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The modern international relations are based on former political and economic thoughts. As the situation on a global arena is constantly changing, the theory underlying international relations has to be up to date. The recent changes are related to the emergence of new actors of international relations such as transnational corporations, NGOs and intergovernmental organizations.
Interestingly, after a pause in its development, political economy has once again gained its importance but in a new form. It is now known as international political economy with its own peculiarities and schools of thought. The objectives of the current paper are to analyze the notion of political economy, the ways of how it evolved into international political economy (IPE), IPE school of thought and the school of thought that meets the needs of modern world. After learning about international political economy schools of thought, it can be suggested that in the modern age, the new international political economy seems applicable.
The Definition of Political Economy
The term “international political economy” developed from a classic notion defining political economy. “Political economy is a term used for studying production and trade, and their relations with law, custom, and government, as well as with the distribution of national income and wealth”. Political economy is one of the social sciences, which studies the relations of production and the laws affecting their historical development.
The category of "political economy" is one of the elements of the "economic theory" category. Therefore, these terms are not equal and are not interchangeable. Political economy is only one of many sciences that are used for formulating economic theories. In its framework as in any other science, even more qualitatively different sets of partial theories can occur, coexist and compete. The schools and currents of scientific thought include groups of related, mutually consistent theories developed within the framework of a particular science. These schools of thought are based on the same background, but are created and used by different groups of scholars who prefer different methods, approaches and techniques. Over time, the differences between them in relation to the object of investigation and the method can reach a critical point, after which new sciences emerge, already with their mutually consistent definitions of objects and methods.
The subject of political economy studies is society and social relations. However, the object is also studied by psychologists, sociologists, political scientists, etc. The subject of the political economy includes socio-economic phenomena that develop in certain areas, which at different times have been the focus of political economy. Political economy studies the economy and the relationships falling into the category of "Industrial Relations". This includes the public relations in the process of production, distribution, exchange and consumption of material goods.
International Political Economy
The classic political economy scientists are Francis Hutcheson, Adam Smith, David Ricardo, Jeremy Bentham, John Stuart Mill, Karl Marx and others. Continuing the tradition of Adam Smith and David Ricardo, who in contrast to mercantilists, separated economy from politics, and developed a theory of absolute and relative advantages, proponents of the classical school insisted on the non-interference of the state in international exchanges regulated by the "invisible hand of the market". As a result, the school has been unable to respond to the international policy makers' needs.
There was made an attempt to apply political economy to the international environment. Keynesian economic theory, founded by John Maynard Keynes (1883-1946), is the most important theoretical basis of the state regulation of developed market economy carried out by means of increasing or reducing demand through changes in cash and non-cash money supply. With such a regulation, the government can exhibit control over inflation and employment, eliminating uneven supply and demand of goods, and suppressing the economic crises. John Keynes declared a "savior of capitalism," and his theory proclaimed "Keynesian revolution in political economy." However, a number of theoretical propositions were borrowed by Keynes from the arsenal of classical political economy of Adam Smith and Ricardo, as well as from the economic theory of Marxism. According to Keynes, the main economic problem is the size of the market, the principle of effective demand, which partially acts as a multiplier concept, the general theory of employment and the marginal efficiency of capital.
There was an urgent need for new policy tools that would meet current needs, comply with the new actors of international relations, as well as control and manage the international economic order upheavals, which would otherwise threaten to undermine permanently their mutual legitimacy. Researchers of international relations are faced with a double problem related to the critical analysis of the process of legitimizing the state apparatus in their specific mediation between the economic and political spheres and taking into account the context of the crisis, which facilitates the need for "economization" of political activity at the global level.
International political economy (IPE) announced itself as an unorthodox approach to international research in the 1970s. In 1971, it was created by International Political Economy Group (IPEG). The reasons to overthink theoretical foundations of world economy and international relations included rapidly growing oil prices and the end of the current international monetary system (Bretton Woods). By contrast, modern economic doctrine is accused of abstraction and inaccessibility. Having borrowed much from the history of sociology and economic history, IPE provides a compound of the economic and political analysis. Some economic theories and hypothesis are not valid unless political factors are taken into account. For example, a so-called Singer-Prebisch hypothesis, according to which the global terms of trade (the ratio of raw materials prices to manufacturing production) over time undergo changes. These changes are that the main benefits from international trade are given to the countries producing the final product. The economies that provide raw materials and import these products have a much worse economic situation. The conditions determining the ratio of prices for raw materials and the finished products are called "terms of trade”. Singer-Prebisch's hypothesis has been formulated for the "ideal" market economy, and did not account for the influence of political factors; therefore, its reliability remains the subject of debate.
