Saylor Ipe Ch1 Sample

7/31/2019 Saylor Ipe Ch1 Sample

1/48

SAMPLE CHAPTER FOR SAYLOR COURSE

PLSC 411 INTERNATIONAL POLITICAL ECONOMY

This chapter includes examples of images, tables, graphs, and figures, which I

have positioned into the main text


2/48

Chapter One 2

CHAPTER ONE

The Complex and Sometimes Confusing World

of International Political Economy

Introduction

There are many books on International Political Economy, or IPE for short. Not surprisingly,

each contains its own assumptions and views about the key concepts, issues, and concerns of

IPE. Sometimes the authors of these various books hold the same assumptions and share the

same, or at least very similar, views about how the world really works. Sometimes not. In fact,

as we will see in a few of the chapters that follow, the perspectives of the people who write and

think about IPE are often dramatically, if not fundamentally different. You may already have an

inkling that mainstream economists and Marxists (or historical structuralists as they are

sometimes called) do not agree on many central issues and concepts. But even among those who

seem to share many basic ideas, there can be sharp disagreements. Thus in neoclassical

economics, as Susan Strange points out (1994), Keynesians are skeptical about the supposedly

self-regulating nature of markets and advocate a relatively important role for government


3/48

Chapter One 3

pump-priming (which refers to deficit spending).

Monetarists, on the other hand, express deep confidence in the

ability of markets to take care of themselves and therefore see

only a limited role for governments at the national level, one

based on ensuring a relatively stable supply of money.

Disagreements of a different sort exist within

Marxism/structuralism. Marxists, for instance, do not even

agree on the best way to define such central concepts as

social classsome focus on property (who owns what), while others focus on social, cultural,

and economic power (who rules and who is ruled) (Howard and King 1999).

There is, in short, no lack of disagreement in IPE. But why is this? That is, why dont

scholars and others who think about the world of IPE agree on how things really work? Why

cant they even seem to agree on what factors or processes are most important in the world

(political) economy? One of the clearest reasons, perhaps, has to do with the subject itself: as

with all social sciences, IPE ultimately studies the behavior and actions of human beings, which

means that, unlike the physical world of the natural sciences, the social world is populated by

subjects with the capacity to think, learn, and make willful choices. To understand the

difference, just imagine if atoms, planets, or chemicals had minds and wills of their own.

Certainly, the task of physicists, astronomers, and chemists would be far more difficult than it is

already. But it is not only individual consciousness that separates the social from the natural

Pictured: John Maynard Keynes, a key

architect of macroeconomics and

advocate of deficit spending during

economic recessions.

This photograph is in the public domain.It is free to use for publication purposes.

Source: www.imf.org


4/48

Chapter One 4

sciences. The social world is also composed ofhistorically contingentstructures, institutions,

and systems of beliefs. To fully understand or explain the social world, then, it is not enough that

we find the universal key to individual behavior (which some social scientists claim to have

done with the concept of rationality), but we must also try understand how the broader social,

economic, and cultural contexts in which individuals live alters or renders completely

meaningless the search for such keys to human action.

The Social World as an Open System

From a different perspective, we can say that the social world is by nature an open system, which

basically means that the objects or subjects we want to study cannot be isolated from other

objects (forces or factors) in the environment. In many of the natural sciences, by contrast,

objects of study can be isolated, albeit not always completely. The whole point of many

experiments in the natural sciences, in fact, is to create closed or quasi-closed systems so that

regular sequences of events can be observed under carefully controlled conditions (Sayer 1992).

It is this ability to create closed systems that has led to the precision and predictive success of

certain sciences like physics and astronomy. On the other hand, there are some natural sciences

e.g. meteorology, geology, or the environmental sciences more generallythat do not have

the ability to directly experiment with closed systems, although they can sometimes borrow from

closed system sciences to establish rough predictions and explanations (ibid.). It is the relative


5/48

Chapter One 5

lack of precision and predictive power in these more open natural sciences that has led to some

intense and even fundamental disagreements, which may or may not be amenable to resolution in

the long-run. One of the most prominent examples of this is the continuing debate over global

warming. After decades of intense research, for example, there is near-universal scientific

consensus on theories related to the greenhouse effects of global warming, yet because the global

environment is inherently open, there continues to be room for debate.

In general, the difficulties posed by open systems in the environmental sciences pale in

comparison to the social sciences, where the added capacity for learning and self-change means

that the subjects of study are never exactly the same from one time period to the next (or from

even one minute to the next). Thus, it should be even less surprising that sharp theoretical

disagreements in IPE not only exist, but show no sign of ever disappearing. The basic reason, to

repeat, is clear: the inherent openness of social systems means that there will always be strict

limits on what we can know (although, there are many stalwart social scientistsincluding, no

doubt, several of your past or current professorswho never have and probably never will

accept this). Given these limitations, our goal in this book is notto provide a definitive, much

less objective exposition on international political economy. We especially do not want to tell

you the proper or correct way to think. Rather, we want to provide you with knowledge that

will enable you to develop your own ideas and your own frameworks of analysis. In this regard,

we have two other related goals. First, we wish to get you to think more clearly and explicitly

about your own (theoretical) assumptions, values, and beliefs. This is a critical step, since many


6/48

Chapter One 6

students often do not understand the basis and/or implications of their own beliefs about the

world. It is this lack of self-understanding that leads to inconsistent, sloppy and sometimes

contradictory thinkingthe type of thinking that causes headaches in so many of your

professors. Second, we want to introduce you to a variety of ways of understanding, explaining

and interpreting the world political economy. In doing so, however, we also want to help you

make much better sense of the conflicting perspectives and approaches in the field of IPE.

Defining Political Economy: The First Step

So far we have referred numerous times to the terms political economy and international

political economy, but we have not yet discussed the meaning of these terms. We will do this

shortly. But first, a few words of warning: like other aspects of the field, there is no universal

agreement on how political economy or IPE should be defined. This means the discussion that

follows will not be as simple or straightforward as you might expect (or want). At the same

time, a careful reading of this section will, we hope, provide you a better foundation for

understanding and interpreting the concepts, issues, and problems we examine throughout the

remainder of this book. Let us start off by making one very important point: Definitions are

important. A big reason for this is because they tell us what to include in our analysis and what

to leave out. Put in slightly different terms, definitions of any area of inquiry essentially tell

whatis considered legitimatewhat matters or what is relevantwithin a field of study and


7/48

Chapter One 7

howit is supposedto be studied. In this sense, definitions lead us to ask certain kinds of

questions, which is very important in and of itself. Roger Tooze, a leading political economist,

explains it this way: What you ask is often more important than the answers you get. Because

what you ask and how you go

about getting the answer nearly

always determine that answer

for you (1984, p. 7). We can

certainly see this in the more

common definitions of political

economy. One definition from

a popular textbook, for example,

tells us that political economy

is the study of the tension

between the market, where individuals engage in self-interested activities, and the state, where

those same individuals undertake collection action (Balaam and Veseth 1996, p. 6). This

seemingly innocuous definition is based on several important, but unstated assumptions. First, it

suggests to us that there are only two significant subjects of political economy: (a) markets,

which are composed of self-interested individuals, and (b) states, which are the primary political

institutions of the modern international system. Further, it suggests that a clear cut distinction

exists between economic or market-based activities, and political or state-centered ones. Second,

In the traditional view, the relationship between the state and market is

seen as adversarial, like two boxers each trying to defeat the other.

