Chapter One:

Introduction to International
Political Economy
Prepared By: Mahteme Feleke
1.1. Introduction
• As a discipline, IPE is a central component of the
interdisciplinary field of International Studies within the
scope of Social Science.
– It comprises primarily the relevant parts of the disciplines of
political science and economics;
• it also draws on relevant aspects of other social science disciplines to
deepen and broaden the analysis.

• The generally recognized founder of the older and classical

version of IPE is Adam Smith
– During the 19th C., scholars who followed the lead of Adam Smith
created the field of study called ‘Classical Political Economy’.
• Towards the end of the 19th C., as an integral part of the
evolution of the industrial revolution, greater and greater
specialization filled all aspects of life.
– As a result, ‘Classical Political Economy’ was divided into the
modern academic disciplines of: Economics, Political Science, and
Sociology.
• For the most of the 20th c, these subject matters were studied separately.
• Since the beginning of the 1970s, the economic and
political changes along the increasing evidence of
comprehensive global interdependence could no
longer be ignored;
– the issues that were being studied in disciplinary
isolation required a more integrative analysis.
• Hence the field of IPE was recreated.

 IPE tries to encompass all the rapidly changing

circumstances in the complex world system.
– the technological developments in transportation and
communication brought the world together in ways that
had never been possible before.
– The internet, has made communications faster, the
actors have increased and widened.
1.2. The Nature of Political Economy
• Political Economy: is subject to multiple
understandings and it encompasses variety of
definitions among scholars over time.
• The origins of the study of PE can be traced back to
the works of: Adam Smith’s “Wealth of Nations” and
the works of David Ricardo and Karl Marx.
In these works, the term IPE referred to: the ‘conditions of
production organization in Nation-States’ (economics).
Today, the term is defined as:
– analysis that studies the linkages between politics and
economics, drawing on theories of economics, law as well
as political and other social sciences.
 For classical economists:
– the term PE is considered as a branch of science that
deals with the production, distribution and consumption
of goods and services, and their management.
– It was primarily assumed to deal with the:
• efficient, least-cost, allocation of scarce proactive resources, and
with the optimal growth of these resources over time; so as to
produce an ever expanding range of goods and services.
Adam Smith: PE is a branch of the sciences of a
statesman or legislator; and a guide to the practical
management of the national economy (Wealth of
Nations, 1776)
John Stuart Mill: PE is the science that teaches a
nation how to become rich (The Principles of
Political Economy, 1871)
Michael Todaro: PE goes beyond the traditional
conception of economics; it studies among other
things the social and institutional processes through
which certain group of economic and political elites
influence the allocation of scarce productive resources
now and in the future either exclusively for their own
benefit or for that of the larger population as well.
– PE is concerned with the relationship between politics ad
economics, with a special emphasis on the role of power in
economic decision making.

Andrew Sobel (1953): PE refers to a specific

theoretical approach that focuses on the rational
calculations and choices of individuals, and how
those choices interact to produce social outcomes in
world affairs.
 Lawrence and Wishart (1957): both have Marxist orientation;
– PE is social science that studies the laws of the social production and
distribution of material wealth at the various stages of development
of human society; as the bass of the life of society is material
production.
– In order to live, people must have food, clothing and other material
means of life. In order to have these, people must produce them,
they must work. Thus, PE studies production relations in their
interaction with the productive forces.
• Mode of Production: The productive forces and the production relations as
a unity.
– PE is a historical science.
• It is concerned with material production in its historically determined social
form, with the economic laws which are inherent in particular modes of
production. Economic laws express the essential nature of economic
phenomena and processes, the international causal connection and
dependence existing between them.

 The Marxist view, generally focuses on the social relations of

production.
– The key aspect of PE is the inescapable conflict between opposing
class interest between the owners of the means of production (the
capitalists) and the wage laborers (workers))
 Gilpin (2001): PE is the interaction of the market and
powerful actors.
• Both components are necessary and one cannot comprehend how
economies (either domestic or international) function unless he or she
understands:
– how markets work and
– how states and other actors attempt to manipulate markets to their advantage
• Markets have inherent logic of their own as they respond to changes in
relative prices, constraints and opportunities.

