Global Economic Relations

Debbie Affianty, MSi, MA

Global Economic Relations

The labels liberal and Marxian usefully describe two different analytical and moral starting points for the study of global economic relations.The liberal (or neo-liberal) perspective presents global economic order as the result of the relatively unfettered operation of markets, guided by rational individual policy-makers.Marxian analyses focus on the structure of the world capitalist economy, proposing that state and government choices simply reflect the preferences of those who own the means of production (trade and industry).The two traditional perspectives usefully highlight different actors, different processes, and different ‘levels of analysis’ in the study of International Political Economy.

Liberal

The world economic has potential to be a seamless global marketplace in which free trade and the free movement of capital shape the policies of governments and economic actors. Order woul be achieved by the ‘invisible hand’ of competition in the global marketplace.

Neo Liberal

The theoretical basis is that, ‘rather than protecting national markets and production, neo-liberal theory promotes openness and allows more efficient use of resources, exchange of technology and greater opportunities for economic growth.’ This approach has been influential in modernisation theory, which asserts that, once states implement neo-liberal restructuring measures and entrepreneurs accumulate sufficient capital, the benefits of growth and efficiency would ‘trickle down’ to the poor. Neo-liberals argue that underdeveloped societies, ‘should learn from the development experiences of the already developed or pioneer countries,’ striving to become more like existing developed societies. In the early 1990s, the IMF and World Bank in conjunction with the US Treasury Department ‘arrived at a consensus that neo-liberal policies were needed in less developed and emerging market economies.’ These policies included the strengthening of the free market, supporting private enterprise and increasing deregulation allowing entrepreneurial initiative. The Washington Consensus had several key policies for the Global South to increase development and these were said to be market-led. These included the issuing of loans so long as ‘Southern’ governments followed strict policy conditions, state-led development was replaced with market-led development and to use foreign exchange from export-led growth to pay off debts and promote development. However, neo-Marxists criticise these policies and have lead them to introduce theories which address the level of underdevelopment caused by neo-liberalism and the Washington Consensus.

Marxist

The world economy is best described as an arena of capitalist competition in which classes (capitalist and workers) and social groups are in constant conflict.

Capitalist (and the states they are based in) are driven by the search for profits, and order is achieved only when they succeed in exacting the submission of all others.

Dependency Theory (focused mainly on Latin America)

Describe the ways classes and groups in the “core” link to the “periphery”. Underdevelopment and poverty in so many countries is explained as the result of economic, social, and political structures within countries which have been deeply influenced by their international economic relations.The global capitalist order within these societies have emerged is a global capitalist order which reflects the interests of those who own the means of production (trade and industry).

The North South Relations

North-South relations; that is, relations between the wealthy, industrialized countries of the non-communist world (the "North") and the countries of the so-called developing world (the "South"). Marxists view international relations, including global North-South relations, in terms of a struggle between economic classes (especially workers and owners) that have different roles in society and different access to power. Since Lenin’s time, many Marxists have attributed poverty in the South to the concentration of wealth in the North. In this theory, capitalists in the North exploit the South economically and use the wealth thus generated to buy off workers in the North. Revolutions thus occur in the South and are ultimately directed against the North. IR scholars in the world-system school argue that the North is a core region specializing in producing manufactured goods and the South is a periphery specializing in extracting raw materials through agriculture and mining. Between these are semiperiphery states with light manufacturing.

Neo-Marxism is a school of economic thought which applies Marxist ideas to the present global economic conditions. It became prevalent during the 1960s and 1970s as neo-Marxist scholars demonstrated how capitalist policies hindered development and increased the inequality between the Global North and South. Henceforth, neo-Marxists produced the dependency and modern world system theories as clear illustrations as to how neo-liberal capitalism has brought increased inequality to the global economy.

The neo-Marxist theories of Dependency and World System Theories both share the idea that the Global North and South are in a structural relationship with one another. The former theory originated in the South, and its subject area is explicitly geared towards the problems and interests of the South and is seen as, ‘bottom up,’ approach to international political economy, which prioritises the conditions faced by the poor and the oppressed. Furthermore, having emerged from the development economics studies of the 1960s, dependency theory simultaneously links underdevelopment and capitalist exploitation to trade and monetary relations, and the role of corporate actors and economic institutions. The theory claims that the impoverishment of the South is a direct outcome of their exploitation by the advanced countries in the age of imperialism, which led to the superior development of the North. While the countries in the North accumulate sizeable capital, the countries in the South are further plunged into underdevelopment. The dependency theory further claims that a new form of imperialism is now dominant, ‘in which an economic imperialism continues the exploitation of the South, without the direct political rule of colonialism.’

