concerns the linkagesand divisions among the DCs of the North.

North–South RelationsThe third theme of this book concerns North–South relations. The Southincludes almost all the countries of Latin America and the Caribbean, Asia andOceania, and Africa and the Middle East. These countries are mainly LDCswith colonial histories and lower levels of economic and social development.In 1950 the South accounted for almost 65 percent of the total world popula-tion, and by 1996 this figure had climbed to almost 80 percent of the worldtotal. A number of former Communist states in Eastern Europe and the FSUare now receiving foreign debt and development financing from the DCs andare, in effect, also a part of the South. When we speak of the world, we there-fore must give a great deal of attention to the South.27

LDCs generally have lower per capita incomes, inadequate infrastructure(e.g., transportation and communications), and limited access to modern

Purposes and Themes of This Book 11

technology. Many LDCs also have lower levels of social development such asinadequate educational facilities, health and sanitary facilities, and literacyrates. Assessing political development in a country is a difficult and con-tentious issue; but LDCs are more likely than DCs to have unstable andauthoritarian governments.28 LDCs also have less influence in most interna-tional economic organizations such as the IMF, World Bank, and WTO. It isimportant to note that many IOs and development theorists prefer the termdeveloping countries to LDCs because they believe the LDC term suggests thatthese countries are inferior or are expected to follow the same path to develop-ment as the DCs. However, LDC is used as an abbreviation in this book simplyto indicate that these countries are economically less developed. LDCs mayhave histories and cultures as rich or richer than those of DCs, and they mayfollow different paths to development.

As this book shows, LDCs in fact have become a highly diverse group ofcountries with major differences in income and economic development. Someanalysts, therefore, question whether it is still meaningful to speak of theSouth or LDCs as a single group. On the one hand, the East Asian NIEs—South Korea, Taiwan, Singapore, and Hong Kong—have relatively high percapita incomes and literacy rates and are quite competitive with DCs in someareas. Some of the larger LDCs and transition economies such as the BRICeconomies—Brazil, Russia, India, and China—also have a growing degree ofpolitical and economic influence. On the other hand, the UN list of 49 leastdeveloped countries (LLDCs)—mainly in Sub-Saharan Africa and CentralAsia—have extremely low per capita incomes, literacy rates, and shares ofmanufacturing. One analyst argues that 4 billion of the 5 billion people inLDCs today live in countries that are in fact developing. However, the“bottom billion” people in the world—most of whom are in LLDCs—arecaught in a “development trap” and falling further behind.29

Despite the South’s economic disparities, we can generalize about LDCdevelopment problems because a major characteristic of the global economyis the inequality in wealth and power between DCs in the North and mostLDCs in the South. Although China recently surpassed Japan as the world’ssecond largest national economy (in terms of GDP) after the United States,the per capita GDP of DCs such as Japan, the United States, and Germanystill exceeds the per capita GDPs of China and the other BRIC economies bya wide margin (see Chapter 2). A number of LDCs have been developing, butmost have been frustrated in their efforts to exert more influence and closethe economic gap with the North. Furthermore, the East Asian success storiesare unusual in several respects. Singapore and Hong Kong are so small geo-graphically that they are more akin to city-states, Hong Kong was a Britishcrown colony before being incorporated into mainland China, and Taiwanand South Korea are contested territories. Although China, India, Brazil, andRussia have growing economic and political influence, they have major prob-lems to overcome; even the East Asian NIEs have been vulnerable to financialcrises (see Chapters 10 and 11). Thus, in 2005 the United Nations Develop-ment Program reported that

12 CHAPTER 1 Introduction

convergence is a relative concept. Absolute income inequalitiesbetween rich and poor countries are increasing even when developingcountries have higher growth rates—precisely because the initialincome gaps are so large. . . . If average incomes grow by 3 percent inSub-Saharan Africa and in high-income Europe, for example, theabsolute change will be an extra $51 per person in Africa and an extra$854 per person in Europe.30

This book explores the strategies LDCs have employed to promote economicdevelopment and increase their influence.

Although we focus mainly on inequalities between the North and theSouth, the global economy is also marked by differences of wealth and powerwithin states. Brazil has one of the largest income gaps among LDCs, with theper capita income of the richest 10 percent of the population 32 times higherthan that of the poorest 40 percent.31 As Chapter 10 discusses, some groupswithin LDCs such as women and children are especially disadvantaged.(Disparities in wealth are of course also present within DCs.) This book dis-cusses the effects of changes in the global economy on inequalities between richand poor both among and within states. We also devote space to the transitioneconomies that have been liberalizing since the breakup of the Soviet bloc andSoviet Union. However, East–West relations are not a major theme of thisbook, because the Cold War has virtually ended and the transition economiesare becoming more integrated in the capitalist global economy. Chapters 3–5show that IPE theorists have different interpretations of the main themes in thisbook. In regard to globalization, realists emphasize the centrality of the state;liberals believe that globalization is an important and beneficial process; andhistorical materialists also view globalization as significant but as having nega-tive consequences for poorer people; LDCs; and those marginalized because ofgender, race, and ethnicity. In regard to North–North relations, liberals aremore inclined than realists or critical theorists to see international institutionsas having a positive role in promoting international economic cooperation. Inregard to North–South and gender-based relations, critical theorists placemore emphasis than liberals or realists on inequalities and exploitation.

