International Political Economy

4 International Political Economy

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International Political Economy

Stanislav L. Tkachenko

International Political Economy as International Relations Discipline

Since the late 1960-ies, a group of experts, its members being Susan Strange, Charles Kindleberger, Robert Baldwin, Robert Keohane, Joseph Nye, E. Morse, put the objective to overcome the gap between politics and economics in study of the International Relations (IR) which existed for many centuries. The parallel existence and mutual interaction of state and market in the modern world created Political Economy and International Political Economy. Since the 1970-ies courses on International Political Economy (IPE) issues were taught in many universities in Europe and North America. Dozens of books were published and many dissertations written. Up to this period the specialists in IR studied the fields which Realism calls high politics, i.e. foreign and defense policy, issues of international order and security. They prefer avoiding analysis of less global issues like management of international economy.

The rapid growth of the International Political Economy as the field of specialization reflected the genesis of concrete events, but not the ideas Drucker, 1993, 104.. In the late 1960-ies - early 1970-ies the crisis of the Bretton-Woods system of exchange rates between the major currencies was the most significant development of the world economy. Within two years after President Nixon's unilateral decision to float the dollar, the OPEC countries decided to use the 1973 Arab-Israel war to quadruple the asking price of oil. Their success - however short-lived, since inflation in the US rapidly devaluated the real price of the same oil - led to the demand in developing countries for economic justice and assistance from industrialized countries in matters of trade and aid. Next development was the long debt crisis of the 1980-ies. Once again it made clear, how economic events were triggered by political decisions and that they had highly political consequences. Dividing lines, both those that separate politics and economics and those that separate domestic political economies from the international political economy, collapsed. Governments and private companies were under pressure of events. They could not avoid taking decisions that affected the distribution of costs and benefits, of risks and opportunities, not just within states but across national frontiers.

New developments in IPE in 1970ies had lent drive and purpose to the academic discussion of international regimes - to regime formation and regime change Compare for instance Volker Rittberger (1993): Regime Theory and International Relations, Oxford.. The great bulk of analytical work in international political economy had concentrated on the area of regimes - regimes for trade, for exchange rates, for the management of foreign debt and foreign investment, for environmental protection, for the regulation of air and sea transport, etc. Focusing on the regimes comes naturally to students of international organizations. The study of regimes had always been vulnerable to the criticism that it was value-loaded in favor of order over justice or autonomy.

The problem of synthesis of IPE and international relations has still not been solved at that time. Specialists in IR that studied international economy, have made use of concepts borrowed from economics. Economists, by contrast, usually ignored the literature and ideas of international relations. They have started with international economic history and used comparative historical methods to draw their conclusions. For economists, the maximization of benefits and the minimization of costs, calculated in purely economic terms, still constitute the prime criterion of effective policy, whether applied at the national or the global level.

After years of discussions among academics there appeared commonly agreed areas of investigation which are accepted as belonging to IPE:

management of world trade,

exchange rates,

foreign debt,

transnational corporations.

But many researchers think that this list of topics should be much longer. It has to include the discussion of the question, how multiple authorities in the world market economy and society allocate values among classes, genders and other social groups, i.e. the study of management of all aspects of a global household.

IPE has established itself as IR discipline a few decades ago. But it has a long history, both in economics and political science. Therefore in the chapter I will deal with three ideologies, that put foundation for many approaches in IPE: Liberal, Nationalist, and Marxist. All three of them were reformulated into three theories that were extremely influential in 1960-80ies: the theory of the dual economy; the theory of hegemonic stability, and the theory of modern world system. Moving to the recent debates in the IPE, I will present the Constructivist approach, and debates on regionalization and globalization. The need to build a bridge between theories and current problems of the world economy led me to the idea to briefly touch on the history of the world economy after the Second World War, when the Bretton Woods System was functioning and the GATT regime tried to clean the way for liberalization of world trade.

Key ideologies and theories of International Political Economy

There are several dominant ideologies in the field of social sciences since the middle of the XIX century. Liberalism, Nationalism and Marxism were and still are leading of them. In the field of IPE, academics usually prefer writing about Liberal, Nationalist (or Realist) and Marxist perspectives Gilpin 1987, 25-26.. The essence of the conflict between these perspectives is in the role and significance of the market in the society structure and economic affairs.

Dealing with the three above-mentioned approaches it is important to remember that they should be compared through the analysis of certain issues, such as those of trade, investment or economic development. The difference between the indicated theories is seen in the attempt to answer the key questions of economic theory and the practice of human history of the last centuries:

What is more attractive in a free trade system than in mercantilism or autarchy?

