International Political Economy

An Intellectual History

Benjamin J. Cohen

• Publisher: Princeton University Press
• Year: 2021
• Print ISBN: 9780691135694, 9780691124124
• eBook ISBN: 9781400828326
• Topic: Politics & International Relations
• Subtopic: Political Economy
• Index: Politics & International Relations

The field of international political economy gained prominence in the early 1970s--when the Arab oil embargo and other crises ended the postwar era of virtually unhindered economic growth in the United States and Europe--and today is an essential part of both political science and economics. This book offers the first comprehensive examination of this important field's development, the contrasting worldviews of its American and British schools, and the different ways scholars have sought to meet the challenges posed by an ever more complex and interdependent world economy.

Benjamin Cohen explains the critical role played by the early "intellectual entrepreneurs," a generation of pioneering scholars determined to bridge the gap between international economics and international politics. Among them were brilliant thinkers like Robert Keohane, Susan Strange, and others whose legacies endure to the present day. Cohen shows how their personalities and the historical contexts in which they worked influenced how the field evolved. He examines the distinctly different insights of the American and British schools and addresses issues that have been central to the field's development, including systemic transformation, system governance, and the place of the sovereign state in formal analysis. The definitive intellectual history of international political economy, this book is the ideal volume for IPE scholars and those interested in learning more about the field.

Chapter 1

THE AMERICAN SCHOOL

We live in an era of interdependence.

—Robert Keohane and Joseph Nye

Politics determines the framework of economic activity.

—Robert Gilpin

IPE, AS GILPIN ONCE FAMOUSLY suggested (1975b, 43), may be defined as “the reciprocal and dynamic interaction in international relations of the pursuit of wealth and the pursuit of power.” By the pursuit of wealth, Gilpin had in mind the realm of economics: the role of markets and material incentives, which are among the central concerns of mainstream economists. By the pursuit of power, he had in mind the realm of politics: the role of the state and the management of conflict, which are among the central concerns of political scientists. IPE was to be understood as a marriage of two disciplines, integrating market studies and political analysis into a single field of inquiry. To a remarkable degree, that is precisely what IPE has come to mean today for most specialists—the common denominator even for critics who would prefer some alternative approach to the subject. IPE at its most fundamental, in short, is about the complex interrelationship of economic and political activity at the level of international affairs.

This chapter explores the origins of the dominant version of IPE that I have referred to as the American school. The notion of a “school” here is used loosely, by no means implying any sort of common goal or unified agenda. Scholars in the United States, as elsewhere, differ greatly on matters of substance as well as emphasis; in terms of theory, consensus is often lacking on even the most basic causal relationships. Yet at the level of ontology and epistemology, there does tend to be a shared understanding that distinguishes most inquiry in the United States from the way IPE is typically studied in many other places. The mainstream of U.S. scholarship can be considered a school because of its overarching worldview—a broadly accepted, if typically unacknowledged, sense of how things work and how they should be studied.

What accounts for the birth of IPE in the United States, and why did its early development take the path that it did? The story is vital, since the decisions taken early largely determined how the field was later constructed. Gilpin is a key part of the story, as we shall see. But most central are two familiar names: Gilpin’s fellow political scientists Keohane and Nye, a pair of intellectual entrepreneurs par excellence. More than anyone, Keohane and Nye may take credit for setting the study of IPE in the United States on its present course. They were not the earliest on the scene. Others preceded them in seeking to marry international economics and politics. Nor were they alone in midwifing the new field’s birth. Others, too, recognized the potential for fresh insights and understandings. But no one came close to matching them for the speed and ingenuity with which they acted to convert potential into reality. Keohane and Nye were uniquely instrumental in nurturing the infant in its earliest years, shaping its growth in ways that today are simply taken for granted.

BIRTH

Though we date the modern study of IPE only from the 1970s, the field’s roots go much further back. What I call the pioneer generation was not the first in history to think of connecting the economics and politics of international relations. Others in earlier generations had also tried. But never before had such efforts, however determined, managed to make it into the scholarly mainstream. The pioneers of the 1970s and beyond were the first to succeed in making IPE a recognized and respected academic specialty. That is their accomplishment, their real claim to fame. On the scale of human achievement, the resulting construction may not rank up there with the taming of fire or the start of organized farming. Yet it was certainly something more than a mere reinvented wheel. A true intellectual breakthrough, the new field’s birth was a product of both individual initiative and historical circumstances—agency as well as contingency.

