Keywords

5.1 Introduction: Foreign Economic Policy During the Covid-19 Pandemic

During the Covid-19 pandemic, many countries implemented foreign trade policies that had not been seen for many decades. By March 21, 2020, 54 governments had already introduced export restrictions—particularly on medical goods (Evenett 2020, p. 830). While investments by foreign companies used to be welcome on account of them bringing additional capital and knowledge into a country, many countries introduced approval procedures for corporate takeovers and foreign stakeholdings, especially by Chinese companies. The German government even went so far as to purchase a 23% stake in a biotech company to prevent its sale to the United States.

Were these government measures to be expected? Were they consistent? There are very different assessments of this, each reflecting different theories of IPE. Some IPE scholars were surprised by these measures and strongly rejected them, arguing that they were inefficient. As we shall see, this blanket rejection reveals a liberal perspective. However, others thought that the measures were logical as this was the only way economically weaker states could protect their economies (and thus their populations) against more powerful states that could otherwise buy up scarce goods and attractive companies during the crisis. Behind this rationale usually lies a mercantilist perspective.

A third group of observers pointed out that these measures—especially trade restrictions—came at the expense of the weakest economies. The latter lose access to vital goods, including food alongside medical goods. Such arguments are typically underpinned by Marxist perspectives of IPE. A fourth perspective emphasized the observation that there are clear differences among governments, as not all chose these (or the same) restrictive measures. Because differences in government behavior could be attributed to different models of capitalism, this perspective combines insights from both IPE and Comparative Political Economy (CPE). A fifth, feminist perspective pointed to the particular burden on women that resulted from export restrictions on medical goods. One reason for this is the disproportionate number of women working in the health sector who suffered from shortages of masks and protective clothing.

In this chapter, we shall first narrow down the significance of these and other theories of IPE. Why do we need them and what can they achieve? Then, we present four groups of theory in more detail. In a first step, we focus on approaches derived from international relations (IR) theories that have been central to the establishment of modern IPE since the 1970s, especially the liberal and realist-mercantilist perspectives. However, political economy has a much longer lineage than IPE. In a second step, we move on to discuss theories whose precursors were developed to understand the emergence of capitalism and later extended in relation to cross-border economic relations, focusing mainly on Marxist perspectives.

In a third step, we turn to theories that combine insights from CPE (discussed in Chaps. 2–4) with those from IPE, resorting to national types of capitalism to explain international economic developments. In a fourth and final step, we turn to theories first developed in the humanities and then applied to issues in IPE, such as feminist perspectives. For the sake of clarity, we present the relevant theories separately in the four steps of the discussion then link them to representatives by way of example. But, in practice, there are numerous cross-linkages and overlaps between theory and theorists—and many of the latter resist being firmly assigned to a particular school of thought.

5.2 The Importance of IPE and its Theories for Understanding Capitalism

Previous chapters discussed how CPE tends to treat global capitalism as the sum of national containers, even though this shortcoming has been remedied in some more recent extensions. IPE expands the perspective of CPE in two ways. First, it prominently refers to transnational economic relations that significantly shape national capitalisms—particularly in low-income and emerging economies—in the form of global financial markets (Chap. 6), trade linkages (Chap. 7), global value chains (Chap. 8), cross-border labor migration (Chap. 9), transnational care chains (Chap. 10), and environmental emissions (Chap. 11), among others. Second, it analyzes the international policies (mostly of governments but also of corporations, trade unions, and NGOs) that seek to shape these transnational dynamics. These could include foreign economic policies and those of international institutions such as the World Bank and WTO. As we shall see, national capitalisms, transnational linkages, and international institutions change considerably over time. For this reason, we shall subsequently add Historical Political Economy (HPE) to the discussion (Chaps. 12–15).

Maintaining a capitalist economy requires the continuous organization of several key areas, including labor, money, markets, and the production of goods (Chap. 1). Chapters 2–4 have shown that organization can happen in ways that are specific to each country as societies regularly organize their economies in accordance with their historical, geographical, and political conditions. The focus of these chapters has therefore been on CPE. As some influential CPE approaches have pursued a micro-perspective that predominantly focuses on actor rationales (especially firms), such as VoC, Chaps. 6–11 will illuminate their subjects more fully from a macro-perspective. Here, the broad lines of economic activity—structures, institutions, and higher-level interrelationships between business, politics, and society—become more relevant. Even at this level, the order of the economy is not simply the result of arbitrary individual decisions. Rather, it is essential that the manifold economic activities are organized.

In these chapters, a central guiding question is thus the extent to which an organizational problem is governed nationally, transnationally, or globally. Do we find overlapping levels of organization? Despite all the rhetoric about globalization, it is obvious that money is also regulated at a global level, while labor seems almost universally regulated at the national level. As a result, certain theories are better suited to some problem areas over others, and it is not useful to draw strict lines of distinction between CPE and IPE (see Sect. 5.5). Even in the 1930s, German writer Kurt Tucholsky quipped that “as far as the world economy is concerned, it is intertwined” (1976 [1931], p. 162, own translation). Still, the deduction that “everything is connected with everything” hardly gets us anywhere. It is only when we look into global economic phenomena with the right glasses that we can recognize patterns and their underlying dynamics. The theories of IPE provide such glasses.