However, this is not the only way to conceptualize the relationship

between the state and market.

Source: Library of Congress, New York World-Telegram & Sun

Collection. http://www.loc.gov/pictures/resource/cph.3c14335/No copyright restriction known


8/48

Chapter One 8

this definition tells us that the most important aspect of the relationship between markets and

states is based on conflict. In other words, it presupposes that markets and states relate to one

another in fundamentally adverserial ways.


9/48

Chapter One 9

On the surface, there is nothing terribly objectionable about this definition of political

economy. Markets and states are obviously important, and it seems apparent that a strong degree

of antagonism exists between them. Nonetheless, the definition of political economy as the

study of the tension between the market and the state has tended, as Tooze warned us, to limit

what researchers and students have considered relevant in the

field. The focus on states as the loci for collective action, for

example, can discourage researchers from clearly

distinguishing the state from non-state institutions, groups or

organizations geared toward collective action. This is a

significant limitation: If political society is defined largely in

terms of the state (which is what the definition above does),

then whole categories of other actors, issues, and activities are

essentially eliminated from view, or at least relegated to the

outer margins of the field. A good contrast with a state-

centered definition of political economy is the Marxist view,

which, generally speaking, focuses on the social relations of

production. From a Marxist perspective, the key aspect of

political economy is the inescapable conflict between opposing class intereststhat is, between

the owners of the means of social production (i.e., modern capitalists) and wage laborers (i.e.,

workers). The questions and answers that result from a definition that focuses on the tension

Marxs theory is often

misunderstood, but it arguably

still has much to tell us about

the world economy. The class-

analytical basis of Marxist

analysis is particularly

important. Chapter 2 will

discuss his theory in more

depth.

Source: Unknown. Thisimage is in the publicdomain because its

copyright has expired.


10/48

Chapter One 10

between states and markets versus one that focuses on opposing class interests are, needless to

say, likely to be quite different.

The shift from states to social classes, however, still leaves important categories of

actors, activities, and issues out of the picture. One of the most salient categories in this regard is

gender: until recently gender and the related notion of patriarchy were rare in studies of political

economy, both mainstream and Marxist. Similarly, it has only been in the last decade or so that

such topics as the environment, migration, social movements (including labor movements),

nationalism, and race/ethnicity been considered as appropriate, much less important topics of

study in (international) political economy. Even the question of poverty was, for a long time,

largely ignored in studies of IPE. What we need to emphasize from the start, though, is that these

issues are not naturally marginal or unimportant (Enloe 1996). That is, their exclusion in the

past does not mean that they were any less important or relevant to the field of IPE. Rather, their

marginalized status was the product of particular forces within societyto put it bluntly, they

were or are marginal because someone or something made them so (ibid.). When such issues

begin to show up in research and public policy agendas, therefore, we know something is going

on. Helping you understand just what is going on and why is a big part of this book.

What is true for political economy in general has been even truer for IPE. The

conventional definition of IPE basically extends the notion of political economy to the

international or inter-state level; in other words, to relations among sovereign nation-states. For

the most part this has entailed a very strong, albeit not quite exclusive, focus on such issues as


11/48

Chapter One 11

international trade, monetary relations, finance, investment, and regime formationissues that

tend to mirror the concerns of the richer, more industrialized nation-states of the world: most of

Western Europe, the United States, Japan and a few other affluent countries. The focus on states

and their relations with other states is no accident, for IPE, to a very large extent, originally

developed as an extension of realist international relations (IR) theory, which portrays the state

as the basic and really only significant actor in world politics. Much, though certainly not all,

mainstream research in IPE has simply accepted the premise of state centrality. This is most

apparent in the approach known as the politics of international economics relations, which still

enjoys a great deal of popularity today.

The tendency of mainstream IPE to focus on the problems and concerns of the Western

or Northern states (as they are also called) is also no accident. After all, if states are the only

significant actors on the international stage, it stands to reason that the most powerful states

should be the center of our attention. And it is clear that Northern states (e.g., the United States,

Great Britain, Germany, Japan, France) are the dominant players in the world economy: they

control the bulk of world trade; they are the main creditors, whether through private banks or

international financial institutions such as the World Bank and the International Monetary Fund

(IMF); they are the largest and most influential investors internationally; and they are most

responsible for the creation of international regimes and organizations such as GATT (General

Agreement on Trade and Tariffs), the WTO (World Trade Organization), and the OECD

(Organization for Economic Co-Operation and Development). Even among work that is critical


12/48

Chapter One 12

of the state-centric model, there has been a strong tendency to focus on the North. In research

that emphasizes the growing importance of interdependence, for example, most attention is paid

to international regimes or organizations, or to transnational corporations, which are either

products of or reflections of Northern or Western dominance.

Not all mainstream IPE research, to be fair, has been devoted to Western (or Northern)

issues. Beginning in the early 1960s, but especially in the 1970s, a secondary set of issues

emerged, which incorporated (but did not necessarily center on) the concerns of non-Western

countries. These include such interrelated issues as Third World development, international

debt, technology transfer, foreign direct investment (FDI), and foreign aid. Significantly, most of

the research on these issues was still primarily based on international or inter-state relations in

this case the relationship between the richer countries of the North and the poorer ones of the

South. Moreover, much of this work was still fundamentally based on Western interests.

International debt became a particularly important issue, for example, when Western leaders

became concerned about the negative implications of Third World borrowing, which in the early

1980s had become a serious problem for debtor countries (especially in Latin Americasee

Table 1.1), but an even more serious one for Western creditor nations who feared the economic

consequences of a widespread and large-scale default on their international loans. The attention

paid to economic development among so-called Third World countries has also tended to reflect

a Western bias. This was particularly true during the Cold War period when many studies were

guided more by a desire to promote or protect Western political interests and capitalism, than to


13/48

Chapter One 13

fully understand the unique aspects of economic development among Third World countries. On

some occasions, this bias was made explicit, as with W.W. Rostows seminal Five Stages of

Economic Growth, which was subtitled A Non-Communist Manifesto (1960).

In sum, mainstream IPE research has tended to exclude much more than it includes; to

ask certain questions, but to leave a plethora of other important questions unasked and

unanswered. Susan Strange, who has written extensively on IPE and International Relations,

puts it this way, Even at their most extensive, the directional or azimuthal agendas that

exists [in IPE] are still far too restrictive and so do not really qualify as the study of political

economy (1984, p. 13). We agree. This does not mean, however, that we need to completely

redefine the field. The core concerns of mainstream IPE, while limited, are certainly not invalid.

The questions asked are important. Moreover, even a restricted definition of IPE forces us to

look at connections and relationships that have been largely ignored, or at least under analyzed,

in other academic disciplines like IR, Political Science and Economics. The two most salient of

these, of course, are the connections between politics and economics and between the domestic

and international. Traditional IPE not only explicitly recognizes these connections, but attempts

to examine and understand them as part of a complex and interactive whole. This said, there are

still limitations in conventional notions of IPE that must be addressed.

