International Political Economy (IPE)

• International Political Economy (IPE) is an interdisciplinary field combining politics and economics, acknowledging their inseparable relationship.
• The market's logic seeks efficiency through functional integration.
• The state's logic seeks intervention in the market based on territory and loyalty.

Definitions of IPE

• Thomas Oatley defines it as a battle between winners and losers of global economic exchange.
• Robert Gilpin defines IPE as a branch of science by statesmen and legislators.
• John Mill considers IPE as a science on how a nation should be rich.
• Alfred Marshall believed IPE heavily focuses on the study of economics.
• Lionel Robbins considered it the study of human behavior in relation to ends and scarce means.

Four Issue Areas of IPE

• International trade system
• International monetary system
• Multinational corporations
• Economic development

Consequences of Resource Allocation

• Welfare: Determines societal well-being.
• Distributional: Concerns how income is distributed between countries and groups.

Research Traditions in IPE

• Explanatory: Explains foreign policies, asking "why?"
• Evaluative: Focuses on assessing the outcomes of policies.

Important Contributions from Chicago Schools

• Methodological individualism/rational actor model for explaining human behavior, maximizing self-interest.
• Endogenous factors are inside economics, while exogenous factors are outside it.

Three Key Areas in IPE

• Public Choice examines the behavior of politicians and government officials, specifically regarding government intervention.
• Neo-Institutionalism focuses on how institutions constrain and enable the behavior of actors.
• New Political Economy examines competition for private advantage, can be understood as rent-seeking behavior. Trade protection (tariffs) can be "rent-seeking behavior".

Traditional Schools in IPE

• Mercantilism
• Liberalism
• Marxism

Rise of Mercantilism (17th-18th Century)

• Focuses on acquiring trade from abroad, connecting national power and wealth, using economics as a tool.
• Emphasizes manufacturing over agriculture (Hamilton's Report) and national self-reliance.
• Prioritizes exports over imports, accumulating gold and reserves, viewing trade as zero-sum.

Liberalism Challenges Mercantilism

• Advocates for free and unrestricted trade without government interference (laissez-faire), Classical thinkers: Adam Smith and David Ricardo.
• Central arguments include enriching individuals, enriching through trade (regardless if positive or negative), and primary commodities over manufactured goods.
• Favors a market-based system that is mutually beneficial (free-market).

Adam Smith's Wealth of Nations

• Promotes competition as a regulator for exchange.

Marxism and its Criticism of Capitalism

• Focuses on the working class vs. the capitalist class.
• Explains the brutal division and specialization of labor, where workers are paid subsistence wages.
• Competition forces efficiency, increasing stock/capital in the hands of an elite, as one of three dynamics.
• Falling profit rates lead to decreased wages.
• Sees an imbalance between purchase and production abilities, where large capital enables production, but low profits hinder consumer purchasing power.
• The value of manufactured goods is determined by the amount of labor used to make them.
• The state reinforces capital through its policies and capitalist nations exploit the developing world.

Political Economy to Neoclassical Economy

• The Science of Rational Choice: Studies choice under scarce conditions and how to make efficient allocation of resources.
• Uses market principles to explain human behavior.
• The Universal Social Science: Tools define the subject, focuses mainly on applicability and range. Methods and assumptions can be applied anywhere.

Krugman's Arguments

• Extensive and explicit rational means
• Guides effort to maintain preferences
• Markets develop naturally in order to coordinate

Equilibrium

• Market supply = Market demand, markets move towards equilibrium when altering resource allocations decreases welfare.

Invisible Hand

• Coordination with individuals is spontaneous and is guided by self-interest.

Robert Gilpin's Distinctions of Neoclassical Economy Vs. Political Economy

Neoclassical

• Analyzes markets in equilibrium, where supply matches demand.
• Actors are rational aiming to drive economic welfare (profits/gains).
• Sees markets arising spontaneously, governed by objective laws.
• Focuses on endogenous factors as the cause of crises in the world economy.

Political

• Analyzes non-market, exogenous factors
• Actors value competition over economic policy as well as the promotion of self interest
• Assumes everyone has the range of economic objectives
• Views the economy as embedded in a socio-political system where government and history determine the goals
• Concerned with the political origins of crises in the world economy caused by exogenous factors

Susan Strange's Assumptions on Theory and Definition of IPE

Negative Assumptions

• Mere repetition of known information rearranging into new categories.
• Simplifying concepts borrowed from other fields.
• The choice of coinciding choices based on subjective.

Positive Assumptions

• Explains parts in the international system that are complex.

• Not to prescribe or predict

• Uses science only to respect virtues of rationality

• IPE concerns social, political, and economic arrangements affecting global exchange and distribution, and reflections.

• IPE must be concerned with future possibilities.

• Power is structural, not relational

Dominant IPE Approach

• Identifying sources of competing interests, analysis of national processes and institutions
• Consequences of policies and choices on the global economy.