In our understanding, however, the significance of IPE theories should be assessed realistically. They are tools for understanding transnational economic relations and international economic institutions—not ends in themselves, as sometimes echoed in the so-called great debates within the academic discipline of IR (Hamilton 2017). Moreover, IPE theories emerging from IR sometimes suffer from an overly narrow and static juxtaposition of states and markets, contrasting the economy with politics in the international sphere (see Chap. 1). In practice, this can lead to a very strong concentration of IPE streams on international institutions and foreign economic policy (see Sect. 5.3).

We contrast this common understanding with a more holistic perspective that is fundamentally about the embedding of the economy in social relations (see Chap. 1). From this perspective, IPE should deal not just with the classical issues of trade and money but also with modern issues such as environmental degradation, migration, and welfare—even if international institutions and foreign economic policy do not play a central role here. The approach taken in Chaps. 6–11 therefore seeks to first clarify the significance of the respective empirical aspect within the framework of Polanyi’s (1957, p. 219) idea of the economy as an “instituted process” before discussing organization at the national level and relevant transnational linkages. Only in a further step do foreign economic policy and international economic institutions finally come into play, which, in a narrow understanding of IPE, are its core topics.

5.3 Theories with a Background in IR: From Liberalism and Mercantilism to Open Economy Politics

Although there have been important predecessors in the history of economic thought, the specific theories of IPE emerged only in the 1970s from the application of IR theory to economic issues. Accordingly, questions typical of IR were initially at the forefront of theory development (such as those about international cooperation and national security, motivated by liberalism and realism). This interest in economic issues was triggered in particular by the economic turmoil of the time, which included the collapse of the Bretton Woods system, a series of oil crises, the rise of Japan, and the growing importance of MNEs.

Liberalism is, without question, the best-known theory of IPE. It emerged at a time when there was no separation of political science from economics or even CPE and IPE. Among its best-known pioneers are Adam Smith and David Ricardo. At the heart of economic liberalism is welfare maximization, which is believed to be best advanced through free trade. This free trade liberalism has a strong normative orientation. But it was not until the second half of the twentieth century that systematic liberal theories were developed by economists such as Richard Cooper and Raymond Vernon and political scientists such as Robert Keohane and Joseph Nye. These theories analyzed how to politically organize and stabilize free trade, especially in light of the rapidly growing role of MNEs, from a perspective that conceives of the global order as fundamentally interdependent and cooperative (Keohane and Nye 1972). The management of this order is preferably carried out by international institutions; the perspective assumes that all economies benefit from the world economy, which is therefore usually seen as a positive-sum game.

The classical counterpart of liberalism in IR theories—and thus also in the IPE theories that hark back to them—is realism, also referred to in IPE as mercantilism or mercantilist realism. Among the masterminds of realism as a theory of IR are authors such as Thucydides, Thomas Hobbes, and Niccolò Machiavelli; later, E. H. Carr and Hans Morgenthau joined the ranks. Representatives of realism often worked as politicians or managers. For example, Carr worked for 20 years in the British Foreign Office, while Morgenthau was US President Theodore Roosevelt’s Secretary of the Treasury for more than 10 years.

Unlike the tendency toward a harmonious perspective of the world economy found in liberalism, realists or mercantilists see it as anarchic and conflictual, characterized by security interests. From this perspective, the world economy is a zero-sum game characterized by competition between states. Governments strive for political and economic autonomy for security reasons, as can be achieved temporarily, especially through trade surpluses (see Chap. 7). Here, too, there is a clear difference from liberal perspectives that see companies as actors who are much more in the foreground and focus on a general increase in prosperity as a normative leitmotif. Analytically, realism was reformulated as neorealism or structural realism by Kenneth Waltz (1959) with the core argument that interactions between states are determined primarily by the distribution of power in the international system. From the perspective of modern realist theorists of IPE, which include Benjamin Cohen, Robert Gilpin, Jonathan Kirshner, and Stephen D. Krasner, stability therefore exists primarily when it is organized by a hegemon or an outstandingly powerful state. The assumption is clearly articulated by the theory of hegemonic stability, which was developed decisively by the economic historian Charles P. Kindleberger (1973) and exerted heavy influence over American-style IPE for a long time.

The emergence of contemporary IPE was initially driven primarily by more liberal-minded authors, especially protagonists whom we might classify as belonging to liberal institutionalism. Americans such as Keohane and Nye were driven by the question of how international cooperation could nevertheless be maintained after the (at least temporary) decline of the United States as a global hegemon in the context of the Vietnam War, the collapse of the Bretton Woods system (see Chap. 13), and the rise of new transnational actors such as MNEs; their 1972 volume on Transnational Relations and World Politics is often regarded as the foundation of modern IPE. An important response of liberal institutionalists such as Keohane, Nye, and even John Ruggie was that the complex interdependence among states could best be dealt with through something called international regimes.