Prebish is closely related to the notion of structuralism. It is the theory, according to which the structure of the system or organization is more important than the individual behavior of its members. Prebisch and the UN Economic Commission for Latin America (ECLA) developed and greatly influenced Latin American structuralism.
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Therefore, the notion of international political economy evolved from the attempts to adjust political economy to the upend world order. The emergence of international organizations, changes in political map of the world, increasing role of trade and changing regimes has an impact on the principles of international political economy.
International Political Economy Thought Schools
Specific elements that meet the definition of political economy are described in the works of "pioneers" of this science (W. Petty, P. de Boisguillebert et al.) The final consolidation and formulation can be found in the writings of Adam Smith, David Ricardo, Karl Marx, J.-B. Say, T. Malthus, Bastiat, and others, whose works belong to the classical political economy. Despite the similarity of certain conclusions and laws, formulated by different "classes" in the framework of political economy, there were different schools of political economy thought. The largest in the number of scientists, number of proceedings and the duration of the existence is the Marxist political economy (which also has various schools and currents).
There are different approaches to international political economy: the ‘realist’ approach, the institutionalist approach (interdependence and international regimes), constructivism (embedded liberalism), the ‘radical’ tradition (world-systems theory and the neo-Gramscian approach), the post-structuralist critique and the feminist approach.
Realism (with commercialism and nationalism) is based on the priority of economic policy in international relations, and is focused on the utmost importance of strength among the objectives pursued by the state in the international arena. Marxism explains the formation, development and interaction of nations and states, international conflicts and cooperation insisting on the dominant role of the economy over politics. Liberalism divides economic and political spheres, legitimizing international political economy as an autonomous discipline. In the second half of the XIX century, marginalism theory was formulated. It was developed as a reaction to the economic theory of Karl Marx, and his critical judgment. Marginalism underlies the modern neoclassical school of economic thought. Neorealism is associated with the publication of the book by Kenneth Waltz Theory of International Politics. The goal of the representatives of the school of neorealism was to preserve the benefits of the classical theory for the new international environment. In addition, these included central concepts of political realism, such as "power", "national interest", "rational behavior" and others. At the same time, neorealism was originated from the need to highlight the political sphere among other spheres of international relations (in particular, economic) that allows focusing on the study of its inherent characteristics and patterns of the research. It should be noted that the conditions of an irreversible process of "economization" of international (political) relations include the "elimination" of the economy from politics that clearly impoverishes the subject and object of study.
At the beginning, the neoliberalist school of international political economy seemed rational for me. Although neo-realism seems appealing, many of its provisions seem rather archaic. Global inter-system of Cold War between two political and economic systems has ended. Although the general political trends were formed in such a way that the fight against international terrorism is the central point, modern conditions require different theoretical approaches in order to analyze the international political and economic relations. Modern neoliberalism differs qualitatively from classical liberalism. Firstly, the state is not the only or the main agent of the international political and economic scene, and, furthermore, not every state can generally be an agent. Secondly, the system of international relations is threatened by the loss of control levers. To solve these problems and threats there exists a well-known concept of "cooperative security" that is the way of strengthening international cooperation under the aegis of a single superpower. Third, neoliberalism reinforces tradition to treat domestic relations as secondary in comparison with the world community and private individuals. Therefore, the global community, and each single individual has a priority in the decision-making in the field of international relations (sovereignty of the national issue). Fourth, neoliberalism, as indeed neorealism, perceives security as one of the main challenges faced by the international community. Neo-liberal critique is based on the growth of inequality of nations and peoples, violating the global economic equilibrium, instability of the global financial system, exacerbation of social problems of countries, the loss of the state of their organic functions, etc.
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The institutionalization and development of contemporary international political economy was largely influenced by neomarxists’ studies. When thinking about the place that neo-Marxism occupies in the modern international political science, several aspects should be taken into account. Firstly, the fact that it combines the traditional Marxist paradigm is a distinguishing feature of neo-Marxism. Secondly, neo-Marxism, in contrast to Marxism (but in the same way as the other paradigm of the international relations science), is extremely heterogeneous. It is an aspect that requires consideration of not only the common (paradigmatic) characteristics but also the theoretical views of the major representatives. In addition, these characteristics often make these views so far from traditional Marxism, and bring them closer to the positions of international political economy that sometimes it seems that the specific nature of neo-Marxism loses its value. Finally, despite the fact that some of its representatives are prominent scientists that have authority in the scientific community, in general, neo-Marxism is an ideological trend that remains relatively marginal.
