International Political Economy

I. Globalization and the State

 “ State were once the masters of the market, now it is the markets, which, on many crucial issues, are
the masters over the government of the states” was one of the remarkable statement of the late Susan
Strange which was interpreted that global business interests particularly mobile capital have gained
power at the expense of the welfare states and reformist politicians.

 “Globalization has actually strengthened the relationship between social democratic forces and the
political power of organized labor and economic policies reduce market- generated inequalities” was
defended by other IPE scholars in contrary to the opinion of the latter.
For me, I agreed to the second statement contended by the other political economist. To further
elaborate, the term "globalization" began to be used more commonly in the 1980s, reflecting technological
advances that made it easier and quicker to complete international transactions—both trade and financial flows.
It refers to an extension beyond national borders of the same market forces that have operated for centuries at
all levels of human economic activity—village markets, urban industries, or financial centers.
The growth in global markets has helped to promote efficiency through competition and the division of
labor—the specialization that allows people and economies to focus on what they do best. Global markets also
offer greater opportunity for people to tap into more diversified and larger markets around the world. It means
that they can have access to more capital, technology, cheaper imports, and larger export markets. But markets
do not necessarily ensure that the benefits of increased efficiency are shared by all. Countries must be prepared
to embrace the policies needed, and, in the case of the poorest countries, may need the support of the
international community as they do so.
The broad reach of globalization easily extends to daily choices of personal, economic, and political life.
For example, greater access to modern technologies, in the world of health care, could make the difference
between life and death. In the world of communications, it would facilitate commerce and education, and allow
access to independent media. Globalization can also create a framework for cooperation among nations on a
range of non-economic issues that have cross-border implications, such as immigration, the environment, and
legal issues. At the same time, the influx of foreign goods, services, and capital into a country can create
incentives and demands for strengthening the education system, as a country's citizens recognize the
competitive challenge before them.
History shows the relationship of Globalization and Democracy which involves the rule of law. It has
shown in recent decades that globalization has unfolded in tandem with a notable growth of liberal democracy
in many states where it was previously absent, such as in Central and Eastern Europe, Africa, Asia, Latin
America. Democracy as political order has always been established in a limited territory or community, as
Greek polis was before and as nation-state is in the modern age of liberal democracy. Forces of
globalization have undermined the democratic capacities of national governments. States cannot tame
the tyranny of global corporations. Global financial markets, too, have often constrained the
possibilities for democratization. Small and poor states cannot ensure democracy for their citizens in
respect of global governance bodies like the WB and WTO. Ironically, then, several states have adopted
liberal democracy at the very moment when state-centric democracy has passed its historical sell-by
date. Simultaneous historic paradox has happened: At the very moment when western democracies have
triumphed over the communist alternative, they own democratic systems of self-government are being
gradually unraveled by the market system.
Democracy is accelerated through globalization by the most important tools of communication between
states and the people. Trade, foreign investment, finance, migration, environment, and culture are the tools
which help in promoting democracy by creating more integration. Trade always played an important role in
lessening from the gap between the different social classes and made it easier for the population to share ideas,
ideals, and information faster and better. The globalization of trade and using trade as a tool to communicate
with other states is rather important to democratic states and now, we are able to buy products and services from
all around the world as well as specialize in different types of jobs and in making transactions with people from
around the globe. Foreign investment is also valuable and helps in introducing countries to different investors
from different states.
Other undemocratic states enjoy the democratic benefits of employment, technology, knowledge, and
economic activity which even work on a fast rate by the participation of democratic multinational enterprises in
poor or corrupt developing countries. International finance allows for more capital to flow into poorer countries
as well as to rich countries and it creates more interdependence between democratic states with non-democratic
states. The more interdependence states have with one another, the more power globalization has to influence
and promote democratic ideals that help in creating a sense of justice, equality, rights, and freedom and hence
the promotion of democracy to the masses. Migration, and culture are also bridging boarders and are the main
elements in globalization that have direct affect in introducing skill as well as knowledge of different rights,
values, and more importantly democratic norms.
Globalization also fortified organized labor, international researches proved that there were political
changes and economic reforms that have transformed China, India, and the former Eastern bloc countries,
effectively involving their large labor forces in open market economies. At the same time, the development of
technology, combined with the progressive removal of restrictions on cross-border trade and capital flows, has
made it possible for production processes to be unbundled and located farther from target markets for a growing
universe of goods and services. The location of production has become much more responsive to relative labor
costs across countries. There have also been increasing flows of migrants across borders, through both legal and
informal routes. This ongoing globalization of the labor market has drawn increasing attention from
policymakers and the media, particularly in the advanced economies.