Regimes are sets of rules between states that can be formed over specific sectoral issues (e.g., the nonproliferation of nuclear weapons or the protection of biodiversity). Based on the fundamental assumption of rationally self-interested states (or rational choice), this research examines the conditions under which these international institutions emerge. Formal international organizations, especially the United Nations and its specialized agencies, can be helpful in negotiating international regimes. But the latter institutions are seen to contribute more to problem-solving than international organizations that are perceived as cumbersome and often internally politicized. The study of international regimes was an important focus of IR in the 1980s and 1990s (Krasner 1983; Hasenclever et al. 1997). In the United States, liberal institutionalists in particular did not limit themselves to their academic work. Rather, they sought to implement their ideas as politicians or managers—much like leading exponents of realism. Nye served in the US State Department and Department of Defense, for instance, while Ruggie held various positions at the United Nations.

Since the turn of the millennium, liberal perspectives in IPE have taken a new direction to focus much more on the domestic preference formation of governments and its interplay with intergovernmental cooperation. This orientation goes back to the tradition of republican liberalism (Immanuel Kant, John Stuart Mill, Thomas Paine) and attributes central importance to the domestic constitution of states—particularly whether or not those states are republics—for assessing their peacefulness. Modern liberal theorists now wondered how individual interests mediated through interest groups influence state decisions regarding international politics and thus international cooperation. One classic study understands this process as a two-level game in which governments negotiate with national interest groups on the one hand and with other governments on the other hand (Putnam 1988). Building on Robert Putnam’s concept, Andrew Moravcsik analytically reformulated liberalism without the normative assumptions of the republican tradition. As an IR theory, neoliberalism is grounded in three simplified assumptions (Moravcsik 1997, pp. 516–521):

  1. 1.

    The basic actors are private interest groups.

  2. 2.

    States are not actors in their own right, but formulate their preferences on the basis of the interests of the most powerful groups in their society.

  3. 3.

    The constellation of the state position developed in this way and its interdependence with other states determines international politics.

Neoliberalism also exerted considerable influence on the formation of the empirical research program of open economy politics or OEP (Lake 2009), which conceptually dominates the American school of IPE today even if it is ostensibly free of paradigmatic fixes (Nelson 2020, p. 211). OEP basically follows the same three steps proposed by Moravcsik with some minor modifications (Lake 2009; Cohen 2019, pp. 18–20). At its core, it involves implementing the liberal program in a way that is consistent with the scientific understanding of neoclassical economics, with hypotheses deductively derived from existing models (based on rational choice assumptions) and rigorous testing of these hypotheses using quantitative methods (such as regression analyses or surveys). The preferences of interest groups are now often not obtained from observation, but rather derived from economic models. The aggregation of interests that takes place in the second step is also preferably modeled formally, for instance, within the framework of the veto player approach. The same applies to the third step, in which negotiations between states are formalized on the basis of game-theoretic models.

In view of the high level of effort involved, empirical studies usually focus on one of the three stages. The big picture is of less interest, and the basic economic and political structures are not questioned, but taken for granted. Since 2006, the founding of the International Political Economy Society by David Lake and Helen Milner has further secured the dominance of this form of quantitative IPE in the United States and the journals based there.

The second part of the core agenda of contemporary American-style IPE is concerned with how interdependencies among states (and their preferences identified in the context of OEP) can best be organized at the international level. Again, it draws at its core on a liberal theoretical tradition: liberal institutionalism. This strand is concerned with specific questions of institutional design or even the implementation of rules set by international institutions (organizations and regimes) (Cohen 2019, pp. 21–23). Table 5.1 summarizes the most important analytical foci and key works of liberalism, realism, and OEP.

Table 5.1 IR-based approaches to international political economy
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Box 5.1: Integration Theories

The degree of international cooperation in the EU far exceeds that within other world regions—and in conventional international organizations and regimes. Very early on, therefore, new integration theories tried to explain this particular phenomenon (Rosamond 2000). Their dependent variable usually is the progress of European integration, or the (informal or formal) transfer of competences from the national to the EU level.

Today, one can take stock of several generations of theorizing. The classic controversy is that between intergovernmentalism and neofunctionalism. Intergovernmentalism stands in the theoretical tradition of realism and explains progress (and stagnation) of integration with the interests of the most powerful member states. Neofunctionalism takes up considerations of the importance of economic interdependence from liberal institutionalism and adds spill over, in which successful integration in one field leads to expansion into other fields. A later controversy then pits liberal intergovernmentalism (Moravcsik’s neoliberalism) against supranationalism, which emphasizes the role of actors created to deal with these interdependencies. Actors such as the European Commission and the European Court of Justice then further integration in their own self-interest.

Since the turn of the millennium, integration theories have lost some relevance in discussions about the EU. This has been due to the fact that the dynamics of the formal transfer of competences to the EU level had declined significantly since the Lisbon Treaty (2007) on the one hand and that the EU has now reached a degree of integration that makes it appear thematically less a topic of IR and IPE than of public policy and comparative politics on the other. This is because many of the theories developed for the analysis of politics in the nation-state can now be readily applied to the EU. Nevertheless, many of the considerations made in integration theories are still relevant for IPE and vice versa, especially as they relate to international trade (see Chap. 7).