Dialogue of the Deaf

In terms of intellectual antecedents, IPE may be said to have a long and distinguished lineage, going back to the liberal Enlightenment that spread across Europe in the seventeenth and eighteenth centuries. Even before there were the separate disciplines of economics and political science, there was political economy—the label given to the study of the economic aspects of public policy. In a work published in 1671, the English administrative reformer Sir William Petty first spoke of “Political Oeconomies.” The term soon stuck. The classical economists of the eighteenth and nineteenth centuries, from the French physiocrats and Adam Smith onward, all understood their subject to be something called political economy, a unified social science closely linked to the study of moral philosophy. The earliest university departments teaching the subject were all designated departments of political economy. John Stuart Mill’s monumental summary of all economic knowledge in the mid-nineteenth century was titled Principles of Political Economy. Oscar Wilde, as we have seen, was still using the term at the dawn of the twentieth century.

Not long after Mill, though, a split occurred, fragmenting the social sciences. Like an amoeba, classical political economy subdivided. In place of the earlier conception of a unified economic and political order, two separate realms were envisioned, representing two distinct spheres of human activity. One was “society,” the private sector, based on contracts and decentralized market activity, and concerned largely with issues of production and distribution. The other was the “state,” the public sector, based on coercive authority, and concerned with power, centralized decision making, and the resolution of conflict. University departments were systematically reorganized to address the divergent agendas of the two realms.

The immediate cause of the split was an increasing formalization of economic study and a growing abstraction of its more advanced theoretical ideas. A “neoclassical” school emerged, inspired by the so-called marginalist revolution of the 1870s, when differential calculus first began to be used to explore the effects of small (“marginal”) changes in price or quantity. The aim was to develop a pure science, well removed from the minutia and distracting complications of everyday life. Gradually the discipline of economics, as it now came to be known, distanced itself from many of the practical policy and normative concerns that had previously motivated practitioners. So scholars with a more direct interest in institutions or issues of governance gravitated elsewhere, mostly toward the new discipline of political science with its central focus on the workings of political systems. In 1890, Alfred Marshall’s Principles of Economics supplanted Mill’s Principles of Political Economy as the English-speaking world’s leading font of economic wisdom. By the start of the twentieth century, the divorce of political science from economics was largely complete, with few points of intellectual contact or communication remaining between them. As one source puts it, “Both disciplines grew increasingly introspective” (Lake 2006, 758).

The gap was never absolute, of course. Even after academic economics and political science went their separate ways, a few hardy souls continued to stress connections between the pursuit of wealth and the pursuit of power. This was especially true at the radical fringes—in Marxist or neo-Marxist circles on the Left, where the superstructure of politics was unquestioningly assumed to rest on a foundation defined by the prevailing modes of production; or among laissez-faire liberals or libertarians on the Right, determined to preserve capitalism against the oppressive power of the state. There were also some notable exceptions in the mainstream, such as John Maynard Keynes, who cared deeply about the relationship between markets and politics, or Herbert Feis, whose study of the politics of pre–World War I global finance remains an early classic (1930). Many would also include Karl Polanyi, whose classic treatise on the social foundations of markets, The Great Transformation (1944), has proved a lasting source of inspiration for later generations of scholars. For the most part, however, the void only grew deeper with time. References to political economy soon disappeared from polite conversation.

By the mid-twentieth century, the relationship between the two disciplines could best be described as nonexistent, a dialogue of the deaf. Radical perspectives were not entirely extinguished. Especially on the Left, the tradition was preserved in polemics over the allegedly inequitable relations between rich and poor economies. Earlier in the century the issue was framed in terms of “economic imperialism,” stirred by the writings of John Hobson, a radical liberal, and such Marxists as Rosa Luxemburg and Rudolph Hilferding—culminating in Vladimir Ilyich Lenin’s still widely quoted Imperialism: The Highest Stage of Capitalism (1917). Later, following the great wave of decolonization after World War II, debate was recast in various versions of dependency theory, stressing the political underpinnings of economic “underdevelopment” in newly independent states. Though divided on details, dependency theory’s many variants were united by the idea that the prospects for development in poor countries (the periphery) were conditioned by a global economy dominated by the rich (the core). Across mainstream academia, though, the frontier dividing economics and political science had become firm and impassable. Scholars working in the separate specialties of international economics and IR simply did not speak to each other.

