The Politics of International Political Economy

Vassilis Fouskas, Vassilis K. Fouskas

• Publisher: Taylor & Francis
• Year: 2014
• eBook ISBN: 9781136507397
• Edition: 1
• Topic: Economics
• Subtopic: International Business
• Index: Economics

This timely book will explain, via a number of thematic and case studies, that international economics is not an independent terrain of economic activity reproducing itself throughout history, but a complex articulation of social, political and culturally determined actions that are inextricably linked. Chapters will address the role of dominant global powers in the making of global industrial and monetary relations, and, in particular, ways in which, and the degrees to which dominant economic and military powers, such as the USA, tend to shape the domestic economic environments of lesser powers after their own image.

Supplementing the chapters will be a comprehensive A - Z glossary section, which will include key International Political Economy terms, e.g. international debt, European free trade area, International Bank for Reconstruction and Development, IMF, GATT-WTO, Foreign exchange, fixed exchange rates, floating exchange rates, reserve currency, gold-dollar parity, multinational corporation, preferential trade agreement, hedge funds, etc. Entries will be cross-referenced for ease of use.

This book will be ideal for researchers and students in the areas of politics, international relations and international economics, as well as for academics, economists, business people, and those with an interest in the workings of international political economy.

Essays

Global political economy and the separation of academic disciplines

KEES VAN DER PIJL

International, or preferably global, political economy (IPE, or GPE), is not just a matter of combining economics and politics, or just restoring the classical approach to the topic. ‘The real achievement of IPE,’ Robert Cox (1993: 79) writes, ‘was not to bring in economics [into political science], but to open up a critical investigation into change in historical structures.’ My argument in this chapter is that this is best understood in light of how the mainstream social sciences have been parcelled out into separate disciplines, beginning with the split between economics and sociology. This was a process finalized in the USA, where the academic division of labour in the form we know today acquired its particular profile. ‘The departmental structure appeared only in American universities, although since mid-[20th] century it has gradually spread to Europe and elsewhere’, writes Abbott (2001: 123). Global political economy, I argue, is the attempt to bring back a comprehensive social science, including history.

Classical social theory, and political economy as one subject within it (‘political’ referring to the scale of ‘household’ to which economy refers—that is, the state), in the age of Enlightenment leading up to the French Revolution produced a series of theories, each postulating the operation of an optimization principle. Through it individual freedom was supposedly translated into social harmony. Adam Smith, whose Wealth of Nations was published in 1776, argued that the market represents such a principle in the field of political economy. Otherwise Smith was a polymath who also studied other topics; his contemporary Immanuel Kant likewise covered every aspect of social thought. He also was the first to write about the evolution of the universe. That was what the Enlightenment was about: the sky, literally, was the limit.

The French Revolution revealed the dangerous aspects of Enlightenment optimism to the established ruling classes in Europe. The unrestrained investigation of the bases of social power and wealth carried risks that might destabilize the social order. Both sides—that is, the political structure of social power and the organization of social thought—had to be modified in order to prevent shock-like adjustments. As Edmund Burke argued in his famous Reflections on the French Revolution of 1790 (Burke 1934: 23), ‘a state without the means of some change is without the means of its conservation’, and the knowledge on which controlled change is based therefore must be tailored to serve that purpose.

In the Restoration following the defeat of Napoleon, a new period of great scientific progress opened up, marked by Hegel’s dialectical understanding of history and Ricardo’s theory of the distribution of wealth among different classes. At first haltingly and in Gramsci’s phrase, ‘molecularly’, the forces of democracy were gathering strength again as well, leading to social explosions of 1830 and 1848 which furthered the spread of constitutional government. 1848 was also the year of the publication of the Communist Manifesto by Marx and Engels. Here for the first time the global sweep of the capitalist mode of production and the idea that history progresses through class struggles, were articulated in such a striking way that the need for a social science to back up a strategy of flexible adjustment became most urgent. In the process, the different areas of study were beginning to be separated into distinct fields, primarily to meet the challenge of historical materialism.

In this chapter, I address what I see as the key moments of this transition. First, the separation of an axiomatic, deductive economics from an empirical sociology (paradoxically, also covering the field of the economy as its prime concern). Second, a look at how the challenge of Marxism in Germany was met in the context of the Staatswissenschaften, in which economics and sociology were still combined. I then look at how in the English-speaking tradition and especially in the USA, philosophy was sidestepped altogether and a focus on epistemology and method adopted instead; thus the disciplinary organization of the social sciences was facilitated. Finally, I give some examples of how different IPE/GPE approaches can be understood as attempts to recapture the original post- or trans-disciplinary social science.

