International Political Economy.: Theories in IPE: Mercantilism, Economic Liberalism, and Marxism

International Political economy.
Theories in IPE: Mercantilism, economic liberalism,

and Marxism
Theories of Imperialism.
Dependence and Interdependence
Lecture by: Zahid Mehmood Zahid, PhD (IR) NDU, NOA Islamabad.
Points to Discuss ….!
 Trade deficit? Trade surplus?
 How do you gauge the economic performance of a country?
 Do you want to own all of your earning or you want
government to keep your earning and cater your needs?
 Strength of a country lies in economics or security?
 CPEC: a political project or economic initiative?
 Pak – US alliance in past, now relations with China?
 Brexit, why?
International Political Economy Defined!
“It is a political battle between winners and losers from global

economic exchange.”
 Central question is human welfare; however, the field has often

focused more on international system.
 Example: US trade tariffs - China
What is IPE?
 Study of the relationship;

1. b/w economics & politics
2. b/w market & state
 IPE examines how politics can be used to achieve economic

goals and how economics is utilized for political interests.
The evolution of IPE
 First, Economic transactions among states rose in terms of

trade & investment.
 Second, People expected that their governments will include

economy as serious as security & FP.
 Third, economic issues become more transparent to the people.
 Fourth, the UNO, IMF, World Bank, and WTO all became the
important focus of the study. (Bretton wood System)
 Finally, Globalization is shaping international relations.
Bretton Wood system (IMF, WB, GATT 1944) helped US become

as the dominant power in the world.
Scope of IPE
 To analyse IPE there are three approaches which outline the

specific actors, processes and level of analysis.
 1 Mercantilism
 2 Marxism
 3 Economic Liberalism
Mercantilism (Jean-Baptiste Colbert)
 Economy is a critical element of national power - a country’s

power also depends on its economy.
 Economy is used to build its military for better security and

buying vital goods.
 Some form of activity is more valuable than others.

Manufacturing is better than agriculture.
 Mercantilists believes in self sufficiency and discourage
economic dependence on others. Dependence = vulnerability.
 Exports must be encouraged, and imports must be discouraged.
 Economic interests also stir conflicts among states because

states aims to achieve their economic interests at the expense
of other states. (CPEC and Indian response, BRI and US
response)
 States should establish trade surplus – more exports and less
imports.
 What about Japan, Germany, and South Korea?
 They have trade surplus – but, not known as military powers?
 They spend more on masses – to enhance their quality of life.

Marxism (Karl Marx)
 The ongoing economic system is capitalist. Private ownership

and workers are paid by the capitalists.
 Individual may be naturally cooperative, but in society they act

in conflictual ways.
 Main conflict emerges in societal groups; owners of the wealth

(Bourgeoise) and working class (Proletariat) over the
distribution of resources.
 Third, State act to support Bourgeoisie
State V/S Workers
 Fourth, in capitalism – owners of the land and industry amass

more and more resources at the expense of workers.
 Marxists believe that MNCs , World Bank and other financial

institutions are exploitative and instrument of exploitation and
imperialism.
 They promote permanent inequality and hierarchal society –
where wealthy people enjoy power over poor.
 Marxists argue resources must be distributed on just basis within

society and in Int. System.
 Marxists conclude that the structure of the national and int.

economic order must be changed.
Economic Liberalism (Adam Smith)
Three basic assumptions of Economic Liberalism;
 Purpose of the economic activity is to enrich individuals not
enhance state power.
 Trade has benefits for all, regardless of imports or exports.
 All productivity is valuable, but countries must specialize in

certain fields.
Economic Liberalism
 21st century is the age of economic liberalism/globalization.
 Liberals believe that human being act rationally in a

competitive way to maximize benefit.
 This enable common man to improve living.
 Market competition among businesses ensures low prices for

consumers.
 Low prices increases the consumer welfare.
 Liberals believe, economics and politics must be separated.
 “government is not the solution; government is the problem.”

Ronald Reagan
 Govt. should only provide basic order in society.
 Govts. & int. institutions encourage trade liberalization – that

lead to global interdependence & greater economic
development.
Key Concept in EL
 Liberal economics is based on division of labor.
 States differ in land, labor and capital.
 British economist David Ricardo (1772-1823) developed the

“comparative advantage”.
“a state should produce and export those products which it can

produce most efficiently”
IPE an overview:
Variables Mercantilism Economic Liberalism Marxism
Relationship b/w Politics decisive Economics decisive Economics decisive

economics and
politics
Units of analysis States Individuals Classes
Economic goals Increase State Increase individual well- Class interests

power being
Theories of Imperialism
Dependency Theory
“Structure of the world economy is such that, it favours some

countries at the expense of others and limits the development
possibilities of the subordinate economics”
 Poverty of the underdeveloped countries is the result of the
present international economic system that keeps them as poor
as if they were still colonies.
Karl Deutsch
 Developed by a U.N. Director Economic Commission for

Latin America in late 1950s, Raul Prebisch.
 DT emerged as the result of a larger movement asking question;
Q – “Why are so many countries not developing”?