Is market the most important condition for the quick economic development of the state?

What is the connection between the market economy system and the states' aspiration to live in peace with its neighbors?

Why do some states stay well-developed for the centuries while others remain developing, though possessing rich mineral resources?

The three discussed conceptions differ greatly as for the correlation of market, state and society. That is why any problem in the sphere of international political economy can be viewed from different positions and while analyzing it we can reach contrary results. Thus, scientist's or politician's political views can in advance predetermine the result of any consideration. This is very important to remember because nowadays, like a century ago, economic liberalism, marxism and economic nationalism play the leading role in the international economic relations. The eclectic way of analyzing the reality, which is often used, can't be considered an effective one. Therefore, while being very popular among politicians, scientists seldom use it. There is no consensus on the definition of the term »International political economy” or on any accepted perspective because any definition is a reflection of certain values and ideas, and researchers do not all agree on those values and ideas. Tooze 1997, 202. Rather clear is the subject of International Economy:

The International Economy describes economic relations in the forms of trade and investments between nations as well as forms of interactions of non-state actors (transnational corporations) and integrated production and service economy (global economy).

Historically, the three pointed directions have always had very close ties Katzenstein 1980, 9-11.. Liberalism appeared to be the reaction on mercantilism. It proceeded from the conviction that politics and economy should objectively exist apart and the market should be free from any political influence or interference. Marxism appeared in the middle of the XIX century as a reaction on liberalism and classical political economy. Its simple answer to the question of the correlation of the economy and politics was that politics is ultimately ruled by economy. Political conflicts themselves are caused by the struggle between the classes for the distribution of goods and wealth. Thus, political conflicts go away to the past only after market economy and the class society are removed.

In the modern world the market system of economy is the factor, which defines the basic characteristics of international relations. It creates competing environments, influences the actors' behavior, leads to a greater specialization, the increase of effectiveness and as a result - to the economic integration of all the countries of the planet.

Although the market system develops by its own laws, many external factors influence essentially the dynamic of its movement. This interaction of the market and environment can be watched at different stages of human history, but in the XX century this mutual influence shows itself most clearly in the form of the market and the social structures, political institutions on the national and international levels, the achievements of science and technology interaction Spero, Hart 1997, 1-7..

Two major interconnections should be mentioned as creating an atmosphere where IPE lives: between politics and economics, and between the international and national sphere in IPE. The disappearance of boundaries between politics/economics and national/international spheres is principally the creation of high levels of interdependence between national political economies. The example of Europe and East Asia shows that in 1990-ies each national economy becomes more sensitive, and sometimes highly vulnerable, to changes in other national economies.

From the large number of theories, appeared in the recent past, which explain the beginnings, development and principles of international political economy functioning, four, which offer different but concrete way of analysis should be selected. Three of them are related to the above-mentioned perspectives. The first one, the starting point of which is the idea of economic liberalism, has got the name of the theory of dual economy. It considers the reaction to the aspiration given in all countries to increase the effectiveness and maximization of wealth of the country and its citizens to be the reason of the evolution of the market economy. The second theory, born by the strong influence of Marxism, is called the Modern World System theory. It looks upon the world market as a mechanism of the exploitation of the backward states, which was artificially constructed by the developed countries. It is almost impossible to get away from it without coordinated actions and open opposition with the leading economic powers of the planet. The third theory is associated with the conception of political realism, which is very influential in international relations studies. It's got the name of the Theory of hegemonic stability or the theory of leadership. In its explanation of the processes, taking place on the international arena, makes an accent on the fact that for its originating and present achievements it is obliged to the successful activity of leading powers, which bring the ideas of liberalism to the international relations.

There is also the meta-theory of growing importance for IPE - constructivism. A brief introduction to the IPE-related fields of research in constructivism is an important element of the chapter.

The Liberal perspective and the Theory of the Dual Economy (dualism)

As it was said above, liberalism separates economy from politics and originates from the conviction that these spheres work in conformity with its own laws and rules. This statement itself can be disputed very easily: the theorists of economic liberalism affected and studied in their works political questions as vividly as economic ones. Therefore, it won't be a mistake to speak about a liberal theory of political economy, rather than liberal economy Goddard, Passe-Smith, Conclin 1996, 26-27..