The rapid growth of the global labor supply and its manifestation through increasing exports of
emerging market and developing countries leads to the question of how these trends have affected workers in
advanced economies. Some of the key features of economic globalization include: the development of
international organizations such as the World Trade Organization (WTO), the World Bank, the International
Monetary Fund (IMF), and the International Finance Corporation (IFC), all working to ensure the
economic vitality of nation--‐states around the world; the majority of the world’s economic activity
orchestrated by transnational corporations and taking place in the regions of North America, Western
Europe, Japan, and Southeast Asia; a dramatic increase in the number of capital investments and the rate
by which they cross the globe; a great increase in the dependency.
Another significance of globalization to labor trend was the equal participation of women in the
workforce. Characteristics of women’s work before the emergence of the globalization include low wages, low
status, low levels of training, less stable work, less powerful jobs, emotional labor, and a lack of skills
development or occupational development. In addition to the increase of women's participation in the labor
force globally, has been identified as the “feminization” of the workforce.
In terms of state policies, economic globalization imposes a strictly binding economic constraint on
national government’s discretionary power over domestic politics, forcing her to accept exogenously imposed
economic adjustment processes and to pursue policies that may not be consistent with her (less binding)
political ideologies.
Globalization induces structural changes that are, in the long run, unavoidable, possibly creating mass
unemployment in one economic sector, while leading to economic growth and worker shortage in another
sector, increasing income inequality not only within the group of workers, but also between workers and
capital-owners. In addition, in order to stay competitive, globalization also exerts pressures to pursue policies of
labor market deregulation, to shift the tax burden from capital onto less mobile labor and consumption, and to
cut government and welfare spending. It also creates vibrant trade and capital linkages across countries leading
to strong cross-national economic dependencies and domino effects, with the potential to aggravate or even to
cause national economic crises, exogenously determining the speed of domestic reforms
For example, in Europe and the U.S. the shrinking of the mining and agricultural sectors had been
combated through government subsidies – which had kept costs of production artificially low. We have seen,
however, that, in the long-run, such counteracting policies generate more inefficiencies than benefits to society
and are, therefore, economically not sustainable – in the very end, both left-wing and right-wing governments
likewise will prefer to put paying subsidies for dying industries to an end. Particularly in the light of limited
government budgets, opportunity costs of such no sustainable subsidies are high, as these financial resources
could be more wisely invested in the prerequisites for economic growth in general, e.g. schooling,
infrastructure, and particularly in those sectors with a (potential) comparative advantage in the world market

II. Poverty and Inequality

Evidence on inequality and poverty in the Third World suggests both encouraging and discouraging changes in
the recent decades. In the industrializing nations of Asia, inequality seems to have been reduced and poverty
lessened, but in Latin America, there is an evidence of persistent poverty and yet greater inequality. In Africa
and in some parts of Asia, entire nations are now labelled, “failed states” experiencing deeper poverty with
little hope of improvement. As a political Science Student, why has this happened, and what are the solutions
that may be propose? What do you think is the path to end poverty and/or creating more equal societies?
Poverty means the state of being extremely poor and the state of being inferior in quality or insufficient
in amount. International Organizations such as United Nations described poverty in a statement as a violation of
human dignity whereby humans are denied from having choices and opportunities. The World Bank also
delineates the latter as a pronounced deprivation in well-being and it encompasses various factors. People living
in poverty might have low incomes and therefore unable to purchase basic goods and services necessary for
survival with dignity. Poverty brings the poor to low levels of health and education, lack of clean water and
sanitation, inadequate physical security, lack of voice, and insufficient capacity and opportunity to better one’s
life.
Moreover, poverty is complex, and it consists of multiple components of facts. It is the deficiency in the
basic need of human for example food or shelter. It leads to the poor being exploited as they do not have a
voice, are powerless and independence. This leads to being humiliated and sometimes inhuman treatment by
others with power and status when they seek help. The poor are deprived of essential infrastructure such as
clean water, health facilities and education. In terms of education, it is highly valued, but it is irrelevant in the
lives of poor as they are more concerned about the deprivation of their basic needs. They are more concerned
of what they own than employment, and because they lack assets, they are therefore vulnerable.
