International Political Economy
Chapter – 10
Table of Contents
- Political Economy developed with the spread of capitalism in Europe, influenced by scholars like Adam Smith, David Ricardo, Karl Marx, Friedrich Engels, and Max Weber.
- It analyzes the impact of economic activities on politics and statecraft, and how economy and politics interact.
- International Political Economy (IPE) studies international relations based on economic activities globally and their analysis.
- With the rise of globalization in the mid-1980s, IPE gained renewed interest among scholars.
- IPE now includes economic analyses along with political perspectives and issues of security in international relations.
- The growing significance of trade, commerce, economic institutions (like WTO, IMF), Free Trade Agreements (FTA), and multinational corporations (MNCs) has revived interest in IPE.
- IPE has become one of the most significant areas in the study of international relations.
- IPE covers various issues: international trade regime, monetary regime, investment regime, FTA, economic development, globalization, the North-South divide, and the future of capitalism and socialism.
- These issues have led to academic debates and the development of several theories in IPE.
FROM BRETTON WOODS TO THE WTO
- In July 1944, 730 delegates from 44 allied nations met in Bretton Woods, New Hampshire to discuss the post-Second World War global political and economic regime.
- The delegates signed the Bretton Woods Agreement to regulate the international economic system after the war.
- International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD)were established to monitor the international economic system and became part of the World Bank Group in 1945.
- The agreement aimed to stabilize exchange rates by ensuring countries adopted fiscal policies maintaining fixed currency values.
- IMF was created to address temporary imbalances of payments.
- The agreement advocated a regulated market with tight controls on currency values, learning from the Great Depression and the economic setbacks of World War II.
- The theoretical basis of the agreement was rooted in the Keynesian economic model, which favored a controlled market economy with state intervention.
- The agreement emphasized cooperation among states, with institutions like the IMF and IBRD acting as watchdogs.
- It sought to overcome the deficiencies of the inter-war period and created the modern international economic system based on state cooperation.
- In 1947, the General Agreement on Tariffs and Trade (GATT) was created to regulate international trade while the IMF and IBRD focused on monetary and investment regimes.
- The International Trade Organization (ITO) was proposed in 1946 but failed; GATT became operational on 1 January 1948 with 23 countries signing the agreement.
- GATT was a treaty, not an organization, with the aim of reducing barriers to international trade through tariff reductions, quantitative restrictions, and subsidies.
- By 1993, GATT achieved 45% tariff reductions, amounting to US $1,200 billion in tariff concessions.
- GATT expanded from 23 members in 1948 to 123 members during the Uruguay Round (1986-1993).
- The Uruguay round of GATT negotiations led to the establishment of the World Trade Organization (WTO) in 1995, replacing GATT as the body to monitor international trade.
- The WTO has 153 member-states, representing 90% of world trade, and continues to play a significant role in monitoring global economic activities.