International Political Economy
Aims at understanding the complex relationship between political power, economic wealth, and
international relations
The reciprocal and dynamic interaction in IR of the pursuit of wealth and power (Gilpin 1975)
Risen in 1970, was ignored before
Three main theories: Mercantilism, economic liberalism, Marxism
Susan Strange is the founder of IPE: “the structural power within IPE has four dimensions:
security, production, finance, knowledge”. Traditional IR theories are only focused on power and
strategy between states, whereas economists ignore the variability of power in the global
economy and globalization
1) Mercantilism
Economic activity should be subordinated to the primary goal of achieving a strong state. In
other words, economics is a tool of politics, a basis for political power, it is what gives power to
states
They see the international economy as an arena of conflicts between national interests. One
state’s gain is another state’s loss
Accumulation of material wealth-acquiring weapons and military power-threat of violence
that could be used against other states (war)
Two types of economic rivalry between states:
- Defensive or benign mercantilism: states look after their national economy because it
protects their national security. This does not have too much negative effects on other
states
- Aggressive or malevolent mercantilism: states exploit the international economy through
expansionary policies
Mercantilists thus see economic strength and military–political power as complementary, not
competing goals. Economic strength supports the development of a state’s military and political
power and vice versa
Increase in national wealth and military-political power leads to a stronger state
National wealth (economic power) and military-political power are usually pursued
simultaneously, however, in some cases, a choice between the two is made. For example, the
West put limits regarding the economic exchange with the Eastern bloc during the cold war in
order to protect its national security
Mercantilists maintain that politics take primacy over economics, however recent changes have
shown that it is up for political measures to protect and develop local industry
According to Friedrich List: a country’s power/ability to produce is more important that its store
of wealth.
The risk of mutual assured destruction through nuclear weapons has changed the nature of
interstate competition. Before, it used to concern geopolitics and security, whereas now it
concerns economics; if countries go into a nuclear war, they would destroy themselves. State
competition has thus transformed into an economic competition, because war is no longer a
solid option.
In summary:
- mercantilism sees the economy as subordinate to politics and the government.
, - Economic activity increases state power.
- The state rules over private economic interests and chooses to advance economically.
- Wealth and power are complementary.
- Economic dependence on other states should be avoided as far as possible.
- When economic and security interests clash, security interests have priority
2) Economic liberalism
Economic liberalism emerged as a critique of mercantilism. Economic liberals don’t believe that
the economy is subordinate to politics, they hold that ‘the creation of the modern world is a
consequence of factors internal to the market’ (Gilpin 1987: 67)
Adam Smith, father of liberal economy:
- Markets expand to benefit humans, if governments don’t interfere (free market advocate)
- Economic marketplace is the main source of progress, cooperation, and prosperity
- Political interference and state intervention are uneconomical and may lead to conflict
Liberal economics has been called ‘a doctrine and a set of principles for organizing and
managing economic growth, and individual welfare’ (Gilpin 1987: 27). It is based on the notion
that if left to itself, the market economy will operate spontaneously according to its own
mechanisms or ‘laws’. These laws are considered to be inherent in the process of economic
production and exchange (invisible hand/law of supply and demand)
Ricardo (1973): the pursuit of individual advantage is connected with the universal good of the
whole
Global wealth will increase in a world economy based on free trade
Thus, according to economic liberals, the central actor is not the state/government, but the
individual as a consumer and a producer. The marketplace is the open arena where individuals
come together to exchange goods and services, by being rational beings which they apply to the
marketplace
Liberal economists find that this view of individuals as rational and self-seeking (wanting to
make themselves better off) can be used as a starting point for understanding not only market
economics but also politics. That particular perspective goes under the name of rational choice
theory
There is a debate among liberals about the extend to which government intervention may be
necessary. They realize that in some instances ‘market forces’ might fail and might not fulfill
expectations, this is called ‘market failure’. Political regulation may be necessary to
correct/avoid market failures
John Stuart Mill was in many ways a laissez-faire economic liberal, but he was also critical of the
extreme inequalities of income, wealth, and power that he observed in nineteenth-century
Britain (Stahl 2019). That made him call for limited state action in some areas, including
education and relief for the poor. In the 1930s, John Maynard Keynes, the leading economist of
the early twentieth century, went one step further. According to Keynes, the market economy is
a great benefit to people, but it also entails potential evils of ‘risk, uncertainty and ignorance’.
That situation could be remedied through improved political management of the market
In summary:
- The market is an autonomous sphere of society which operates according to its own laws.