 CAUSE OF POVERTY
Corruption - It argues that the practice “Weakens public service delivery, misdirects public resources,
and holds back the growth that is necessary to pull people out of poverty. It destabilizes the driving forces
behind reform and vital resources are siphoned off shore. It reduces public revenue, undermines public trust, and
weakens the credibility of the state. Renowned scholar Rebert Klitgaard hypothesized that corruption is more
likely to occur in an environment where officials have monopolistic control over state resources such as who
can gain access to the resource. While the mechanisms for holding these official’s responsibility for their
actions are weak and this reduces private investment in that society. It is widely recognized today as a symptom
of poor governance and a major obstacle to poverty reduction efforts which causes reduction in quality of goods
and services available to the public. Corruption also, refers to preferential access to public goods and services,
gratuitous insuring of public procurement and contracts, illegal hiring in the public sector, bribery or grafting,
abuse of official information, inconsistent application of rules. The phenomenon leads to forfeiture of public
trust. In many countries, money collected from corruption is used to finance political parties. By undermining
the purpose of government intervention into the economy, corruption is the main cause of government failure
due to misallocated resources as caused by denigrating the country developmental objective that leads to
country poverty.
For example, countries like Bangladesh and India face this public sector corruption especially in the
police department, customs, taxation and the national secretariat. In Bangladesh and India, bribery is the most
damaging form of corruption in the public sector. It has become a standard practice in most departments to
bribe the concerned officials. The set back of this bribery cause the department delaying decisions until
payment is made which means it is the quantity of bride and not the merit of the country development. Due to
the administrative excesses and arbitrary behavior, it would add to the suffering of the people. Hence, the
people have developed fear and wariness about the officers because of the excesses they perpetrate on them and
the way they abuse power. Their corruption issues lead to the slowing down of the country economy and
hindering the process of growth and development of the country.
Education- Poverty is not only a problem of low incomes but it is a multidimensional problem that
includes low access to opportunities for developing human capital and education. Due to the multidimensional
problem, more attention needs to be focused on investment in human capital, in education as a means to
increase earnings, quality of jobs and improving the quality of life such as better utilization of health facilities,
shelter, water and sanitation. Statistically, the effect of schooling exists with rates of return as high 16 percent
per year. However, poor countries increase their poverty level due to lack of training skills, productive
knowledge and transforms human beings into more valuable human capital and education. Without proper
training for the respective skills and knowledge in the work force such as read, write, communicate and be able
to choose different alternative choices in more informed way would lead to low earnings and therefore increase
poverty level.
For example, in the United States 22.9 percent or 6.4 million people are without a high school diploma
whereas only 3.6 percent or 2 million people have a college degree or higher. Education yields attractive
returns, comparable with alternative rates of return, both to the individual and to the society at large. Without
education it would not broaden the base understanding among people which would deter the democratic process
which in turn could not pave the way to the promotion of sustainable development, through a better
understanding of the intimate relation between environment, ecology and sustainable development. Thus, by
strengthening democratic forces, education would help in promoting sustainable human development, making
rapid social progress, including abolition of containment of the elite’s discretionary power and wider social
equity. Education can be a life empowering experience for all and what the poor needs most is empowerment.
Thus, education serves at the same time both the constitutive and instrumental roles of development.
Political Instability, Wars, Civil Wars It is arguable that countries which are rich in natural resources
maybe prone to civil wars due to “loot-seeking’ activities. References and found that countries with both
dependence upon primary commodity exports and a large diaspora significantly increase the risk of conflict.
This has been a widespread phenomenon in Africa. Although Sudan was officially split into Sudan and the
Republic of South Sudan in 2011, the recent conflict in between the split countries occurred mainly due to
ongoing disagreements over how to split lucrative oil revenues. Oil was once thought to bind the two nations
together and prevent conflict because of oil fields in the South and the refineries in the North. But today, the
same oil has become the reason of fuse between the split territories. Ironically, during civil wars, large amounts
of resources are spent on weapons which could have been better used to alleviate poverty. Apparently, both the
civil wars and poverty exist in an inextricable manner. Civil wars can be disruptive to capital or transactions-
intensive activities such as roads, production of manufactures, or financial services. They can divert expenditure
and the nation’s resources from economic services to the war efforts and they can divert portfolios from
domestic investment into capital flight.
Ineffective Governance & Government Policies Most African governments have been undemocratic
for much of the post-colonial period. The median African government during the 1970s and 1980s was close to
autocracy. The ineffective local governance and government policies seem to prevent the chronically poor from
escaping the poverty trap. A typical pattern is that governments are controlled by the ruling elites, educated,
urban resident population who are resistant or indifferent to pro-poor policies. These political elites use their
poor as hostages to personally benefit from aid resources and debt relief. Besides, most of these governments
tend to expand the public sector, while imposing wide-ranging controls on private activity. These decisions
have been economically costly. For example, in Ghana by the late 1970s the public sector accounted for three-
quarters of formal wage employment and even in a more market-oriented economy like Kenya, the figure was
50 percent as of 1990. Essentially, due to the lack of democracy, neither were they accountable to the broader
public. As a result, this has lowered the quality of public services despite relatively high public expenditure.