The liberal views are reflected in the following several conceptions: classical, neoclassical, Keynesian economics, monetarism and others. They are combined by the fact that economic liberalism in all its forms demonstrates the devotion to the market and the market price-formatting mechanism as the most effective and the most objective form of organizing economic relations at the state level or the international system level. Liberalism may be characterized as a system of views and summary of principles for the organization and management of the market economy to reach the maximum of effectiveness, economic growth and welfare of every single person.

Liberals don't see any inevitable connection between the process of economic growth and such political phenomenon as military conflicts, colonialism or imperialism. Admitting that economics is able to send signals, which influence the growth of conflicts in the international surroundings, they refuse to accept these signals as decisive ones. Thus, liberals deny the existence of any causal connection between the acceleration of the development of capitalism in the last quarter of the XIX-th century and the beginning of World War I, or between the New-York stock crash in 1929 and the German invasion of Poland in 1939.

On the basis of the views adduced above, contemporary economists created an empirical science - »the economics”. It is based on its own laws: the theory of marginal utility, the quantity theory of money and others. It also comes from a notion of the existence of an »economic man” - a rational being, who can be come across so rarely in the human history (For a detailed analysis of the concept of individual rationality, compare the text by Irina Kudenko in this book). These laws are normative, i.e. they order the way how to organize society and people's behavior to increase their wealth. Despite many difficulties in the economic history of the XX-th century, it is evident that the contemporary world is developing in the direction of the market economy domination and the increase of global interdependence of national economies. The end of the Cold War and the internal collapse of most of the centrally planned economies has led to the spread of modern capitalism as the leading form of political-economic organization. The ideological basis of capitalism has been reinforced and legitimated. This base has renewed »economic liberalism” - the fundamental ideology of the international economy since the end of the Second World War Lowi 1964, 677-715..

In reaction to these processes, the national economies increase the scale of their interaction under consideration of given surroundings - this is the way in which the spreading and intensification of the market economy after World War II and especially after the Cold War occurs.

The liberalism ideologists' opinion is that having such a scenario international liberal economy may have a definite influence on international politics, because it shapes the interconnected interests of separate countries. The result is the aspiration of an important number of the states on the planet to keep the status-quo in international affairs. Liberals tend to separate the realms of economy and politics. A majority of them does not think that there is a necessary relation between economic growth and military conflicts in the borders of sovereign countries and on the international arena. But the liberal perspective sees a relation between economic development and peace. For many liberals capitalism and war are contradictory. Even if militarists may get profit from the production of weapons, they argued, all other sectors of economy as well as the majority of the population would suffer from military conflicts. The price of wars is much higher then possible positive results. That's why liberals and neoliberal institutionalists (Adam Smith, Jeremy Bentham, Richard Cobden, J.A. Hobson, Woodrow Wilson, David Mitrany, Robert Axelrod, Robert Keohane, and Joseph Nye among others) were very negative to all sorts of military conflicts. (For a discussion on neoliberal institutionalism compare the chapter by Gediminas Vitkus in this book).

The Liberal perspective found its continuation in the theory of dual economy (dualism). It confirms that any economic system (national or international) must be looked upon as possessing two comparatively independent sectors: a modern sector, which is remarkable for a high level of effectiveness of industry and integration to a wider economic system, and a traditional sector with its typical backward way of production, self-sufficiency and isolation from contemporary external economic surroundings. According to this theory and the dependencia approach which used to be very influential in the sixties through eighties, the process of economic development supposes the joining and transformation of the traditional sector of economy into a contemporary one by modernization of political, economic and social structures See, for example Hicks 1969.. The global integration of the institutions and the markets is the consequence of the inevitable and non-reversible movement of the economic structures to the direction of a higher level of effectiveness and in the conditions of the global independence growth.

Under the blows of individualism and economic rationalism old values and social structures give up the place to new ones. Replacement of the old sector by the new one goes little by little as the greater number of states make a choice in favor of a market system of economy. The activity of many forces, the leading being economic, organizational and technological ones contribute to this choice. They include the creation of new commodities and technologies, the opening of new markets and new forms of organization and management of the economic activity. Innovations decrease the costs of economic transactions and assist to the enlargement of separate markets and their integration into a system of global economic interdependence. Market competition and price-formatting mechanisms are the motive forces of the economic evolution. Actors, who operate ineffectively, are forced to introduce the necessary changes in their activity, to adapt it to market economy realities. Hence, the formation of the modern structure of the international relations, as the supporters of this conception proclaim, is under the strong influence of the market factors.

