International Political Economy – Realism, Liberalism, and Marxism

International Political Economy (IPE)

How Realism, Liberalism, and Marxism relate to the
International Political Economy (IPE)?
If one understands economics, they will understand politics. The symbiotic
relationship between economics and politics is undeniable. The approach to
both, varied. The study of the international political economy, its causes and
its effects, are approached using three primary theories; Realism. Liberalism
and Marxism. In each of these theoretical constructs, the means may be
similar, however, the perception of the ends are starkly different. There are
valid arguments and counterarguments for and against the cause and effect of
each of these theories. In any analysis it would be difficult or even naïve, to
assume that any approach taken by legislative, political and economic leaders
would be pure in nature. Therefore, it is imperative that leaders study and
understand the impacts of all theories when constructing and administering
policy.

Realism and the Political Economy

The modern state system was born from the Peace of Westphalia of 1648 that
ended the 30 years of war in Europe. From this treaty, the framework of the
modern nation-state and the establishment of boundaries were formed. The
Westphalia system created the concept of nationalism and established the
modern, state-centric concept of realist theory. Supporters of the realist
construct, views man as a self-interested, self-serving being. The theory sees
world politics as a “struggle among self-interested states for power and
position under anarchy, with each competing state pursuing its own national
interests”. Under this state of global anarchy, the state reigns supreme over
its territory and its populace. The state is seen as a protectorate of the
populace against seemingly inevitable threats against the freedom of its
peoples and the encroachment of potential enemies on its borders. This, “Us”
versus “Them” approach can be seen as the base response of the un-
enlightened man to outsiders and peoples of different nationalities, cultures,
ethnicities or race. Economics and the attainment of economic power are
seen as a means to achieving power and domination over other states.

Realism and the political economy are best described under four structural
tenets, colonialism, mercantilism, neo-colonialism and ethno-nationalism.
Each of these constructs exhibits characteristics of free trade, capital markets
and open economies. The primary aim under these approaches to the political
economy is nihilistic and self-serving.

Colonialism is seen as the precursor to the globalization construct.

Colonialism, the conquest of indigenous peoples of less developed countries by

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 International Political Economy – Realism, Liberalism, and Marxism

European powers, provided ample resources in the form of natural resources

and labor inputs to create economic, political and military power. The
unfettered ability of these European powers to exploit these resources allowed
the colonial powers to build their wealth and power to build the military
capabilities to prevent advancements by adversaries.

Mercantilism, a softened-form of colonialism is also state-driven as countries

“encourage the development of certain industries by subsidizing them and
“protecting” them from foreign competition.” In addition, “mercantilists focus
on the likelihood of zero-sum competition and are therefore more concerned
that the gains realized by one party in a trade exchange will come at the
expense of the other trade partner.” For mercantilist, free trade is an
acceptable means to achieve the end of political and military power.

Neo-colonialism, often referred to as neo-imperialism, is perceived as the

attainment of power by organizations such as multi-national corporations and
intergovernmental agencies. Neo-colonialist opponents believe that MNCs
and IGOs use their international market position to coerce nation states to
implement domestic policies that may not be in the best interests of the
indigenous people. While the attainment of military power may not be as
overt as colonialism or mercantilism, the perception of subjugation is still
evident.

Lastly, as Chua states in her book, A World on Fire. How Exporting Free
Market Democracy Breeds Ethnic Hatred and Global Instability, she points to
the domination of a market-dominant minority at the expense of the
indigenous majority. She argues that the presence of democracy favors “not
just different people, or different classes, but different ethnic groups. Markets
concentrate wealth often spectacular wealth, in the hands of the market-
dominant minority.” This phenomenon, although not state-based, assumes a
realist approach by explicitly excluding indigenous peoples through
exclusionary practices and legislation such as apartheid in South Africa or
implicitly by segregating the indigenous majority from gaining access to
exclusive ethnic networks. These actions ensure market domination and their
particular ethnic group’s grip on economic and in some cases political power.

