International Political Economy in today’s world

Since the 15th century, numbers of IR theories had been formed and development. Among that, there are four major theories which have deeply taken into IR study and today world explanation namely Realism, Liberalism, International Political Economy (IPE), and International Society. Some theories were applicable during the past period only, but some still have a concrete explanation to the current world’s trends. However, I think IPE is the most acceptable theory which best explain today world. As we can see among all the courses of International Studies that we are taking, IPE is considered as one subject for measurement. Therefore, it shows the importance and the potential of this theory. In other word, it is the most appropriate theory to explain today world.

The world today is the world of political economy (Jackson & Sorensen, 2007). Everyone encounter this. When we are buying and selling products in market, it is considered as one kind of economic activities already. However, is politic involved in this activity? The answer is of course yes. All the products which are brought to the market are subject of taxation which is set by government. Government can play its political role in whether rising the tax or reducing it. Moreover, politic involves in economy such as consumer protection, investment regulation, working condition, ect. Therefore, political economy exists everywhere in the world today. Thus I said that it is the most acceptable theory to explain the present world.

International political economy is about the study of problems that arise from or are affected by the interaction of international politics, international economics, and different social systems (e.g., capitalism and socialism) and societal groups (e.g., farmers at the local level, different ethnic groups in a country, immigrants in a region) (international political economy, 2010). According to Jackson and Sorensen (2007), International Political Economy is about a modern market which is based on political rules, and political rules and regulations constitute a framework within which the market functions.

Indeed, there are three main theories of IPE namely mercantilism, Economic Liberalism, and Marxism which the main concept of the theories is integration between politics and economy together. They are hardly separated. In one word, the world is a political economy. However, in here, I am not going to focus on each theory but rather its main concept, political economy.

As above definition has already been pointed out, the main principle of IPE is politic and economy which are linked together.

The traditional IPE includes analysis of the political economy of international trade, international finance, North-South relations, multinational corporations, and hegemony (Veseth). Nevertheless, I am going to raise only three subjects to discuss in this paper, international trade, international finance, and multinational corporations or regional integration. North-South relation and hegemony were best explained during the cold war period.

In international trade, states and non-states actors often use trading as a foreign policy tool to get national interest (Diamantis & Roukanas, 2010; Veseth). For example, state needs import because not only simple trading activities, but it is related to security as well such as importing weapons or other sustains and materials to increase states’ capacities in military defense (Veseth). Moreover, as we can see the real example from Cambodia in joining WTO in 2004, its purpose is to increase trading activities globally while Cambodia has to show its commitment through some reforms on judicial system and regulations such as creating special commercial court and establishing forty seven new laws and regulation in order to fulfill WTO’s requirements (Chea & Sok). Besides, the border dispute between Thailand and Cambodia is using trade as a foreign policy too. For example, Cambodia has declared and warned Thailand that Cambodia would close its boarder and banned all Thai products to import to Cambodia. Cambodia was using economic tool in exchange for political stability. Moreover, on trading activities between states, they often use embargo and high tariff to ban some products to get into their own countries. This is a policy which uses to protect local production. For example, United Stated has extended another 47 years trade embargo in Cuba until there is a political reform (Voss, 15 September 2009). Japan imposed 778% tariff on rice in order to protect its local production (Yamashita, 19 Febuary 2010). In short, Nations have frequently imposed import and export controls for both economic and military reasons (Veseth).

The IPE of International Finance includes analysis of exchange rate policies, foreign exchange systems, international capital movements, particularly portfolio capital and debt flows, and the international and domestic institutions and political structures to which they related (Veseth). For instance, China’s exports have been bolstered by its policy of keeping its currency, known as the renminbi or yuan, pegged at a nearly fixed rate to the dollar (Bradsher, 8 April 2010). In other word, China is keeping depreciating its currency in order to increase export. China becomes a very competitive competitor of U.S., and it has taken away United States’ market shares in foreign market. If we look from political perspective, China is trying to use its national policy to increase export for balancing with the United States in trading activities. In addition, the goal of creating single currency in Europe Union, Euro is to ensure stable currency with low inflation and low interest rates, and elimination exchange cost, transaction expenses, and facilitate international trade (European Commission). On the other hand, it also implicates political purpose behind that. The Euro would bind Germany forever to its European Union partners and prevent its focus from shifting towards Central and Eastern European relations (Veseth). It means creating boundary for Germany which the concern is resulted from the cold war alliance. Besides, Bretton Woods which agreements designed an international monetary system built upon a dollar-gold standard was created to manage world financing. However, United States had been playing its political roles toward international affairs through this institution. In August 1971, U.S. President Richard Nixon announced the “temporary” suspension of the dollar’s convertibility into gold which marked the breakdown of Bretton Woods institution, IMF (IMF). Bretton Woods monetary system is that economic arrangements create political obligations which are subject to political manipulation (Veseth).

Since the cold war, multinational cooperation has become more and more popular. IPE scholars have asserted the argument that U.S. and western-based international businesses were linked with their governments by an invisible handshake (Veseth). As we have known since the cold war, there are several of cooperation and regional integration such as ASEAN, EU, NAFTA, MERCOSUR, and SADC. States cooperate and integrate for economic development with the implication of politic behind the sense. States create regional integration in order to be more appealing to investment and aid development donor (Krapohl, April 2008). For example, ASEAN has established numbers of preferential trade agreements and regulations to facilitate capital flow in order to attract more foreign direct investment to the region such as AFTA. FDI inflows to ASEAN in a global context over the 1995-2005 period has increase triple from 1995 to $916 billion in 2005. By joining ASEAN, some poor nation states such as Cambodia and Laos have grabbed the international attention for assisting aid or loan for development. In addition, regional bloc can increase stronger voice on international stage for bargaining especially in WTO which poor states can demand for more favorable trade agreement for development (Krapohl, April 2008). It is a kind of collective security to have a stronger power in international community. Furthermore, regional integration helps to be more appealing to bilateral or multilateral agreements too. As nation states links together by regional or global cooperation like that, it is easy to spread influence if one country is facing both economic and political instability. For example, the dispute between North and South Korea has caught a lot of attention from international community. The U.S. and China has also involve in that issue, and this dispute also create some shaking to international economic as well especially on financing market.

In conclusion, the world today is an international political economy. Even though super power or small and poor states are involving in international trade with the influence from politic. International Political Economy is a conscious shift towards understanding issues of wealth and poverty; of who gets what in the international system (Aston, 2004). Economic outcomes almost always have political implications. Economic policies are determined by politic because different policy choices generally have varying effects on the distribution of wealth or the economic outputs (Walter & Sen, 2009). In short, IPE is the theory which best explain the world today.