FOCUS OF THIS BOOKThis book introduces undergraduate and graduate students to the study ofIPE, and we have already discussed some of its distinguishing features. First, itprovides an in-depth background to IPE theory, current IPE issues in historicalperspective, and the interplay between theory and practice. Without the organ-izing framework of theory, discussions about trade, foreign investment, anddevelopment simply become a series of disparate facts. Although we devoteconsiderable attention to the mainstream perspectives of liberalism and real-ism, we do not accept the view that the breakup of the Soviet bloc marked an“end of history” leading to “the universalization of Western liberal democracyas the final form of human government.”32 Thus, we also examine several

major critical perspectives. Second, we focus on three themes relating toglobalization, North–North relations, and North–South relations. Third, weemphasize the role of global organizations such as the WTO, IMF, and WorldBank, and regional organizations such as the European Union (EU), NAFTA,and Mercosur (the Southern Common Market Treaty). Early scholarship oninternational organization had a strong idealistic and legal focus on the bodiesand rules of the League of Nations and United Nations, and post–WorldWar II realists pointed out that these studies did not deal with the real world ofpower politics. In recent years, scholars have recognized the need to study IOsas part of international politics, and we examine the limitations as well as thestrengths of international economic organizations.33 IOs are to a large degreecreatures of the states that created them, and they are having difficulty manag-ing the international economy in an age of globalization; for example, thedaily flows of foreign exchange on global markets are much greater than thetotal resources of the United Nations, World Bank, and IMF. Despite theirlimitations, IOs are important forums for negotiation that assist in upholdingthe principles, norms, and rules of the global economy.

Fourth, this book emphasizes regional as well as global relations in IPE. Thecurrent trends toward regionalism inevitably affect the management of theglobal economy, and this book devotes Chapter 8 to regionalism and globalismin trade. With the formation of NAFTA, “the trade and economic relations ofthe two largest markets in world trade—the European Community and theUnited States—are increasingly conditioned by regional agreements.”34 LDCshave also established regional trade agreements (RTAs), and two of the largestSouth American countries, Brazil and Argentina, are members of Mercosur.Major countries in East Asia such as China, Japan, and South Korea are alsoengaging in regional cooperation often on an informal basis without formalagreements. Furthermore, countries ranging from the United States to Japan,Singapore, and Mexico are negotiating a number of bilateral free-trade agree-ments. Although liberal economists believe that RTAs such as the EU andNAFTA may be “stepping stones” to global free trade, they fear that manysmaller bilateral RTAs could impede global trade liberalization. Chapter 8 dis-cusses the debate on this issue, and other chapters examine regional trends inmonetary relations, foreign investment, and international development. Of par-ticular interest is the relationship between regionalism and globalism in IPE.

Fifth, this book focuses on North–South issues and integrates theNorth–North and North–South discussions as much as possible for severalreasons. The IPE theoretical perspectives should be assessed in terms of theirapproach to all countries, and Chapters 3–5, therefore, discuss each perspec-tive’s approach to North–South as well as North–North relations. Part III alsointegrates the discussion of North–North and North–South relations becauseglobalization in trade, foreign investment, and monetary relations is affectingthe entire world. Two chapters are devoted mainly to the South: Chapter 10examines LDC strategies to promote economic development, and Chapter 11on foreign debt and financial crises focuses mainly on LDCs, but also discussesthe North and the former Soviet bloc countries. Sixth, this book discusses

Focus of This Book 13

14 CHAPTER 1 Introduction

Eastern Europe, the FSU, and China, which are in transition from centrallyplanned to market economies. They are establishing closer economic ties withthe DCs and becoming more active members of international economic organi-zations. Seventh, this book examines the challenges civil society groups andNGOs are posing to globalization and the policies of the IMF, World Bank, andWTO. Finally, this book devotes considerable attention to contemporarychanges in IPE, such as the growing influence of China, India, and Brazil asemerging economies and the challenge they present to the United States andother developed countries; and the effects of the global financial crisis and envi-ronmental changes on the prospects for growth in the global political economy.