Economics and Sociology

Liberalism emerged triumphant in the slipstream of Britain’s new global power after the defeat of Napoleon. As Wallerstein (2001: 191) writes, ‘there followed a thrust to consolidate and justify this hegemony in the domains of culture and ideology’. Nowhere was this more evident than in political economy, in which British thinkers had made their name as the country became the ‘workshop of the world’, establishing a first-mover advantage unchallenged until the crisis of the early 1870s.

The political economy of Smith and Ricardo is based on the labour theory of value, in which labour time is the common measure to compare the value of good exchange in the market. The labour theory of value goes to the heart of bourgeois thought. It claims that wealth is obtained through work, rather than by privilege or inherited title as in the past. However, in Smith especially there are ambiguities in establishing what in the end constitutes value; he also claims that the ‘ultimate’ source of value must be traced to the different components of income, such as ground rent or profit. This contradictory understanding made it possible to see value as entitlement. Whether this ‘slip’ can be traced to the fact that Smith, like his mentor, David Hume, was close to the ruling class of Edinburgh, may be left aside here, but there is no doubt that this contradiction, to quote Marx, ‘threw the door to vulgar economics wide open’ (Marx and Engels 1956–71: vol. XXIV, 372).

‘Vulgar economics’ refers to an approach that abandons the investigative quest into economic processes for a justificatory one that legitimizes capitalist class society by leaving certain questions unanswered. John Stuart Mill (1806–73) is the major figure in shifting the ground in this respect. Mill, like many contemporaries, was concerned about working-class agitation against the appalling conditions created by the Industrial Revolution. Casting the factory owner as a benefactor to society who instead of keeping his wealth to himself, makes it available for use as capital in production and ‘give work’ (hence, the German term for employer, Arbeitgeber), Mill cleared the way for an entirely different approach to economics based on a new theory of value, marginalism.

Marginalism built on the ambiguities in Smith and Ricardo concerning the sources of wealth, reformulating political economy along utilitarian lines as a psychology of choice. W. Stanley Jevons (1835–82), a Manchester engineer who took up the chair in political economy at the University of London in 1876, also re-baptized the field ‘economics’, since ‘erroneous and practically mischievous’ ideas about political economy were gaining ground and ‘becoming popular among the lower orders’ (quoted in Meek 1972: 88 n.). Amidst a growing call ‘to abandon Ricardo’s theory of value because it leads to socialism’ (Labriola 1908: 82), Jevons dropped the connection with labour time altogether and identified subjective (marginal) utility as the source of value, taking forward Mill’s ideas on this issue. This approach places each claim to income on the same ethical level; a capitalist, a landowner, a worker, all seek a return on the ‘factor’ they supply, and are equally entitled to it. The labour theory of value, on the other hand, not only advances an explanation for the source of new wealth, but also implies that those who really work have a more fundamental claim.

Also, the labour theory of value seeks to uncover the inner workings of the economy, whereas marginal utility theory leaves in the dark the question why some people grow rich whereas others seem to lose out. This is instead interpreted as a quasi-natural phenomenon. Jevons’s theory that sunspots are the cause of the business cycle instead aimed at naturalizing the capitalist mode of production, sealing it off from social criticism (Davis 2002: 222–23). Just as you cannot do anything about sunspots, you cannot change the economy either. Alfred Marshall at Cambridge then reworked the classical and the marginalist traditions into a single narrative (‘It’s all in Marshall’). Thus he ‘defended’ Ricardo by arguing that the latter’s theory of value ‘though obscurely expressed … anticipated more of the modern doctrine of the relations between cost, utility and value than has been recognised by Jevons and other critics’ (quoted in Meek 1972: 93). This of course pushed the crucial disagreement on the source of value (labour or ‘utility’) under the rug.

The growing power of the working class that added urgency to the revision of the labour theory of value had a different impact in the liberal, English-speaking West and in late-industrializing countries on the European Continent. In Britain, working-class agitation in the 1790s had been met by ferocious repression and factory conditions owed a lot to the concern of employers to keep the workers under a tight discipline (Thompson 1968: 195 and passim). Organized in trade unions for each craft and long represented in politics by the Liberal Party, the conditions of its early emergence imparted a particular weakness to the British working class. The Labour Party inherited this legacy. Its intellectuals, organized in the Fabian Society, ‘had, and were proud of having, no economic theory of their own. Instead they accepted “scientific” economics, that is the marginal theory’ (Bernal 1969: 1099). In North America, attempts to build working-class strength faltered in the face of repression, geographical dispersion and mobility, and the ideological inclination to embrace possessive individualism (Davis 1980). ‘Hegemony’, Gramsci writes of the USA, ‘ … is born in the factory and requires for its exercise only a minute quantity of professional political and ideological intermediaries’ (Gramsci 1971: 285). Here too, marginalism became the established economic theory in the 1880s.