 For Gilipin, PE is concerned with the wealth of nations, and the

term ‘political’ as significant of a term as that of the term
‘economy’
• the study of PE is very much in vogue among historians,
economists and social scientists.
– Economic developments/changes, and the economy is much
more dependent upon social and political development.
• recognition of the interrelationships between the two spheres (economy
and politics) has led to increased attention from historians and social
scientists.
• From the definitions so far, it can be seen that PE has
a variety of meaning.
– For some it refers primarily to the study of the Political basis of
economic actions, the ways in which government policies affect market
operations.
– For others, the principal preoccupation is the economic basis of political
action, the ways in which economic forces mold government policies.
• The two focuses are in a sense complementary, for politics and
markets are in a constant state of mutual interaction.
– Others defined it inline with ideological base
• Regardless of such varieties, for this course, PE is an
academic field, that studies the interplay of
economics and politics at different levels.
– In the most general sense the economy can be defined as
the system of producing, distributing and using wealth;
– Politics is the set of institutions and rules by which social
and economic interactions are governed.
• PE looks at the fundamental tension between
economics and politics.
– The state is realm of collective action and decision. On the
other hand, the market is realm of individual action and
decisions (market is the sphere of human action dominated
by individual self interest and conditioned by forces of
competition).
Such parallel existence of states (politics) and markets
(economics) creates a fundamental tension that
characterizes political economy
• States and market do not always conflict, but they do
overlap to a degree that their fundamental tension is
apparent.
– Therefore, the study of PE requires an understanding of:
• how markets work and how market forces affect economic
outcomes
• how powerful actors (of which the Nation-State is by far the most
important) attempt to manipulate market forces to advance their
private interests.
1.3. The Study of International Political Economy
1.3.1. The Origin, Definitions and Scope of IPE
• IPE is a recent academic discipline, however, it is not a new
issue
– IPE started as an academic discourse in the 1970s
• before the 1970s, many scholars who studied political science
separated the study of IR from IPE.
– They applied distinctions like:
• high politics of security is for political (IR) while low politics of economic
relations is for IPE;
• claim that the study of domestic politics is different from the study of
international politics.
– However, such distinctions are misleading and intellectually damaging.
» Man is a political animal; hence we should establish what we mean by political
and how the mechanisms of politics work.
» The theories and explanations that help us make sense of political behavior are
likely to be similar across domestic and international arenas and across issue
areas whether security, economic or social.
• The key difference results from ‘what we seek to explain’ and not from the
‘mechanisms and explanations of why political actors do what they do.
Separating the study of security and conflict from the study of economic
relations in the global arena or from the study of domestic conflicts,
suggest that politics works completely differently in one sheer than in
another.
To better understand the notion of IPE and to deal
with its main concerns, it is helpful to briefly evaluate
the historical evolution of IPE vs. the Political
economic practices and incidences that happened
during this evolution period.
 Historical Evolution:
• Until the beginning of the 20th C, almost all thinkers
concerned with understanding human society wrote
about political economy.
• Before the 1900s, a few scholars would have taken
seriously any attempt to describe and analyze politics
and economics independent of each other
– EG:
• Adam Smith, John Stuart Mill, Karl Marx, were all scholars who
believed that the economy was eminently political and politics
was highly tied to economic phenomena.
• The start of the 20th C. saw an increasing separation of
the study of economics from that of politics.
– professional studies of economics and politics became
increasingly divorced from one another.
Economic studies began to focus on understanding more fully the
operation of specific markets and their interaction;
» the development of new mathematical techniques permitted the
formalization of laws of supply and demand.
» By WWI, an economics profession per se was in existence and its
attention was focused on understanding the operation of economic
activities in and of themselves.
– Economists developed ever more elaborate and sophisticated models of
how economies work
Political studies focused on looking at the political realm in
isolation from the economy , the rise of modern representative
political intuitions, mass political parties, more politically informed
populations and modern bureaucracies all seemed to justify the
study of politics as an activity that had logic of its own.