“there are different kind of states with different functions”.
 There are two types of states: core & Periphery
 “Is a notion that resources flow from a ‘periphery’ of poor
& underdeveloped states to a ‘core’ of wealthy states
enriching the core at the expense of periphery.”
 Peripheral countries are dependent on core countries.
 Dependent nations’ development remains stagnant while

core nations continue to develop.
Three Core assumptions of DT
1- Int. division of labour between countries.
 CC dominate the industry and technology and control capital

intensive industries.
 Whereas countries in the periphery are dependent upon

resource extracting economies, agriculture and providing
cheap labour.
2 - Class Distinction.
 Rich elite cooperate with one another to ensure - they stay in

power and increase their wealth.
 They collaborate with each other to keep the system going.
3- Global Capitalism
 In this system liberal economic theory dominate.
 They all serve the interests of the core countries
“The situation is like “all roads to Rome”

 In this system MNCs, Banks like World Bank, IMF all serve
the CC richest people and countries even global media etc.
All three concepts serve only CC
 They do not promote development or equal opportunities instead
system promote dominance and exploitation.
 This system is designed in such a way that no Peripheral country

can develop.
 This is called “underdevelopment”.

So, this system promote underdevelopment …..!!!
Interdependence
 Interdependence means mutual dependence/mutual reliance.
 Higher level of transactional relations means higher

interdependence.
 Industrialization pushed this notion ahead.
 Throughout history states have sought power by military means
& territory.
 But, in today’s world economic development and foreign trade

is more persuasive than military force with low costs as well.
 Cost of using force have been increased and out comes have
been decreased.
Changing character of economic production
 Historically prior to 1950s, Possession of resources and

territory was source of strength.
 Now qualified labour force, information, technological and

financial capital is the source of power.
War fighting has changed
 During cold war USA and USSR burdened themselves with
high military expenditure.
 According to Rosecrance, Interdependence has made this

traditional threats less attractive.
 David Mitrany, Greater interdependence leads to greater

peace.
But
 Interdependence must not be asymmetric.
 Asymmetric interdependence benefits the industrialized and

poor economies suffer.
 Note: Interdependence is a liberal theory which is capitalist in

nature and asymmetric interdependence always serve the
purpose of large country with imperial designs.
Questions

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International Political economy.

Theories in IPE: Mercantilism, economic liberalism,

“It is a political battle between winners and losers from global

 Central question is human welfare; however, the field has often

 Example: US trade tariffs - China

 Study of the relationship;

 IPE examines how politics can be used to achieve economic

 First, Economic transactions among states rose in terms of

 Second, People expected that their governments will include

 Third, economic issues become more transparent to the people.

 Finally, Globalization is shaping international relations.

Bretton Wood system (IMF, WB, GATT 1944) helped US become

 To analyse IPE there are three approaches which outline the

 Economy is a critical element of national power - a country’s

 Economy is used to build its military for better security and

 Some form of activity is more valuable than others.

 Exports must be encouraged, and imports must be discouraged.

 Economic interests also stir conflicts among states because

 What about Japan, Germany, and South Korea?

 They have trade surplus – but, not known as military powers?

 They spend more on masses – to enhance their quality of life.

 The ongoing economic system is capitalist. Private ownership

 Individual may be naturally cooperative, but in society they act

 Main conflict emerges in societal groups; owners of the wealth

 Fourth, in capitalism – owners of the land and industry amass

 Marxists believe that MNCs , World Bank and other financial

 Marxists argue resources must be distributed on just basis within

 Marxists conclude that the structure of the national and int.

 Trade has benefits for all, regardless of imports or exports.

 All productivity is valuable, but countries must specialize in

 Liberals believe that human being act rationally in a

 This enable common man to improve living.

 Market competition among businesses ensures low prices for

 Liberals believe, economics and politics must be separated.

 “government is not the solution; government is the problem.”

 Govts. & int. institutions encourage trade liberalization – that

 Liberal economics is based on division of labor.

 States differ in land, labor and capital.

 British economist David Ricardo (1772-1823) developed the

“a state should produce and export those products which it can

Relationship b/w Politics decisive Economics decisive Economics decisive

Units of analysis States Individuals Classes

Economic goals Increase State Increase individual well- Class interests

“Structure of the world economy is such that, it favours some

 Developed by a U.N. Director Economic Commission for

Q – “Why are so many countries not developing”?

 There are two types of states: core & Periphery

 Peripheral countries are dependent on core countries.

 Dependent nations’ development remains stagnant while

1- Int. division of labour between countries.

 CC dominate the industry and technology and control capital

 Whereas countries in the periphery are dependent upon

 Rich elite cooperate with one another to ensure - they stay in

 They collaborate with each other to keep the system going.

“The situation is like “all roads to Rome”

 This system is designed in such a way that no Peripheral country

 This is called “underdevelopment”.

 Interdependence means mutual dependence/mutual reliance.

 Higher level of transactional relations means higher

 Industrialization pushed this notion ahead.

 But, in today’s world economic development and foreign trade

 Historically prior to 1950s, Possession of resources and