5.4 Generic Theories of Capitalism: Marx, World Systems Theory, and Neo-Gramscian Perspectives

Alongside liberalism and realism is the third major theoretical current in IPE: Marxism, historical materialism, or historical structuralism. It has its origins not in an understanding of international politics, but in an understanding of capitalism. Unlike the theories discussed in Sect. 5.3, this stream of theory is not concerned with the conditions for international cooperation or the security of individual states. Instead, it takes aim at explaining global relations of inequality. Marxist perspectives in IPE were differentiated somewhat earlier than liberal and realist ones (especially in Latin America and Africa) and influenced especially by the decolonization process after World War II, which made global relations of inequality clearly visible. But these theories were initially marginalized in the discourses of high-income countries—the Cold War ensured not only that military issues appeared more important than economic ones but also that Marxists were potentially seen as collaborators with the Eastern bloc and isolated accordingly.

From the perspective of historical materialism, the world order is profoundly characterized by exploitation, both between classes and between countries. It is not interest groups (liberalism) or states (realism) that form its essential focus of analysis, but rather class relations and relations of production. From this perspective, the world economy is not driven by economic interdependencies (liberalism) or the competitive relationship between states (realism), but rather by the capitalist accumulation process, with particular emphasis on the latter’s crisis-prone nature. Normatively, this perspective strives for the redistribution of wealth and power as well as for the establishment of a new international economic order that is not based on the exploitation of classes and countries.

Despite being concerned with the emergence of the world market, Marx himself was not particularly concerned with issues of IPE. He was still a classical political economist—much like liberals Smith, Ricardo, and Mill—and did not systematically differentiate between politics and economics or national and international economics. The IPE perspectives laid out in his political commentaries, such as his critique of the British Empire’s exploitation of its colonies, was not systematically elaborated into a theory of imperialism and generalized beyond the British case until the early twentieth century by a new generation of intellectuals-cum-politicians, such as Rudolf Hilferding, Rosa Luxemburg, Vladimir Lenin, and Kotoku Shusui (Paul and Amawi 2013, p. 15). The focus of this generation was on the motives of the imperialist powers and not on the effects in the dominated economies, such as those emphasized by later dependency theories. Since the student movements of the late 1960s, several Marxist theories became more popular, and two bodies of work still play a prominent role in twenty-first century IPE. First, there are the theories of economic structuralism, dependency theory, world systems theory, and the theory of uneven and combined development (some of which build on each other). Second, there are neo-Gramscian perspectives.

World systems theory assumes that modern economies can be understood only against the background of the development of global capitalism. Within the framework of this development, the standard of living in high-income countries is increasingly based on the exploitation of low-income countries. In contrast, Marx still assumed that there was only a general class antagonism between the proletariat and the bourgeoisie, and no clashes of interests between workers in different countries. But Lenin had already pointed out that the increasingly hierarchical development of the global economy (especially in the context of imperialism and colonialism) had led to the bourgeoisie in the high-income economies being able to pacify the proletariat in these countries. They did so by exploiting the proletariat in the poorer economies particularly intensively, and thus making its products available cheaply to the workers in the rich countries.

These theoretical considerations on imperialism were taken up and empirically tested by structuralist economists such as Raúl Prebisch and Celso Furtado, who worked in the 1950s and 1960s for the United Nations Economic Commission for Latin America and the Caribbean in Santiago, Chile. One of their topics was the controversial argument (both theoretically and empirically) that the terms of trade were constantly deteriorating from the perspective of low-income countries—that global inequality was structural, in other words. Owing to price dynamics on world markets, they would receive fewer and fewer imports from high-income countries (typically processed goods and machinery) in exchange for their typical export goods (raw materials) (Prebisch 1950). These economic considerations were subsequently expanded by dependency theories, especially with regard to the social and political processes affecting, but also resulting from, these inequalities. They were published in polemical (yet very popular) variants, by André Gunder Frank, for instance, or in complex ones by the likes of Enzo Faletto and Henrique Fernando Cardoso (1979). Cardoso later served as president of Brazil, but with a more economically liberal agenda.

Unlike the earlier theories of imperialism, dependency theory is less concerned with the rationales of high-income countries (at the center of the world economy) than with the effects on low-income countries (on the periphery). The income gap of the latter was explained by multiple forms of dependency, in contrast to contemporary modernization theories that saw more traditional social structures at work here. These considerations were not only of academic interest but also took on a political dimension in the demands for a new international economic order in the 1970s, which were supported (largely unsuccessfully) by the former colonies in particular. At the 1975 Lomé Convention between the European Community and its former colonies in Africa, the Caribbean, and the Pacific, such demands were at least partly taken into account through the scheme of stabilization of export earnings. While dependency theory received much less attention in the 1980s and 1990s, it has been updated again more recently against the backdrop of persistent global inequalities (Kvangraven 2020). To date, economic structuralism and dependency theories are among the few IPE theory programs that have been developed almost entirely in the Global South—especially in Latin America—and from there have stimulated the evolution of the field globally (Cohen 2019, pp. 101–102).