The Nationalist Perspective and the Theory of Hegemonic Stability

During the last centuries economic nationalism has come through some radical transformations. It is known as mercantilism, protectionism, German historic school or new protectionism. Its main idea is that all the economic activities must be subjugated to the interests of state construction and management. All nationalists admit the superiority of the state, the interests of national security and military power at the examination of the organization and functioning of the international system. Gilpin 1987, 31.

Supporters of this theory stress the role of economic factors in international relations and examine the atmosphere of intensity, which is typical for international relations, chiefly as a struggle for the economic resources, and the indicated opposition is inevitably inherent to the international system itself. The logic of reasoning is very simple: as economic resources are necessary for the ensuring of an effective state power, the nature of any conflict between the countries is simultaneously political and economic. Following this logic, nationalists proclaim the positive trade balance proper to the national security interests and the negative one - undermining the security of the country. Sen 1984, 15.

Nationalists give special meaning to industrialization because it is considered to give a powerful positive impulse to the modernization of economics on the whole and leads all social-economic system of the country to the new quality. Possession of the modern industry is associated with economic independence and political autonomy. Besides, the developed industry is the most reliable basis of military power in the country and the central element of guaranteeing the national security in the modern world. As one of the Father-founders of the USA and one of the zealous supporters of mercantilism Alexander Hamilton wrote: »…not only the wealth but the independence and security of a country appear to be materially connected to the prosperity of manufactures”. Rostow 1971, 189. As nationalism critics suppose, such an aim of the industrialization appears to be the source of the economic conflicts.

Nationalists examine the comparative profit as more corresponding to the realities of competing sovereign states than mutual profit and proceeding from it appeal to build the specific activity of their power on the international stage. That's why the powers, which pursued such policy, constantly tried and are trying to change the rules of behavior in the international economic relations in order to extract the greater profit from them, than their competing states.

Economic nationalism grows, in particular, from the markets' tendency to concentrate wealth and the installation of dependence or the relations of leadership and support between strong and week countries. That's why international liberal economy can't spring up before some countries, leading in political and economic sphere, come to a conclusion that it is more preferable for them, than the economics of nationalism canons.

While liberals put an accent on the mutually beneficial nature of international economic cooperation - although admitting the possibility of asymmetric interdependence -, nationalists' and marxists' look upon these relations as initially conflict-making. For them, economic interdependence can't be equally profitable for all cooperating states. And this very apprehension to misgive in the economic contest makes the sphere of international economics potentially conflict-prone. Nationalists thinkers from A. Hamilton to modern theorists of dependence particularly stress the self-sufficient character of national economics, but not the interdependence.

During the last centuries the economic nationalism took several forms: Classical or finance mercantilism with an accent on the assistance of trade and positive balance of payment development; the ideas of industrial mercantilists like those of A. Hamilton or F. List, who underlined the priority of industry over agriculture; the idea of welfare state with an accent on the urgent rise of this country's citizens' (voters') standard of living even to the detriment of the partner states. Within the last decades supporters of the modern forms of economic nationalism speak about the special meaning of the newest technologies, the necessity of state bodies to control the `commanding heights' in the economics, and also to conduct effective and energetic policy in the international arena, aimed first of all at the defense of their own investors' and commodity producers' interests.

All these different trends are united by the aspiration to have a strong state with powerful management machinery and also to keep the independent status of this state in the world community. The countries are still trying to create an international division of labor, profitable for their political and economic interests, that's why we can ascertain that the elements of the economic nationalism would influence the development of the international processes on the planet as long as the present system of states exists.

For the realistic school the relationship of sovereign states to the international economy has always been problematic because of the anarchy in the international system. Waltz 1979, 105.

According to the main thesis of the theory of hegemonic stability, introduced by Charles Kindleberger, R. Keohane and R. Gilpin, the open and liberal world economy requires the existence of hegemonic or leading power. In the words of R. Keohane, this theory believes that hegemonic structure of power with a lead-country is the most effective for the creation and functioning of strong international regimes with rather strict rules. Keohane 1980, 132. If the essential role of the leader reduces, the community of powers inevitably starts declining as for the strength of corresponding economic regimes. A hegemonic country should be able to and should have a will to establish and maintain rules of liberal economic order. If the country starts to loose its ability and would be unable to play its role, the mechanism of liberal economic order will become weak and brings dangerous consequences for international relations.