– Political scientists identified ever more complex theories of political
development and activity.
• WWII and CW enhanced the significance of main
research issues of IR such as war, peace and
security (issues related to ‘high politics’).
– International economy issues were generally neglected
in the IR studies until the 1970s, high politics issues
continued to be central elements of the discipline of
IR.
Susan Strange (1970):
– IPE concerns the unequal pace of change in the international political
system and in the intentional economic system, and the effects of this
unequal rate of change on the international society, and on the
relations of states with each other.
» these changes had not been noticed at a great extent since many
international relations scholars in these years had focused on the
political and strategic relations between national governments to
neglect of all else (especially the changes in the issues of
international economics).
 What changed after the 1970s?
• Global economic developments in the 1960s and 70s
started contesting these issues (the lack of focus for
international economic issues), and IPE emerged as a
sub discipline in International Studies.
– the issues of economy which were seen as low politics
issues became among the most important items of the
international politics agenda.
• Since 1970s, IPE quickly became a very dynamic and
extensive research area after the world became a
complicated place characterized by a tremendous
amount of interdependence (interconnectedness)
among individuals, social groups, nation states and a
variety of other actors in the International System.
 Jeffery Frieden and David Lake (2003) argue that the
resurgence of IPE after 1970s had two interrelated sources:
1. Dissatisfaction among academics with the gap between the
abstract models of political and economic behavior, on the one
hand and the actual behavior of politics and economies on the
other.
• theory had become more fragile and less realistic. Many scholars
questioned the intellectual justifications for a strict analytic division
between politics and economics
2. As the stability and prosperity of the first 25 post war years
started to disintegrate in the early 1970s, economic issues
became politicized while political systems became increasingly
preoccupied with economic affairs.
• After the 1970s, for both intellectual and practical reasons,
social scientists began seeking to understand how politics
and economics interact in the modern society.
– As interest in political economy grew, a series of fundamental
questions were posed and a broad variety of conflicting
approaches (theories) arose.
Today’s political economists have not simply
copied the studies of earlier generations of
scholars (like that of Adam smith, Karl Marx and
the like) in the discipline.
– The professionalization of both fields (economics and
political science) led to major advances in both fields
and scholars now understand both economic and
political phenomena better than they did a
generation ago.
• The new political economy is constructed on this improved
bias along with some long standing issues in mind.
– A much richer picture of social processes emerges from an
integrated understanding of both political and economic affairs, that
form the isolated study of politics and economics as separate
realms.
What International and economic developments
particularly in the 1960s and 70s changed the
separate focus on politics and economics?
1. Current account deficit of the US in late 1950s and in
the beginning of 1960s and reluctance of the West
European countries and Japan to reevaluate their
currencies created fissures in the BW system and
forced US to abolish the convertibility of dollar to
gold in 1971 which mainly contribute to the collapse
of the BW system.
• After the BW system collapsed, uncertainties in the
International Monetary and Financial system occurred:
– currencies began to float and the system transformed in to managed
floating system.
– The G7 was established by developed countries to cope up with
problems of the international monetary system.
2. The Oil Crisis of 1973 intensified problems in the world
economy.
– The economy entered the stagflation period where economic
stagnation and high inflation were seen simultaneously.
3. There were negative developments in the International
Monetary and Financial System.
– In the 1950s and 1960s states had taken steps to lower barriers
to international trade within the framework of GATT.
• However, the global economic developments in 1970s triggered a new
protectionism wave and tariffs and non-tariff barriers to international
trade began to increase.
– Developed countries tired to cut imports from developing countries by non-
tariff barriers.
– Protectionist policies of developed countries were criticized by developing
countries and by politically weak and economically poor recently decolonized
countries, which were also discontented with their subordinate position in the
international economic system.
– As a result, they called for the establishment of the New International Economic
Order (NIEO) in the 1970s with the main aim to reform the international trade,
investment, monetary and financial systems.
• These international economic and political developments
