Gilpin, R., 2011. Global political economy: Understanding the international economic order.
Princeton University Press.
CHAPTER ONE
production of wealth and how these markets can be made most effi-
cie.rt. Ho* societies then choose to distribute that wealth among al-
ternative ends is a moral and political matter lying outside the realm
of economic science.
In the study of political economy) however, the purpose of eco-
nomic activity is a fundamental issue: Is the purpose of economic
activity to benefit individual consumers, to promote certain social
welfare goals, or to maximize national power? The question of pur-
pose is a"t the-core of political economy, and the answer is a political
*utt.. that society must determine. The purpose that a particular
society (domestic or international) chooses to pursue in turn deter-
mines'the role of the market mechanism in the economy. lflhether a
society decides that the market of some other mechanism should be
the piincipal means to determine the allocation of productive re-
,o.rr.., u.rd th. distribution of the national product is a political mat-
ter of the utmost importance. The social or political purpose of eco-
nomic activities arrd the economic means to achieve these goals
cannot be separated. In every society, the goals of economic activities
and the role of markers in achieving those goals are determined by
political processes and ultimately are responsibilities delegated by so-
.i.ty to th. rtut.. Yet, the market has its own logic, and its cljctates
mrrst be heeded; as economists are fond of reminding us' every benefit
has a cost and in a world of scarcify, painful choices must be made'
Therefore, the market and economic factors do impose limits on what
states can achieve.
CoNcrusroN
The functioning of the world economy is determined by both markets
and the policies of nation-states. The political purposes, rivalries, and
.oop.r"iion of states interact to create the framework of political re-
latións within which economic forces operate. States set the rules that
individual entrepreneurs and multinational firms must follow. Yet,
economic and technological forces shape the policies and interests of
individual states and the political relations among states. The market
is indeed a potent force in determination of economic and political
affairs. For this reason, both political and economic analyses are re-
quired to understand the actual functioning and evolution of - the
global economy. A comprehensive analysis necessitates intellectual in-
tegration of both states and markets.
24
CHAPTER T!øO
The l.{ature of Political Economy
tTtus sruDy of political economy is now very much in vogue
I historians, economists, and social scientists.l This interest
"-otrg
reflects a growing appreciation that the worlds of politics and eco-
nomics, once thought to be separate (at least as fields of academic
inquiry), do in fact importantly affect one another. The polity is much
more influenced by economic developments than many political scien-
tists have appreciated, and the economy is much more dependent
upon social and political developments than economists in general
have admitted. Recognition of the interrelationships between the two
spheres has led to increased attention from historians and social scien-
tists. I shall explore the nature of political economy and contrast it
with economics before turning to the subject of international political
economy itself.
During the last two centuries several different definitions of the
term "political economy" have been set forth.2 A brief summary of
the changes in those definitions provides insight into the nature of the
subject.3 For Adam Smith in The.Weahh of Nations (L776), political
economy was a "branch of the science of a statesman or legislator"
and a guide to the prudent management of the national economy, or
as John Stuart Mill, the last major classical economist, commented,
political economy was the science that teaches a nation how to be-
come rich. These thinkers emphasized the wealth of nations, and the
term "political" was as significant as the term "economy."
In the late nineteenth century, this broad definition of what econo-
mists study was narrowed considerably. Alfred Marshall, the father
of modern economics, turned his back on the earlier emphasis on the
t
The references to economists discussed in this section draw from the review of the
varieties of political economy in David K. 'S7hynes, ed.,'What Is Political Economy?:
Eight Perspectizes (Oxford: Basil Blackwell ,1,984').
2
An analysis of various approaches to the subject can be found in James A. Capor-
aso and David P. Levine, Tbeories of Political Economy (New York: Cambridge Uni-
versity Press, 1992).
3
This discussion of the various meanings of political economy is based on Colin
Iüright, "Competing Conceptions of Political Economy," in James H. Nichols Jr. and
Colin Xfright, eds., From Political Econorny to Economics-And Back? (San Fran-
cisco: Institute for Contemporary Studies, 1990).
25
 THE NATURE OF POLITICAL BCONOMY
CHAPTER T'S7O
approach to social institutions and other sociopolitical matters is to
nation as a whole and on the political as important' In his highly
assume that individuals act alone or together to create social institu-
inRo.ntlnt Principles of Economics (1890), Márshall substituted the
present-day t.r- "..onomics" for "political economy" and ,greatly
tions and promote other social/political objectives to advance their
privâte interests. Two fundamental positions may be discerned within
restricted ihe do-ai.r of economic sciènce. Following Marshall's pre-
this broad range of scholarly research. On the one hand, some schol-
cept that economics was an empirical and value-free science' his disci-
ars assume that individuals seek to create social institutions and advo-
plå tionel Robbins in The Nature and Significance of Economic Sci'
cate public policies that will promote overall economic efficiency. On
ence (1932) provided the definition to which most present-day
the other hand, the term "political economy" is used by neoclassical
..orroàirr, suËscribe: "Economics is the science which studies human
economists to refer to rent-seeking behavior by individuals and
behavior as a relationship between ends and scarce means which have
gronps.' Trade protectionism is an example of this approach. There
alternative uses." In moie mode.n terminology, economics is defined
is, however, a powerful normative bias among economists that eco-
by economists as â universal science of decision-making under condi-
nomic institutions or structures are created to serve market efficiency.
tions of constraint and scarcitY.
The long-term objective of this body of scholarship ís to make en-
At the end of the twentieth century, the term "political economy"
dogenous to economic science those variables or explanations of so-
has come back into fashion even among economists, but there are
cial phenomena that have traditionally been assumed to be exogenous
important differences from earlier usages; also there is considerable
and therefore the exclusive province of one of the other social sciences
.oå,.ou.rry over the meaning of the term. For many professional
such as psychology, sociology, or political science. By "endogenous,"
ecorromists, especially those identified with the chicago School, polit-
economists mean that a particular human action can be fully ex-
ical economy means a significant broadening of the scope or subject-
plained as a self-conscious effort of an individual to maximize his or
matter that economists study.a These economists have greatly ex-
tended the social domain to which the methods or formal models
her economic interests; for example, according to the "endogenous
growth theory," to be discussed in the next chapter, a firm invests in
of traditional economics are applicable. The underlying âssumptions
regarding motivation and the analytical tools of mainstream econom- scientific research in order to increase its profits. By "exogenous,"
economists mean that a particular action can be explained best by a
icJ, theyãrgue, are pertinent to the study of all (or at least almost all)
noneconomic motive; for example, Albert Einstein may be said to
âspects-of Lnman behavior. For such Chicago School economists as
Gåry Becker, Richard posner, and Anthony Downs, the methodology have been motivated in his work by curiosity or by the desire for
fame rather than a desire to increase his income.
of etonomics-that is, methodological individualism or the rational
Economic imperialists assume that political and other forms of so-
actor model of human behavior-is applicable to all types of human
behavior from individuals choosing a sexual partner to voters choos- cial behavior can be reduced to economic motives and explained by
the formal methods of economic science. Government policies, social
ing the American President. According to this interpfetation, behavior
institutions including the state itself, and even whole economic sys-
.un b. explained by the efforts of individuals to maximize, satisfy, or
tems, these economists claim, can be explained through application of
optimize their self-interest.
formal economic models. For example, economist Edmund S. Phelps
i Many economists and other social scientists enamored with eco-
broadly defines political economy as the choice oÍ the economic sys-
I nomics attempt to use the individualistic or rational-choice methodol-
tem itself.6 Underlying this sweeping definition of political economy
I ogy of ..orroi-i., to explain social institutions, public policy, and
is the conviction, expressed by Jack Hirshleifer, that economics is the
oãú., for-, of social actìvities that have traditionally been regarded
one and only true social science. The universality of economics, he
as noneconomic in nature. such "economic imperialism," identified
argues, is due to the fact that its analytic abstractions such as scarcify,
most closely with the chicago school, covers several scholarly areas
that include neoinstitutio.tãlir-, public-choice theory, and what 5
Rent-seeking refers to the use of a resource to obtain a surplus ove¡ the normal
economists themselves call "political economy." The essence of this economic return to that resource. An example is a tariff that ¡aises the cost of domestic
goods.
6
Edmund S. Phelps, Political Economy: An Inuoductory Texr (New York: !1. 'll.
Warren J. Samuels, ed., The Chicago School of Political Economy (University Park'
a
Norton, 1985), xiii-xiv.
Pa.: Association of Evolutionary Economists, 1976).
27
26
CHAPTER TIøO THE NATURE OF POLITICAL ECONOMY