My own experience as a university student half a century ago was typical. In my one IR course, taken while still an undergraduate, the emphasis was all on the “high politics” of conflict and national security in a dangerous, anarchic world. The policy agenda was preoccupied, not to say obsessed, with the cold war and the threat of nuclear weapons. Foreign economic relations were relegated to the realm of “low politics,” not really deserving of serious attention. Conversely, in the several courses on international economics that I sat through, first as an undergraduate and later in pursuit of a PhD, the spotlight was on issues of efficiency and stabilization, with public policy evaluated solely in terms of its implications for consumer welfare. No account was taken of the influence of differing institutional contexts or the political underpinnings of economic relations. The only dimension of power acknowledged was market power, stripped of any connection to interstate politics or issues of war and peace.

The dichotomy was summarized acutely in a seminal article published in 1970 by Strange, a British citizen and one of the most familiar—and beloved—names in IPE. We will hear more about Strange in the next chapter. Her article, as mentioned earlier, was provocatively titled “International Economics and International Relations: A Case of Mutual Neglect,” and provocation was what she had in mind. The void between international economics and IR had endured for too long, she declared, leading scholars from both traditions to neglect fundamental changes in the world economy. The dialogue of the deaf should not be allowed to persist. A more modern approach to the study of international economic relations was needed—a new effort at “bridge building” to spotlight the crucial “middle ground” between economic and political analysis. Here, for the first time, was a full and compelling case laid out for a new field of study, a clarion call expressed in the fierce and uncompromising manner that came to be Strange’s trademark. The article was for all intents and purposes a manifesto.

To a degree, Strange was pushing against an open door. The impassable frontier between the disciplines had never been without its critics, even in the mainstream of the academic world. In the 1940s, political scientist Klaus Knorr (1947) had lamented the lack of economics in mainstream IR courses, suggesting that new efforts were needed to acquaint students of IR with the chief concepts and methods of inquiry used by economists. Discontent with the dialogue of the deaf was already brewing by the time that Strange spoke out. Here and there, scholars were groping their way toward reconnecting the two realms of inquiry, “reintegrating what had been somewhat arbitrarily split up” (Underhill 2000, 808).

Interestingly, most of these scholars were economists rather than political scientists. An early example was Jacob Viner, who had once been one of Knorr’s professors (and obviously left a mark on the younger man’s thinking). In a historical study, Viner (1948) sought to explore the relationship between “power” and “plenty” as objectives of foreign policy—a choice of terms foreshadowing Gilpin’s “pursuit of wealth” and “pursuit of power.” Viner’s focus was on the early doctrine of “mercantilism,” which dominated European economic thought for much of the seventeenth and eighteenth centuries. Mercantilism, in principle, called for the subordination of economics to the demands of politics. But as Viner demonstrated, how this might actually translate into practice was no simple matter. The relationship between power and plenty was in fact quite complex, and subject to change over time.

Twenty years later Richard Cooper published The Economics of Interdependence (1968), highlighting the political challenges posed by the growing interdependence of national economies. Establishing a theme that has echoed through the IPE literature ever since, Cooper drew attention to the inevitable tensions generated by market liberalization in a system of sovereign states. In 1970, the same year as Strange’s article, there was Power and Money, a short book by Kindleberger (1970). Kindleberger’s theme, too, was the growing tension between economic and political activity in an increasingly interdependent world. Basic Books, that same year, also began the Political Economy of International Relations Series, with myself as general editor. And 1971 saw the publication of economist Raymond Vernon’s memorable Sovereignty at Bay, which heralded the arrival of the multinational corporation as a key political actor on the world’s stage.

The period also saw the reissue of a long-neglected study by Albert Hirschman, National Power and the Structure of Foreign Trade (1945/1969), now rightly regarded as a classic. Written during World WarII, the book highlighted the hidden politics of international trade: how relations of dominance and dependence among states may arise naturally from the asymmetries of foreign commerce, and how import and export policies may be used opportunistically by governments to exert political pressure and leverage. Hirschman’s themes too have echoed through the IPE literature ever since.