The considerations of structuralists and dependency theorists have been differentiated into a comprehensive body of thought in world systems theory (Nölke 2014). Particularly systematic is Immanuel Wallerstein’s four-volume history of the modern world system (Wallerstein 1974-2011). Wallerstein’s holistic perspective combines sociology, political science, economics, and historiography to trace the rise of capitalism to the colonial conquests beginning in the fifteenth century. He then characterizes capitalism by a variety of temporal dynamics; among the most important are cycles involving the rise and decline of hegemonic powers (these are also analyzed in detail by Giovanni Arrighi, another important world systems theorist). Here, the United States was preceded by England, the Netherlands, and Portugal (see Chap. 12).

Equally important for IPE, however, are Wallerstein’s reflections on the spatial stabilization of the world system in which he emphasizes the role of the state as a guarantor of property rights (essential to the functioning of financial markets, see Chap. 6) and for managing the negative externalities permanently generated by capitalism (such as in terms of social reproduction; see Chap. 10) or environmental damage (see Chap. 11). In Wallerstein’s view, one state is not like another. Each has different functions in the center, the periphery and the semi-periphery in between. World systems theory thus also developed a rudimentary theory of CPE here (see Chap. 2), and where most IR theories assumed functional equivalence between states rich and poor, it saw clear differences. The function of states at the center is to stabilize the military and economic hierarchy of the world economy, while the function of states at the semi-periphery is primarily a matter of organizing economic advancement. For states on the periphery, it is a matter of political repression in order to maintain highly intensive exploitation.

A similar perspective is taken by the theory of uneven and combined development originally developed by Leo Trotsky, who tried to explain why the communist revolution had taken place in economically underdeveloped Russia and not in more advanced capitalist countries (Rosenberg 2021, p. 147). Interactions between (unequal) societies were crucial to this puzzle, according to Trotsky. More recently, this theory (sometimes referred to in IR as societal multiplicity) was updated again to broaden the actor-centered perspective of mainstream IPE with a systemic perspective (Oatley 2021).

The second Marxist theoretical tradition with great significance for contemporary IPE goes back to Antonio Gramsci (Tooze 1990). His focus was less on the economic dimension of Marx’s writings than on the political one, especially in combination with his concept of intellectual hegemony (see Chap. 2), which clearly differs from the concept of hegemony of realism/mercantilism and also the hegemonic cycles of world systems theory. By stressing political agency, Gramsci hoped to overcome the economic determinism of orthodox currents of Marxism. But such emphasis creates a certain tension with world systems theory, even though both currents have cross-relationships and agree that IPE analysis must be positioned within the historical context (Overbeek 2008).

Pioneering work was done here by the Canadian political economist Robert Cox, who took up the question of how social forces and relations of production influence the global economy. Where IPE theories originating from IR mainly fixated on the nation-state, Cox conceived of social forces mainly as classes. He looked at the global economy less through formal international organizations and regimes, and more broadly as a world order. In the tradition of Gramsci, Cox also emphasized the role of ideas and norms—and not just economic and military coercion—in stabilizing this world order. His distinction between critical and problem-solving theory accused established IPE theorists of working too closely with the established apparatuses of domination; the latter theory seeks solutions to problems within the framework of existing structures while the former fundamentally questions these structures. Neo-Gramscian analyses therefore also do not strive for ahistorical regularities that can be arbitrarily used to solve problems, but emphasize the necessity of a historical embedding of corresponding findings.

Box 5.2: Susan Strange: Founder of the British School in IPE

Perspectives that go back to Marx in the broadest sense still play a prominent role in British IPE today. However, the founder of IPE in Britain and, along with Robert Cox, the most influential modern classicist of the British school is Susan Strange (Cohen 2019, pp. 54–57). This school differs significantly from the dominant perspective in the United States in terms of its analytical approach. IPE theories from the United States typically maintain a clear focus on hard science and remain close to neoclassical economics, in which small-scale hypotheses are extensively tested with large data sets. IPE theories from the UK are much more methodologically pluralist (with qualitative research much more common), open to input from a variety of disciplines and often explicitly normative (Cohen 2019, pp. 52–53).

Susan Strange (1923–1998) not only contributed essential theoretical innovations to this endeavor but also built up British IPE virtually single-handedly. She ensured that the subdiscipline plays a more prominent role in the concert of the social sciences in Britain than in other countries (Brown 1999, p. 531). For example, she founded the International Political Economy Group and established a graduate program at the University of Warwick that is still renowned today. For her, the establishment of IPE as an intermediate discipline between IR and (international) economics was essential to overcome the narrowness of the two disciplines. Given her many years of work as a journalist and a researcher for the think tank Chatham House, she also attached great importance to dealing with politically relevant issues.

Strange did not just build a stringent grand theory that was somewhat close to realism (by recognizing the importance of structural power, for instance). She also pursued an unconventional perspective that recognized non-state actors such as MNEs as playing a central role in the modern economy. Departing from the standard assumptions of realism, she even identified a retreat of the state (Strange 1996)—albeit remaining true to realism by seeing it as a consequence of state decisions. The core of her credo has always been to ask who benefits (cui bono in Latin) from certain political decisions and economic developments. In emphasizing distributional issues, she drew a line back to the classical political economy of Adam Smith that maintained a close connection to moral philosophy.