Table 1.1 External Debt Indicators for Latin America, 1981 and 1980-83


14/48

Chapter One 14

Explanation. This table shows that, while the debt-to-GDP ratio in Latin America (at the beginning of the

decade) was not particularly highonly slightly higher than in East Asiathe debt-to-export ratio was very high.

According to Sachs and Williams (1985), this was likely the critical factor in making Latin America so vulnerable

to the external shocks of the early 1980s. Latin Americas debt problem was also indicated by the high debt

service ratio (which is the ratio of debt service payments (principal + interest) of a country to that of the countrys

export earnings. A debt service ratio of over 100 percent means that debt payments exceed export earnings.

Source: Cited in Sachs and Williamson (1985), p. 533

Globalization and the Limits of International Political Economy

One of the key limitations of IPE stems from the use of the term international. Strictly

speaking, international applies only to relations between and among sovereign nation-states, a

point that we touched upon earlier. The term also implies a clear distinction between the

national or domestic and the internationalbetween what goes on inside the state and what

goes on outside the state. One problem with this distinction is that a great deal of activity that

occurs in the world today is conductedand sometimes controlled by non-state actors in ways

Country

Cumulative

Current

Account

Deficit, 1970-

1980 (% of1981 GDP)

Debt-GDPRatio, 1981

Debt-ExportRatio, 1981

Debt Service

Ratio, 1980-1983

Argentina 2.3 33.6 334.7 214.9

Brazil 22.8 26.1 298.7 132.6

Chile 19.8 47.6 290.0 153.3

Mexico 13.9 30.9 258.8 161.8

Peru 19.3 44.7 223.5 122.2

Venezuela -7.5 42.1 134.0 117.8

Weighted Average 13.6 31.3 271.5 153.8

East Asia

Weighted Average 11.9 25.9 82.1 61.7


15/48

Chapter One 15

that transcend national boundaries. Most of us know, for example, that large corporations engage

in all sorts of economic transactions and activities that cut across borders: from buying, selling

and trading products and services; to building and investing in global chains of production

(whereby a single product is designed, manufactured, assembled, distributed and marketed in

various locations throughout the world);

to forging strategic alliances with

corporations based in a range of different

countries. We even have a special name

for these types of firms: Transnational

Corporations, or TNCs for short.

The more significant aspect of

TNCs, however, is not in the geographic

scope of their activitiesper se, but in the

fact (according to many observers) that

corporate activities and interests are

increasingly infringing on or restricting

the sovereignty of nation-states. Transnational corporations, to put it simply, are becoming more

powerful, both at the domestic and transnational (or global) levels. Their power derives primarily

from the position they occupy in the world economy. As a group, they directly control most of

the worlds productive, financial, and technological resources. Even at an individual level,

Table 1.2 Revenue of Worlds Largest Corporations

(by Sales) Compared to GDP of Selected Countries,

2011 (in US $ Billions)

Country GDP CorporationSale

s

Austria 419.2 Wal-Mart Stores 421.8

UAE 360.1 Shell (Netherlands) 369.1

Thailand 345.6 ExxonMobil (US) 341.6

Greece 303.1 BP (UK) 297.1

Chile 248.4 Sinopec-China 284.8

Ireland 217.7 PetroChina 222.3

Philippines 213.1 Toyota (Japan) 202.8

Algeria 190.7 Chevron (US) 189.6

Romania 189.8 Total (France) 188.1

Kuwait 176.7 ConocoPhillips (US) 175.6

http://www.forbes.com/lists/2012/18/global2000_2011.html ; data for

GDP comes from the International Monetary Fund, Report for

Selected Countries and Subjects, in the World Economic Outlook

Database, April 2012, available at

http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx
http://www.forbes.com/lists/2012/18/global2000_2011.htmlhttp://www.forbes.com/lists/2012/18/global2000_2011.htmlhttp://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspxhttp://www.forbes.com/lists/2012/18/global2000_2011.htmlhttp://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx


16/48

Chapter One 16

corporate power is significant: the revenue of the worlds largest corporations, for example,

exceeds the Gross Domestic Product (GDP) of many nation-states. While a comparison of

corporate revenue to GDP is admittedly simplistic, it nonetheless tells that corporations are

significant economic actors in their own rights. Where, when and how TNCs decide to invest,

manufacture, and/or distribute their products is therefore likely of considerable importance to the

world political economy.

The ability of TNCs to move operations and assetsphysical, financial, technological,

or otherwiseeasily across and within borders, moreover, has given them an even stronger

capacity to influence the course of national and world economic development, and, at times, to

directly challenge the states authority to regulate economic activity. For example, by threatening

to limit or close down their

operations in one location, they can

compel governments to modify

local regulations or standards for

health, safety, wage levels, or the

environment, a phenomenon

dubbed regulatory arbitrage. In

essence, they are telling states: If

you want our business, then you

have to play by ourrules. This is

An Example of Regulatory Arbitrage

Explanation. In an era of globalized production, states

have more difficulty regulating and taxing TNCs, since

corporations can easily relocate some or all of their

operations to countries with minimal regulations and taxes.

Mobility and their productive capabilities give TNCs

significant power in the world economy.


17/48

Chapter One 17

not to say that TNCs have necessarily become the equal of states, only that the relationship

between states and large corporations is not as clear-cut as it once appeared to be.

The increasingly important role that TNCs and other transnational actors are playing in

the world today can be attributed, in large part, to a process called globalization. Globalization,

unfortunately, is also one of those terms about which there is no broad-based consensus. While

some see it as an over-hyped myth,1 others argue that it is leading to fundamental changes in the

world. We are more sympathetic with the latter view. That is, we believe that globalization is a

significant, indeed, critical process that must be accounted for in any examination of

international political economy. The changes brought about by globalization are taking places

in many areas and at several levels. The creation of global production networks is only one of the

more obvious manifestations of these changes. Even more significant changes, perhaps, are

occurring in the global

financial structure. As Strange

puts it, Where once the

creation and use of credit

mostly took place within the

societies of territorial states, it

This shot was taken in 2011 by Essam Sharaf during the anti-government

protests in Egypt. The sign saying Faceboo,#jan25, illustrates the role that

social media played in the uprising, which eventually led to the ouster of

the countrys long-time dictator, Hosni Mubarek on February 11, 2012.

Permission is granted to copy, distribute and/or modify thisdocument under the terms of the GNU DocumentationLicense and under the Creative Commons Attribution 3.0.


18/48

Chapter One 18

now takes place across territorial frontiers, in global markets electronically linked into a single

system (1999, p. 37).