had serious effects on IPE studies and IPE emerged as an
important field of study.
 Were there any additional factors?
• Globalization led by developments in telecommunication,
information and transportation technologies was another
dynamic that supported emergence of IPE.
– Developments in IT:
• broke down barriers between geographically dispersed markets,
• accelerated international capital movements, and
• the securitization and integration of global markets.
– Technological developments became the source of power and
change within the global economy.
– Globalization in clearing international trade and complex mutual
interdependence among countries, increased international
economic issues related to trade, investment, money, (which
were seen as low p politics issues) became important items on
the international agenda.
• All these developments demonstrated how intertwined
international political and economic issues had become.
Hence, IPE emerged as one of the most influential disciplines
in the International Studies.
Main Concerns of IPE:
1. IPE investigates the relationship between
International Politics and International Economy.
– Its concerned with ways in which political and economic
factors interact at the global level.
2. Gilpin (2001): IPE is a research area that analyzes
dynamic interaction between the state and the
market and the problems emerging from coexistence
of the state and the market in the modern world.
– IPE investigates the role of states and markets in global
economic developments
– IPE analyzes rules, laws, norms and organizations that are
called institutions (international regimes), which shape
the world economy and markets.
• IPE examines how these institutions are established, developed
and how they affect the world economy.
3. IPE is an interdisciplinary Social Science field that
studies the interplay of Economics and Politics in
the world arena.
– It investigates, analyzes and proposes changes in the
processes of economic flows and political governance
that cross over and/or transcend national boundaries.
• These flows include: the exchange of goods and
services(trade), funds (capital), technology, labor, natural
resources, environmental pollution and so on.
– Hence IPE attempts to provide explanations to evaluate
consequences and to propose possible policy initiatives.
4. Within the field of IPE, there are competing
perspectives/theories (like mercantilism,
economic liberalism, structuralism) that offer
different analysis of the same phenomena.
5. IPE deals with the nature of the international
institutions and those international regimes
that govern international markets and economic
activities.
– Regimes may significantly affect:
• the distribution of gains from economic activities and
• the economic/political autonym of individual states
– States (especially powerful states) that attempt to influence the
design and functioning of institutions in order to advance their
own political economic and other interests.
» Thus the study of IPE presumes that states, multinational
corporations and other powerful actors attempt to use their
power to influence the nature of international regimes.
6. IPE studies the persistent clash between the increasing
interdependence of the international economy and the
desire of individual states to maintain their economic
interdependence and political autonomy.
– The states want the befits of free trade, foreign investment and
the like, they also desire to protect their political autonomy,
cultural values and social structures.
 Whereas powerful market forces (trade, finance and investment)jump
political boundaries and integrate societies, governments frequently
restrict and channel their economic activities to serve the interests of
their own societies and of powerful groups within those societies.
 Whereas the logic of the market is to locate economic activities
however they will be most efficient and profitable, the logic of the state
is to capture and control the process of economic growth and capital
accumulation in order to increase the power and economic welfare of
the nation.
– The inevitable clash between the logic of the market and the
logic of the state is central to the study of IPE
 What are international regimes?
• Robert Keohane (1984)- most influential scholar in development of
regime theory:
– argues that international regimes are a necessary feature of the world
economy and are required to facilitate efficient operation of the
international economy.
• Regimes perform: reduction of uncertainty, minimize transaction costs and privet
market failures.
– They are created by self-centered states in order to further both individual
and collective interests.
• Even tough a particular regime might be created because of the
pressures of a dominant power (hegemon), in effect, international
regime takes on a life of its own over time.
– when states experience the success of an international regime, they ‘learn’
to change their own behavior and even to redefine their national interest.
– Thus, international regimes are necessary to preserve and stabilize the
international economy.
• It is desirable to study such important issues as: the origins of
international regimes, the content, rules, and norms of international