Chapter 2 provides an overview of the history and institutions of the post-war international economic order; Chapters 3–5 discuss the basic assumptionsand historical evolution of the IPE theoretical perspectives; and Chapters 6–11cover monetary relations, global trade, trade regionalism, MNCs, internationaldevelopment, and foreign debt and financial crises. To assist students in under-standing the issues and concepts, Chapters 1–11 have sections such as Ques-tions and Key Terms, and Chapters 1–12 have suggestions for further reading.

QUESTIONS1. What is IPE, and why do IPE scholars criticize some economists and political

scientists? What is the relationship between “the state” and “the market”?2. What is the 2008 global financial crisis, and what are some of its causes?3. What is the importance of theory, and what are some of the main theoretical

perspectives in IPE?4. What are the hyper-globalist, moderate globalist, and internationalist views of

globalization? Which group’s views do you find most convincing, and why?5. Why has the North been so important in the management of the global economy?

Do you think that the South is gaining in influence?6. What are the East Asian NIEs, the BRIC economies, and the LLDCs? What do

these groups tell us about economic disparities within the South?

KEY TERMS

FURTHER READINGA groundbreaking book in IPE is Robert Gilpin with Jean M. Gilpin, The Political

Economy of International Relations (Princeton, NJ: Princeton University Press,1987). An important book on the development of IPE as an academic discipline isBenjamin J. Cohen, International Political Economy: An Intellectual History(Princeton, NJ: Princeton University Press, 2008).

economism 4globalization 6gross domestic

product 9gross national income 9

gross nationalproduct 9

hyper-globalists 7infrastructure 4internationalists 7

market 3moderate globalists 7politicism 4state 3

Notes 15

Two useful studies on approaches to theorizing in IPE and IR are Thomas J.Biersteker, “Evolving Perspectives on International Political Economy: Twentieth-Century Contexts and Discontinuities,” International Political Science Review14, no. 1 (January 1993), pp. 7–33; and James N. Rosenau and Mary Durfee,Thinking Theory Thoroughly, 2nd ed. (Boulder, CO: Westview Press, 2000),chs. 1 and 9.

Recent studies on globalization from different perspectives include Jagdish Bhagwati,In Defense of Globalization (New York: Oxford University Press, 2004); MartinWolf, Why Globalization Works (New Haven, CN: Yale University Press, 2004);David Held and Anthony McGrew, Globalization/Anti-Globalization: Beyond theGreat Divide, 2nd ed. (Malden, MA: Polity Press, 2007); Joseph E. Stiglitz, MakingGlobalization Work (New York: W.W. Norton, 2007); Jan Aart Scholte,Globalization: A Critical Introduction, 2nd ed. (New York: Palgrave Macmillan,2005); Michael M. Weinstein, Globalization: What’s New (New York: ColumbiaUniversity Press, 2005); Ngaire Woods, The Globalizers: The IMF, the World Bankand Their Borrowers (Ithaca, NY: Cornell University Press, 2006); and Linda Weiss,The Myth of the Powerless State (Ithaca, NY: Cornell University Press, 1998).

NOTES1. Stephany Griffith-Jones, José Antonio Campo, and Joseph E. Stiglitz, eds., Time

for a Visible Hand: Lessons from the 2008 World Financial Crisis (New York:Oxford University Press, 2010).

2. James A. Caporaso, “Global Political Economy,” in Ada Finifter, ed., PoliticalScience: The State of the Discipline II (Washington, DC: American Political ScienceAssociation, 1993), p. 451.

3. Kathleen R. McNamara, “Of Intellectual Monocultures and the Study of IPE,”Review of International Political Economy 16, no. 1 (February 2009), p. 73.

4. Robert Gilpin, with Jean M. Gilpin, The Political Economy of International Relations(Princeton, NJ: Princeton University Press, 1987), pp. 8–11.

5. Philip G. Cerny, The Changing Architecture of Politics: Structure, Agency and theFuture of the State (London: Sage, 1990), pp. 228–229; Philip G. Cerny, “Para-doxes of the Competition State: The Dynamics of Political Globalization,”Government and Opposition 32, no. 2 (April 1997), pp. 251–274.

6. United Nations Conference on Trade and Development (UNCTAD), World Invest-ment Report 2009 (New York: United Nations, 2009), p. xxi; Lorraine Eden,“Bringing the Firm Back In: Multinationals in International Political Economy,” inLorraine Eden and Evan H. Potter, eds., Multinationals in the Global PoliticalEconomy (New York: St. Martin’s Press, 1993), p. 26.

7. Richard K. Ashley, “Three Modes of Economism,” International Studies Quarterly27, no. 4 (December 1983), p. 463; Colin Hay and David Marsh, “Introduction:Towards a New (International) Political Economy?,” New Political Economy 4,no. 1 (1999), pp. 9–10.

8. Robert W. Cox, “Social Forces, States and World Orders: Beyond InternationalTheory,” Millennium 10, no. 2 (1981), p. 128.