- Over time, the modern part of the economy tends to crowd out more backward sectors,
which increases efficiency and hence wealth
Aims at understanding the complex relationship between political power, economic wealth, and
international relations
The reciprocal and dynamic interaction in IR of the pursuit of wealth and power (Gilpin 1975)
Risen in 1970, was ignored before
Three main theories: Mercantilism, economic liberalism, Marxism
Susan Strange is the founder of IPE: “the structural power within IPE has four dimensions:
security, production, finance, knowledge”. Traditional IR theories are only focused on power and
strategy between states, whereas economists ignore the variability of power in the global
economy and globalization
1) Mercantilism
Economic activity should be subordinated to the primary goal of achieving a strong state. In
other words, economics is a tool of politics, a basis for political power, it is what gives power to
states
They see the international economy as an arena of conflicts between national interests. One
state’s gain is another state’s loss
Accumulation of material wealth-acquiring weapons and military power-threat of violence
that could be used against other states (war)
Two types of economic rivalry between states:
- Defensive or benign mercantilism: states look after their national economy because it
protects their national security. This does not have too much negative effects on other
states
- Aggressive or malevolent mercantilism: states exploit the international economy through
expansionary policies
Mercantilists thus see economic strength and military–political power as complementary, not
competing goals. Economic strength supports the development of a state’s military and political
power and vice versa
Increase in national wealth and military-political power leads to a stronger state
National wealth (economic power) and military-political power are usually pursued
simultaneously, however, in some cases, a choice between the two is made. For example, the
West put limits regarding the economic exchange with the Eastern bloc during the cold war in
order to protect its national security
Mercantilists maintain that politics take primacy over economics, however recent changes have
shown that it is up for political measures to protect and develop local industry
According to Friedrich List: a country’s power/ability to produce is more important that its store
of wealth.
The risk of mutual assured destruction through nuclear weapons has changed the nature of
interstate competition. Before, it used to concern geopolitics and security, whereas now it
concerns economics; if countries go into a nuclear war, they would destroy themselves. State
competition has thus transformed into an economic competition, because war is no longer a
solid option.
In summary:
- mercantilism sees the economy as subordinate to politics and the government.
, - Economic activity increases state power.
- The state rules over private economic interests and chooses to advance economically.
- Wealth and power are complementary.
- Economic dependence on other states should be avoided as far as possible.
- When economic and security interests clash, security interests have priority
2) Economic liberalism
Economic liberalism emerged as a critique of mercantilism. Economic liberals don’t believe that
the economy is subordinate to politics, they hold that ‘the creation of the modern world is a
consequence of factors internal to the market’ (Gilpin 1987: 67)
Adam Smith, father of liberal economy:
- Markets expand to benefit humans, if governments don’t interfere (free market advocate)
- Economic marketplace is the main source of progress, cooperation, and prosperity
- Political interference and state intervention are uneconomical and may lead to conflict
Liberal economics has been called ‘a doctrine and a set of principles for organizing and
managing economic growth, and individual welfare’ (Gilpin 1987: 27). It is based on the notion
that if left to itself, the market economy will operate spontaneously according to its own
mechanisms or ‘laws’. These laws are considered to be inherent in the process of economic
production and exchange (invisible hand/law of supply and demand)
Ricardo (1973): the pursuit of individual advantage is connected with the universal good of the
whole
Global wealth will increase in a world economy based on free trade
Thus, according to economic liberals, the central actor is not the state/government, but the
individual as a consumer and a producer. The marketplace is the open arena where individuals
come together to exchange goods and services, by being rational beings which they apply to the
marketplace
Liberal economists find that this view of individuals as rational and self-seeking (wanting to
make themselves better off) can be used as a starting point for understanding not only market
economics but also politics. That particular perspective goes under the name of rational choice
theory
There is a debate among liberals about the extend to which government intervention may be
necessary. They realize that in some instances ‘market forces’ might fail and might not fulfill
expectations, this is called ‘market failure’. Political regulation may be necessary to
correct/avoid market failures
John Stuart Mill was in many ways a laissez-faire economic liberal, but he was also critical of the
extreme inequalities of income, wealth, and power that he observed in nineteenth-century
Britain (Stahl 2019). That made him call for limited state action in some areas, including
education and relief for the poor. In the 1930s, John Maynard Keynes, the leading economist of
the early twentieth century, went one step further. According to Keynes, the market economy is
a great benefit to people, but it also entails potential evils of ‘risk, uncertainty and ignorance’.
That situation could be remedied through improved political management of the market
In summary:
- The market is an autonomous sphere of society which operates according to its own laws.
- Over time, the modern part of the economy tends to crowd out more backward sectors,
which increases efficiency and hence wealth
