An international political economy perspective*

by Susan Strange

 

Many economists and a good few political scientists have only - a dim idea of what is meant by international political economy. The term is equally obscure to most general readers. To understand what to expect therefore from an international political economy perspective' on the topic of this book calls first for a clear definition that differentiates my perspective from that of an economist or a political scientist. That it is indeed different will be clear from what follows.

Once haying clarified where we are starting from, it will then -and only then- be possible to consider in greater detail what effects globalization may have on economic activity, on the wealth and on the stability of the economic system, and on the range of options open to governments, firms and individual employees and consumers. Are any of these likely to be freer, better off, more secure than they were fifty or a hundred years ago? Are their life chances -their ' entitlements' in Amartya Sen' s phrasing -more or less equal when compared to those of others than they were fifty  or a hundred years ago?

At this point, economists may already object that such questions are not strictly their concern. But they would be wrong. Wealth can easily translate into power, and power into privilege. The central idea that many economists have been brought up to believe in is that 'economics is the study of wealth-creation and distribution,' As such, they were led to believe, it could be divorced from the study of the social and political causes and consequences of any economic change, or of any system of production or of finance. To my mind (and to that of many sociologists, historians and lawyers) such an unnatural divorce is a quite preposterous idea. As John Dunning writes in chapter 1, it is one that was never accepted for a moment by Adam Smith, John Stuart Mill, Karl Marx or John Maynard Keynes. There is not -and never has been -a clear dividing line in the real world between what is economic and what is political, between the policies chosen for ‘economic’ reasons whether by governments or by firms, and policies chosen for security, to ensure the survival of the state or of the enterprise.

Since this book is being put together in the year that the London School of Economics and Political Science celebrated its first centenary -and since the story of how and why one of the leading international centres of economic research was set up is germane to my argument -the reasons for its establishment are - worth recalling. Its founders were Beatrice and Sidney Webb and L George Bernard Shaw, supported by a group of social reformers in Britain known as the Fabians. Its name, linking economics and political science, reveals an underlying conviction that social reform -the purpose of the Fabian Society -required a better understanding of the workings of the economy. Today, only the most rabid and bigoted of neoclassical ideologues among economists can possibly contemplate the arbitrary divorce of economy from society, or from politics. One has only to contemplate the political nature of the post-Soviet economy to recognise that separating politics from economics in the name of 'science' is to pass from the real world into one of fantasy and illusion.

Having explained the basis of the approach of this chapter, and thus the foundations for my subsequent observations on globalization, we must next pay some brief attention to the matter of definitions. Two very simple points have to be made .The first is that International Political Economy (IPE) is more than the Politics of International Economic Relations (PIER), even though many books and their authors that claim to belong in IPE are actual1y no more than PIER. International political economy, therefore, cannot possibly be limited to those issues that governments -and particularly major governments like that of the United States -consider to be on the agenda for discussion with the governments of other states. It has to be concerned with wider issues, such as those concerned with environmental protection, where the conflict of interests, and of policies, is not so much between states as between generations of human beings. The welfare of the world' s children, too, is an issue to which some governments pay lip-service but where the real conflict is more between parents, and especially mothers, and non-parents than it is between governments.

The second point is even more relevant to several of the chapters in this book. It is that IPE properly concerns the broadly-defined welfare of the world economy as a whole, not just the welfare of any one national economy within it. It is the study of how the total system works, its political and its economic aspects, and of the social consequences of its functioning for generations, for genders, for regions and cities, for sectors of business and occupations. It is not, therefore, the same as comparative political economy. Several of the chapters included here consider the ways in which different national economies and their governments have responded to globalization or have failed to do so. That is interesting enough in its way. But it is not international political economy as understood by the present writer. The question, 'What should governments do?', or (even more narrowly ), the question ' What should my government do ?' has often characterized much academic work in the United States. Such a question assumes that the we1fare of the United States (and the short-term welfare at that) not only is, but should be, the paramount concern of American intellectuals. The narrow-minded implication is that what happens to the rest of the world is not worth serious consideration. Such an introverted, short-sighted, ungenerous, illiberal and small-minded notion of the purpose of scholarship and research in the world of the 1990s is quite unworthy of the American academic community.

 

Where does authority lie? 

There are two more theoretical points to be made before proceeding to discuss the consequences for government, for business and for society of the globalisation of the economy. They come from a concern that has preoccupied this writer for the past four years. It has been with the question, where does authority actually lie in the international political economy? Who, or what, is really in charge? The capacity of governments of states, those political authorities defined by territorial frontiers, to manage the 1 destinies of the societies for whom they are responsible seems to me to be much less than it was fifty years ago.

The sensation of lost power, naturally enough has been most acutely felt in those countries which were most accustomed to exercising power. The Americans, much than the Finns, say, or the Mexicans or Canadians, were inclined in the 1970s and 1980s to assume that the sense of increased impotence and heightened vulnerability they felt was peculiar to them. It was not, although many Americans chose to think so.

There emerged what came to be known as the declinist school of thought among American academics that eagerly latched on to hegemonic stability theory as the obvious explanation of any disorder, financial or commercial, that could be perceived as afflicting the world economy.[1] The theory originated with Charles Kindleberger' s explanation of the length and depth of the world economic depression of the 1930s. Contrary to much liberal theory which blamed it on commercial protection, Kindleberger's explanation was essentially financial. The global market economy, he argued, required hegemonic financial management to maintain economic stability. In the 1930s, Britain which had filled the role in the 19th century was too weak to do so any more, and the United States was unwilling and unaware of what was required.