cost, and opportunities are themselves universally applicable and can omists, especially Buchanan and Tullock themselves, is distinguished
be used effectively to explain both individual behavior and social out- by its explicitly normative commitment to unfettered markets and
co-es.t As we shall note many rimes in this book, the belief that there strong opposition to government intervention in the economy. While
is only one universal social science, namely economics, is a powerful some economists emphasize marþet failures as a reason for govern-
dogma embraced by many, if not most, economists' ment intervention in the economy, the more conservative branch
Ãt l.nrt three difierent schools of economists employ an economic of public-choice economics considers gauernment failure-that is,
approach to human behavior: neoclassical institutionalism, the pub- economic distortions caused by the policies of governments-to be
lålchoice school, and what is sometimes called the "new political more of a threat to economic well-being. Politicians and government
economy.,, Neociassical institutionalism attempts to explain the ori- officials are not the disinterested public servants they are assumed to
gin, evoiution, and functioning of all types of institutions (social' po- be by many economists and advocates of government intervention-
iiti.ut, ..orroÁi.¡ as the result of th. maximizing behavior of.rational ism; they have interests of their own that they seek to maximize in
i"àiulã"un. The þublic-choice school is also interested in applying the their public activities. This position asserts that politicians, liberal re-
methods of formal economics to analysis of political behavior and formers, and others distort the efficient functioning of the market as
inrtitotio.tr, especially ß the political organization of free men'o The they use the apparatus of goveinment to further their own private
new politicâl .conomy is inteiested primarily in the political. determi- interests.
nants of economic poii.y. Although l shall make only occasional ref- Neoclassical institutionalism is one of the most interesting develop-
erences to these r.irool. of political economists, their insights ments in contemporary economics. According to neoinstitutionalist
have
influenced the argument of this book' economists, economic institutions (and other institutions, including
The public-chJi.e is most closely associated.with"Nobel the state) and their characteristics can be explained by the merhods
"pproach
and his co-author, Gordon Tullock.' Using of neoclassical economics. Nobel Laureate Douglass C. North, one of
Laureat. James Buchanãn
the frameïork of conventional economics, Buchanan and Tullock in the foremost representatives of this school, maintains that economic
their highly influential The cølculus.^of consent (1,962) promoted the institutions (like all forms of economic activity) are the consequence
i-portät ,.rbfield of public choice.r0 For most economists in the pub- of intentional actions by rational indivicluals to maximize their eco-
liclchoice school, the subject marter is the same as that of political nomic interests.12 Economic actions may be motivated by the desire to
science; they believe that they are applying superior methods of eco- increase economic efficiency or may be simply rent-seeking. However,
'What the public-choice
nomic ,.ien.. to political affairs.ll defines there is a predilection among neoinstitutionalists and other econo-
school more than ãnything else, however, is its political coloration. mists to assume that economic institutions have been produced by
'sfith certain important exceptions, such as Nobel Laureates Kenneth rational efforts to increase efficiency.13 This neoinstitutionalist school
Arrow and paufsamuelson, both of whom have made important con- is weakened by the fact that it overlooks the noneconomic factors
tributions to the subiect of public choice, this school of political econ- responsible for the creation of social institutions and the rules govern-
ing societies.
7 ,,The
Jack Hirshleifer, Expanding Domain of Economics," Ameúcan Economic Re' Most mainstream economists frequently use the term "political
uieut 75, no. 6 (December 1995): 53. economy" pejoratively to refer to the self-serving behavior of individ-
t Iøright, "Competing Conceptions of Political Economy," 71'
uals and groups in the determination of public policy. According to
, A uJeful ou.rui.* of the public-choice literature is Dennis C. Mueller' The Public
the "new political economy," national policy is most frequently the
Cboice Approach to Politics (London: Edward Elgat' 1993)'
to¡r-.r^M. Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor:
the public-choice approach to
university of Michigan Press, 1962). The relevance of'slillett, '2 Douglass C. North, Structure and Change in Economic Hrsrory (New York: W. W.
the internationul ..ã.o-y is set forth in Thomas D. The Public cboice Ap' Norton, 1981); also, North, Institutions, Institutional Change, and Economic Perfor-
proach to lnternational Economic Relations (charlottesville: university of virginia' mance (New York: Cambridge University Press, 1990).
Center for Study of Public Choice' 1996). 't A notable example is Richard A. Posner, Tbe Economics of Justice (Cambridge:
ttThe term .;positive political economy" is frequently applied to this position. An Harvard University Press, 1981). A valuable critique of neoclassical institutionalism is
example is James E. Ali and Kenneth A. Shepsle, Perspectiues on Positiue Political
Alexander James Field, "On the Explanation of Rules Using Rational Choice Models,"

Economy (New York: Cambridge University Press, 1990)' Journal of Economic Issues 1.3, no. 1 (March 1979): 49-72.

