International Political Economy

As regards international capital movement (one of the symbols of globalization), the interlinkage primarily relates to portfolio investments with a short-term orientation. Henning 1994, 8-9. A different picture emerges for direct investments with the aim of long-term engagement in the form of business creation or extension. Clear regional preferences exist for three biggest countries-investors. The USA invest national capitals into Latin America, the European Union into Eastern Europe and Africa, and Japan into Southeast Asia. All developing counties are involved in competition for inviting foreign investments, creating favorable regime of taxation and opportunities for the repatriation of incomes. These issues are closely connected to the problem of economic and political reforms in developing and transition countries.

A new wave of these reforms started since the unilateral interest payment moratorium of Mexico in 1982, when this country, as well as many others later, was unable to pay for multibillion loans of the Paris Club countries and private banks. Developing countries are being vigorously fostered under the pressure of industrialized countries through the World Bank and the IMF by making international aid dependent on neo-liberal-style adjustment measures in the debtor countries. Rich 1996, 305-313. More specifically, this primarily means reducing public spending, especially for administrative tasks and subsidies, tax increases, privatization of state-owned enterprises, floating of exchange rates, price decontrol, fight against inflation, and reduction of tariff barriers on imports. The social issues burden the process of reform both politically and socially, especially in former socialist economies in the Eastern Europe and countries of the former Soviet Union.

These states are industrialized countries which possess a capital stock which, due to misguided state planning, is mainly oriented to heavy industry which, in view of the requirements of the international economy, is by large worthless and to be replaced. In these countries the resultant structural unemployment cannot be explained by the fact that society has still a primarily agrarian constitution. A further characteristic feature of the former socialist states is the totality with which the planned system was applied to the entire economy. Unlike developing countries there was no combination of market and planned economy elements. That's why for Eastern European countries the prime purpose of structural economic and political reforms is to place their economies on the list of regions attractive for foreign direct investments and with the assistance of the international institutions to find a comfortable place in the international division of labor.

Both the World Bank and the IMF have an extensive power of definition when it comes to the principle credit standing. Credit agreements with these institutions rank as a proof of the quality of a country's economic policy, and this in turn is a significant risk indicator for other potential donors. Central and Eastern European countries reorientated their national economic measures in order to overcome their image as a separate region in Europe and prefer to be an integral part of the continent and its economic structure. East and Central Europe have chosen the way of economic reforms rather different form one of the former USSR republics. But their conversion to a free private market economy and democracy will likely take years even with outside assistance. The Economist, July 22, 1995, 52.

There is little disagreement that, overall, the former socialist countries of East and Central Europe face tremendous difficulties in improving the region's investment climate. The 1989 fall of the socialist system has ushered in a host of problems, including the rule of law, of public liberties, of private property rights, and of a private market economy. In countries that once guaranteed full employment, there is now high unemployment. These high unemployment and increased income disparities have caused social discontent. Still a lot of measures should be taken by the region to integrate into »Undivided Europe”.

The effects of globalization on IPE

The central problem for the international political economy is a structural one - a system of sovereign states based on territory is now overlaid by a global economy that becomes a more and more influential force on the international arena. Strange 1996, 202. Because until now national governments everywhere take responsibility for managing their national economies, the changes transmitted by globalization have significant political implications.

The International political economy is a central issue area for globalizing International Relations. The international economy is regarded as the principal focus of the forces of globalization as the main way in which globalization is acting throughout the world. For many researchers, what happens in the international economy is a reflection of the changes brought about by globalization.

Behind the growing integration of the world economy lies the decline in the costs of transport and communication. Between 1930 and 1990 the average revenue per mile in air transport fell from 68 US cents to 11 cents in 1990 dollars. Between the 1960 and 1990, the cost of a unit of computing power fell 99 per cent. Technological changes make globalization feasible. Liberalization allows it to happen. Tariffs on imports of developing countries are set to fall from 34 per cent between 1984 and 1987 to 14 per cent now. Between 1970 and 1997, the number of countries that eliminated exchange control affecting imports of goods and services jumped from 35 to 137. Some 1.330 bilateral investment treaties involving 162 countries are now in effect, a threefold increase in half a decade.