Characteristically, national variations within neo-Gramscian theories of IPE emerged. Canadian Stephen Gill (1995) developed a much-noted constitutional variant in which he argued that the establishment of neoliberalism since the 1980s (see Chap. 14) was primarily based not on intellectual hegemony, but to a considerable extent on coercion (“disciplining neoliberalism”). Such coercion emanated in particular from the now quasi-constitutional norms of free trade agreements, such as the United States-Mexico-Canada-Agreement and the treaties of the EU. The Amsterdam school (Jessop and Overbeek 2019) places a special emphasis on the importance of transnational class alliances, each of which temporarily enables a particular faction of capital (e.g., trade, finance, or production capital) to dominate a phase of capitalism on their behalf. These alliances are organized through specific organizations, such as the Trilateral Commission, the World Economic Forum in Davos, or the European Roundtable of Industrialists. A distinctive feature of the German-language discussion is a very prominent linking of neo-Gramscian considerations with the state theory of Nikos Poulantzas. In Poulantzas’s view, the state is the place where the various subcurrents of the bourgeoisie meet and organize their power with its help. There can be very different constellations of forces in this process, depending on the strength of the respective factions of capital (Brand et al. 2011).

Generic theories of capitalism in IPE (see Table 5.2) considerably broaden the range of topics in the discipline. Today, it is not just concerned with obvious economic phenomena such as finance, trade, and production but also with labor relations, inequality, and environmental degradation. At the same time, the interest in international institutions and the domestic determinants of national foreign economic policy has been extended to transnational contexts. Both observations are particularly valid for the approaches discussed in the following section.

Table 5.2 Theories of capitalism in international political economy
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5.5 Combinations of CPE and IPE: Second Image and Second Image Reversed

The theories discussed in the previous two sections assume a relatively clear separation between IPE and CPE. This is hardly surprising when it comes to those theories that have a background in IR (see Sect. 5.3). But even the generic theories of capitalism make little distinction between countries aside from the rough differentiation between the center, semi-periphery, and periphery in world systems theory along with the emphasis on uneven development (see Sect. 5.4).

With such strong subdisciplinary differentiation in political economy, however, important aspects are lost. After all, we have already seen that the economic models of emerging countries differ considerably in terms of their different forms of integration into the global economy (see Chap. 4). We thus need knowledge of the development of the global economic order for an understanding of national types of capitalism. Conversely, theories of liberalism have shown that we should open the black box of the state for an understanding of foreign economic policy and the negotiation of international institutions. Contemporary liberalism uses economic models to model domestic policy preferences but largely ignores the insights of CPE, which has long documented how national economies differ considerably in their institutions (see Chaps. 2–4). A final shortcoming of subdisciplinary differentiation lies in the neglect of what falls between the national and the international (intergovernmental) level, namely, the transnational level. This is rather ironic considering that the growing importance of transnational actors marked the beginning of the development of modern IPE (see Sect. 5.3) but was then quickly neglected because both realism and liberalism subsequently focused on the state as the central actor in international politics.

For approaches that link IPE and CPE, the term second-image IPE (Kalinowski 2015; Nölke 2023) has become commonplace. This term goes back to Kenneth Waltz, who distinguished three images of international politics in his book Man, the State, and War (1959). The first image explains international politics in psychological terms, whether through the personality traits of politicians such as Churchill, Hitler, or Napoleon or through general observations about human nature. The third image—to which Waltz himself is particularly close—explains international politics through features of the international system, that is, generally through its anarchic character in the sense of the absence of a central authority and specifically through the distribution of power among states. The second image focuses on the internal characteristics of states, typically their form of political rule considered in IR (democracy or autocracy) and the characteristics of capitalist arrangements considered in IPE.

The classical second-image perspective thus explains the international political economy with the help of the characteristics of national political economies. Pioneering work was done in the late 1970s, most notably by Peter Katzenstein (1978) who looked at the foreign economic policies of industrialized countries from the perspective of CPE. Conceptually, this line of research was significantly extended for IPE by Peter Gourevitch (1978), who reversed the perspective and asked about the influence of international political and economic structures on national politics and economy. To use Waltz’s terminology, this was the “second image reversed.” Gourevitch is at home in both IR and comparative politics and demonstrates these effects through a series of historical contexts from the nineteenth and twentieth centuries while emphasizing the importance of transnational actors—especially corporations.

An important reference point for Gourevitch was work in development economics on catch-up industrialization. The basic argument had already been developed by Alexander Gerschenkron (1963) who, like Carey, Hamilton, and List before him (see Chap. 2), pointed out that the conditions for early and late industrialization differ markedly because the late industrializers are exposed to competition from those who preceded them. Late industrialization therefore requires a special national effort that, in Gerschenkron’s view, can be achieved only through strong political coordination. This assumption was subsequently confirmed by a number of empirical studies on the East Asian developmental state by authors such as Alice Amsden, Ha-Joon Chang, Peter Evans, and Robert Wade, who follow in the long tradition of studies on the merits of strategic protectionism and active state economic policy (Helleiner 2021, see also Chap. 4).