This theory originates from the idea of an existence of international economy, which is based on the open market and rejection of discrimination. It does not make a conclusion that the world economy would not be able to exist in absence of the hegemonic country, because for the last several centuries there were periods when this type of a country didn't exist. The idea is that this given type of international economic order - the liberal one - can not be introduced and function effectively for the whole world if there is no such type of hegemonic power. This leading country, of course, should share the ideas of liberalism. If a leading power does not share the values, then most probably a system consisting of several empires will appear. These empires would prefer to use force, measures of economic and political pressure towards the weaker countries. Another condition for the introduction and functioning of the liberal economic system should be the presence of common interests between the leading powers in the international system. These countries have to be indivisible in their support of market economy spreading. The leading country should support the others in this aspiration, but doesn't push them to follow this way. Hence, the indicated characteristics of the world, described by the theory of hegemonic stability, can be concretized by three main words: hegemony, liberal ideology and common interests.

Hegemony (or leadership) is based on common believe in its legitimacy. Countries should voluntarily support a situation when one of them is playing the role of a hegemon due to its special status in the international political system. If other countries have doubts that a leader possesses this status or a leader uses the special status in its own interests, then the system starts to go down and is not able to execute its historical mission.

There were two periods in history, when due to the coincidence of circumstances the hegemonic leadership existed at the time when a liberal international economic order was rising. The first one was the era of Pax Britannica, which started with the Vienna congress and finished at the beginning of World War I. Stern 1995, 234-235. During this period the middle class, the support of liberal economy, was created. In Great Britain the principle of free trade became a tradition of national economic policy. In the economic relations of great powers the policy of mutually lowering the custom duties was a significant step towards worldwide free trade. The second period started since the completion of World War II, when the United States of America occupied the leading role in the world. The principle elements of liberal international order of this period were the General Agreement on Tariffs and Trade (GATT) and the International Monetary Fund (IMF). American leadership led to the reduction of customs duties, growth of international trade and for a rather long period of time to the stability of exchange rates of national currencies. Another element of this new system of American leadership was to guarantee international security.

The hegemonic economy, according to the theory of hegemonic stability, performs several functions, extremely important for international economy. These functions are: protecting the rules of liberal economy, creating of international regimes, and encouraging other sovereign countries to share the costs of maintaining the system. The international currency cooperation is another important field of hegemonic economy. The leading country should regulate the mechanism of foreign exchange rates and promote cooperation between other countries in the sphere of monetary policy. Beside this measures, the hegemonic country, according to Ch. Kindleberger, has to manage the mechanism of foreign-exchange rates and promote cooperation in the sphere of monetary policy. According to the adherents of the theory, if there are no international regimes, created and managed by the hegemonic country, the economic nationalism will replace liberalism and free trade. Kindleberger 1970.

The Marxist Perspective and the Theory of the Modern World System

The problem in the analysis of Marxism is that its perspective is very difficult to study. Karl Marx's ideas were changing during his lifetime, sometimes radically. That's why it was not easy for his followers to interpret his ideas about changes in society and politics, which happened in XX century. For Marx, capitalism was a system that had united all countries into one structure. Stern 1995, 35. But he wasn't the one who created a parallel, not purely economic conception of international relations. His followers did it later. In the USSR and countries of the Soviet bloc Marxism was proclaimed the official ideology.

Since the moment of its creation Marxism has existed in two major forms. The first one is the economic Marxism of social-democratic type. Its leaders were Eduard Bernstein and Karl Kautski. In the XX century its significance and influence steadily moved down and now economic Marxism shares many theoretical approaches of liberalism. Lenin's radical version of Marxism, the official ideology of the USSR and Communist bloc countries, is on the opposite pole of the same Marxist perspective.

Karl Marx has defined capitalism as the private property of the means of production and the existence of division of labor. Businessmen, according to Marx, are the »source of movement” of capitalism. In search for profit they are coming to the market and act there. The historical mission of capitalism is development and unification of the whole planet. That's why it has no borders and its impact is total on the system of international relations. Karl Marx created several basic economic laws of capitalism, which were to describe and explain its evolution and collapse, crises of over-production, global dimensions of activity of representatives of capitalist generation of entrepreneurs. In Marx's critic on capitalism a special role was given to a statement that the capitalist system is irrational, while the activity of capitalists is rational.

Vladimir Lenin developed the Marxist theory from a theory of the structure of the capitalist system on the level of a single state into the theory of international political relations between capitalist countries. Goddard, Passe-Smith, Conclin 1996, 12. According to Lenin's view, at the time before the First World War nationalism won a victory over the proletarian internationalism.