In a sense, therefore, the new integrated approach that Strange was calling for had already begun to coalesce. Can we date the infant’s arrival precisely? Unfortunately, scholarly fields of study don’t come equipped with an official birth certificate, listing the time and place of origin. Articles or books start to appear, such as those by Viner and Cooper. At first a scattered few, the contributions eventually multiply until—eureka—we all realize that something new has been discovered. Only in retrospect do we become aware that a birth has taken place. Today all we can say is that by 1970, it was already becoming evident that there was something new under the sun (the pessimism of the Old Testament Ecclesiastes notwithstanding).

Nonetheless, Strange’s manifesto deserves a special place in the annals of IPE. Her summons to battle was by no means the sole spark to ignite a renewed interest in the political economy of IR; indeed, appearing in a British journal, the article may not even have been seen at the time by many on the U.S. side of the Atlantic. Yet looking back, we can now appreciate how significant it was. Its publication marked something of a turning point. Never before had the brewing discontent among specialists been so effectively distilled and bottled. Nowhere else had the issue been posed in such concise and focused terms. As such, it is as good a candidate as any to mark the moment of the new field’s birth.

A Changing World

What triggered the discontent that Strange captured so effectively? The birth of a new field does not take place in a vacuum. Particularly in the social sciences, intellectual developments tend to be tied to a historical context—to new events and trends that make old ways of thinking inadequate. And so it was with IPE. Fundamental changes were occurring in the world—the “real” world, as we social scientists like to call it (mostly without any sense of irony). Both the politics and economics of global affairs were mutating, calling for new understandings of how thing work and how they might be studied.

Most striking was the remarkable recovery of the European and Japanese economies after the devastation of World War II. By the 1960s, a decisive shift seemed to be taking place in the balance of economic power among industrialized nations. At midcentury, the United States bestrode the world economy like a colossus. But with its growth rate slowing and its balance of payments mired in deficits, the country now looked to be on the brink of decline. Continental Europe and Japan, meanwhile, were roaring back, once again forces to be reckoned with. America’s moment of economic dominance—of “hegemony”—appeared just about over (mistakenly, as it turned out, but that’s another story). Meanwhile, postwar decolonization had brought new attention to the challenges and dilemmas of economic development. Pressures were mounting for a New International Economic Order that would fundamentally transform the rules governing relations between the wealthy “North” and the poverty-stricken “South.”

Behind these changes was a growing interdependence of national economies, as noted by Cooper and Kindleberger, among others. At the end of the Second World War, following years of depression and conflict, links between national economies had reached a nadir. Trade and capital movements were tightly controlled. Insularity was the rule. But then came a gradual liberalization of barriers, particularly among the industrialized democracies, promoted by the liberal policies of the United States and shepherded by the newly created GATT and IMF. Slowly, then with more speed, insularity was replaced by competition, as tariffs declined and currency convertibility was restored. Year by year world trade grew more rapidly than output, bringing greater openness and mutual dependence. And soon financial flows began to accelerate as well with the growth of offshore currency markets—the so-called Eurocurrency markets—from the late 1950s onward. By the end of the 1960s, it was evident that the expansion of international economic networks had reached a critical point. Power now seemed to be slipping from states, limiting their ability to attain critical goals. For governments, markets were becoming a distinct threat, whatever their material benefits.

Following the disastrous experience of the 1930s, when economic warfare was rife, the victorious Allied powers had sought to “depoliticize” international economic relations. The aim had been to control the “mercantilist” temptation to use trade or financial controls to promote national interest at the expense of others. To the extent possible, protectionism—interventionist measures designed to protect national economies from the vicissitudes of international competition—were to be firmly suppressed.

Politics could not be eliminated entirely, of course—certainly not so long as the cold...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Dedication
• Contents
• List of Illustrations
• Acknowledgments
• Abbreviations
• Introduction
• Chapter One: The American School
• Chapter Two: The British School
• Chapter Three: A Really Big Question
• Chapter Four: The Control Gap
• Chapter Five: The Mystery of the State
• Chapter Six: What Have We Learned?
• Chapter Seven: New Bridges?
• References
• Index