In Europe, the archaic, aristocratic façade of ruling-class power exposed it to popular agitation much more than in the USA; on the continent, there was the additional problem of maintaining social cohesion in the face of the competitive advantages enjoyed by British capitalism. Beginning in France, the need for social protection gave rise to what I call the contender state, and social science conformed to the need as well through the development of sociology. Auguste Comte, the secretary of Saint-Simon, in the 1850s formalized his master’s progressive doctrine into a scientistic philosophy of history, Positivism. He saw it as a bulwark against communism which had reared its head in the revolutions of 1848. Indeed, sociology emerged to deal with the rifts in society that the French Revolution and Napoleon, Restoration and 1848 had left behind; Émile Durkheim’s sociology intended to achieve the same in the aftermath of the Paris Commune of 1870–71. For Durkheim, the state must weigh in to dampen class antagonism and maintain social solidarity (Durkheim 1964: 379; Zeisel 1975: 122–23).

Durkheim’s advocacy of class compromise rested on a comparison between the basis of solidarity in a traditional society and the objective characteristics of industrial society; he rejected the British concept of possessive individualism. From a French perspective, the freely choosing individual is a meaningless abstraction, it is the state that holds society together. Even when marginalism took hold in France, Léon Walras (who taught in Lausanne), constructed it from objective premises such as scarcity and equilibrium; as Watson (2005: 59) writes, ‘the Walrasian framework bears none of the [utilitarian] underpinnings of Jevons’ Theory of Political Economy’.

In the second half of the 19th century, the economic centre of gravity in Europe shifted more and more to Germany. Friedrich List’s concept of a late industrialization (which he had developed in US exile in the 1830s) also required a strong, directive state; in the same spirit Heinrich von Treitschke, historiographer of Prussia, in 1864 argued that an ascendant country cannot afford to weaken its executive power and be satisfied with what he called ‘a state of the English/Belgian type’ (quoted in Kuczynski 1977: 171). Once the country’s unification under Prussian leadership had been achieved in 1871, these ideas became part of what Wallerstein (2001: 192) identifies as a ‘current of resistance’ to liberal universalism, the Staatswissenschaften.

A contender state is compelled to entrench against British and, later, Anglo-American liberalism in order to avoid economic colonization and political subordination. Today the People’s Republic of China and Iran find themselves in this position, as did the USSR during the Cold War. Such a state must also retain control of its own society as much as possible, just as the social sciences must remain part of a single discursive sphere. German social science ever since its inception in the days of Fichte and Humboldt in French-occupied Berlin had been state-oriented; it was also intimately connected to philosophy, in which German scholarship excelled. The title of PhD (Doctor in Philosophy), still used in English today, has its origin here. If German universities were not as directly geared to the recruitment of state personnel as the grandes écoles established by Napoleon, the privileged status of the civil service helped to sustain the attraction of public employment for graduates and enshrine the central role of the state.

The Challenge of Marxism

An additional reason why German (and to a lesser extent, Austrian and Russian) social science clustered around concepts of a strong state providing protection against British capital, was the labour movement. Along with rapid industrialization after 1871, German social democracy grew quickly too. It initially followed the state-socialist doctrine of Ferdinand Lassalle, but the crystallization of capitalist class relations in industry made it more receptive to Marx’s version of the labour theory of value, which he historicized, with the help of Hegel’s dialectics, into a theory of laying the foundations for socialism.

Ricardo’s theory of profit sees its source in that part of the working day that is not needed to produce the equivalent of the reproduction costs of the worker’s labour power. The proportions between necessary labour (covered by a wage) and surplus labour (profit) vary with overall social productivity. Marx instead argues that the historical compulsion of capital is to reduce the necessary labour time and increase the mass of what he calls surplus value, which is then distributed among the different capitalists as profit (Marx and Engels 1956–71: vol. XXVI.2, 407–8). In addition to the inference that the capitalist mode of production is not natural, but historical, bound to be superseded by another type of society (Marx only briefly mentions that this will rest on the ‘associated mode of production’: Marx and Engels 1956–71: vol. XXV, 485–86), he also stresses that this develops through c...

Table of contents

• Cover Page
• Half Title page
• Series page
• Title Page
• Copyright Page
• Contents
• List of illustrations
• List of Contributors
• Foreword
• Acknowledgments
• Abbreviations
• Essays
• Select bibliography