28 29

CHAPTER T'WO
result of private groups' efforts to employ public-means to-further
their own private inteiests rather than the result of selfless efforts to
advance thì commonweal. Economic policy, this positon argues'
is
among power-
the outcome of distributional politics and competition
ful groups for private advantáge. For example, the economics litera-
this
ture" on trnd" p.ot..tion (endõgenous trade theory) exemplifies
approach as itãrgoes that tariffi and other obstructions to free trade
."å b.r, be underitood as rent-seeking behavior by particular interest
groups.
" A u..y different concept of political , .
economy is used by those crit-
ics (especially Marxists) *ho b.li"ut that the discipline of economics
has become too formal, mathematical' and abstract' The study
of eco-
charge' has be-
nomics as the develop-.rrt of formal models, many
come largely irrelevant to the understanding and solving
of real social
problems. A major reason for this isolation of econom-
"rrJ".orrî*ic
ics from the rãal world, they argue, is that economics neglects
the
frirtori.ut, political, and social settings in which economic behavior
takes place. As a consequence, some assert.that economics'
at least as
ii i, ,ä"gn, and practiced in traditional departments of economics'
has little relevance to the larger society and its needs'
Closely associated with this general criticism is what many critics
,"g"rd uå th. pr.t.nsion of economics to be a "science" modeled on
pliyri., oiher natural sciences. Economics, they contend' cannot
"nd and economists should not pretend that it is. According
L.i"lrr.-fr..,
to Marxists and others, conventional economics reflects the values
and interests of the dominant groups of a capitalist society. Rather
than being value-free, economics is alleged to be infused with an im-
plicit conlervative social and political bias that emphasizes market
ãrrd .ffi.i..t.y and neglect, ,,r.h social problems as inequality of
in-
come and chronic uiemployment. In the opinion of Robert Heil-
broner and \Øilliam Milbãrg, contemporary economics is nothing but
a handmaiden of modern'w'estern capitalism, and its primary pur-
pose is to make this troubled system work''o
By the end of the twentieth century, the term "political economy"
had been given three broad and different meanings. For some schol-
.rp..ålly economists, political economy referred to the applica-
"rr,
.'[; ,; a[ tyþes of human iehavior, including behaviors that would
not be .lurrifi.d by others as economic, of the methodology of formal
economics; that is, methodological individualism or the rational actor
Eco-
Roberr L. Heilbroner and \Øilliam Milberg, The Crisis of Yision in Modern
r4
nomic Thought (New York: Cambridge University Press, L995)'
30
THE NATURE OF POLITICAL ECONOMY
model of human behavior. Other scholars used the term to mean em-
ployment of a specific economic tbeory or theories to expla-in social
behavior; a good example is found in Ronald Rogowski's use of the
Stopler-Samuelson theorem to explain political outcomes over time
and space.1s For those political scientists, including myself, who be-
lieve that social and political affairs cannor be reduced to a subfield
of economics, political economy refers primarily to questions gener-
ated from the interactions of economic and political affairs. Propo-
nents of this broad approach to the subject are eclecic in their choice
of subject matter and methods (economic, historical, sociological, po-
litical, etc.).
WHer You SErx Is Síner You FrNo
Interpretations of economic affairs are highly dependent upon the an-
alytic perspective of the observer and upon his or her assumptions as
these determine what the observer looks for or emphasizes. Funda-
mental differences between economics and political economy are ex-
emplified in their differing definitions of the economy to be studied,
of the basic economic entities or actors, and of the forces responsible
for economic and, more broadly, sociopolitical change. Members of
each academic specialization differ in their perspectives on economic
affairs, questions asked, and methods employed. The differences, il-
lustrated in the coming paragraphs, are important because they pro-
foundly influence the ways in which economists and political econo-
mists study economic affairs at both the domestic and international
levels.
Definition of an Economy
In April 1992,the prestigious National Bureau of Economic Research
(NBER) sponsored a conference to analyze whether or not Japan was
deliberately creating an exclusive economic bloc in East and South-
east Asia. According to Martin Feldstein, NBER director, in his
charge to conference participants, the conference wâs the first attempt
by the Bureau to bring together a group of economisrs and political
scientists (the latter included experts on Japanese and international
politics) to address an issue of mutual concern. The results of the
conference were published in Regionalism and Riualry: Japan and the
United States in Pacific Asiø (1993), edited by Jeffrey Fiankel (an
ri
Ronald Rogowski, Commerce and Coalitions: How Tracle Affects Domestic Politi-
cal Alignments (Princeton: Princeton University Press, 1989).
31
 THE NATURE OF POLITICAL ECONOMY
CHAPTER T'IíO
contribu- evidence either for the existence of a distinctive Pacific Asian economy
economisr) and Miles Kahler (a political scientist).16 The or for any Japanese effort to create a regional sphere of influence.
tions ro the book revealed that theie two groups of specialists,
as.they '!Øhereas
questions, asked different questions' the political scientists' analysis defined the Pacific Asian
attempted to answer Feldstein's
economy as composed of powerful ecbnomic and state actors, the
,rr.¿ àiff.r.nt methods' and reached different conclusions regarding economists defined the regional economy in terms of economic forces
the nature of the evolving Pacific Asia economy' and quantities. The opposed conclusions of the two groups of special-
The political scientistsl analysis concenrrâted on the trade/invest- ists reflected the differences in their basic assumptions about the na-
foreign aid
ment båhavior of Japane,. fi'm' and on official Japanese ture of economic realíty, the evidence studied, and the methodology
,o ,n. region (Ofhcial Development Assistance)' Evidence' they
as-
support employed. I believe that the differing analytic approaches and conclu,
serted, .eiealed that Japanese corporations, with
the- active
the Pacific Asian econo- sions of the economists and the political scientists are actually com-
of the state, were aff;mpting to incorporate
networks or- plementary rather than contradictory. Considered together, both in-
*i., i.tto regional industriaiand financial structures or corporations' tellectual approaches increase awâreness of the role of both political
g;nirri, -å"g.d' and dominated by large Japanese giant mul- and economic factors in shaping economic reality and thereby deepen
iî,o,,;ir their äaie, investment, and other activiries, theseaid agencies our comprehension of developments in the world economy.
ii""ii.î"f fi.rn, *oiki.tg together with Japanese foreign composed of
*.r. .r"r.i"usly fash-ioiinia regionul ãiulri"tt of labor centered on Nature of Econornic Actors
fri*fy integrat.ã productiãn anã distribution networks In the late 1960s, a group of graduate students in public affairs at
concluded that
iÀã Jápnrr"L hor,'-e ecorromy. The political scientists
Princeton University's lfoodrow NØilson School of Public and Inter-
;h; Í;;"t.t., as they had done in ihe t930s' were again attempting national Affairs asked a professor of economics to offer a course on
albeit this
,o .r.år. a.rá dominare an East Asian sphere of influence,
the multinational corporation (MNC). During the 1960s the rapid
,i-.rypeacefuleconomicmeans.Thepoliticalscientistsdefinedthe
pacific Asian economy as a hierarchical structure increasingly deter- overseas expansion and increasing importance of these giant firms (at
and that time mostly American) had captured public attention and be-
mined and domina,.á Uy Japanese multinational corporations
come intensely controversial. Raymond Vernon and other commenta-
the Japanese state.
on tors believed that these business firms would greatly facilitate efficient
T"h. ..ono-ists, on the other hand, concentrated their analysis
could be utilization of the world's scarce resources and speed economic devel-
trade flows and other measurable economic quantities that
opment of the entire globe.tT However, Stephen Hymer and other rad-
i.ttt^ffy modeled. Their analysis of the data led to the conclusion ical critics regarded such powerful corporations as nothing more than
that the Japanese state and corporations were not attempting
to cre-
instruments of an expanding American capitalist imperialism that was
ate an .*.iuriu" economic sphere in Pacific Asia' On the
contrary'
what was taking place in the region could be ex- exploiting countries throughout the world.18 The students believed
ih.y i.rrirt.d that
that the MNC was a novel and important phenomenon that should
pi"i".¿ entirely in rerms of markei iorces and the responses of indi-
in- be the focus of at least one course in the School's substantial econom-
uid.rut firms to those forces. For example, the increasing Japanese
ics curriculum.
vestment in the region and growin g trade with the region were
fol- The students were firmly rebuffed with the professor's response
considered ,.rpo.tr.-, to the ,.,bttutttiul appreciation.of the.yen
that "the multinational corporation does not exist." Corporations ex-
lowing the Plaza Agreement of September 1985 and to subsequent
analysis of ist, the economist granted, but there is no such thing as a distinctive
changes in Japanese comparative ãdoutttugt' Moreover'
mubinational corporation that behaves differently from other corpo-
grorr"trud. statistics showed that, although intraregional trade in Pa-
rations. Every corporation, whatever its nationality or scope of its
ãifi. Ariu was growing, it was growing less rapidly than trade between
pacific Asia aid theîest of the world. Thus, economists found no
tt
Raymond Vernon, Souereignty at Bay (New York: Basic Books, 1971).
'8 StephenHymer, The Internationa! Operation of National Firms: A Study of Direct
Teffrey A. Frankel and Miles
Kahler, eds., Regionalism and Riualry: Japan aød the
" (Chicago: University of Chicago Press' 1993)'
Foreign Inuestmeøl (New York: Cambridge University Press, 1976).
Uniied States in Pacific Asia
t5
32
 THE NATURE OF POLITICAL ECONOMY
CHAPTER T'SíO