The extent of globalization must not be exaggerated. At its pre-1914 peak, the United Kingdom's net capital outflow was 9 per cent of gross domestic product, twice as big a share of GDP as outflows from Germany and Japan in the 1980s. Nevertheless, international economic integration has gone further than ever before. The ration of exports to global output were 9 per cent in 1913, 7 per cent in 1950, 11 per cent in 1973 and 14 per cent in the early 1990s. Financial markets are even more closely linked. In 1996, the global stock of Foreign Direct Investment (FDI) was valued at $3,200bn. FDI flows grew at 12 per cent a year between 1991 and 1996, while global exports grew at 7 per cent.

The fastest-growing developing countries in the past 20 years have been those that succeeded in generating new export growth in manufactured goods. Economies that tried to protect internal market from imports through high trade barriers grew less rapidly than more open export-oriented economies. The new division of labor has appeared, and both sides of the great income divide stand to benefit from globalization: the developed countries by reaching a larger market for innovative products and the developing economies by enjoying the results of those innovations while sharing global production via transnational corporations. Cowhey, Aronson 1993, 3-5.

Another output of globalization is that many forms of international capital flows have risen dramatically. Foreign direct investments, portfolio investment through country funds, private bank loans, bond lending, derivatives (options, forward transactions, swaps), reinsurance have all grown significantly. Both developed and developing countries have increasingly opened their capital markets to foreign participation. However, the East Asian and Russian financial crisis of 1997-98 have shown that unfettered financial flows from advanced to emerging markets can create profound destabilization of political and economic systems. Voices are being raised for slowing capital movements with an aim toward preventing financial market panics.

Globalization has given a crucial impetus to internationally accepted rules of behavior in trade, finance, taxation, and many other areas, thus prompting the rise of the World Trade Organization (WTO) and other elements of emerging international system of regulation. At the same time, communities, local governments, and regions within nations are increasingly asserting their claims to cultural and political autonomy. Competing for world market shares, whether oil or semiconductors or air-travel, means accepting the established structures and customs of those markets. Competing for foreign capital means accepting the terms and conditions set by the major financial centers and the major international banks, insurance firms, law firms and accountants.

Interdependence led to different challenges to liberalism as the leading IPE perspective. One reaction was to erect new barriers limiting economic interaction and interdependence linked to it. The open international system, in the view of many scholars, no longer maximized economic welfare and most certainly undermined national sovereignty and autonomy. Some argued that liberalism was no longer an adequate guide for policy in an increasingly tariff-free world economy, where non-tariff barriers are deeply embedded in national economic policy and economic behavior in the main impediment to trade. A new open system maximized welfare, but required, in turn, new forms of international management that would assume responsibilities formerly undertaken by the states.

There is rather opposite tendency to globalization at the regional level during last 20 years: the growing number of new multilateral free trade agreements. They are generally oriented to the economic model of the EU: the final goal is the economic integration from a free trade area via a custom union to a common market with free movement of goods, labor, services and capital. Laursen 1995, 3-21. On the other hand, the projects, such as the European Economic Area, the North American Free Trade Area (NAFTA) or the »East Asian Economic Caucus”, can also be viewed as the incipient institutionalization of economic »hegemonic zones” under the control of one of the three main economic powers (the USA, the EU, Japan). Instead of a global structure, the organizational center of the international economic system is the sphere of geographically demarcated regions.

The idea of regional South-South cooperation since the 1960-ies was based on the perception of the economic and political discrimination of the Third World towards former colonial powers of the North. There was a hope that common action at the world market would improve the terms of trade and underscore the political demand for a New International Economic Order. Papp 1997, 187. But the competition between raw materials producers, the preservation of ideas of national sovereignty and national egotism of ruling elites prevented true partnership and solidarity among the countries interested in cooperation. There is no resultant structure of the international economic system in which a North-South conflict can replace the finished East-West confrontation.

Conclusion

political economy marxist liberal

The main political problem facing the international political economy, and a crucial problem of all international relations, is how new forms of political management will develop and whether those forms will be able to deal with the main socio-economic challenges of our times:

the reduction in equalities within and across nations in a contexts of increasing population growth and migratory flows,

the decline of the role of the traditional industrialized countries in world production and changes in the structure of the world industry and economy,

the continued political responsibility of governments for the economic welfare of their citizens in the face of increased globalization of the world economy.

For many centuries, the international economy has been political and hence the most appropriate label should be »the international political economy”. Traditional political relations between sovereign states can only be understood and explained, if the IPE is a key part of the structure and process of contemporary international politics.

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