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					                                        CHAPTER 1


         What is international political economy? Chapter 1 answers this question in three ways: by
example, by comparison, and by contrasting IPE with more familiar disciplines such as economics, political
science, and sociology; and directly, through discussion of the fundamental principles of IPE.

       In simple terms, we define IPE as the study of those international problems and issues that cannot
adequately be addressed by recourse to economic, political, or sociological analysis alone. IPE is the study
of international affairs that focuses on the elements of complex interdependence that define many of our
most pressing problems today.

          The need to study IPE arises because many important contemporary questions cannot adequately
be addressed from the standpoint of a social single discipline--economics, politics, or sociology-- or by the
analysis of actors and actions that take place on a particular level of analysis -- individual, state, or
international system. IPE breaks down the barriers that separate and isolate the traditional methods of
analysis, seeking a comprehensive understanding of issues and events.

      The main case study presented in this chapter examines the tension between the United States and
China regarding two sets of issues—international trade and human rights—that are brought together in the
international political economy. This case study illustrates the fundamental tension between and dynamic
interaction of two spheres of life, which we can variously call “society and individuals,” “politics and
economics,” or “states and markets,” the values that they represent, and the ways that values and interests
affect relations between nations and politics within them.

Learning Objectives:

   Why would someone want to study IPE?

   What is International Political Economy?

   How is IPE different from and related to such disciplines as economics, politics, sociology, and

   How does the U.S.-China MFN controversy illustrate the parallel existence and dynamic interaction of
    “state” and “market?”

   How do states and markets differ in terms of their values, methods, and goals?

   How would other academic disciplines and conceptual approaches explain the U.S.-China trade case

   What does the Multidimensional Information Arbitrage case study box illustrate about the nature of

   What are the fundamental elements of IPE?

   What is the dynamic nature of the interaction between states and markets?
   What are the three levels of analysis employed in IPE?

   What are the two types of power that actors use in the bargains that take place in IPE?

   What are the four essential “structures” of IPE, and what is their analytical purpose?

   What are the three essential perspectives of IPE and the values they represent? With which academic
    disciplines are they most closely associated?

   What is the relationship of "globalization" to IPE?

Chapter Outline:

1) Introduction
   a) International Political Economy is a study that synthesizes methods and theories about the human
        condition from economics, politics, and sociology to study international problems that
        increasingly defy understanding using the ideas of any single academic discipline.
   b) There are three reasons to study IPE: because it is interesting, important, and useful.

2) IPE in Theory and in Practice
   a) From a theoretical standpoint, IPE looks at how the political (states and power) interact with the
       economic (markets and wealth) in the international (and some would say, increasingly global)
       arena that is conditioned by history and different cultural values.
   b) The United States and China reach Trade Pact.
   c) China agrees to open its markets and buy more U.S. goods.
   d) China wants MFN status from the U.S., which would give open access to U.S. markets for its
       goods and encourage investment in China by U.S. firms.
   e) Yet, China fails to meet U.S. requirements in the area of human rights. Human rights is a social or
       “state” value.
   f) The MFN law creates a fundamental tension between state and market values, both in the U.S. and
       in China.
   g) Would freer markets put pressure on China’s leaders to reform their human rights practices -- a
       question of the dynamic interaction of states and markets?
   h) In this case a political problem and tension is created by the interaction of economic interests and
       cultural differences.

3) The IPE Approach to International Issues
   a) In traditional academic disciplines, a problem such as U.S.-Chinese relations would be analyzed
       piecemeal by various specialized disciplines or topics including microeconomics,
       macroeconomics, American politics, comparative politics, international relations, political theory,
       sociology, anthropology, and history.
   b) IPE represents a synthesis of these social science approaches. IPE looks at the complex
       interactions of subjects, issues, and analytical approaches that characterize international affairs of
       all sorts.

4) The Multidimensional Information Arbitrage Box
   a) The New York Times columnist Thomas Friedman adopted a "multidimensional" view of the world
       in his travels that drew on conceptual tools from different disciplines.
   b) Using those tools, Friedman was opened up to seeing things in ways he had never anticipated.