9. Robert Gilpin first identified these three perspectives in IPE in U.S. Power and theMultinational Corporation: The Political Economy of Foreign Direct Investment(New York: Basic Books, 1975). See also Gilpin, The Political Economy of Interna-tional Relations, ch. 2.

16 CHAPTER 1 Introduction

10. For example, see Matthew Watson, “Theoretical Traditions in Global PoliticalEconomy,” in John Ravenhill, ed., Global Political Economy, 2nd ed. (New York:Oxford University Press, 2008), pp. 27–66.

11. Mark Rupert and Hazel Smith, eds., Historical Materialism and Globalization(New York: Routledge, 2002). Some historical materialists examine the relation-ship between ideas and material circumstances. See Robert W. Cox with MichaelG. Schechter, The Political Economy of a Plural World: Critical Refllections onPower, Morals and Civilization (New York: Routledge, 2002), pp. 26–27.

12. Jan Aart Scholte, Globalization: A Critical Introduction, 2nd ed. (New York: PalgraveMacmillan, 2005); Aseem Prakash and Jeffrey A. Hart, “Globalization and Gover-nance: An Introduction,” in Aseem Prakash and Jeffrey A. Hart, eds., Globalizationand Governance (London: Routledge, 1999), pp. 4–17.

13. Kenichi Ohmae, The End of the Nation State: The Rise of Regional Economies(New York: Free Press, 1995), p. 5.

14. Linda Weiss, ed., States in the Global Economy: Bringing Domestic InstitutionsBack In (Cambridge: Cambridge University Press, 2003), p. 3, ch. 1.

15. Paul Hirst and Grahame Thompson, Globalization in Question: The InternationalEconomy and the Possibilities of Governance, 2nd ed. (Cambridge, MA: PolityPress, 1999), p. 7.

16. Buzan in Barry Buzan, David Held, and Anthony McGrew, “Realism vs Cos-mopolitanism,” Review of International Studies 24, no. 3 (July 1998), p. 392.

17. David Held and Anthony McGrew, Globalization/Anti-Globalization: Beyond theGreat Divide, 2nd ed. (Malden MA: Polity Press, 2007), pp. 6–8.

18. Scholte, Globalization: A Critical Introduction, pp. 59–75.19. Philip G. Cerny, “Globalization and Other Stories: The Search for a New Paradigm

for International Relations,” International Journal 51, no. 4 (Autumn 1996), pp. 617–637.

20. David P. Rapkin and Jonathan R. Strand, “Competitiveness: Useful Concept, Polit-ical Slogan, or Dangerous Obsession?,” in David P. Rapkin and William P. Avery,eds., National Competitiveness in a Global Economy (Boulder, CO: Rienner,1995), pp. 1–20.

21. John H. Dunning, Multinational Enterprises and the Global Economy (Wokingham,MA: Addison-Wesley, 1993), pp. 14–15.

22. Russia is not yet a WTO member.23. On the GNP and GNI, see Organization for Economic Cooperation and Develop-

ment, System of National Accounts, 1993—Glossary (Paris: OECD, 2000), p. 23;World Bank, World Development Report—2003 (Washington, DC: World Bank,2003), pp. 233, 245.

24. Joseph S. Nye, Jr., Bound to Lead: The Changing Nature of American Power(New York: Basic Books, 1990), p. 70.

25. Paul R. Krugman and Maurice Obstfeld, International Economics: Theory andPolicy, 7th ed. (New York: Pearson Addison-Wesley, 2006), pp. 11–14 and280–283.

26. Lester Thurow, Head to Head: The Coming Economic Battle Among Japan,Europe, and America (New York: Morrow, 1992).

27. Mike Mason, Development and Disorder: A History of the Third World Since1945 (Toronto: Between the Lines, 1997), p. 1.

28. Howard Handelman, The Challenge of Third World Development (Upper SaddleRiver, NJ: Prentice-Hall, 1996), pp. 3–10.

Notes 17

29. Paul Collier, The Bottom Billion: Why the Poorest Countries Are Failing and WhatCan Be Done About It (New York: Oxford University Press, 2007).

30. United Nations Development Program (UNDP), Human Development Report2005, p. 36, http://hdr.undp.org/reports/global/2005, p. 37.

31. United Nations (UN) Department of Economic and Social Affairs, The InequalityPredicament: Report on the World Social Situation 2005 (New York: UnitedNations, 2005), p. 49.

32. Francis Fukuyama, “The End of History?,” The National Interest 16 (Summer1989), p. 4.

33. On the inadequate attention given to IOs see J. Martin Rochester, “The Rise andFall of International Organization as a Field of Study,” International Organization40, no. 4 (Autumn 1986), pp. 777–813.

34. World Trade Organization, Regionalism and the World Trading System (Geneva:WTO, April 1995), p. 27.