Liberalism. The Path to Peace?

The theory of Liberalism differs from Realism in the sense that it lessens the
value of the state and approaches political and economic relations as
interdependent structures within the global framework. Liberalism is the
enlightenment of man and the belief in progress and the advancement of an
ideal world where all nations work together to achieve the betterment of
humankind. Liberalism is the driving force behind economic integration and
the globalization movement. Liberalist thinkers believe that trade and
economics is the path to a more prosperous, healthy, safer, happier and freer

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 International Political Economy – Realism, Liberalism, and Marxism

world.

The underlying framework for liberalist theory is a democratic political

structure. Democratic principles such as human rights, rule of law and
property rights are seen as the base for the promotion of free trade and
capital markets. The liberal theory seeks the spread of democratic and
economic principles to produce the outcome of globalization, economic
integration and interdependence. If democratic principles are seen as the
critical circuitry, and globalization the payload then western based IGOs and
non- and for profit non-governmental agencies (NGOs) such as MNCs act as
the delivery system.

Liberal theorist view economic integration as the path to true global peace
under a singular economic and cultural world order. The evidence of this
integration is apparent everyday as financial markets in the United States
gyrate on weekly European Union default panics or as interstate violence
occurs in the Middle East. Many of the products that we use, this MacBook
that I’m using right now, comes together because of a complex array of global
suppliers that could only take place when peoples have a singular vision of
commerce and prosperity. Globalization supporter and evangelist Thomas
Friedman purports in his book, The World is Flat. A Brief History of the
Twenty-first Century, “no two countries that are both part of a major global
supply chain, like Dell’s, will ever fight a war against each other as long as
they are both part of the same global supply chain.” Supporters say the result
of this interdependence has not only increased security but also prosperity as
“more and more developing countries have been experiencing sustained
growth rates of 7-10 percent; 13 countries, including China, have grown by
more than 7 percent per year for the past 25 years.”

While IGOs such as the World Bank and the United Nations provide rules,
regulations and the basic means to create economic activity within a nation,
the true drivers of the liberalist theory and globalization are and will continue
to be NGOs such as MNCs and Sovereign Wealth Funds (SWFS).

As of 2011, the 10 largest global corporations have created revenues of $2.8

trillion and employed 6.9 million workers. Wal-Mart alone employed 2.1
million people last year. Anti-globalist and Marxist theorist contend that
MNCs are acting as neo-colonial, non-state actors that seek to exploit the
countries of the Global South by irresponsibly using non-renewable natural
resources and their low-skilled, uneducated labor force to perform menial
tasks at “slave labor” wages. These anti-globalists also contend that the
skilled workers/management and shareholders class of the Global North’s
MNCs intentionally operate a dualist strategy of profiteering on the backs of
the Global South countries.

While there are countless examples of corporate misconduct and exploitation,

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 International Political Economy – Realism, Liberalism, and Marxism

one cannot discount the economic and political power of MNCs. Friedman
provides advocates another example of the power and influence of MNCs by
describing the business and government responses to the nuclear standoff
between India and Pakistan in 2002. The threat of business operations
ceasing and the potential for lost revenue created epiphanies in India. Wipro
President, Vivek Paul made the comment, “all of a sudden it become even
clearer that there’s more to gain by economic gains than by geopolitical
gains.”

As of 2008, there are 40 SWFS that controlled approximately $3 trillion in

assets. While proponents argue that these SWFS are political machinations
used as a mercantilist tool for nation-states to assert the economic and
political influence across the globe, they are still “arms-length” institutions
whose primary obligations are to fund pension and welfare obligations of the
particular state’s populace. During the Great Recession of 2008, these
foreign-based SWFS used their financial heft to plug the balance sheets of
some of the most economically important companies and industries in the
world (large too-big to fail financial institutions). These entities stopped the
immediate hemorrhaging of corporate balance sheets and prevented a
catastrophic run on banking institutions that would have made the global
economic situation worse.