regimes, and the history of compliance by affected states, particularly in
situation when a regime is perceived as being counter to a state’s
interest.
1.4. Dimensions of International Political Economy
1. IPE includes a political dimension that accounts for the use of
power by a variety of actors including individuals, domestic
groups, states, IOs, NGOs and TNCs.
• All these actors make decisions about the distribution of tangible things
(such as money and products) or intangible things (like security and
innovation).
– Politics mostly involves the making of rules relating to how states and societies
achieve their goals.
– Politics also refers to the public and private intuitions that have the authority to
pursue different goals.
2. IPE involves an economic dimension that deals with how scarce
resources are distributed among individuals, groups and nation
states.
• variety of public and private institutions allocate resources on a day to day
basis in local markets where we shop.
• Now, a market is not just a place where people go to by or exchange
something face to face with product’s maker; it can also be thought of as a
driving force that shapes human behavior.
– When consumers buy things, when investors purchase stocks and when banks lend
money, their depersonalized transactions constitute a vast, sophisticated web of
relationship that coordinate economic activities all over the world
3. IPE scholars also argue that market and states do not
exist in a social vacuum.
• There are different social groups within a state that share
identities, norms and associations based o tribal ties,
ethnicity, religion, or gender.
• Similarly, a variety of transnational groups ( global active
society) have interests that cut across national boundaries.
– A host of NGOs have attempted to pressure national and
international relations on issues such as climate change, refugees,
migrant workers and gender based exploitation.
– All of these groups are sources of ideas that potentially generate
tensions between them and other groups but play a major role in
shaping global behavior.
1.5. Levels of Analysis in International Political Economy
• IPE theorists commonly use different levels of analysis
to deal with different issues of the field.
– Kenneth Waltz argues that explanations for causes of
international conflict are located in different stages of an
analytical scale of increasing complexity, ranging from
individual behavior and choices (the Individual Level), to
factors within states (the State/Societal (group) level), to
something stemming from the interconnection of states (the
Interstate level)
– Recently, many argue that there is also a fourth Global Level
that can be identified as causing specific problems.
• Directly or indirectly, questions and issues of IPE are
discussed and analyzed under each/all of these four
levels of analysis
A. The Global Level of Analysis
• This is the broadest, most comprehensive level of
analysis.
• Explanations at this level focus on how important
global factors like changes in technology ,
commodity prices, and climate, create constrains
on and opportunities for all governments and
societies.
– EG:
• as oil prices fluctuate dramatically, they force courtiers to
adapt in ways that can contribute to recession, conflict and
energy source innovations.
B. The Interstate Level of Analysis:
• Also known as the State Level Analysis
• This level emphasizes how the relative balance
of political, military and economic power
between states affects the probability of war,
prospects for political and economic cooperation,
and rules related to transnational corporations.
• The relative power of states determines the ways
in which it will associate with, or exercise
leverage over its allies and states with dissimilar
interest
– EG:
• as China grows stronger, it is forcing some of its Asian
neighbors like Japan the Philippines and Vietnam to forge
closer relations with the US as a form of insurance against
China’s potentially aggressive behavior.
C. The State/Societal Level of Analysis:
• Also known as the Group Level Analysis
• Paradoxically, because the focus narrows to factors
within states, explanations contain more causal
factors.
• At this level, emphasize is given to how lobbying by
socio-economic groups, electoral pressures, and
culture influence the foreign political economy
policies of countries; and on how different types of
governments and decision making processes within a
state shape the way that it interacts with others.
– EG:
• these factors help to explain why democracies almost never go
to war against other democracies, or
• why politicians will adopt high tariffs on imports to try to help
a domestic industry.
D. The Individual Level of Analysis
• This is the narrowest level and yet it contains the
biggest number of factors that explain why
individuals (usually state leaders), choose certain
policies or behave in particular ways.
• This level emphasizes the psychology, personality,
and beliefs that shape choices made by specific
policy makers.
• The 4 levels of analysis help to organize the thoughts about
the different causes of explanations for, and solutions to a
particular problem/ issue of IPE.
– Each level pinpoints a distinct but limited explanation for why
something occurred.