acriviries, behaves in the same way that all others behave' All
corpo- Dynamics of the \Xlorld Economy
and in
,ut" l.ud"r, make their decisions in response to market signals
In September 1,992, an important and disturbing event occurred
;;d";;, maximize their profits. (Or, as the economist told the stu-
of when, without warning, private investors suddenly transferred huge
ã;;;;,;h. ;"rpose of the postman is to deliver the mail regardless.
whether sums of money out of the British pound, the Italian lira, and other
that,
th. .álo, of the uniform.)-Economists in general believe currencies into the German mark, thereby forcing an unwanted deval-
optimize within
the firm is American, European' or Japanese, it must uation of the pound and other currencies. This devaluation signifi-
to market opportunities in
;i;;.""Jtuint, u.râ ,.rpã"d effectively The fact that a firm cantly reshaped the economic and political iandscape of \Øestern Eu-
Ëighrty competitive rnurk"i, or go out of .business' rope and tore apart the Exchange Rate Mechanism (ERM) of the
h;îÉ"t to be of a particular"nationality and competes in anot world
sig- European Monetary System (EMS), whose purpose was to maintain
does
;"""i;, through .r,uLlirhn'.,,t of overseas subsidiaries or a realist the values of the European Community currencies within specified
nificantly .hulng. mâtters. In language that a Marxist narrow bands. As a consequence of this financial crisis, Great Britain
and the na-
would use, the ownership of the meãns of production withdrew from the ERM and caused the movement toward European
tional
- origins of a business firm are totally irrelevant' economic and monetary integration to divide into a "two-speed" pro-
re-
fhir-;;p;rience illustrates the view of neoclassical economics cess of European unification.
is
g";;i;g;É n",or. of economic actors' The world of the economist
pursuing Interpretations of this episode illustrate the differences between an
pãp"i^,"¿ solely by individuals (consumers and producers) "economic" and a "political economic" analysis of the dynamics of
itr.i. ,.tf-mt.r.rt; fir*r, states' or other economic actors are assumed the world economy. Economists were certainly aware that political
to be merely aggregat; of such individual actors' Every individual developments like German reunification and the Danish rejection, in
is assumed to act
ir.gurJt.r, ár.îñniãity, class,. or national.identity)in pursuit of his or lune 1,992, of the Maastricht Treaty had important roles in generat-
i"ri.""ffy (employing'á costibenefit calculation) ing the financial crisis of that fall. However, such political develop-
among Ameri-
frå, ,.if 1",àr.r,. Th.i. are no fundamental differences ments were treated by economists as factors externâl to the formal
is assumed to be
can, Japanese, or Bantu economie actors' Everyone economic modeling of the crisis. Economists were interested in the
The only.things
r..f.-äan. s"me broad range of economic objectives' dynamics of the crisis itself and not the political dynamics that led to
constraints on
that däfer from one society to another are the external the crisis. Therefore, the underlying political and other causes of this
the individual
¿".iti."-t"^king and the tpportunities among which crisis were not closely examined by economists. Instead, analysis of
must choose the crisis by economists focused only on its economic aspects. For
Níithin other intellectual perspectives, the nature of economtc example, formulation of a general model of financial crises was a
regards. eco-
actors appears very different. A Marxist, for example' central purpose in one excellent study by economists.re
.ro-i. .lurr., (defined by the ownership or nonownership of the basic Political economists, on the other hand, were more interested in the
poli-
À."r* of production) or such represeniatives of class interests as political genesis of the crisis, its political resolution, and the longer-
in economic af-
ticians or interest g.o.rp, as the fundamental actors term economic/political consequences. That is to say, they were most
fairs. According to this view, all corporations (national or multina-
interested in the external or exogenous political factors that lead to a
every
tional) are representatives of the capitalist class that dominates crisis, contribute to its resolution, and determine its long-term effects.
approach' on
capitaiist ..oìorny. For proponenti of a stâte-centric The point of this comparison is that economists and political econo-
or
thå other hand, the primary economic actors are nation-states
mists were interested in different phenomena and asked different
of the
;h.; ;;;.rful politicl g.orrpr, and, therefore, the nationality influ- questions. The 1992 financial crisis illuminated the relationship and
MNC is of greãt i^porIun.Ë because its behavior is strongly
.rr*d by the" policies and cukure of its home society. viewed from
,,multinational" corporation is, in its essence' a tt
this perspective, a This is the case, for example, of an excellent study of the crisis by !Øillem H.
.orpår",ion of a particular nationality whose international activities Buiter, Giancarlo Corsetti, and Paolo A. Pesenti, Financial Marl<ets and European
Monetøry Cooperation: The Lessons of tbe 1992-93 Excbange Rate Mechanism Crisis
o" the wholå, intended to promote the primary interests (eco- (New York: Cambridge University Press, 1998).
"t.,
,roÁi., political, or even security) of its nation of origin'
35
34
 THE NATURE OF POLITICAL ECONOMY
CHAPTER TIIO
potentially risky situation was exacerbated when additional restric-
interacrion of the economic and political forces that provide the
dy-
tions were placed on exchange rate flexibility within the ERM. These
namics of the international economy'
flows has economic developments laid the groundwork for the crisis. Political
Since the mid-1970s, the size of international financial
These immense capital developments that raised questions about the movement toward Eu-
grãrrì1. n"r,àr.¿t of billionr of dollars a day. ropean monetary unity included the Danish rejection in June 1992 of
they did the Italian
ño*, .un easily overwhelm national economies' âs
the Maastricht Treaty. This startling action was followed in Septem-
in the late
and British ecånomies in 1992 and many other economies
markets has caused ber by the narrow (51 percent) passage in France of a national refer-
1990s. Increasing integration of global financial
auton- endum on the Treaty. However, the most important developments
national governments io surr.nder a portion of their economic
may pursue leading to the financial crisis were the several decisions of the German
omy to gtoU"t market forces' Although a government
time' powerful Central Bank (Bundesbank), from November 1990 on, to raise Ger-
inapprop"riately expansionary economii policies for a
policies' The huge out- man interest rates substantially in order to offset the inflationary con-
?or.", will eventually overturn these
^"rË", ín and subsequent sequences of German reunification. Then the American Federal Re-
n"* .f capital from Italy and Great Britain 1'992
from serve lowered interest rates in early 1992 to stimulate the stagnant
devaluatioïs of their .rrr..ntit' forced both nations to withdraw
Italy eventually re- American economy. Also, in order to stay within the ERM currency
the Exchange Rate Mechanism (ERM), although
bands, the British government had attempted to maintain an overval-
""M;;y
turned.
cnsts ued pound and thereby caused the worst British recession in the post-
observers believe that the September 1992 frnancial
forces and eco- war era. These political developments raised serious doubts that the
d"*onrtrut.d the triumph of transnational economic British could continue to maintain the value of the pound.
,,o-l.globalizationoverthenation-state'Inthispopularandinflu- The large gap between Germany's excessively high and America's
markets ând
ential iãterpretation, the integration of global financial
national boundaries have excessively low interest rates, plus the economic troubles of Italy and
ifrì ,.r"frlù htrge fÍo*s of capital across ,.rhe end of geogra- Great Britain, created a disequilibrium in exchange rates. Hedge-fund
ü, i;;h; i,ordi of one enthusiastic wrirer, to
are rap- managers like George Soros of the Quantum Fund saw an opportu-
ph;.",0 Some commentators allege that national governments
even become hostage nity for a huge windfall and fled from the overvalued lira and pound
their economic autonomy and have
iaty toring"rrarket
forces and the whims of international speculators. to the mark. Others followed suit in what economists have called a
i.'gfrU"f
"speculative overreaction." Thus, although it is correct to say, at one
ioå. urgrr. that if a national government fails to heed the interests will level of analysis, that Italy and Great Britain were overwhelmed by
of the cJntrollers of internatiorìal capital, the errant government
out its market forces, at a deeper level of analysis it is equally correct to say
not be able to obtain the capital required to carry e-conomic
to have that the financial crisis was due to policy decisions taken by Ameri-
and political plans. Internatiãnal capital markets are alleged
transformed the can, German, and British financial authorities. Government decisions
.r.ur.d u *.b of economic interdepãndence that has
and the actions of individual economic actors were responsible for
nature of international affairs and ãestroyed the economic and politi-
that crisis. Indeed, French government officials, economic nationalists
."ii"¿"p."¿ence of narion-srates. Hence, many have concluded that to the core, denounced the financial crisis as an "Anglo-Saxon plot"
*u.k.t, are firmly in control of the world economy' Some believe
to destroy the movement toward European unity.
that the 1997 East Asian financial crisis suppofts this conclusion.
The 1992 financial crisis illustrates that both impersonal market
An alternative inrerpreration of the earlier 1992 ctisis emphasizes forces and the deliberate actions of a few powerful states can deter-
the role of government decisions and political developments
in con-
situation_in'W'estern mine the dynamics of the world economy. I7hile Italy and Great Brit-
vincing inteinational investors that the currency ain were overwhelmed by market forces, deliberate policy decisions
in-
E;-p; was highly unstable. The July 1990 decision to eliminatecur- by American and German central banks produced such economic fun-
*u-Errrop"un Ë"rii"r, to capital flows had increased the risk of
damentals as the differentials in interest rates. Interactions of imper-
r."õ tpä."lation that .o.rlä .u.,,. exchange rate disequilibria' This sonal markets and state policies constitute the driving forces in the
world economy and the subject mâtter of the study of international
(London:
,o