Starting from 1870, large-scale capital export from Great Britain and other major countries radically changed the world economy. Since that moment foreign investments (export of capitals) and international finance play the major role in economic and political relations between countries in different parts of the world. Therefore the control of one capital (industrial) by another (financial) was the highest stage of the capitalism development. This stage was to be followed by the crash of the whole economic and political system. According to Lenin's views, Marx' economic laws weren't realized in practice because at the stage of imperialism capitalists received an opportunity to invest their capitals into colonies. Capitalists distributed the surplus of their production in the colonies, invested their capitals under very favorable conditions and acquired cheap raw materials and labor force. Due to these additional profits, capitalists received opportunity to create and control a »labor aristocracy” in their home countries. As a result, the level of class struggle moved down.

The essence of conflict, which was to start inside mercantilist capitalist countries, was international for Vladimir Lenin. As at the stage of imperialism countries were developing at different speed and possessed colonies, diverse in territory and natural resources. This aspiration of countries to avoid being behind the other rival countries pushed them to follow energetic colonial policy. From this position, a war for redivision of the colonies outside Europe and war between major European powers and finally the radical changes on the international arena were the inevitable results of this policy.

The main principle of the theory of the Modern World System is the fact that the history and modern condition of international political economy can be understood exclusively within the framework of the »Modern World System”, which was defined by E. Wallerstein as »a unit with a single division of labor and multiple cultural systems”. Wallerstein, 390. The supporters of this theory suppose that the main goal of the researchers in the field of political economy is to study the origin, the structures and the rules of this system functioning.

We should note that the theory of the Modern World System is based on the Marxist approach to the public life analysis. Harris 1986, 11-29. Thus, the theory comes to the conclusion that economic and class struggle, but not political conflicts form the basis of human behavior. However, traditional Marxism keeps its focus on the inner class structure and the class struggle, while the theory of the Modern World System studies international hierarchy and the opposition of states at the international scene. Besides, the notion of capitalism as a global phenomenon lies in the basis of the analysis. The difference of the examined theory from Marxism is that according to the Marxist views, capitalism carries a historical mission of speeding the development of the planet. Theoreticians of the Modern World System consider capitalism to restrain the development of the countries with a backward economy.

From the other side, the Modern World System conception is based on the classical Marxist thesis that national states (as nationalists write) and the market (the priority of liberals) are derivative from the actions of more general, social solid and economic powers. The state and the market are the products of the definite economic epoch. In order to understand the laws of the international political economic functioning, we should study the nature and the laws of Modern World System functioning. Its basic characteristic - the existence in the world economy a leading core and a dependent periphery, which interact and function as a united whole. A. G. Frank assumes that the economic development and the economic backwardness are two sides of the same medal. Frank 1967, 3-14. And the more the world economy develops, the harder it is for the periphery to reduce a given gap. (For a detailed analysis of the World Systems approach compare the paper by Lubomir Zyblikiewicz in this volume).

Constructivism and International Political Economy

Since late 1980ies a new trend became evident in the IPE studies: the opening up of the debate about the international economy to include sociology. Sociological perspectives have always been important for comparative politics and studies of international relations.

The idea that the economy is part of the social world and not isolated from the rest of society existed since Adam Smith and the Historical School in Germany in the nineteenth century. But starting with David Ricardo, `pure' economics with a more abstract-deductive perspective the opposite opinion prevailed for many decades. Since the early twentieth century, economists became convinced that their science could progress best if a series of simplifying assumptions was made that allowed formalization of the analysis with the help of mathematics (compare the chapter on Rational Choice by Irina Kudenko in this volume). But the end of the Cold War and the lack of ability of all mentioned perspectives and theories of IR and IPE to explain radical changes demonstrated that it was unwise to make such a sharp separation between what is `economic' and what is `social'. In 1976 Gary Becker, who became in the near future the President of the American Economic Association, published an important book, See, for example: Becker 1976. which became the manifesto for this school of thought. As Stefano Guzzini put it in his chapter above, we are now witnessing a sociological turn in International Relations. IPE is one of the most important segments of the turn under the name of constructivism.

For proponents of this approach, economic action is socially situated and cannot be explained by reference to individual motives alone. It is embedded in ongoing networks of personal relationships rather than being carried out by atomized actors. Granovetter, Swedberg 1992, 9. The network here is a regular set of contacts or similar social connections among individuals or groups. Here an action by a member of the network is embedded, because it is expressed in interaction with other people.