 One of the paradoxes of the level of analysis problem is that

to get a bigger and more complex picture of a problem, one
is tempted to look at all the levels for possible answers.
– However, mixing the levels usually produces no single
satisfactory answer to a problem.

 The level of analysis problem teaches us to be very

conscientious (careful) about:
– how questions are framed,
– what data needs to be looked at, and
– what is expected to be found out
1.6. Major Structures in IPE: Susan Strange’s Four
IPE Structures
• The major structure in IPE:
1. The production and trade structure,
2. The finance and monetary structure,
3. The security structure and
4. The knowledge and technology structure
• Susan Strange (1994) stated that IPE concerns the
social, political, and economic arrangements
affecting the global systems of production,
exchange and distribution and the mix of values
reflected therein.
• These arrangements are not random; or based on chance.
– They are the result of human decisions taken in the context of man
made institutions and sets of self set rules and customs.
 Susan Strange’s definition of IPE:
– gives equal weight to social, political and economic
arrangements
• stresses that IPE is not just the study of Institutions or organizations
but also of the values they reflect.
– Explains that states and markets are connected by “global
systems of production, exchange and distribution”
• Strange termed this as ‘the structures of the international political
economy’.
– That is why sometimes the structures of IPE are termed as Susan Strange’s
four structures of IPE.
IPE therefore looks at the ways that the states and the
markets of the world are connected to one another,
and the arrangements or structures that have evolved
to connect them.
– These arrangements:
• reflect history, culture and values
• change and will continue to change in the future
• Susan Strnage’s four structures include:
– Production and trade; money and finance; security; and
knowledge and technology.
• For Strange, these ‘webs’ are complex arrangements
that function as the underlying foundations of the IPE.
Each structure contains: a number of state and non-state
institutions, organizations, and other actors who determine
the rules and processes that govern access to trade, finance,
security and knowledge.
The rules of the game in each structure take the form of
signed conventions, informal and formal agreements and
bargains.
• They act as grinders and ties that hold together each of these four
major structures.
Each structure is often filled with tension
• Why?
– because different actors are constantly trying to preserve or change the
rules of the structure to better reflect their own interest and values.
• EG: actors may sometimes pursue free trade polices and at other
times create protectionist trade barriers.
• IPE is therefor a network of bargains between and
among states (that deal in power) and markets (that
deal in wealth).
– These bargains determine the production, exchange and
distribution of wealth and power.
– Bargains can take many forms:
• Some are formal agreements signed, ratified and enforced.
• other bargains are merely conventions, understandings or rules of
thumb.
• For Strange, some IPE bargains reflect relational power.
However what is increasingly important in IPE, is Structural
power.
Relational power: the power of one player to get another to do or
not to do something.
Structural power: the power to shape and determine the structures
of the global political economy; within which other states, their
political institutions, their economic enterprises and their scientists
and professional people have to operate.
• In a sense these structures are institutions and
arrangements that govern the behavior of
states and markets in the IPE, which together
produce, exchange and distribute wealth and
power.
– Issues in one structure often impact issues in
another, generating a good deal of tension and
even conflict between actors.
• According to Strange, many disputes arise when states
try to ‘shape and determine the structures of the global
political economy within which together state, their
political institution, their economic enterprises and
people have to operate.’
1. The Production and Trade Structure
• The issue of who produces what, for whom and
on what terms lies at the heart of the IPE.
• The production structure of IPE: is the sum of all
arrangements determining what is produced, by
whom and for whom, by what methods and what
terms.
– Production is the act of creating wealth and wealth is
nearly always linked to power.
• Making things and then selling them in world markets (a
global level process) earns countries and their industries
huge sums of money,
– This ultimately can quite easily shift the global distribution of wealth
and power.
• In recent decades there have been dramatic changes in
international trade rules (an interstate level factor) that
have shifted the manufacture of consumer goods such as
electronics, household appliances, and clothing away from
the US and western Europe and moved to newly
emerging economies like South Korea, Mexico, Brazil,
China, turkey, Poland and Vietnam.
 In response to this:
• since the 1990s governments of these emerging economies have
sought to attract foreign investors to promote the production of a
range of goods for export.
• At the same time, many unions and manufacturers in the US and
western countries have lobbied their government for protectionist
barriers against cheap imports from Emerging economies, in order to
preserve jobs and profits ( a state/societal level factor).
• As emerging economies have earned more income but also had to deal
with the effects of financial crisis, some have been reluctant to agree
to new free-market trade policies in negotiations among members of
the WTO because of Pressure from vested interest groups ( a state/
societal level factor)
2. The financial and Monetary Structure
• this structure determines who has access to
money and on what terms, and thus how certain
resources are distributed between nations.
• Money is often viewed as a means, not an end
itself, money generates an obligation between
people or states.
– International money flows (an interstate level factor)
pay for trade and serve as the means of financial
investment in a factory or a firm in another country.
– Financial bargains also reflect rules and obligations,
as money moves from one nation to another in the
form of loans that must be repaid.
• Recently the global financial and monetary structure
has been marked by the movement of ‘hot money’
– chasing quick profits form one country to another, in part
because many political elites hold ideological beliefs
(individual level factors) opposed to strong international
regulation of banks and corporations.