Richard o,Brien, Global Financial Integratìon: Tbe End of Geogtaphy political economy. Whereas market forces are the domain of eco-
Pinter Publishe rs, 1992). Published for the Royal Institute of
International Affairs'
37
36
CHAPTER TIíO
nomic analysis, the explanation of economic policies is primarily the
province of political economy. Because each mode of analysis is lim-
ited by its assumptions, both should be utilized to improve under-
standing of the dynamics of the world economy.
THe NerunE oF AN EcoNo¡,ly
\ühereas economists regard an economy as a market composed of
impersonal economic forces, specialists in political economy interpret
it as a sociopolitical system populated by powerful actors. Such con-
ceptual differences distinguish the study of economics from that of
international political economy (IPE).
The neoclassical economic interpretation is that the economy is a
market or a collection of markets composed of impersonal economic
forces over which individual actors, including states and corpora-
tions, have little or no control. As former New Yorþ Times economtc
commentator Leonard Silk has described it, for economists the econ-
omy is nothing more than a collection of flexible wages, prices, inter-
est rates, and similar forces that move up and down allocating re-
sources to their profitable use as buyers and sellers rationally pursue
their own interests.2l Such an economic universe is a self-regulating
and self-contained system composed solely of changing prices and
quantities to which individual economic actors respond. Economic
actors are assumed to be "price-takers" who seek to maximize, or at
least satisfy, their private interests as they respond to changes in rela-
tive prices or to changes in economic constraints and opportunities.
The political economy interpretøtioz used in this book defines the
economy as a sociopolitical system composed of powerful economic
actors or institutions such as giant firms, powerful labor unions, and
large agribusinesses that are competing with ône another to formulate
government policies on taxes, tariffs, and other matters in ways that
advance their own interests.22 And the most important of these pow-
erful actors are national governments. In this interpretation, there are
many social, political, or economic actors whose behavior has a pow-
erful impact on the nature and functioning of markets. This concep-
tion of the economy as an identifiable social and political structure
composed of powerful actors is held by many citizens and by most
social scientists other than professional economists.
21
New Yorþ Times,26 March 1980, D2.
" Ibid.
38
THE NATURË, OF POLITICAL ECONOMY
The role of institutions in determining economic behavior and out-
comes is of particular interest in the political economy interpretation.
Social, political, and economic institutions are significant in that they
determine, or at least influence, the incentives that shape the interac-
tion of individuals and groups as political and economic actors. In
economics the two principal explanations for the creation of institu-
tions are neoclassical institutionalism and the theory of public choice.
Both of these theories assume that institutions can be explained as
resulting from conscious action by economic actors to further their
economic interests. These two positions differ, however, regarding
the purpose of institutions. Neoclassical institutionalism is based on
the belief that institutions are created primarily to solve economic
problems and will result in increased economic efficiency; for exam-
ple, neoinstitutionalists believe that business corporations are created
to reduce transaction costs. The public-choice position' on the other
hand, believes that government institutions are created by powerful
groups, public officials, and politicians to promote their own self-
interest and that they decrease efficiency; for example, tariffs are es-
sentially rent-seeking devices to shift income from consumers to do-
mestic producers. Both positions, however, explain the creation of
institutions as resulting from rational intentions.
Political economists, on the other hancl, believe that institutions âre
created for a variety of rational, irrational, and even capricious mo-
tives. Moreover, in contrast to economists' emphasis on efficiency or
rent-seeking, the political economists argue that institutions are built
on the idea of path dependence ancl that economic and other institu-
tions are the result of accidents, random choices, and chance events
that frequently cannot be explained as the result of rational economic
processes. Institutions are sometimes the consequence of historical ac-
cident and self-reinforcing and cumulative processes. (One of my fa-
vorite examples is the constitutional prohibition against foreign-born
Americans becoming President; its purpose was to bar the detested
Alexander Hamilton from the presidency.) As a consequence' many
institutions are neither efficient nor do they necessarily represent the
economic interests of the individuals who brought them into exis-
tence. However, once these institutions are created, for whatever
chance or irrational reason, they have a powerful advantage over new
and more efficient institutions that could otherwise displace them.
Institutions are even more tenacious than neoinstitutionalism and
public-choice theory suggest, and it is frequently difficult to replace
an inefficient institution with a more efficient one. Neoclassical insti-
tutionalism, for example, is based on the assumption of constant re-
39
 THE NATURE OF POLITICAL ECONOMY
CHAPTER TWO
older too much that we do not know and perhaps never will know. As
actors who desire to replace an
turns to scale in which economic and more international economist Robert Baldwin has commented, an adequate
and less effrcient i"'t;;i;;'
t"'i"ttt firm with a newer
How- theory of international political economy would have to be built upon
any overwhelming diffrculty'
efficient one can do so without a theory of how governments reach decisions, and, of course, there is
ever. the established;t'il;i.oï;'
bí'int" Êrm mav enjov economies no such theory.23 Achievement of our goal of comprehending how
of having
of scare (and hence läï., lrrirl
merery" as a consequence the international political economy functions will probably always be
;h9ad of potential rivals' An existing
established itself in d;';;k;; elusive no matter how hard we work to improve the study of the
institution may also n*t
g"i"t¿:.legitimåcv and a powerful constitu- international economy.
Thu" tu"n though the potential effi-
ency whose intt'""' ìi 'J'ut''
*iJ;f ä.'"t* i"it"ütttt"itting tt b"'i""" firm mav be muchfirm' sreâter
the
or business ElrsronroNESS oF THE EcoNoMY
than the efficiency i'ittt
institution
a change' In the eco-
"barriers to entry" are too great to accomplish The central idea that markets are embedded in larger sociopolitical
tf p"il;;i t"t"t-it" there are many inefÊcient eco-
nomic universe ran- systems underlies my interpretation of both political economy and
;ilït;;thic businesses that result from
nomic institutions international political economy. The government, powerful domestic
ãárn *.*t and irrational decisions' ,:-^ two interests, and historical experiences determine the purpose of the
requires intesration of these
The study of political economy economy and establish the parameters within which the market (price
fundamentally difftä;';;;"st
tr'it*o-u'l Both the neoclassi-
activities mechanism) functions. Contrary to economists' belief that economic
interpretations of economic
cal and the politicaitto"o-y the effort to understand activities are universal in character and essentially the same every-
are necessary ""d ;;t";';"-**åLï*t" markets and powerful actors where, the specific goals of economic activities are in actuality socially
how the economy f";"'i*''
Imiersonal determined and differ widely over the face of the earth. For example,
political outcomes of interest
interact to produce;ffi;;t;;ärc-.andstudv of political economy re- although neoclassical economists assert that the primary purpose of
The
to students or porit"uiä;;;t"y' economic âctivities is to satisfy the desires of individual consumers,
ri
work uåd ho* market forces
quires an undtt"u,jiî;;;;;;'t"tkets
ir
i
of how power- this characterization applies to the United States but not to every
as well as an understanding
affect econo-it ott'lo'it' other economy. Japan and many Asian societies, for example, place
is bv far the most important'
ful actors, of *ttitilht"'iutio"-*"te their private inter- a high priority on the welfare of the community and on social cohe-
forces.to
aftempt ,o *"nipoiutt'-u'ktt "ãuu"tt sion. In fact, the idea that markets should be free to promote the
u' it h"t been developed by genera- private interests of individuals is a rather recent belief, and the
ests. The science "iltc,noinì;t'
tions of professional economists'
po"t"t' highly useful'analytical strength of the welfare state in'Western Europe indicates that even in
(or"as-economisrs prefer,
i*igh,r
toors and u ,i.h uoåy ; ,h.;;"il"i of economic science' the tJlest this idea is not universally accepted.
r¡ä scope
models) ro'""¿t"iiJiö;"t*t for the In addition to determining the purpose of economic activify, the
i, too liäî"ä'í"à i" theories -t"r"oo abstract
however, The strength of political sociopolitical system and a society's values determine the role that the
purposes or i"'"'#iàät potiticat
"toto*f'
the írealities" o] the universal market or price mechanism in a particular society legitimately plays
science lies in tt' b;;;d;t;h;; "" and posi- and the socially approved ways in which economic objectives may be
groups' and states for power
struggle among human beings' pursued. Every sociery has values and beliefs that circumscribe the
nature of its methods and
its
tion. Its *."k"t""lä i" ttti'iãt"itive ways in which the market is permitted to function; societies establish
limited theoretical foundations ec'onomy rules and set boundaries that govern the range of activities in which
ptfi'Tt"iää"o-y u"d. international political
The study
into account economlcs' po- the price mechanism is considered legitimate; what is considered to
"f
u"utytit ãpp'o"tn.'nut takes
requires the many be "fair" economic behavior in one society may not be considered
"" sciences' It must incorporate
litical scienct, u"Joäiå social I' f actots' thlt d::t^t'Ït:"t'
or at fair in another. For example, bribery is a serious offense in the United
economic, ptriti*i'Ï"ã";;httl;s*a econ-
dv"namics of the international
least influence, tf;';;t;;;ã in its t'Robert Baldwin, in
indouútedlv always be limited Jaime De Melo and Arvind Panagariya, eds., Nea; Dimensions
omy. Yet, po*"tt' There is simply in Regional Integratioø (New York: Cambridge University Press, 1993).
'ott'un'upitä"trt-*ìrr
in its p"dittiut'
explanatory, utt¿'å"i"inly 41
40
 THE NATURE OF POLITICAL ECONOMY