It is only fair to Kindleberger to insist that his explanation of economic history has been grossly distorted by some of the exponents of hegemonic stability theory. Intentionally or not, they shifted Kindeleberger's emphasis on the system's need for strong financial management to stressing its need for freer international ~ trade. Entranced by the simplicity of the hegemonic stability hypothesis, moreover, these neo1ibera1 writers fai1ed to give serious consideration to two a1ternative explanations of disorder in the wor1d economy of the 1970s and after: first, that structural change was making the whole system much more difficu1t to manage than it had been for the British in the 19th century; or, second, that disorder resu1ted when US governments started to abuse their hegemonic position for unilateralist, short-term national advantage. No, they insisted, if the world economy was in r v disorder, it must be because of the decline of American power.

But to back up their exp1anation, they used some very inappropriate and irre1evant indicators of dec1ining power. Much was made of the fact that the United States' share of wor1d GNP and its share of wor1d production , and wor1d exports of manufactured goods was much 1ess in the 1970s than these shares had been in the 1950s. A11 had grown in abso1ute terms but not so fast as European or Japanese industrial trade and production. It did not fo11ow that American structura1 power -its inf1uence over II political and economic outcomes had a1so dec1ined. In matters of internationa1 security, the mi1itary capabi1ities and, especia11y -the nuc1ear weaponry of the United States was sti11 unmatched. In international finance, the international use of its currency, the dollar, meant that the decisions of the United States still prevailed in the management of exchange rates and the evolution of expanding financial markets. And in international trade, the greater size and openness of the US domestic economy made its regulatory and monetary policies more important to the managers of transnational corporations than the policies of any other government in the world (Strange, 1982). Yet it was nearly a decade before the first of my American friends in international relations came round to questioning the conventional view that American power had declined. (Nye, 1990 ; Nau, 1990).

To insist that the United States was still dominant in structural terms was not inconsistent, of course, with agreeing that there was growing disorder in the world economy; merely that there might be other explanations for the disorder. The fallacy of the declinist school, in short, was to assume that if a state lost power relative to the market that power must have passed to another state- to the Germans or the Japanese. The truth was that by the 1970s and 1980s, the government of the United States, in common with those of other nation-states, no longer had the authority over market forces and either its national or the global economy that it had enjoyed in the early years after the second world war. 

Although by now this is much more widely recognised, it does imply two much more fundamental and important propositions about - the nature of politics and economics that need to be made explicit  if the international political economy view of globalisation is to make any sort of sense. The limits of Politics

The first proposition concerns the limits of what we understand by 'politics'. Should-we continue to think of politics as 1imited to what politicians do? Is the study of government -as departments of political science are sometimes called in British universities -confined to the activities and constitutions, written or unwritten, of governments of territorial states? Hardly so. In everyday language, we academics talk -quite a lot –about academic politics -which departments and which colleagues are gaining control over resources, financial and human, which factions are guiding the university in which direction, privileging some activities and constraining others. In doing so, we acknowledge that politics is a game that people play in all sorts of contexts -within families, inside the firm, among members of golf and other sports clubs, in church groups, within pressure groups and business associations, in parent -teacher associations, in labour unions. In fact in almost any social group of human beings it is possible to think of. Politics, in short, may be defined as the activities by which an individual or a group of individuals seek to win the support of other wills for some objective that they wish to achieve. It can be to get a car-pool or a baby-sitting rota organised. Or it may be to effect the takeover of another enterprise, replacing its present management with another. The means may be by persuasion or by coercion, or by an astute combination of the two. It is not essentially different from the activities in which politicians engage when they are building coalitions or marshalling votes behind a bill.

Once that hypothesis -that politics is not limited to the conduct of politicians and governments -is accepted, we can start to think of firms as arenas of politics and their executives as players -actors in the language of international relations -in the international political economy. That was an important conclusion reached in collaboration with John Stopford in our joint  study of the ‘new diplomacy’ of bargaining between foreign firms and host governments (Stopford and Strange 1991; page 22). Using the perspective of international political economy, we found great interdependence between firms and governments, so that it was not only governments which create problems for business, but firms which also create problems for governments.

Who has power?

The second fundamental hypothesis, related to the first but conceptually distinct from it, concerns the nature of power. Now power is something that economists find hard to handle. It can' t be measured. Different kinds of power are fungible. Power may be used for a variety of purposes, not always rational ones. It is also something that scholars in international relations have often treated in a superficial and unsatisfactory fashion. Thinking of relations between states, they have sought to reduce power to resources, the sum of capabilities derived from territory, population, natural resources, industrial production, military might. The results of such calculations were al ways pathetic. When it came to contests of power, the small and weak sometimes defeated the large and strong. Speed, surprise, technical superiority and flexibility won battles, as good generals and military historians always knew, and as effective CEOs also well understand.

It is preferable, therefore, to think of power in terms of outcomes. And outcomes may be determined by two kinds of power - relational power in which one actor gets another to do what he (she or they) want, and structural power in which one actor I determines how the game is played, under what rules and conventions or- even more effective -persuades others that his (her or their) beliefs, ideologies and value preferences are right and desirable and therefore should be adopted by all right-minded people. Those who have structural power are recognizable because they are able to affect the range of options within which others can choose what to do. It may seem that the others choose freely, but the risks and penalties of going outside that range of options are so punitive that they are not seriously considered.

Those two theoretical premises seem to me to be necessary in order to give coherent answers to the question, How does globalisation affect the business of government, and the management of business?

Globalization- Problems for governments

By globalisation the political economist means the (coincidental effects of three major changes: the accelerated internationalisation of production ; the sharply increased mobility of capital; and the greater mobility of knowledge or information, from communication of messages to the transfer of technology. The internationalisation of production can be gauged by the rising proportion of production (and of sales) of goods and services that is under the direction and control of enterprises outside the f frontiers of the state.[2] The increased mobility of capital can be...