Strange points out that another key aspect of globalization is occurring in the realm of

ideology, values and beliefs. In other words, people throughout the world are beginning to

communicate in terms of a common discourse of human and political rights, democracy, and

social justice. Just how meaningful the globalization of ideas might be is still open to debate,

but we can see evidence of its impact with increasing frequency: from the peasant rebellion in

Chiapas, Mexico to the Arab Spring; from the protests against sweatshop labor in the garment

districts of New York, Honduras, Haiti, and Los Angeles to the Occupy movement in the United

States and Europe. What is significant aboutand common toall these cases is that, to varying

extents, each is based on an appeal to a set of rights that were once almost entirely within the

domain of the nation-state. Even more significant is the fact that social, political and civil rights

are now becoming part of a relatively autonomous and transnational source of authority that is

increasingly being used to delegitimize state actions (Sassen 1995), as well as the activities of

TNCs. The protests against Nike, Reebok and other corporations that exploit workers in poor

countries are a good example of the latter. In short, the globalization of ideas, like the

globalization of production and finance, is showing the potential to challenge the authority of a

state and other powerful global actors both within and outside national borders.

On the surface, the changes that globalization are bringing about appear to be moving us

in a generally positive direction: toward a weakening of central control (by states, for example)


19/48

Chapter One 19

and toward a greater dispersion of power among a plethora of institutions, groups, and

individuals. In other words, toward a more democratized world. On this point, some argue that

the Internet and other advances in information technology are helping to empower and give

voice to people whose concerns may not otherwise be heardprimarily because governments

can no longer unilaterally control or even mediate the flow of information. While there is

certainly some truth to this argument, we need to understand that globalization is a complex and

contradictory process. Thus, while the Internet has undoubtedly opened new possibilities for

global democracy, it also provides an opportunity for the state to keep tabs on its citizens more

effectively and less obviously than ever before, and at a much lower cost to boot (Mehta and

Darier 1998). Just think, for example, how much easier it has become for states to gather, store,

analyze, and instantly access information about millions of individual citizens. The same applies

to corporations, the most powerful of which are able to exert tremendous influence on the

development of the Internet and information technology more generally. Indeed, as corporations

become more geographically dispersed, the need for centralized, top-level control becomes even

stronger (Sassen 1995). This means, in many cases, not less concentration of power, but more.

And generally in fewer and fewer places.

It is the complex and contradictory changes being brought about globalization that

compels us to go beyond the territorial and substantive boundaries of mainstream IPE. A simple,

but not necessarily trivial step in this regard is to abandon the concept ofinternational political

economy and replace with global political economy. The move from IPE to GPE does not mean,


20/48

Chapter One 20

however, that we must also abandon the traditional concerns of international political economy.

States still matter (a great deal, in fact), but so do TNCs, non-governmental organizations

(NGOs), transnational social movements, academic and scientific communities, religious

institutions, and so on. Increasingly, then, the activities and concerns of states constitute only

part of a much larger, more complex picture. One writer sums up the issue nicely: The

structure of global political economy contains the old international economy within a new

framework which is based in the territory of states, but not necessarily national in terms of

purpose, organization, and benefit (Tooze 1997, p. 221). Placing the international economy

within the framework of the broader global economy should also move us beyond a second

restrictive boundary of mainstream IPE: the state-market dichotomy.

Political Economy and the State-Market Dichotomy

Earlier we pointed out that conventional IPE textbooks tend to treat the market (economics) and

state (politics) as separate entities, each operating according to its own, largely independent

logic. While not entirely unjustified, the separation of the market and state into mutually

exclusive zones has always been problematic. One reason for this is clear: a market economy

cannotexist, much less operate, without some kind of political order. This is not a new

observation, nor is it one about which many (political) economists would disagree. There is,

however, a great deal of disagreement over exactly what kind if political order is needed. Some


21/48

Chapter One 21

take a minimalist view: the best political order is one in which the state only provides the legal-

institutional framework for enforcing contracts and protecting private property. Others are

convinced that the most appropriate political order is one in which the state plays an active and

direct role in all aspects of economic activity. Rather than discuss, in detail, the full range of

different perspectives on this issue, it might be better to concentrate on just one. In this regard,

we would like to introduce you to Karl Polanyi, whose work, while largely ignored in

mainstream IPE texts, may actually offer us one of the best frameworks available for

understanding contemporary political economy.

Polanyi and the State-Market Dichotomy

More than a half-century ago, Polanyi wrote about the inextricable connection between the

emergence and subsequent development of the market economy and the modern state. In one of

his most important works, The Great Transformation, Polanyi explains how the road to the free

market was opened and kept open by an enormous increase in continuous, centrally organized

and controlled interventionism [on the part of the state] (1944, p. 140). This was necessary

because the market economy, as we know it, required a very unnatural actioni.e., turning land,

money, and especially labor into commodities, or things to be bought and sold. To accomplish

this required the exercise of a great deal of political power, primarily through the state. For

Polanyi, it is not difficult to see why this was so. For prior to the advent of the market economy,

land and labor were decidedly not commodities; rather, they were no other than the human


22/48

Chapter One 22

beings themselves of which every society consists and the natural surroundings in which it

exists (ibid., p.71). To turn them into commodities required an intentional and sometimes highly

coercive effort, which only the state was capable of carrying out.

Once created the so-called free market continued to rely on the exercise of state power.

As Polanyi put it, Just, as contrary to expectation, the invention of labor-saving machinery had

not diminished but actually increased the uses of human labor, the introduction of free markets,

far from doing away with the need for control, regulation, and intervention, enormously

increased their range even those whose whole philosophy demanded the restriction of state

activities, could not but entrust the self-same state with new powers, organs, and instruments

required for the establishment oflaissez-faire (ibid., p. 140). In other words, the expansion of

control, regulation, and intervention is an inevitable outcome of a free market. This is a crucial

insight, and one that allows us an even stronger understanding of the interdependentor holistic

relationship of the state, market andsociety: within Polanyis framework, all three exist as

part a social whole and none can survive without the others. This was not a generally accepted

proposition when Polanyi first wrote about it, and it is even less accepted today. If anything, just

the opposite is the case: in the popular media, among prominent economists, and in the halls of

governments around the world, there is an increasingly strong conviction that markets can and

should be kept isolated from the meddling of states and their societies. This conviction, it is

important to point out, is based on the assumption that for the market to operate efficiently, it

must stand apart from or above the state and society.


23/48

Chapter One 23

To Polanyi, the belief that the

market can somehow stand apart from

or above society and the state is the

fundamental problem. Because it cant.

Or least it cant for very long, since

unhindered market forces, while

tremendously productive are also

tremendously destructive. In particular,

when land and labor are treated as commodities, there is bound to be conflict between the

imperatives of the market and the need to protect the physical environment and people from the

most pernicious consequences of market competition. The logic here is simple: as the conflict

between the market and society grows, pressures are created that ultimately result in a counter-

movement. Polanyi referred to the counter-movement emanating from society as the second part

of a double movement, the first part being the expansion or deepening of the free market itself.

Ironically, the protection extended to society has generally been provided by the state, which, as

we already discussed, was instrumental in allowing the free market to arise in the first place. The

state, therefore, serves a critical role ofmediating between the market and society. This role has

been complicated, however, by the fact that the state does not clearly belong to either; as two

students of Polanyis work put it, The state was necessarily both a universal, representing the

interests of society against the market, and a class state, pursuing the agendas of the capitalist

A Simple Depiction of the State-Market-Society

Relationship

Source: Created by author.


