Understanding International Relations, Third Edition

Chapter 8
The Global Economy
Introduction
One of the defining characteristics of state-centric international relations
has been to draw a clear distinction between ‘domestic’ and ‘international’
politics. When the volume of transactions that crossed state boundaries
grew ever larger in the 1960s and 1970s, a subsidiary distinction became
common, that between ‘high politics’ – the traditional interstate agenda of
war and peace – and ‘low politics’ – the projection of essentially domestic
concerns onto the international agenda. The assumption of realist, especially
neorealist, thinking was that whatever ‘global governance’ might emerge it
would be in this latter sphere rather than the former, and the essentially
anarchic nature of ‘high’ politics would remain unchanged. In one sense,
this assumption has turned out to be accurate. As established in Chapter 7,
attempts to introduce collective management of security problems have not
been markedly successful, and the great increase in the number of interna-
tional institutions has come about because of other kinds of needs, other
kinds of problems. Where, however, the realist position falls is at the outset,
in the distinction between ‘high’ and ‘low’ politics – a distinction that
collapses in the face of the ‘high political’ importance of what was once seen
as the characteristically ‘low political’ activity of international economic
relations. The world economy and attempts to manage and regulate it are
now at the heart of international relations in a way that would have been
difficult to believe a century ago and very surprising even 30 years ago.
The changing salience of the world economy is obviously tied up with a
number of factors, but for the moment a fairly basic account of the importance
of the world economy will suffice. Nowadays, most governments in the world
which do not rely on direct physical coercion to stay in power (as well as some
that do) understand that their well-being and survival in office is more or less
directly determined by their success at economic management, and this is a
task that cannot be understood in isolation from the international economy.
This, it is worth remembering, is a relatively new state of affairs. A century ago
most governments would have rejected the idea that they were responsible for
the state of the economy, and their electorates, such as they were, tended to
agree – although issues such as free trade and protectionism could on occasion
be crucial. Even when economic management did become critical it was not
automatically the case that politics drove governments towards attempts to
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collectively manage the world economy; sometimes isolation was the aim, at
other times the world economy was seen as a self-regulating mechanism which
did not need, or was positively averse to, political management.
In Chapter 7 the basic structure of the state-based institutions of the global
economy – the IMF, the WTO, the World Bank, UNCTAD and so on – was
briefly described. These institutions are interesting in their own right, but the
nature of the global economy is far too complex, and there are far too many
non-state actors involved, to be summarized via a purely institutional account.
It is also far too anarchic; the study of international or global political econ-
omy may lead one to believe that realist accounts of the world err by placing
too much emphasis on the importance of the sovereign state, but their account
of the importance of power is by no means undermined by an accurate rend-
ing of the workings of the world economy. That corporations as well as states
seek power, and the impact on power relations of the workings of commodity
and capital markets, are consistent themes in the study of international politi-
cal economy. The use of the term political economy here is deliberate; one of
the weaknesses of contemporary economics is the difficulty it experiences in
modelling the political process and the importance of power. Just as contem-
porary political scientists characteristically underestimate the importance
of markets, so contemporary economists usually set to one side political
phenomena; in reaction, a major sub-field of International Relations,
International Political Economy (IPE), has developed over the last three
decades based on the proposition that to understand the modern world econ-
omy it is necessary to understand both states and markets (Strange 1988). The
founders of modern economics, figures such as Adam Smith, David Ricardo
and John Stuart Mill, would have no difficulty agreeing with this position.
This chapter and the next will focus on IPE very broadly defined. Chapter 8
begins with a brief backward look at the development of the world econ-
omy over the last half-millennium, and will then focus on the theories and
perspectives that have been generated to understand this development,
starting with classical liberalism, mercantilism, Marxism and structuralism;
the final section of the chapter will outline recent dramatic changes in the
nature of the world economy. Chapter 9 will generalize from these changes
to the notion of globalization. Initially the focus will be on the global econ-
omy, discussing contemporary neoliberalism and neo-Gramscian thought –
but inevitably the scope of the discussion will widen to examine global
social and political issues.