International Political Economy in the Realm of Globalization – In 2008 the world economy faced meltdown. A financial crisis began in the USA and soon spread around the world. These events highlighted the tensions between states and markets, the challenges of globalization, shifting global power, and the role of institutions in the global economy. This chapter examines what d rives actors, and explains event since the international economy. The first section outlines how international economic relations and institutions were created and shaped in the post-war economy.
The second section outlines three traditional approaches to international political economy I PE that help to identify key actors, processes levels of analysis. These are the liberal, mercantilist, and Marxist traditions. More modern approaches have built on ‘rational choice’ analysis. What ‘rational choice’ means and the argument about how it should be used are both explored. These perspectives and tools for studying I PE are then applied to help us make sense of globalization and its impact on the world economy.
What is Globalization?
What is globalization and what challenges does it pose for all states (and other actors) in the world economy? It is often assumed that international institutions and organizations will manage these challenges. In the final section of the chapter we return to the theories of I PE in order to answer the question: what role can we expect institutions to play in managing globalization? International political economy (IPE) is about the interplay of economics and politics in world affairs. The core question of IPE is: what drives and explains events in the world economy? For some people, this comes down to a battle of ‘states versus markets’.
However, this is misleading. The ‘markets’ of the world economy are not like local street bazaars in which all items can be openly and competitively traded and exchanged. Equally, politicians cannot rule the global economy. World markets and countries, local firms, and multinational corporations that trade and invest within them are all shaped by layers of rules, norms, laws, organizations, and even habits. Political scientists like to call all these features of the system institutions. International political economy tries to explain what creates and perpetuates institutions and what impact institutions have on the world economy.
Global Economic
Global Economic – In 2008 a global economic crisis began when a major US financial firm failed . The crash of Lehman Brothers exposed the degree to which some banks had excessively leveraged themselves, spiraling into a dizzyingly profitable but-as it turned out-catastrophically risky way. All too few institutions prevented them. As a result, prominent economists declared that the world was facing a ‘Great Depression’ of a kind not seen since the 1930s. Governments in the USA and the UK were forced to bail out banks, and to pump money into the wider economy to prevent jobs, sales, and markets from drying up.
The crisis quickly spread across the world, creating an emergency in many developing countries as the collapse in demand for commodities, goods, and services in the world’s largest, richest economies affected all those countries that supplied them Subsequently, a fully fledged euro zone crisis emerged in the heart of the European Union as Greece, Portugal, and Ireland were unable to meet their debt obligations and were forced to seek assistance from the IMF and the European institutions. At first the global dimensions of the problem were recognized by leaders, who created a new forum-the G20-comprising the leaders of the world’s largest economies so as to coordinate responses to the crisis. However, the G20 lost force as disagreements emerged over how best to respond to the contraction in the world economy.
Economic Shocks
Economic Shocks – The economic shocks of 2008 brought into sharp focus perennial themes of international political economy. The relationship between states and markets was highlighted by the fact that some (but not all) states failed to restrain their financial markets. They let their banks make massive profits at the expense of societies (and other countries), which ended up paying the costs when the banks failed. The question of who benefits most from globalization was revisited in the wake of the crisis, particularly by countries that benefited little from financial liberalization but were harshly affected by the crisis.
US Economic
US Economic – The primacy of the US economic model came under renewed scrutiny as emerging economies trumpeted the success of their more state-centric policies in weathering the crisis. Relations between the so-called ‘North’ (industrialized countries) and ‘South’ (developing countries) were transformed as emerging economies carved out a new position for themselves in international institutions, including in the new G20, while other developing countries remained marginalized. Perhaps surprisingly, the international economic institutions used to manage the crisis were those created in the aftermath of the Second World War, in spite of widespread agreement that they needed updating.
Conclusion
In conclusion, the global economic meltdown of 2008 served as a stark reminder of the intricate interplay between states and markets, the complexities of globalization, the shifting dynamics of global power, and the crucial role of institutions in shaping the world economy. This chapter has delved into the drivers behind key events in the international economy, tracing the evolution of international economic relations and institutions from the post-war era.
By examining various theoretical frameworks within international political economy (IPE), such as liberalism, mercantilism, Marxism, and rational choice analysis, we have gained insights into the actors, processes, and levels of analysis at play in the global economic landscape. These perspectives have provided valuable tools for understanding the impacts of globalization and the challenges it poses for states and other actors.
At the heart of IPE lies the question of what role institutions play in managing globalization. While some may see the global economy as a battleground between states and markets, it is crucial to recognize the nuanced role of institutions in shaping economic outcomes. These institutions, encompassing a myriad of rules, norms, laws, and organizations, exert a significant influence on the behavior of states, markets, and other actors.
The 2008 global economic crisis underscored these enduring themes of IPE. It laid bare the consequences of inadequate regulation and oversight, as some states failed to rein in their financial markets, leading to catastrophic repercussions felt worldwide. The crisis prompted a reevaluation of the benefits and drawbacks of globalization, as well as a reassessment of the dominance of the US economic model.
Moreover, the crisis reshaped the geopolitical landscape, with emerging economies asserting themselves on the global stage and demanding greater representation in international institutions. Yet, amidst these transformations, it is notable that the institutions called upon to manage the crisis were largely those established in the aftermath of World War II, highlighting the enduring relevance of these structures despite calls for reform.
In essence, the events of 2008 serve as a poignant reminder of the intricate nexus between economics and politics in shaping the world economy. As we navigate the complexities of globalization and grapple with future economic challenges, understanding the role of institutions and the dynamics of international political economy will remain paramount in fostering global stability and prosperity.