24/48

Chapter One 24

class, since the reproduction of capitalist relations was necessary to preserve society (Block and

Somers 1984, p. 68). From this perspective, moreover, we can see that state intervention is

never simply anti-market orpro-market (or anti-society or pro-society).

As an essentially conflicted mediator, the concrete result of state intervention between

market and societal forces has been a range of political orders or arrangements. Some of these

we call neo-liberal or capitalist, others we call socialist or communist. And, of course, there are

versions in between, including the modern welfare state, of which the United States is just one

example. No one of these arrangements, we should emphasize, can be said to be necessarily

superior to another. This is because various political orders represent, at base, a mixture of

different valuessuch as efficiency, equity, security, justice, and so on. Which value is given the

highest priority and which is given the lowest reflects decisions made by individual societies,

albeit within the context of a broader international/transnational system. Thus, to say, for

example, that economic efficiency is more important than any other value is not to make an

objective or scientific statement, which must apply to all cultures and societies. Rather, it is to

make a subjective or normative judgement, which typically reflects how the tension between the

market and society has played out over time.

Polanyis framework and the concept of the double movement specifically, allows us to

see that even a very narrow conception of politics as state action cannot be seen as standing in

opposition to the market or economics. Politics, including the exercise of state power, is

fundamental to the market. In this sense, politics is economics. It is clear, then, that Polanyis


25/48

Chapter One 25

argument goes well beyond the state-market dichotomy typical of most mainstream IPE texts. It

is equally clear that his framework incorporates a much broader conception of societyeven

when compared to Marxist IPE. In this regard, it is important to point out that Polanyi did not see

society, or social classes, as defined by economic forces alone, in the way that some Marxists do.

Instead, he understood classes as primarily social or cultural institutions formed to redress the

cultural devastation created by market society (ibid., p. 67). This is a critical distinction, for

when class is defined strictly in terms of economic interests it must in effect lead to a warped

vision of social and political history, and no purely monetary [economic] definition of interests

can leave room for that vital need for social protection (Polanyi 1944, p. 154). The key point,

for our purposes, is this: when defined as a cultural institution, classes can be organized along

and across many different lines, including gender, race/ethnicity, nationality, religion, etc. To see

the practical significance of this broader definition of class, one need not look very far. From

neo-Nazi skinheads in the Europe to Islamic fundamentalists in the Middle East, from White

Supremacist militias in the USA to right-wing nationalists in Greece, we can see societal groups

organizing themselves along very different lines, but for largely the same purposeto protect

themselves from unfettered market forces.

Polanyi, moreover, was not just concerned with the domestic political economy. Far

from it. The central thesis ofThe Great Transformation, in fact, was based on explaining the

breakdown of the international system prior to World War II, which Polanyi attributed to the

utopian endeavor of economic liberalism to set up a self-regulating market system (ibid., p. 29).


26/48

Chapter One 26

In this regard, Polanyi was one of the first to recognize that a firm boundary between the national

and the international could not be drawnthe market economy may have been born in a single

country (England), but its impact, both positive and negative, was felt throughout the world. It is

not just that Polanyi clearly understood that the market system could not be contained within

national borders, but that the tension between the market and society domestically would

necessarily have an impact internationally. Specifically, an effort by one state to protect its

society from market forces would provoke other countries to institute similar or even more

dramatic protectionist schemes, including the turn toward fascism or communism. Similarly,

Polanyi was also one of the first to recognize that on the international (or transnational) level,

just as on the national level, market society requires a largely state-created political order to

function. On this point, Polanyis ideas can be easily applied to the process of economic

globalization going on today. For it is easy enough to see that the globalization of production

and finance is not an automatic process: it requires a range of legal innovations and a new

institutional infrastructure, which must be supported by states (Sassen1995). The global

market, in other words, is as much a product of political action as are national markets.

International (Global) Political Economy Defined

In light of the rather lengthy discussion above, it would be useful to return to a basic question:

What is international or global political economy? Our definitionor rather, one we borrow


27/48

Chapter One 27

from the writing of other scholarsis surprisingly simple. International political economy is,

most generally, an area of study. As an area of study, it is concerned with, as Susan Strange puts

it, the social, political, and economic arrangements affecting the global systems of production,

exchange and distribution, and the mix of values reflected therein (1994, p. 18). This definition

has the advantage of expanding, rather than limiting the range of questions, concerns, and issues

we consider relevant to the study of political economy, whether at the local, national,

international, or global level (although not everyone would consider this an advantage).

Moreover, it does not presuppose or lead us to think that any one arrangement or set of values is

superior or better than another; nor does it suggest that certain relationships or dynamics, such as

conflict between states and markets or between opposing social classes, should or must be the

focus of study. Similarly, it does not force us to view the world through a particular set of

(theoretical) lenses. In short, Susan Stranges definition encourages us to look at the complex

reality of the world economy in an open manner. (Note. For our purposes and to avoid

confusing our readers, we will use IPE throughout this book, even though we prefer the

alternative, GPE or global political economy.)

We realize, of course, that not everyone would be satisfied with the definition given

above. There are many people, for example, who are downright hostile to open-ended

definitions. Part of the reason for this stems from their interest in discovering general and/or

universal laws about the social world, an issue weve already discussed to some extent. The

search for laws or predictable patterns of human behavior, unfortunately, is made much more


28/48

Chapter One 28

complicated when parameters of human action are broad and somewhat fluid. We believe,

however, that the open-ended character of the definition given to us by Professor Strange is

necessary. We have already discussed a number of reasons for this in the preceding sections.

Another important reason, though, stems from our conviction (also noted above) that the

framework or structure within which political, social, and economic activity takes placei.e,

reality is not fixed in time, but rather is historically constituted (Cox 1995). This does not

mean, we should stress, that reality is whatever we want it to be; rather it means that what we

think of as reality is the product of collective human activity over time, and not of some

preordained or natural order. Greed and self-interest (economists use the term rational to refer

to such characteristics), for example, are clearly integral aspects of human behavior today. But

they are not necessarily permanent or immutable traits of human beings. It may, of course, be

hard for us to imagine otherwise, so perhaps another example might be useful. Centuries ago the

great political philosopher Aristotle consider slavery to be an essential part of reality; as he

bluntly put it, There are in the human race individuals as inferior to others as the body is to the

soul, or as the beast is to man .These individuals are destined by nature to slavery because

there is nothing better for them to do than to obey. Obviously, Aristotle was wrong, but it was

literally impossible for him to think otherwise. His social reality was conditioned by existing

relations of powerby the political economy in which he lived. Thus, what he saw as natural

was only natural to his particular place and time. Our present reality, then, is not necessarily the

way the world always has been and always will bemuch less the way it has to be. Rather, it


29/48

Chapter One 29

represents a particular configuration of forces, which shape or constrain both our thoughts and

our behaviorin certain ways, but which are also subject to change.