Marxism and the Political Economy

The basis of the Marxist critique of capitalism is that “capitalism would fail
for economic reasons as the proletariat revolted against its impoverishment.”
From this destruction, the socialist construct will prevail as “capitalism sows
the seeds of its own destruction.” There are three rules of Marxist law, which
Karl Marx describes as economic laws. These laws support his theory of an
unsupportable economic and political system under the regime of the
capitalist system. Communist Russian revolutionary, Vladimir Lenin, later
introduced a fourth law. The economic laws of Marxism are applicable and
even prophetic to a modern day challenger of liberal theory and the unending
push for globalization.

The first law, the law of disproportionality, states that in the pursuit of capital
gains and capital accumulation “capitalist economies tend to overproduce
particular types of goods.” This will cause an imbalance in the perception of
wage an earners need to purchase the overproduced goods. Marx posits that
this “disproportionality between production and consumption due to the
anarchy of the market causes periodic depressions and economic
fluctuations.” Marxist supporters can look to the most recent global economic
crisis to support their views. Abundant, cheap capital inflated the value of
and promoted the construction and investment of housing. These asset
bubbles were evident in countries such as the United States, Spain and the
United Kingdom. This market bubble created an overproduction in housing,

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 International Political Economy – Realism, Liberalism, and Marxism

leading the world economy to the precipice of economic destruction.

Marx’s second law, the law of capital accumulation and concentration among
the wealthy capital class, points to the ever-increasing need to improve
efficiencies and eradicate investment risk. Marx theorized that unfettered
capitalism would push “increasing concentrations of wealth in the hands of
the efficient few and the growing impoverishment of the many.” He later
posits that as labor wages decline, the proletariat class will initiate conflict
with demands for a social revolution. Once again, one can look no further
than the recent recession of 2008. Prior to the crash, companies had become
ever more efficient in their operations through the implementation of
technology whether it was a web-based application in a services firm or a
robot on a factory floor. To preserve capital and profits, companies across the
western world were forced to lay off millions of workers during the crash.
With little to no need to re-hire workers to maintain growth and profits,
companies have lowered or completely eliminated their need for certain types
of workers.

The third law of capitalism according to Marx states, “As capital accumulates
and becomes more abundant, the rate of return declines, thereby decreasing
the incentive to invest.” During the last downturn, the United States adopted
the Keynesian concept of economics by accumulating debt and flooding the
market with cheap capital. Ten-year treasury yields, the benchmark of
investment risk assessment, is currently yielding 1.58%. Capital asset pricing
models and other risk assessment tools that derive risk of investment via
treasury yields will reflect a lower of return on investment.

The final law contributed by Lenin states that “as capitalist economies
mature, as capital accumulates, and as profit rates fall, the capitalist
economies are compelled to seize colonies and create dependencies to serve as
markets, investment outlets, and sources of food and raw materials.”
Supporters of the Marxist theory point to colonialist, mercantilist and most
recently neo-colonialist movements that had exploited less- developed nations
with immature economies. As the consumer economies of the western world
has reached its zenith, investors and corporations are looking to economies
such as India and China not only as a source of labor capital, but also an
outlet for products as the population of upper and middle-class citizens grows
and their purchasing power increases.

Conclusion

The realist, liberal and Marxist theories provide tremendous insight when
seeking to explain the political economy and the decisions of policymakers.
We are no doubt, in an era of liberal policies. Leaders in the rich Global North
have, over the decades, constructed a world around globalization and
economic (and some would even argue cultural) interdependence and

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 International Political Economy – Realism, Liberalism, and Marxism

homogenization. The current framework, despite its relative success, has

weaknesses as pointed about by anti-capitalist or anti-globalist advocates such
as Chua or Marxist theorist. It is debatable whether these weaknesses stem
from system flaws, the inherent flaw in man or if the unperfected being of
man himself creates the structural imperfections. Leaders must be able to
decipher the messages imbedded within each of these theories, and proceed
accordingly.

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