Theories that emphasize catch-up industrialization are sometimes referred to as economic nationalism and assigned to realism/mercantilism (Paul and Amawi 2013). But this classification is somewhat misleading, both analytically and normatively. Research in the second-image (reversed) tradition shares neither the normative mercantilist orientation toward maximizing state power nor the realist assumption that states are rational, unitary actors. In contrast, they assume—for reasons of complexity reduction—that the institutional imprint of economies at the national level is the central variable in explaining the behavior of states and firms at the international level and in dealing with international influences. Analytically, second-image approaches tend to be close to republican liberalism with their emphasis on the different internal institutional constitution of states and the importance of transnational actors (especially MNEs); normatively and analytically, they are close to Marxism with their emphasis on historicity and concern for catch-up industrialization of poorer economies. There is also a clear affinity for John Maynard Keynes as relates to the active economic policy role of the state and the importance of international institutions that are constrained by national protection rights.

The second-image reversed problem outlined by Gourevitch once again attracted a great deal of attention in the 1990s and 2000s under the keywords of “globalization” and “Europeanization.” The end of the bloc confrontation and the intensification of European integration with the Maastricht Treaty led to the question of whether this would level the differences between national economic models (see Chap. 14). However, the persistence of marked institutional differences between national models of capitalism shows that there can be no talk of such general convergence, for both economic institutions on the supply side and macroeconomic growth models continue to vary widely across countries (see Chaps. 3 and 4). Recent developments toward economic deglobalization (see Chap. 15) may even further intensify these differences. Recent conceptual developments in this direction therefore tend to focus on the effects of international regulatory regimes (Farrell and Newman 2016).

In recent decades, however, the debate guided by these theories has again tended to focus on explaining international economic policy through national models of capitalism—the former second image, in other words. Very different approaches have been developed. Orfeo Fioretos (2001) uses the VoC approach (see Chap. 2) to explain the behavior of governments in the EU. Thomas Kalinowski (2019) takes a similar approach, explaining the absence of effective international cooperation in financial regulation by the different functions of financial markets in Anglo-American, European, and East Asian types of capitalism. Henry Farrell and Abraham Newman (2010) use arguments from historical institutionalism—such as policy feedbacks and path dependencies—to explain how economic features at the national level influence international economic relations. Ben Clift and Cornelia Woll (2013) show in a constructivist variant of the argument that even in modern open economies, the so-called economic patriotism continues to play an important role in economic policy. Finally, Stefan Schirm (2020) develops liberal approaches to domestic politics into a societal approach where he studies societal ideas, institutions, and interests to explain government positions.

The combination of CPE and IPE has been recently applied mostly either with reference to China and other large emerging economies or with reference to the relationship between the EU and its member state economies (Nölke 2023). The need to analyze the mutual reference of the national and international levels is obvious in the case of the EU. In the case of large emerging economies, this necessity arises partly from the fact that they have particularly good prerequisites for an independent national economic model owing to their size (see Chap. 4). But owing to their late integration into the global economy, this economic model exhibits points of friction with the global economic institutions dominated by the United States. To a lesser extent, the same points of friction are also found with respect to other large economies, such as Germany, France, Japan, and South Korea. These countries were also integrated into the global economy only at a later stage, and their national economic institutions therefore also diverge from the Anglo-American model that dominates at the global level (e.g., in terms of the regulation of financial markets). To overcome these frictions, global regulation sometimes diverges from the intergovernmental level with its veto powers of national government to the level of transnational private governance, where these veto powers do not exist (Nölke and Perry 2007, p. 15). The second-image perspective thus also leads to an expansion of the empirical range of IPE topics.

5.6 Theory Imports from the Humanities: Constructivism, Poststructuralism, Feminism, and Postcolonial Perspectives

IPE is not an island. So, it is not surprising that a number of IPE theories were built on conceptual developments that first emerged in other humanities (often philosophy) and then substantially developed in social sciences such as political science and sociology. We briefly introduce four of these schools of thought and their cross-references below. What all of these perspectives have in common is that they are, to some extent, a consequence of the linguistic turn—the language-analytical turn in the humanities. In their emergence, at least, they attach a much higher value to linguistic representation than other theories of IPE, with the exception of neo-Gramscian approaches (see Sect. 5.4).

Constructivism was initially an epistemological current in philosophy before it became established in the social sciences. At its core, it emphasizes the social construction of all knowledge. This perspective is not as strongly represented in IPE as it is in IR, where it is now widely regarded as the third grand theory alongside realism and liberalism. Constructivism emphasizes the importance of shared ideas, norms, values, and identities and, more generally, the social construction of the global economy (Nelson 2020, p. 212). This is sometimes characterized by a logic of (ethical) appropriateness, which is contrasted with a rational-egoist logic of (individual) consequences. Empirical studies are concerned, for example, with the role of economic ideas as relates to economic policy, programmatic development in international organizations such as the IMF and the World Bank, the (idea-based) preference formation of companies in trade policy, or the establishment and impact of international norms. Alongside MNEs, NGOs, and scientific communities, transnational actors are assigned considerable importance from the perspective of constructivism in IPE.