5) Fundamental Elements of IPE
    a) IPE concerns social, political, and economic arrangements affecting global systems of production,
       exchange, and distribution and the mix of values reflected therein.
    b) Political Economy is the field of study that analyzes the problems and questions that arise from the
       parallel existence and dynamic interaction of “state” and “market” in the modern world.
    c) States are the realm of collective action and collective interests.
    d) Markets are the realm of individual action and self-interest.
    e) States (society) and markets (individuals) do not always conflict, but they do frequently overlap
       and influence each other (dynamic interaction).

6) Wealth and Power: The Tension Between States and Markets
   a) States allocate and distribute power.
   b) Markets allocate and distribute scarce resources.
   c) Power and scarce resources are related in many ways, producing the overlapping parallel existence
      of states and markets.
   d) States reflect social values, such as national security and equality.
   e) Markets reflect individual values, such as personal security and efficiency.
   f) States and markets use different means or mechanisms to achieve different goals.

7) The Dynamic Nature of State-Market Interaction
   a) Changes in the distribution of power necessarily influence the distribution of wealth.
   b) Changes in the distribution of wealth necessarily influence the distribution of power.

8) Dimensions of International Political Economy
   a) IPE is a multi-dimensional study. IPE analyzes international issues in terms of three levels of
      analysis, two types of power, four global structures, and three perspectives of sets of values.
   b) The problems of IPE can be analyzed and understood as the individual, state, and international
      system level of analysis, and the interaction among levels.
   c) Bargains at each level of analysis involve relational power (the ability to cause another actor to do
      or not do something) and structural power (the ability to affect the nature of the system of
      relationships within which bargaining takes place).
   d) The security structure examines the sets of global relations having to do with national security.
   e) The production structure examines the sets of global relations having to do with production and
   f) The finance structure examines the sets of global relations having to do with money and credit.
   g) The knowledge structure examines the sets of global relations having to do with knowledge,
      know-how, and technology.
   h) Mercantilism or economic nationalism is the perspective most closely associated with political
      science and realism.
   i) Liberalism or economic liberalism is the perspective most closely associated with economics.
   j) Structuralism or Marxism is the perspective most closely associated with sociology.

9) IPE in the Borderless World
   a) Globalization is both a controversial topic and a key element of the world today, which breaks
       down the levels of analysis, alters relational and structural power, brings together the four global
       structures, and puts pressure on perspectives and value systems.
   b) There are both optimists and pessimists regarding globalization. Because of its impact,
       globalization is an important reason to study IPE.

Vocabulary Check:

   Most Favored Nation (MFN)
   Interdependence
   International Political Economy
   Normal Trade Relations (NTR)
   Non-Governmental Organizations (NGOs)
   State
   Market
   Multidimensional Information Arbitrage
   Parallel existence (of states and markets)
   Dynamic Interactions (between states and markets)
   three levels of analysis
   Relational power
   Structural power
   Hard and soft power
   Production Structure
   Security Structure
   Finance Structure
   Knowledge Structure
   Mercantilism
   Liberalism
   Structuralism
   Jiang Zemin
   Bill Clinton

Teaching Tips:

   This chapter introduces students to a number of fairly abstract ideas (states, markets, values, structures,
    etc.) and asks them to apply them to a few simple examples. It is important to give attention to both
    abstract and the concrete here and to provide students with ample opportunity to link the two together.

   Students do find the U.S.-China case study relatively interesting, so it is useful to keep going back to it
    as an illustration of the major concepts covered here.

   It is a good idea to ask students to read newspapers and bring to class other examples of IPE topics that
    are currently in the news, such as the U.S.-China trade controversy. Have them write a one page paper
    that summarizes the problem and then identifies the political, social, and economic elements in the
    story. Ask them to discuss the role of the state and market, if it is present in the article. What tensions
    exist between these entities? Cui bono? Who benefits and who loses? Some students will find this
    creative exercise difficult, so don’t award too much credit for it in the interest of class harmony.

   Although the analysis of the IPE structures is not discussed in depth until the second part of the text,
    these sets of relationships can be used to help students see IPE around them. Ask students to provide
    examples of problems they have read about or heard about that involve international or global security,
    production and trade, finance, or knowledge and technology issues. Be sure to have some examples of
    your own ready from the nightly news or a newspaper.

Suggested Readings:

Miles Kahler, "The International Political Economy," Foreign Affairs, 60, Fall 1990.

This reading can be found in Readings in International Political Economy, David N. Balaam and Michael
Veseth, eds, (Englewood Cliffs, N.J.: Prentice-Hall, 1996).

Lingjuan Ma Lingjuan Ma