The concept of network is very important in the sociological analysis of the IPE, because it is very close to concrete empirical reality.

Since 1980ies John G. Ruggie published a series of articles demonstrating the value of sociology for studies of international economic history Ruggie 1983a, 261--385. Ruggie 1983b. . He argued that the international economic regime after the World War Two reflected what he termed embedded liberalism, identified by a shared intersubjective understanding that open international markets would be tempered by the need to maintain social stability. For him and Friedrich Kratochwil, the neorealist analysis had failed to investigate the shared understandings that led to the convergence of actor expectations on which, by some accounts, regime stability depended. Katzenstein, Keohane, and Krasner 1998, 674.

For constructivists, the treatment of principles and norms as `independent' variables, linking material structures to outcomes was not easily accommodated within epistemological foundations of institutional and normative analysis.

As a general theoretical orientation constructivism illuminates the sources of both conflict and cooperation in political life. For illustration of it's ability to explain fundamental historical and economic changes in international relations it offers analyses of the transformative shift from the medieval to the modern system of states; of the end of the Cold War as a crucial change within the modern international system; and effects on the system of sovereign states of variations in the moral purposes of states and different systems of procedural justice. Ruggie 1983a; Ruggie 1992, 561-98; Koslovski, Kratochwil 1994.

Constructivism is concerned with what in ordinary language are called beliefs. The key terms for constructivists are identities, norms, knowledge, and interests. Constructivists insist on the primacy of intersubjective structures that give the material world meaning. Katzenstein 1996, 1-32. These structures have different components that help in specifying the interests that motivate action. Identity and norms are here the most important.

Researchers of the school seek to understand how preferences in politics and economics are formed and knowledge is generated, prior to the exercise of instrumental rationality. They focus on discursive and social practices that define the identity of actors and the normative order within which they make their moves. Constructivists insist on the importance of social processes that generate changes in normative beliefs, such as those prompted by the antislavery movement of the nineteenth century, the contemporary campaign for woman's rights as human rights, or nationalist propaganda. For constructivists, persuasion involves changing preferences by appealing to identities, moral obligations, and norms conceived of as standards of appropriate behavior.

Constructivism recognized that human beings operate in a socially constructed environment (political, economic, cultural etc.), which changes over time. The core of the constructivist project is to explicate variations in preferences, available strategies, and the nature of the players, across space and time.

International Political Economy since 1945

During and after World War II, governments developed and enforced a set of rules, institutions and procedures to regulate important aspects of international economic interaction. For nearly two decades, this order, known as the Bretton Woods Regime, was effective in controlling conflict and in achieving the common goals of the states that had created it.

Following World War II, the developed countries of the West created a new international economic order designed to stimulate international trade and investment. The principal institutions of this order were the GATT, the IMF, and the World Bank (WB). The first of this triad was to facilitate the diminution of national trade barriers; the second set up an international monetary regime centered on fixed and freely convertible exchange rates among national currencies; and the third provided for the international flow of capital to meet economic recovery and development projects that private investors were unable to support. This radical transformation of structure and norms of international political economy was prepared by several centuries of discussions and attempts to create a more rational and peaceful world. Results of this search can be found in theories of social science and international relations.

The liberal economic system required governmental intervention. In the postwar era, government has assumed responsibility for the economic well-being of its citizens, and employment, stability, and growth have become important subjects of public policy. The welfare state grow out of the Great Depression, which created a popular demand for governmental intervention in the economy, and out of the theoretical contribution of the Keynesian school of economics, which prescribed governmental intervention to maintain adequate levels of employment.

The developed market economies also agreed on the nature of international economic management, which was to be designed to create and maintain a liberal system. It would require the establishment of the effective international monetary system and the reduction of barriers to trade and capital flows. With these barriers removed and a stable monetary system in place, states would have a favorable environment for ensuring national stability and growth.

Throughout the Bretton Woods period, the United States mobilized the other developed countries for management, and, in some cases, managed the system alone. The United States acted as the World's central banker, provided the major initiatives in international trade negotiations, and dominated international production.

Developed countries faced no challenge from the Communist states of Eastern Europe and Asia, including the Soviet Union, which were isolated from the rest of international economy in a separate economic system according to the Marxist theory and politics.