Going back to Louis Althusser, the teacher of Michel Foucault and Jacques Derrida, poststructuralism radicalizes the perspective of constructivism. From a poststructuralist perspective, knowledge systems and discourses—and the exercise of power based on them—fundamentally constitute the global economy; there are therefore no objective economic facts. The idea that laws can apply independently of space and time is thus explicitly rejected, as is the transfer of natural science methods to the social sciences and the idea of value-free research (de Goede 2006). Drawing on conceptual developments by Ernesto Laclau and Chantal Mouffe and with reference to structuralist Marxist theories (see Sect. 5.4), this calls into question whether there is a clearly distinct sphere of the economic or fixed class identities at all. When applied to issues of IPE, reference is then made to the political and social construction of financial markets (also to economics as a discipline itself), to the socially constructed (and not ex ante given) value of money and to the growing political tendency to perceive financial markets from a security perspective (e.g., in terms of sanctions against Iran or Russia).

As in the other humanities and social sciences, feminist perspectives have become established in IPE in recent decades. From a feminist perspective, gender relations are seen as constitutive of any understanding of an economy. Particularly prominent from this perspective is reproductive labor, which is otherwise often overlooked in political economy, especially when it takes place in private households (see Chap. 10). However, a wide range of topics in IPE are now analyzed from a feminist perspective (Elias and Roberts 2018). These include the gendered effects of labor market policies (see Chap. 9) as well as austerity policies and structural adjustment programs (see Chap. 14).

The most recent impulse for IPE is the establishment of postcolonial perspectives. Here, too, the impulses originally come from philosophy and other disciplines of the humanities (especially in constructivism and poststructuralism) with points of contact to parts of Marxist theory building (see Sect. 5.4), as illustrated by Frantz Fanon and his 1968 work The Wretched of the Earth. Postcolonial studies is essentially concerned with reflecting on the implicit Eurocentric assumptions in the modern humanities and social sciences. Among their best-known representatives are Homi K. Bhabha, Dipesh Chakrabarty, Edward W. Said, Gayatri C. Spivak, and Stuart Hall. The outlines of a postcolonial IPE are just emerging, but emphasis is being placed on the deep historical—and thus ongoing—imprint of imperial and colonial relations on the contemporary global economic order (Bhambra 2020).

The establishment of these four theory programs (see Table 5.3) again led to an expansion of the range of topics in IPE. Topics now include the analysis of gender relations in the global economy (see Chap. 10) as well as a more intensive preoccupation with the consequences of colonialism, such as in relation to migration (see Chap. 9), than with the dependency and world systems theories. Finally, questions of securitization are now also taken up in analyses of the regulation of financial markets (see Chap. 6).

Table 5.3 Humanities-based approaches to international political economy
Full size table

5.7 Conclusion

IPE expands the perspective of CPE to include transnational economic relations, foreign economic policy, and international economic institutions. It thus develops a macro perspective on economic organization complementary to some micro perspectives in CPE. In the decades since the establishment of IPE as a subdiscipline in the 1970s, a number of theoretical approaches have emerged. We have presented these perspectives in four steps.

A first group of IPE theories was developed directly in line with the grand theories of IR—especially mercantilism and the various subschools of liberalism. These theories are essentially concerned with explaining foreign economic policy as well as the behavior of states as it relates to international cooperation. The background to these theories is a scientific model, hard science, that is relatively close to that of economics and based on the testing of deductively derived hypotheses.

Contrary to this in terms of the philosophy of science, both analytically and normatively, is a second group of approaches. In various ways, these generic theories of capitalism go back to Karl Marx. They are less about helping to solve practical problems within given conditions; instead, they critically interrogate the conditions themselves. Among the most prominent currents of such theory today are dependency and world systems theories on the one hand, and theories inspired especially by the writings of Antonio Gramsci on the other.

A third group of IPE theories takes a more middle-of-the-road position in terms of analytical and normative controversies. Second-image theories combine CPE and IPE to explain the behavior of corporations and states in international economic relations by resorting to insights about national models of capitalism. They also analyze the effects of international economic relations, such as globalization, on different capitalisms.

Finally, a fourth group of theories was first developed in the humanities and then applied to questions of IPE. What they have in common is that language is much more important to them than it is to other IPE theories. However, constructivism, poststructuralism, feminism, and postcolonial perspectives differ in the radicality with which they prioritize linguistic representation in the analysis of political economy.

Further Reading

  • Cohen, Benjamin J. 2019. Advanced introduction to international political economy (2nd ed.). Cheltenham: Edward Elgar—A detailed overview of recent theory development in IPE, including outside the United States and UK, for advanced students.

  • Keohane, Robert O., and Joseph S. Nye, Jr., eds. 1972. Transnational relations and world politics. Cambridge, Mass: Harvard University Press—The classic volume that established modern IPE.

  • Paul, Darrel A., and Abla Amawi, eds. 2013. Theoretical evolution of international political economy: A reader. Oxford: Oxford University Press—A reader with excerpts from classic theoretical texts in IPE.

  • Shaw, Tim M., Laura C. Mahrenbach, Renu Modi, and Yi-chong Xu, eds. 2019. The Palgrave handbook of contemporary international political economy. London: Palgrave—A comprehensive and up-to-date handbook covering a broad range of IPE theories and topics.

  • Strange, Susan. 1994. States and markets (2nd ed.). London: Pinter—The key text for Susan Strange’s thinking that sets out not only her approach to IPE, but also the concept of structural power.