Another important advantage of Professor Stranges definition is that it encourages us to

think critically about the world economy. On first thought, it may not be apparent to you why

this is so. If anything, you might feel just the opposite. The reason, however, is fairly simple. For

the definition weve chosen forces us to ask questions about what and who matter in the world

economy and why. It also pushes us to question many of the basic assumptions and values that

underlie dominant and alternative perspectives of IPE. This occurs whenever we ask such

questions as: Are states still the dominant players in the world economy? To what extent have

states lost control of the economic and political activity within their borders? What impact, if

any, is the globalization of production, finance, and ideology likely to have on the world? How

has globalization transformed relationships of power in the world? Where does the line between

the domestic and international or between the economic and the political lie? What is the

relationship between democracy and capitalism? Are social justice, political equality, and human

rights compatible with the free market? Not only do these and many other important questions

flow directly from the definition given to us by Susan Strange, but the answers are far from

obvious. By both asking such questions and developing our answers to them we are, of course,

engaged in highly critical and evaluative process.


30/48

Chapter One 30

The Significance of Power

Thus far, we have covered a number of important definitional issues and posed some key

questions. But there is another question we must address in any study ofpolitical economy. In

Political Science, the study of politics revolves are the issue of power. Power, in short, is a

central concept. Yet, in many introductory textbooks on IPE (generally written by political

scientists), there is very little discussion about just what power is. Many writers seem to take for

granted that power is an unproblematic, even self-evident concept. If pressed for a more formal

conceptualization, however, most might agree with Robert Dahls oft quoted definition, which

asserts that power is the ability ofA to getB to do something she would not otherwise do (Dahl

1957). Certainly, this way of looking at power has merit. Sending in thousands of heavily armed

troops to keep workers from blocking access to a factory, for instance, is an exercise of

(coercive) power wherebyA (the state) getsB (workers) to do something they dont want to do.

Conversely, when workers are successful, they can force their company to increase wages,

provide more benefits, or otherwise improve the conditions of workall actions that the

company would otherwise not have taken. There are dozens of others similar examples you can

probably think of that occur on a regular basis. This type of coercive, or interventional, power

is clearly important. But it is hardly the case that mostor even a significant fractionof what

happens everyday in the political economy can be attributed to such direct applications of force


31/48

Chapter One 31

or coercion by one actor against another. Most activity in the world political economy, instead,

occurs as part of a process where power is exercised in a far less direct or interventional manner.

Thus, to understand power

we need to begin by ridding

ourselves of the idea that it is the

same as brute force, or, to

paraphrase Mao Zedong, that it only

grows out the barrel of a gun.

Before we discuss other ways to

look at power, however, it would be

useful to return to the claim we

made above, namely, that excluding

power from analyses of the world

political economy is a fundamental

problem. Why is this the case? That is, why is a firm understanding of power essential to the

study of IPE (or GPE)? Part of the reason for this, we hope, is already apparent to you: to the

extent that markets play (or do not play) a dominant role in the economic life of country or

system of counties, they do so as a consequence of a political process. In this process, it is the

distribution of power in society that determines, to a very large extent, the rules and values that

govern economic and social relations. Power (or a particular structure of power), in this sense, is

A quote from Chairman Mao Zedong (The Little RedBook, 1964

Every Communist must grasp the truth: Political power grows

out of the barrel of a gun.

Pictured: From Amour Magazine: The Chinese Type 98 Main

Battle Tank

This image is a work of a U.S. military orDepartment of Defense employee, taken or madeduring the course of an employee's official duties.


32/48

Chapter One 32

required to create and sustain the framework within which economic activity takes place. An

efficient and productive market system, in particular, cannot exist where private property rights

are not respected, where contracts cannot be enforced, or where domestic security is weak or

non-existent. Yet, protecting property rights, enforcing contracts, and providing security require

a great deal of power, whichit is important to emphasizemust usually be exercised by a non-

market actor like the state. To better appreciate this point, one need only consider what happens

to societies racked by social and political upheaval. In Somalia, to cite one of the most disturbing

examples, orderly market activity is hardly possible when there is no centralized and

legitimate political authority capable of governing the entire country. The rather sorry condition

of Russian capitalism in the decade following the collapse of communism presents a less

extreme example. In this case, the financial and political power of the once-feared Russian state

has proven insufficient to create an orderly and effective framework for a smooth transition to

capitalism. Power, instead, rested in the hands of a corrupt oligarchy who essentially wrote

their own rulesrules that were designed to funnel huge sums of money into their hands at the

expense of the larger economy and the rest of Russian society. When Vladamir Putin took

control of the state in 1999, however, things began to change very quickly. The Russian

economy got back on relatively firm footing and did exceptionally well during his eight years as

president from 2000 to 2008 (see Table 1.3). This is not to say that Putin single-handedly solved

Russias economic problems (he did not); rather, it is to emphasize the political aspects of

capitalist development.


33/48

Chapter One 33

This said, most economists might accept the fact that power is required to create and

sustain the general framework within which economic activity takes place. Yet, they might also

argue that, for capitalist markets in particular, this power must be exercised in a neutral manner.

Once the framework for market activity is created, in other words, all actors have an equal

chance to compete and flourishor, at least they should have an equal chance to compete, if the

highest level of efficiency is to be achieved. Thus, power becomes largely irrelevant in terms of

understanding what goes in within well-functioning markets since everyone is equally

empowered. This view, however, ignores a critical issue, which is simply that power is not just

needed to create a general framework, but is also needed to sustain that framework.

Table 1.3 Russian GDP Growth Rates, 1990-2011

Chart generated by Google: http://www.google.com/publicdata/
http://www.google.com/publicdata/http://www.google.com/publicdata/http://www.google.com/publicdata/


34/48

Chapter One 34

Before moving on, let us make one more point related to the Russian case, which is that it

reinforces a key argument in this sectioni.e., that power is not a simple matter of who has the

most guns. If this were the case, the Russian state (with control of the military) should easily

have been able to put a stop to the corruption that, in the eyes of one prominent American expert,

had poisoned the Russian political process [and] undermined the Russian fiscal system

(Sachs 1999, p. 31) prior to 2000. The Russian case suggests, in other words, that power has

multiple sources, of which the control over the means of violence (or force) in society is but

one. This raises an obvious question: What are other sources of powerand how significant are

they in relation to one another? On this question, most of us would concede that wealth is

clearly another source of power in society. But is wealth always trumped by military force? If

not, under what conditions is wealth a more significant source of power? Many of us have also

heard the phrase, The pen is mightier than the sword, which encapsulates the rather bold claim

that ideas are stronger than armies. Can this really be true? Do ideasideology or knowledge

constitute a source of power equal, or at least comparable, to military force (or wealth)?


35/48

Chapter One 35

There are, unfortunately, no easy answers

to any of

these

questions. But one thing is clear: power is not one-

dimensional. This is simple yet crucial point. For we

believe that the study of political economy must not only

pay serious attention to the importance of power itself,

but to the many different aspects or kinds of power. Our

intention in the last part of this chapter (and

throughout our book) is to do just this. Our primarily focus,

however, will be on the distinction between coercive power and structural power. Both, as we

will see, are important but structural power (as we suggested above) has far more day-to-day

relevance to the world political economy.