• Many believe that under-regulated financial markets

were in part responsible for financial crises in the
1990s in Mexico, parts of Asia and Latin America, and
Russia, as well as for the 21st financial crisis.

• Some critics also charge that under-regulated

globalization may be partly responsible for breeding
poverty and conflict in some of the depressed areas
of the world.
3. The Security Structure
• Feeling safe from natural forces and from the threats and actions of
other states and non state actors is perhaps the most basic human
need.
• At the global level, the security structure comprises those persons,
states, international organizations and NGOs that provide safety for
all people every where.
– Many experts claim that the demise of the soviet union and the end of
cold war (interstate level changes) led to an increase in the number of
small conventional wars between states and insurgencies within
developing nations.
– The 9/11 attacks on the New York trade center also profoundly
changed the informal rules of the security structure when George W.
Bush’s administration, dominated by neoconservatives with strong
beliefs (individual level characteristics), shifted away from
multilateralism and tried to impose its own version of hegemonic-
unilateral leadership on the rest of the world.
– Some scholars assert the rising economic and military power of China
(interstate level factor) will lead Beijing to provoke conflict by making
more strident territorial claims against India and countries around the
South China Sea.
4. The Knowledge and Technology Structure
• Knowledge and technology are sources of wealth and power for those
who use them effectively.
– The spread of information and communications technology (a global level
factor) has fueled industrialization in emerging counties and empowered
citizens living under authoritarian regimes, as seen during the Arab Spring.
– Nations with poor access to industrial technology related to scientific
discoveries, medical procedures, and new green energy, for example, find
themselves at a disadvantage relative to others (an interstate level
phenomenon).
– Increasingly in the world today, the bargains made in the security trade
and finance structures depend on access to knowledge in its several
forms.
• The knowledge structure includes rules and patterns affecting intellectual property,
technology transfers, and migration opportunities for skilled workers.
– The connection between technology and conflict tightens by the day.
• Newspapers are full of stories about weapons of mass destruction (WMD),drones,
and gun violence.
• New technologies (global level factors) have revolutionized the size of weapons and
the effects they have when put to use.
– Many weapons can easily be transported in a back pack or small trucks.
– The ultimate miniature weapon may no longer be an atomic bomb or a chemical mixture, but a
few grams of anthrax on a letter.
 In the hands of terrorists or state leaders with repugnant beliefs (individual level
factors), technologically advanced weapons can endanger many lives.
1.6. Debating the Role of the State and the Market in Economic Management
• Most economists trained in the discipline of neoclassical economics, believe
that the purpose of economic activity is to benefit individual customers and
maximize efficient utilization of the earth’s scarce resources.
• In the study of political economy, the question of purpose is at the core of
political economy and the answer is a political matter that society must
determine.
 The purpose that a particular society (domestic or international) chooses to
pursue in turn determines the role of the market mechanism in the
economy.
– Whether a society decides that the market or some other mechanisms should
be the principal means to determine the allocation of productive resources and
the distribution of the national product is a political matter of the utmost
importance.
– The social or political purpose of economic activities and the economic means
to achieve these goals cannot be separated.
– In every society, the goals of economic activities and the role of markets in
achieving those goals are determined by political processes and ultimately are
responsibilities delegated by society to the state.
• yet the market has its own logic, and its dictates must be heeded; as economists are
fond of reminding us every benefit has its own cost and in a world of scarcity, painful
choices must be made. Therefore, the market and economic factors do impose limits on
what states can achieve.
• The functioning of the world economy is
determined by both markets and the policies of
nation-states.
– the political purposes (rivalries and cooperation) of
states interact to create the framework of political
relations within which economic forces operate.
• States set the rules that individual entrepreneurs and
multinational firms must follow.
– Yet economic and technological forces (the marekt)
shape the politics and interests of individual states
and the political relations among states.
– the market is indeed a potent force in determination
of economic and political affairs.
• For this reason, both political and economic
analysis are required to understand the actual
functioning and evolution of the global economy.
– A comprehensive analysis necessitates intellectual
integration of both states and markets.
1.7. Understanding International Economic
Order: Overview (Reading Assignment)