Some experts distinguish a “British school” and an “American school” or the “International Organization (IO) school” of IPE, named “after the US journal that has been the original source of its development”. “The American school focuses on recent events in the world, investigates “debates” among proponents of different conceptual currents, and often changes emphasis”. “The British school of IPE criticizes modern American projects that aim at international economic integration, make links to other disciplines, focuses on more issues”. Between these two schools, American school of international political economy seems more rational because it analyzes real-time events and global problems, trying to find the ways to solve them. However, both American and British schools of IPE were often criticized for regionalization expressed in gathering and analyzing data of certain regions, narrow-mindness and being overly theoretical.
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To conclude, international political economy schools of thought have different ramifications. They are known as classical and include realism, liberalism, neorealism, neoliberalism, neo-Marxism, and marginalism. One more approach is to determine American and British schools of thought. Moreover, there is a so-called new international political economy. The most radical critics of classicism and the providers of the "new political economy" are the Marxists.
The New Political Economy
There is one more school of thought: the new political economy. It is perceived as the most applicable theory in the modern age for several reasons. The new political economy is an advanced economic school that studies the functioning of the political system and the behavior of politicians and voters. There was made an attempt to look wider than traditional Cohen’s division of international political economy into American and British schools. The political economy is characterized by the fact that it determines the active use of the methods and results of neo-institutionalism (contract theory or the theory of optimal mechanism (design), which was created by L.Gurvich, E.Meskin and R.Mayerson) for the analysis of the traditional issues of political science. The new political economy is based on the model, when the political decision-making is delegated to a special group of individuals (i.e. politicians), if need arises. Key representatives are James Buchanan and Gordon Tullock.
The task of the new political economy, in particular, is to analyze the influence of political processes on the peculiarities of the economic market. Within the framework of this theory, officials and politicians, who are called to address the citizens' interests, but other than that pursue their own interests, are considered. This school of thought studies citizens, civil society, the media, which also have their own interests and are trying to realize them through the officials and politicians. A state is a complex structure with the system of balances for the new international political economy.
The new political economy rejects the doctrine of the ideal state and a government that cares about citizens. Public institutions may have different interests, so that the interests of the officials who make up the state bureaucracy and the politicians who are elected can vary dramatically. There are situations when politicians and officials pursuing their own interests cooperate with each other, often ignoring the interests of the voters. Corruption can be a particular manifestation of these contradictions.
The new international political economy considers new international relations subjects. IPE studies ideological conflicts or conflicts of interests and the polarity (imbalance in the power) in the world. “IPE investigates both developing and developed countries. The emergence of General Agreement on Tariffs and Trade (GATT) has influenced the changes in the new international political economy”. At that time, GATT showed the differences between developing and developed countries in inconsistencies between the position of developed countries and the agreed text of the ‘Doha Development Round’. Moreover, in part IV GATT focuses on developing countries’ needs. Free trade and specialization according to static comparative advantage does not always benefit a developing county.
The new political economy has been evolving for decades. At first, it focused on classical provisions of realism, liberalism, Marxism and marginalism. Afterwards, its main concern was “interdependence”. “The final transformed version of the new international political economy considered international regimes, multilateral economic and political relationship was more practical as included some applications of ideas from game theory to problems of bargaining”.
The Key Concepts of Modern International Political Economy
There are several concepts that must be used in international political economy theory that is most applicable in modern times. First of all, it is required to take into account the division into public and private goods. Public goods are those that are collectively consumed by all citizens whether they pay for them or not. It is almost impossible to exclude a person from the group of those who consume public goods. The consumption of the good by one person does not reduce the consumption capacity of the other one and the good cannot be decomposed into individual units. Along with public goods, there are private or economic ones. The economic goods are created, acquired, changed and distributed based on internal control of economic life and economic laws, that are studied by political economy.
Also, any individual can be a subject and participant in international relations from the standpoint of political economy, while the consequences of their decisions are not limited to one state. This means that political institutions and international organizations such as NAFTA, WTO can be subjects of international political economy.
International political economy is one of the attempts to address global problems and problems of international relations using a theoretical basis adjacent to political economy and interdisciplinary set of analytical tools and theoretical methods. International political economy schools of thought have different ramifications (realism, liberalism, neo-Marxism, marginalism; American and British schools of thought). Recently, there emerged a so-called new international political economy. It was a result and a synthesis of former concepts, works and ideas on how changes in the world order influence certain spheres of political economy on international scale (international trade, production, international law, governmental positions, relevant domestic affairs etc.).
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The new international political economy seems to be the most applicable in modern times because its main focus is on global market functioning. Second, it meets the needs of the modern world order that is multipolar and has new subjects of international relations (individuals, transnational corporations, international organizations). Third, it can be used for globalization and regionalization processes.