Structural and Coercive Power

When someone holds a gun to your and demands you give him all your money, this is coercive

power. When the United States under George Bush undertook a massive military campaign to

Winston Churchill in 1916 holding a

giant pen: After all, some say the

pen is mightier than the sword

Source: F.H. Townsend inPunch. This image is in the

public domain because itscopyright has expired.


36/48

Chapter One 36

overthrow Saddam Hussein that, too, is an example coercive power. But when Chinese, Cuban,

or Vietnamese conduct financial transactions in American dollars (both domestically and

internationally), or when workers agree to do dangerous and difficult jobs for little pay, are these

also purely demonstrations of coercive power? Our view is that they are not. The latter two

examples reflect what can be called structural power. One of the key differences between

coercive and structural power may already be apparent: the exercise of coercive power reflects

an interventional, cause-and-effect relationship, where the intervention of the more powerful

agent directly causes the weaker agent to do something he or she would not have otherwise done.

Structural power, by contrast, is not easily reduced to such a simple equation of force. For

example, workers who agree to do dangerous and difficult jobs for little pay do so because they

have few other options, not because they are directly forced to do so (at least in democratic

countries). China, Cuba and Vietnam, to use our other example, do not use US dollars because

the American government (or anyone else) forces them to; rather, these ostensibly communist

countries use dollars because they are the worlds top currency (Cohen 1998). The structure of

the international financial system, in other words, creates a framework (and financial hierarchy)

that strongly influences and/or limits the choices available to most actors. In particular, those

who occupy peripheral positions within this structure are subject to rules, values, and practices

over which they have little to no control. (Although, in the case of China, this is not necessarily

the case.) They agree to abide by the rules of the system because failing to do so is too costly

in this sense, there is certainly an element of coercion. At the same time, participation also brings


37/48

Chapter One 37

some benefit to weaker actors, which may or may not work in the interests of the more dominant

players.

Those who occupy central positions within the structure of international finance, on the other

hand, have the power to write the rules or to define the framework itselfusually in ways that

put them in an advantageous position. This has certainly been true in the case of the United

States, which played the key role in shaping the international financial system following World

War II. It is important to understand, however, that structural power is not just a broader, more

generalized version of coercive power. To see why this is so consider the following three related

points. First, we need to recognize that once a framework or structure is created, all actors

from the most powerful to the weakestbecome subject to the same system of constraints and

opportunities (albeit on different terms). In the international financial system, this might mean

that a weak currency can become a source of strength. Consider, in the regard, China:

throughout the 1990s and into the first decade of the 2000s, Chinese authorities intentionally

worked to keep their currency, the renminbi, weak relative to the dollar. This helped to spur

Chinas extraordinarily fast growth in exports (a weaker currency means that Chinese products

have a competitive advantage in world trade since they are cheaper than would otherwise be

the case). In other situations, monetary policy can be transformed into an exercise in political

symbolism, and support of the national currency may be promoted as a glorious stand on behalf

of the imagined communitythe ultimate expression ofamor patriae (Cohen 1998, p. 121).

Conversely, a strong currency may become a source of weakness for governments, particularly if


38/48

Chapter One 38

authorities attempt to preserve an international role for a money whose popularity has begun to

fade (ibid., p. 122). This happened to Britain after World War II. In the future, it may well

happen to the United States.

Second, we need to understand that structural power is based on a network of

(historically constituted) relationships that extend well beyond the interaction of two individual

agents. This may sound abstruse, but it is really not. Consider, for example, the relationship

between a student and a teacher. Teachers have power over students not because teachers are

necessarily smarter, stronger, or wiser than their students. And it is certainly not because

teachers are richer. Rather, a teacher has power over a student because he or she can assign a

grade that otherssuch as a parent, an honor society, a law or medical school admissions

committee, a potential employerwill use as a basis for determining the quality (and

sometimes fate) of the student. A students well-being, in other words, is affected by the grade

only through the mediation of human beings [or institutions] situated outside the classroom, who

use the grade as a sign that results in their administering harm [or benefit] to the studentfor

example, by denying him access to the opportunity to further his education (Wartenberg 1990,

p. 145). In this situation, real power is exercised, not by the teacherper se, but by range of

external actors. This aspect of structural power also helps us understand its context-dependent

nature. In the case of the student-teacher relationship, we can easily see the significance of the

broader context: the power of the teacher, for example, will necessarily erode if the grade no

longer functions as a means of access to a decent job (which may help to explain why discipline


39/48

Chapter One 39

is a major problem in many of the poorest urban schools). In the international political economy,

to put this issue very simply, this means that an exclusive focus on dyadic relations (e.g., the

U.S.-China relationship) will not tell us all we need to know. We need to evaluate the

relationship in terms of the broader structures and institutions of the global economy.

Third, we must recognize that structural power is reciprocal. This means that, in any

relationship of power, both parties have a degree of power no matter how wide the disparity may

seem. Again, this may seem an abstruse or perhaps trite point. But it is a crucial one, for it tells

us that power is never absolutethat there are always structural limits to power. This suggests,

in turn, that power relationships are rarely, if ever fixed. We can see this is the constantly

shifting relationships between capital and the state, between capitalists and workers, or between

rich and poor countries. In this sense, understanding the structural limits of power is important if

we want to understand, first, how and why things change in the international political economy,

and second, what the possibilities for change are. Indeed, without understanding the reciprocal

nature of structural power, it would be hard to explain how or why change in the political

economy ever takes place. After all, if those who lack power also lack the capacity to challenge

those with power, how can unequal relations of power change once established?

Taken together, these three aspects of structural power can help us develop a deeper,

more realistic understanding of international or global political economy. But, these are not the

only aspects of structural power about which we should be concerned. Susan Strange (1994), to

whom we have referred several times already, argues that structural power should also be


40/48

Chapter One 40

separated into four distinguishable but integrally related structures: security,production, finance,

and knowledge. Each of these structures, Strange notes, highlights critical aspects of power,

which are generally ignored or glossed over in more conventional analyses (especially those that

focus on coercive power). Yet, according to Strange, each is no more than a statement of

common sense. The security structure, for instance, is simply the framework of power that

provides protection to human beings from both natural and man-made threats. Those who

provide this protection (or security) acquire a certain kind of power which lets them determine,

and perhaps limit, the range of choices or options available to others (p. 45). It is here that states

tend to dominate, especially in terms of providing security against external threats.

Theproduction structure includes all the arrangements that determine what is produced,

by whom, by what methods, and on what terms. Those who control or dominate the production

structure clearly occupy a position of power in any society, in part because the production

structure is the primary means of creating value and wealth. Thefinance structure determines

who has access to money, how and what terms. Money itself, however, is not critical; rather it is

the ability to control and create credit. As Strange puts it, whoever can so gain the confidence

of others in their ability to create credit will control a capitalistor indeed a socialist

economy (p. 30). The knowledge structureperhaps the most overlooked and underrated

source of powerdetermines what knowledge is discovered, how it is stored, and who

communicates it by what means to whom and on what terms (p. 121). To appreciate the


41/48

Chapter One 41

significance of the knowledge structure, Strange points to the example of Catholic Church in

medieval Christendom: the extraordinary power of the Church was, first and foremost, a

reflection of its ability to dominate the knowledge structureto establish itself as the only

legitimate source of moral and spiritual knowledge.

