International Political Economy

The ideas of 19th-century German philosopher Karl Marx offer a third political approach toward understanding economic behavior and policies. Marxism focuses on the inequality of relationships between economic classes and the vulnerability of the poorest economic groups to exploitation from wealthier and more powerful groups. Marxists view international economic relations as an extension of the class struggle between the rich and poor. The Marxist approach has declined in prominence since the late 1980s, especially with the collapse of socialism in the former Soviet bloc, and the movement towards capitalism in China. However, Marxist theories still receive some attention from scholars, especially in the study of relations between the world’s rich and poor nations.

Scholars who study how nations achieve cooperation despite the lack of a centralized world government to enforce rules pay special attention to the collective goods problem. A collective good is any benefit enjoyed by all members of a group regardless of their individual contribution. Each member faces the temptation to contribute less than other members towards maintaining the collective good. However, if too many members fail to meet their responsibilities, the good will not exist for anyone. For example, the stocks of fish in the world’s oceans are a collective good. Each country benefits by catching more fish, yet if all countries maximize their catch the fish stocks decline, as happened around 1990 when global fish catches dropped sharply. In domestic political arenas, governments solve the collective goods problem by enforcing laws, such as making people pay their taxes or repair cars that pollute excessively. Collective goods problems present difficult dilemmas because no governmental authority exists to enforce agreements internationally.

Collective goods problems affect almost every issue studied by students of international political economy. In trade relations, each nation benefits from the ability to export its products to other national markets, but may gain by raising its own tariffs to restrict imports from other nations. In international currency exchange, each nation benefits from stable exchange rates that facilitate trade and business, but may seek to unilaterally devalue its own currency to rectify a trade deficit. In global environmental management, each nation benefits from sustainable fisheries, stable climate, and an intact ozone layer, but would rather have other nations bear the costs of maintaining these benefits.

Solutions to collective goods problems in the international political economy generally involve international agreements and institutions that coordinate the actions of various nations. Neoliberal institutionalist scholars generally find such solutions workable, though imperfect. However, realist scholars are far more pessimistic about solving collective goods problems, because they see nations as self-interested and mainly motivated by the desire to maximize power relative to other nations.

Since the end of the Cold War, liberalism has generally prevailed over mercantilism and Marxism in academic and policy debates regarding the international political economy. The global expansion in international trade, business, and currency exchange has largely sustained the liberal argument about the benefits of free trade and open markets. Despite the collective goods problems and other obstacles to international cooperation, national governments and international organizations alike have found ways to make cooperation effective.

The international political economy faces a number of challenges in the coming decades. The largest challenge is addressing the dislocation caused by rapid economic change. While the theory of comparative advantage asserts that all nations benefit from free trade, the benefits are not distributed equally. The increased economic interdependence of rich and poor nations has resulted in a global backlash, with many poor nations viewing their poverty as a direct consequence of trade and open participation in the global economy.

The growing gap between developed and developing nations has produced significant global backlash, ranging from anti-Western Islamic movements in the Middle East to violence against immigrants in Germany to regular demonstrations at the annual meetings of the WTO and other international financial institutions. The deep economic depression in the former Soviet Union and economic and social deterioration in Africa also threaten the stability of an interdependent global economy.