Poor service delivery handicapped firms through unreliable transport and power, inadequate
telecommunications networks, and unreliable courts.
 POSSIBLE SOLUTIONS FOR POVERTY ERADICATION
Preventing Corruption - Strengthen Democracy’s Transparency. There are few methods that was
suggested by Hanlon and Pettifor on how to tackle corruption A.) restore justice in which international creditors
play the role of plaintiff, judge and jury, in their own court of international finance. B.) Introduce discipline in
sovereign lending and borrowing activities to prevent future crises. C.) Introduce accountability to counter
corruption in borrowing and lending activities for both creditor and debtor nations. E.) Strengthen local
democratic institutions and empowering them to decide and influence inappropriate policy/rules. F.) Encourage
greater understanding and economic literacy among citizens to challenge and express dissatisfaction those
responsible of wrongdoings.
Education Literacy programs are needed for the poor- reducing of poverty can only be done through
actions of education development assistance and financial contribution from wealthiest countries in education
development. The fight against poverty and the promotion of an equal education must become a priority for all
especially the governments. Development initiatives should be in the form of cooperation to transfer skills to
targeted population. Quality education is most critical solution so that they can help themselves to come out
from poverty circle.
Political Instability, Wars, Civil Wars Low national income per capita - increases the risk of civil
war. Low income per capita also tends to prolong existing conflicts, and that a decline in per capita income can
make more countries vulnerable to civil conflict. Because civil war impairs economic performance,
exacerbating poverty, poor countries that experience conflict are at risk of getting stuck in a conflict trap. The
overall and crucial policy recommendation to reduce conflict risk is needed to spur economic development and
reduce poverty in developing countries, especially in the poor states. Policies that increase per capita income in
the poorest countries will reduce their conflict risk. Ultimately this will reduce poverty level of the involving
country.
Natural and Geographical Characteristics - innovation of agricultural system for adaptation such as
farmer production practices, market approaches, technological and policy innovations is also important to adapt
to the natural and geographical factor. New crop varieties that can better withstand drought, water-logging,
increased crop diseases and pests are also needed. Agricultural integrated value chain such as easy accessibility
to finance, weather crop insurance, crop storage and accessibility to local and regional markets are also needed
to improve or increase the income of the population. Most of the farmer farms the land continuously, resulting
in fertile farmlands are decreasing. The individual farmers have limited knowledge and accessibility to use
fertilizer to sustain plant growth. Therefore, technical and financial assistance must be given such as,
appropriate tools and support, skills and knowledge, so that productivity of the land could be increased and
sustained.
Effective Governance & Government Policies Responsible governance of developing countries is
needed to reduce or eliminate the poverty. Important policy introduction in the developing countries such as
debt relief, increased market accessibility, improved incentives for private sector development, increased
foreign direct investment, sustained support for civil society especially underprivileged, free press, women’s
rights etc., are needed to prevent and eventually will help towards eliminating the poverty.
Creating a Framework for Economic Growth and Transformation - the government must be
committed to providing economic policy incentive for promoting private sector investment and increase foreign
direct investment to reduce poverty such as, containing inflation rates to single digits, controlling public
expenditure within available financial resources and maintaining a fair foreign exchange market. The
government must also commit to public expenditure and ensure that money spent is targeted at improving the
welfare of the poor. Ensuring Good Governance and Security in terms of the issues of conflict resolution,
human rights and security of life and property are protected. Specific attention must also be given to
accountability and democracy as necessary facets of good governance and security.
Increasing the Ability of the Poor to Raise Their Incomes - the government must also be committed
to ensure that the public has easy access to market information, accessibility and infrastructure. The
construction and maintenance of a good road network is required for market accessibility of agriculture from
rural and remote areas. The process of building the country’s infrastructure also contributes to poverty
reduction by creating employment in the rural areas. The government needs to promote secure access and rights
to land, credit markets and promotion of improvements to land. Subsequently this will increase productivity and
transform the agriculture development.
As a Political Science Student, I suggest that the administration must focus more on Livelihood
Programs or Projects that can aid in the abolition of poverty. So that this citizen will not only depend on the
government for their cost of living. The government will just be there to provide their starting capital and it’s
the responsibility of this to generate more income from it. They will also develop new skills from that
livelihood training that they might use for survival and acquire experience that they might use in seeking
employment. As the saying goes “Give a man a fish and you feed him for one day. Teach a man to fish and you
feed him for a lifetime”.