These four structures of power, according to Strange, are inextricably connected; nor is

one dimension inherently or necessarily more important than any of the others. Each is

supported, joined to and held up by the other three (p. 26). This reinforces a point we made

earlier, namely, that power does not merely grow out the barrel of a gun, but also (for example)

from the factories that manufacturer guns, from the technical knowledge needed to produce

weapons, from a belief system that legitimizes mass violence against others, from a financial

system that provides credit to create the weapons industry, and so on. Understanding this

multifaceted nature of power, we believe is critical for anyone who wants to make sense of the

international or global political economy. Consider, on this point, the power of transnational

corporations: one cannot explain the increasing significance and autonomy of TNCsand the

concomitant erosion of state sovereigntyin the world political economy without paying serious

attention to changes in the underlying structures of power. There is, we should note, considerable

debate on this issue. Many scholars assert, for example, that TNCs are little more than extensions

of state power because enterprises still retain clear-cut nationality: Apple Computer is American,

Sony is Japanese, BMW is German, Hyundai is South Korean and so on. And even if this were

not the case, states still hold all the cards so to speak, since states control armies, while


42/48

Chapter One 42

corporations do not. Such arguments, however, miss the basic point, since judging power strictly

in terms of coercive potential obscures other more meaningful changes. For example, it is now

almost undeniable that changes in the system of global finance have seriously eroded the

capacity of states to control creditthe lifeblood of any capitalist enterprise. As this power

erodes, state authority diminishes, which leaves the door open for those who are better

positioned to deal with internationally mobile fundsTNCs, international banks, fund managers

and even a few wealthy asset holders (such as George Soros)to exert greater control not just

how funds are allocated, but over government policy that deals with finance. On this point,

consider the 2012 Senate Banking Committee hearing involving Jamie Dimond, CEO of

JPMorgan Chase. The hearing was meant to examine the reasons behind a multi-billion loss tied

to the banks trading of credit derivatives. As one observer

put it, The senators should have interrogated Dimon

about his role in moving toward that reckless gambling

strategy, one which posed a threat to the entire financial

system. Instead, they mostly cowered and cringed and sat

mute with thumbs in their mouths, while Dimon evaded,

patted himself on the back, and blew the whole derivative

losses episode off as an irrelevant accident caused by

moron subordinates (Tiabbi 2012).

Changes in corporate power, in short, cannot

Jamie Dimon, CEO of JPMorganChase

Source: Financial Times.Licensed under theCreative Commons

Attribution


43/48

Chapter One 43

properly be understood without considering the financial structure of power. The issue, of

course, is more far complicated than we have suggested here. Certainly, we need to examine all

the structures of power and the different aspects of state-business relations in the global political

economy to achieve an adequate understanding. The basic lesson, however, should be clear:

questions of structural power must be addressed.

A second example we would like to discuss is perhaps the most problematic. Many of

you probably agree that large corporations are capable of exercising structural power. But what

of ordinary citizens working together in grassroots organizations, unions, or broad-based social

movements? What is the source, if any, of their power? Can such groups even hope to have a

meaningful impact on the world economy? For example, do the groups who challenge neo-

liberal globalizationsuch as those who participated in protests against the World Trade

Organization in Seattle in December 1999, the 2011 G20 Summit in Cannes (France), or the

2011-12 Occupy Wall Street movementhave any chance of succeeding? Or are they simply

wasting their time? The easy answer, of course, is that they are wasting their time. States, despite

an erosion of sovereignty, are still extremely powerful and coercive institutions. Corporations, if

anything, are getting stronger. Ordinary citizens, on the other hand, have neither armies nor

wealth; they truly seem powerless. We have learned, however, that social power is invariably

reciprocal and context-dependent. The reciprocal

nature of social power, for instance, tells us states and corporations, to a significant degree,

depend upon the perception or belief that their activities are legitimate. In this sense, global


44/48

Chapter One 44

capitalism survives because a larger proportion of the worlds population believe it serves their

interests. Take away or undermine this belief and the system itself is threatened. This helps us

understand, we might add, why capitalism is more than just an economic system, but (according

to some critics) a cultural system as well. Capitalism (or neo-liberalism), in other words, is an

ideology that convinces people that it is the only rationaleven conceivableway of organizing

an economy and society.

In a similar vein, the context-dependent nature of social power tells us to look at broader

forces that exist outside, say, the relationship between citizens and corporations. What effect, for

example, will the spread of political liberalism (i.e., democracy) and human rights across the

Figure 1.- A Lone ProtestorThe WTO Protests in 1999 (Seattle)

This shot was taken by J. Narrin during the protests in Seattle, Washington in November

1999.

Permission is granted to copy, distribute and/or modify this documentunder the terms of the GNU Documentation License and under the CreativeCommons Attribution 3.0.


45/48

Chapter One 45

globe have on the capacity of citizens to exercise power? What of the seeming dispersion of

control over access to information via the Internet? What role can transnational institutions, like

the Catholic Church, or transnational religions, like Islam, play? We do not want to try

answering any of these questions now; rather, we would like you just to think about the ways in

which a structural analysis of power compels us to address hitherto hidden or obscured aspects

of important issues. For this is perhaps the best way to learn about the complex and sometimes

confusing world of international or global political economy.


46/48

Chapter One 46

Chapter 1 Study Question

1. Why are there strong disagreements among scholars studying international political economy?In other words, isnt there a single, unified theory on which all or even most scholars agree?

2. What is the difference between an open system and a closed one, and what is the significance

of the difference between the two types of systems for social scientists?

3. One definition from a popular textbook tells us that political economy is the study of the

tension between the market, where individuals engage in self-interested activities, and the state,

where those same individuals undertake collection action (Balaam and Veseth 1996, p. 6).

What are some issues with such definitions?

4. Why is the term international problematic when studying the world (political) economy

today? (Hint. Consider the differences between global and international.)

5. Is globalization strengthening or weakening the power of states today? Explain.

6. The chapter asserts that the tendency to see states and markets as separate and antagonistic

entities is mistaken. What is the problem and how should the relationship be conceptualized?

7. One of Mao Zedongs famous quotes is, Political power grows out of the barrel of a gun. In

this quote, Mao was suggesting that military power is the only type of power that matters in the

world. Is this really the case? How might you argue that other forms are power are equally

important, especially in the contemporary period of globalization?

8. What is the difference between structural and coercive power? Can you provide your own

examples (i.e., examples not discussed in the chapter)?


47/48

Chapter One 47

9. What is the alternative definition of international political economy offered in the chapter? Do

you agree or disagree with this definition?

10. It is relatively easy to argue the corporations have power in the global economy, but whatabout ordinary citizens working together in grassroots organizations, unions, social

movements, etc.? Do they have power? Explain.


48/48

1

Saylor Ipe Ch1 Sample

Documents

Transcript of Saylor Ipe Ch1 Sample