CHAPTER T\øO powers of western Europe fought on land and sea to create empires
*' oåt,ïî.' ihat would support their political rivalries. Although companies of
Sta tes, but what \íesterners "ld--::]l, t"
practrce - $:'#lt'..X ; merchant-adrr.rrt,rt.tt such as the British and Dutch East India Com-
and accepted business
-
:'Ï':;."'rrm.-ìt ""f
i'"1" l'*:Ï:,îi,iì'rï. panies benefited from these commercial conflicts, the primary concern
1; lrî"::J: i:i
"ît*"f
com pl ain th at compe'i'iä" ãf ,tut., was to acquire a favorable balance of tradelpayments to
finance their external military and political ambitions. Great Britain's
kï*ilï,î'å:î::lïffi:Jiii:':r'.r+iiräï'ç'J'î.*
differen.ces have been "
*"1:t::i'å;;; huu. b.to*'
victory in the Napoleonic Wars resulted in a new and differently or-
dered internation;l economy. Formal imperialism and possession of
""riåt"f
Ïiil;;" ;f political conflict as natlonal, ii;'åf"ÏÏit"ä',"*
investment'
more closelv linked å ;;;;;'her through trade and svs-
colonies were deemphasized and what historians called "the imperial-

The internatio'''"r tiJ"i'öî' äi't t"tuã¿ded in a sociopolitical ism of free trade" emerged. Or, in the words of Stanley Jevons, one
of England,s foremost economists in the late nineteenth century, "IJn-
,.å;"r,r,ã",nry:ü'j:Ju'ål*j;xm*::i:ffiT.ii;ffiå
ls emuçY*": ' *^-J ' fetterðd commerce . . . has made the several quarters of the globe our
donal economy - and"most imnortant all, na
important of all' natton-
;ï;;i;Jt*' -^.. willing rributaries."" The Pax Britannica and Britain's dominant
J
oublic and private r'iå*' ih" do*inunt power/s global position were thus built on economic foundations'
i
,,u,.,. As I shall '
"'r:iil;;;;;;ã.*11
; t
i,,,r.,. inre rn at io n a i î,åi; ;i t o I
:, îf üJ,,î#î,Íîlü:i.'å:
Following world llar II, the united States launched a concerted
effort to .r."t. open world economy. The origins of this effort can
;;i",
1
I