The developed nations solved the problem of rising oil prices, which appeared in 1973 but confronted with the demands of developing countries for economic justice in form of the New International Economic Order. Next stage of their relations was the long debt crisis of the 1980s. Change in the US monetary management in 1981 set off the 1982 rise in interest rate worldwide. It was a sense of deja vu for the Nationalist Perspective of IPE, but nationalism didn't come back again as it was in 1930-ies.

The need to fight the Cold War justified an intellectual investment both in the diplomacy of trade and money and in the academic analysis of the economic issues that threatened to divide and therefore weaken the affluent capitalist alliance. IPE was thus just one more weapon in the contest between capitalism and socialism. Cooperation in a system of US-led world economy was a price, which Europeans and many other nations paid for their security after the Second World War.

An analytical method based on bargains is more likely than regime analysis to take dynamic factors into account. It comprised all those who saw the capitalist market economy as fundamentally unjust and therefore flawed. A special international independent Commission on Economic Development, chaired by former German Chancellor Willy Brandt, had argued that the welfare ideals of Europe should be applied to the relations between the rich North and the poor South. Among the issues mentioned were better deals on trade and aid for developing countries; the need for developing countries to co-operate, to bargain constructively with multinationals, not to oppose, confront or nationalize them. The `Bottom line' of the judgement was how the system was responding, and what the distributive consequences among all kinds of individuals and social groups world-wide looked like. Economic co-operation became necessary not only to rebuild Western economies and to ensure their continuing vitality, but also to provide for their political and military security.

Finally, by the 1970s, the agreements on a liberal and limited system, which was the basis of Bretton Woods, had weakened. The most vociferous dissenters from the liberal vision of international management were the less-developed countries. In their view, the open monetary, trade, and financial systems perpetuated their underdevelopment and subordination to the developed countries. They sought to make development a primary goal and responsibility of the system.

For many stakeholders in the developed countries liberalism was no longer an adequate goal of management. The challenge to liberalism in the developed countries grew out of its success. The reduction of barriers on trade and capital enabled an expansion in international economic interaction among the developed market economies: larger international capital flows, the growth of international trade, and the development of international systems of production. As a result, national economies became more independent and more sensitive to economic policy and events outside the national economy.

Marina Whitman, an American economist, characterized the management of the international economic order during the Cold war as »an implicit bargain” in which the affluent allies forbore to contest US hegemonic leadership - unilateralism - even in matters of trade and money. It was the price they paid for their security under the American nuclear umbrella. After the end of the Cold war many politicians and academics started discussions on the possible changes of the international arena. Many of them shared the idea that nowadays the noncommunist community of countries in absence of an enemy could give up the coordination of economic and political relations. Now a rivalry between the leading developed countries for securing and growth of competitiveness of national economies and interests of citizens and companies in other parts of the world, as difficult for diplomats and politicians as the Cold war was, replaced previous unity against the USSR and other socialist countries.

That's why the theme of regimes' genesis, functioning and adaptation to contemporary realities became one of the most important in discussions on the International Political Economy. This study of international regimes, which is closely connected to the basic ideas of the theory of hegemonic stability, had always been vulnerable to the criticism that it was value-loaded in favor of order over justice or autonomy.

Economic Growth and Regionalization in Contemporary World System

For many IPE specialists the economic structures which are currently emerging worldwide, indicate a clear tendency towards a new regionalism. This tendency could produce new patterns of intense conflict owing to its menacing protectionist character and destroy the political consensus among leading industrialized countries.

The conflict between the evolving economic and technical interdependence of the globe and the continuing compartmentalization of the world political system composed of sovereign states is a dominant motif of contemporary international political economy. Whereas powerful market forces in the form of trade, money and foreign investment tend to cross national boundaries and to escape political control, the tendency of government is to restrict and to make economic activities serve the perceived interests of the state and of powerful groups within it. The logic of the market is to locate economic activities where they are most productive and profitable; the logic of the state is to capture and control the process of economic growth and capital accumulation.

Since the 1970-ies, the growth rates of real gross national product in developing countries has clearly exceeded that of Western economies, i.e. the share of the former in world production has clearly increased. For example, in the ranking of the largest economies, China takes the second place after the USA and ahead of Japan and Germany. »The zone of growth” is the Asian-Pacific region. In Africa, Latin America and in the Middle East growth is below average. Taking into account the population development, a decline in per capita national product has been recorded in Africa and a markedly weaker positive development in the Middle East and in Latin America. The improvement of the situation in developing countries, therefore, is almost exclusively attributable to the states of the Far East.