;;ö;;r;h'
ing international
ï'ï:î"#';:,"J;'iJ äÏ
econol'Ï",i::i';nomic
du,rng
:h' ::11
Amerlcan
"n
be traced ro rhe Reciprocal Trade Act of t934 and the Tripartite
system, under Monetary Agreement a few years later. In addition, American post-
ui'""''-r"w":'i.'lj:ilj'ï:irliî'i::'ìJr';';;";;';tthesoviet
lnt( *ar pla.rners working mainly with their British counterparts began
leadershiP, was to lay the foundations for an open world economy following the war;
Union. this cooperative effort culminated in the Bretton'sloods Conference
Economistsin.generalbelieve'n*'Tlii'ffiî:";f;'r:Xtffiîtl
tn tr (1,944) that created the institutional framework for the postwar inter-
#";;;;tica11! emerses because'ú""t'' and trade'" However' rt ts national economy. However, strong assertion of American postwar
is natural ft' t""Ji";?;"";;k' cre'ate il';;t" world economy' As economic leadership occurred only after the emergence of a clear So-
airnturt to'
in fact politically utïf iht dtti'ion óf u gouttn*ent
to open '!Øiththe outbreak of the Cold
'War, United States
the
Mancur olson rt"'iåli"ä t*' activities constrtutes
a viet rhreat.
undertook a number of important initiatives to strengthen the war-
its economv to ;J'iä';;d;;i;;;;-ercial man; resent- alliance'
it immediately re'sults in torn economies of its allies, to fotge a powerful anti-Soviet
oolitically risky acîion because
:l:*n jnrui::'."i;iì; and subsequendy, to fasten these allied economies firmly to the
íoiio,.,,and,at;."ïåi'åîir:,;fu the creattor-o*';f"1 United Staies. The most important American action was, of course,
tätiìv-iitt", oGon, argues' taken bY Pc r;;;., (hegemons) for the Marshall Plan that rransferred billions of dollars to western Eu-
ä;.;;i; tf cottlY actions
åt^"'itv reasons' Private
economrc
rope; this extraordinary transfer of wealth would not hâve taken
potititÏ' iid ;t;tt*llt '!lar. In effect, the United States used its
economic,
t'pttiutif åät tiït*É'rul bt;íà ;toups' also obviouslv pú.á if not for the Cold
interests, to create an political, economic, and other resources to create an open world
itpo""'ilält i"";ñt tfiorts of powerful states interests
olav an the political ä.orro-y embracing its political allies and much of the Third World.
intårn"tio.ul "..^;;.
;ì;;;;"" 11L,'^ïYí"t
..î,ii1^1.åi: This analysis suggests that the creation and maintenance of an open
;äïä,k-*r;;;;i"v,r'.
of the nationa-l
i,,t.,",t, of
;ff i:if.;"l and unified world economy requires a powerful leader or "hegemon"
The primacy 'econo
in the nature of successrve
interna-
that possesses both the political interest and the resources to pay the
dominant no*t'i ri'rrr"t"-"*¿
high costs associared with such a task. It is highly unlikely that an
the ma¡or
tionaleconot*'"';t;-themid-seventttnìntt''tuty'During'themer-
eighteenth centuries,
ofilJäää"ir,-""¿ opi.., and unified world marker economy could be created'and main-
cantilist age
in De Melo and
subiect tained unless there were a dominant power able and willing to use its
an i[uminating o:.,"r..::,:.j-,nis
,o
Mancur olson provides
oi*'nsions in o*t:::'li!'lr{Jlll¿ u, r'¿*"¿ D' Mansfield
."ii-írr.
Panasariva, " Stanley Jevons, The Coøl Question (London: Macmillan, 1906ll, 417
"¿"''Ni* and securiry
r,"*u, of economic "t""rå;,,];i""ìi,., **r,,ssol.
(Princeton: Princ 43
nii'ît)*)':' r'ade' and wør
^
42
 THE NATURE OF POLITICAL ECONOMY

CHAPTER T\íO adherents of the public-choice position believe in free trade, as do L

other states to
resources to encourage However, the commitment to free trade must be based on a concept
oolitical, economic, and other free-riding' and
barriers' to-pttutni of a national interest and the belief that free trade will benefit that
iower trade and other economic the rules or reglmes
t9 national interest and not just the interests of those in power at the
to apply sanctions '" """t ift"t failed lr .ot'tevwere no such strong
eoverning the liberal -åliå
äoïv' 'n"tt states would. he
time.
cooperatio' u*ong..g*ntric A state or national government must fulfill several social' eco-
l-.ud.r, international unifi ed
exceedingly difficult,
;ï'k'"lthi;Jìnut'n' open' and
;iffi ät: re-
nomic, and political functions to retain the loyalty of its citizens. Pro-
into national protectionism vision of security for its citizens both at home and abroad is the pri-
world economy would fragment mary function of the state; no other institution can relieve it of this
t''fr: on responsibility. Another function is to promote the social and eco-
'n' 'li'
3,liiï'",,, in this book :lrl'"'¡:i1;::,:ï,ï;il:
has some similarities
f'1'
to the posl- nomic welfare of its citizens and to guarântee minimal standards of
Dower to influence -;ik;;;;omes political behavior'
that argues that all individual justice; although the social welfare function has long ex-
tion of the public-chitt "ft""f u' tht pursuit of
includins that of nJ;: är'nt'r" l'l Ë"
""pr"i"tisroups' However' isted, as James Mayall has emphasized in discussing what he calls
orivate interests ot ::;:#tåä
i'ärt¿"'l' "t'd "the new economic nationalism," economic welfare has become inti-
this perspective ln itpotiutttìespects' The mately joined to national citizenship in the modern world.'8 \ü(/ithout
mv position differs from markets caî' least tn
n'"ti:ì::-i"d ^t a state of their own, individuals have no access to welfare programs.
pubii.-.hoi.t "t'oot'ìäpü;;h* there were no statc intervention The state also provides an identity for its citizens; it appears to be
separateclt';;;;"t' thaì.if
theorv, be all out-
by' itself would determine inherent in human nature that individuals need to be part of some
in the econo*y, thJ ï'*t" int market is inherentlv
"'"*
comes. I believe, ;"tï""tì'h"";^i;""â' 'r'"ì deter-
larger social grouping. In many societies there is growing concern that
effects of markets are globalization is leading to loss of a separate identity for individual
oolitical. ro' t*u-ft;';h;'äi;til;'ìve ¿it"iuution of properry^rights'
bru"Tt";;;;' citizens and individual states. This situation reinforces my belief that
-in"d primarilv "ïJ their distribution are-inevitably
1

and property ti'ã*"iîtt ""¿ whereas the public-choice

political economy's concept of an economy as markets embedded in
"rn"
politicat i:i;;t"".1*'Fu'ther- a sociopolitical system is not only accurate but that it also provides a
affected bv
il,r.b" ú.ù*.,'r'"iïi
l.mvself believe th": ff:îi:::
iãäì. *r.'ests'
!ri',9rn'i"1' 3': ll*;;
iïîä;;i;;-;",luriing t["
very useful tool of analysis.

even gr'
;i;;;" equal and frequentlY an
",Ïîï:n
t'iffi ;in:','.xii:ii:iliipubric-choicepositionand'mvown
CoNcrusroN

na-
This book defines political economy as the interaction of the market
the
is based o" difft"iì itïttpit
;r tht ""'"" of ihe state and
the state rs
and powerful actors. Both components are necessary, and one cannot
position believes that comprehend how either domestic or international economies function
tional interest' The public-choice government
u .olltttio"Ii'hä
i"JJøt1."5 who comprise the interests
unless he or she understands both how markets work and how states
simply
t'u'ion't interest is the combined and other actors attempt to manipulate markets to their own advan-
at a particul""nornî'lï'it''" ãt of those members who
of the indivi¿""r *l*tî; ;;;; ttti"w the state
tage. As I stated above, markets have an inherent logic of their own
õ; ;h; other'hand' I believe that as they respond to changes in relative prices, constraints' and oppor-
dominate ,'";ï;;;;' component parts' that it has some auton- tunities. Therefore, to analyze the functioning of ân economy, one
'h'
is more than the *-
its clf
is distinct from the must begin with at least a rudimentary knowledge of how the disci-
omy from'otit'y'"u"ãìi'"t-'ttt'*tlo'"'uiîiåtttt interest
The'state and the national pline of economics understands the economy as a market or price
combined i"""'i"åîttsï*:,
mechanism, and this is the focus of the next chapter.
to be in power puøtular moment'" Most
cannotbereduceàrasthepubri.-.hoi..-p-oririorrurr.rrr,totheindi-
viduals who happä "'u"i
that foreign policy and International Society (New York: Cambridge Uni-
,r.willett, I believe, concedes this point when he acknowledges to " ¡a-.r Mayall, Nationalism
twti:;": T;; i"blic cboice Apptoach versity Press, "19901. chap. 6.
cannot be reduced tJ;:"'* ;';p'p'ìi'i"'
E cononic Relations' t4' 45
lnirrlnot¡onot

44