However, Dependency theory is weak in its analysis of capitalist relations as being inherently negative and based purely on exploitation. Although underdevelopment and poverty are vital problems of a global scale, they are not sole features of the international economy. Development has occurred in peripheral areas, and not all relations between the North and South are about exploitation; indeed, not all international relations involve interrelation between underdeveloped and developed as Dependency focuses, but relationships between advanced states must too be studied. Therefore, the extent to which one believes the issue of underdevelopment is salient in the international political economy can dictate how much one believes dependency theory enables an understanding of these economic relations to a degree, however this approach is inherently limited because International Political Economy must also be studied by looking at a system of wealth production and not just monopolistic exploitation of wealth. Similarly, the even faster growth of development in less industrialised states over the industrialised in examples of Taiwan and Singapore indicate that Dependency theories do not encapsulate fully the potential nature of economic relations through ignoring any possibility of cooperation and mutual advantage through capitalism.

Additionally, in the Dependency theory’s analysis of underdevelopment itself, flaws are also found. The fact that the ‘development of the underdevelopment.’ is still as crucial an issue today as it was when Gunder Frank wrote his piece in 1969 is proof that ‘dependency’ does not offer a real understanding of underdevelopment, despite highlighting it, because it cannot offer a solution to it. Its analysis in explaining the reasons why certain countries are underdeveloped is singular and base because it is using dependence alone as justification, and so is not able to offer structural adjustment programmes to actually change the economic position of the underdeveloped in the international economy. The fact that underdevelopment is always equated with capitalism also adds to a tendency for Dependency to criticise capitalism rather than explain the reasons why underdevelopment is not solved and analyse the causes of poverty.

When placing primary emphasis on the level of economic development, with political or ideological differences, this approach yields the ‘North-South’ divide. Though there are some anomalies, such as South Africa and Australia, the world is seen as divided essentially between the wealthy and powerful countries of the Northern Hemisphere and the poor, less-developed countries of the Southern Hemisphere. However, the North-South dichotomy, though useful in debate, is inaccurate and misleading. A more precise economic model of the world system distinguishes among the superpowers, solely the United States at the end of the 20th century; other developed countries, such as Japan, Germany, and Britain; and the underdeveloped countries, such as China and Bolivia. We then have First, Second, and Third Worlds.

Wallerstein’s World Systems Theory, developed in 1974, utilised many features found in the Dependency Model, such as viewing development in global conditions rather than focussing on economic development in individual countries. However, there are differences between the two theories and Wallerstein, ‘moves beyond the static dualism of the dependency models…rather than viewing the world in terms of ‘core’ and ‘periphery.’’ There are ‘core countries,’ such as the United States and Japan; ‘semi-peripheral countries,’ such as Brazil, most eastern European states, and China; and ‘peripheral countries,’ such as Cuba and most of the poor countries of Africa and Asia. Depending on economic fortunes and fluctuations, as well as the logic of the developing system itself, countries can move in and out of these categories. This is in stark contrast to the Dependency Theory which advocates that periphery nations would permanently be in a state of exploitation, ‘some countries of the world were experiencing economics development in terms of industrialisation…including the ‘Asian Tigers’ of South Korea, Hong Kong, Singapore and Taiwan, as well as Latin American nations such as Brazil.’

In order to move a country’s status from the periphery to the core, Wallerstein proposes import substitution as a solution. Import substitution is a phenomenon that responds to external disruption of trade by domestically producing substitutes for those goods previously imported. This is a policy that the governments in less developed countries may use to undertake industrialisation and structural changes. Wallerstein supports the core and periphery to create globalization. Wallerstein’s theory helps globalization in the international context. He believes that the rich creates the poor. Unless the poor country eventually changes it economy and accumulates its own capital, it will continue to stay in the periphery.

The plausibility and appeal of this model lie in its recognition of the growing internationalisation of the industrial economy. Nation-states, whether capitalist or communist, are becoming increasingly subordinate to world economic developments. Decisions about capital investment and growth are made in a world context and on a global scale. The giant multinational corporations are the most significant new actors on the world stage and have been establishing a new international division of labour. From their point of view, it makes more sense to manufacture goods in South Korea or Taiwan, where labour is still cheap and governments compliant, than in the United States or Britain, where labour is expensive and regulation stringent. Such high-level functions as central planning and research and development can be retained in their Western homelands, where there are the necessary reserves of highly trained professional and scientific personnel. Profits can be declared in those countries where taxes are lowest. In such a way do the multinationals illustrate, even embody, the interdependence of core and periphery nations. In order to move a country’s status from the periphery to the core, Wallerstein proposes import substitution as a solution. Import substitution is a phenomenon that responds to external disruption of trade by domestically producing substitutes for those goods previously imported. This is a policy that governments in less developed countries may use to undertake industrialisation and structural changes.

However, there are criticisms of Wallerstein’s theory with regards to the semi-periphery. They describe it being an improvised, ‘invention to deal with those cases that do not fit neatly into the core-periphery framework.’ Critics deduce this because the majority of development economic theory in recent years has centred upon, ‘the elaboration of dependent development in the countries of the semi-periphery.’ Furthermore, other criticisms include the fact that the theory is, ‘too deterministic both economically and in terms of the constraining effects of the global capitalist system.’Therefore, it is arguable that the neo-Marxist assessments of an increased inequality and subordination between the Global South and North which has been constructed through neo-liberal policies are valid and well-founded. The development of critical theories such as the Dependency and Modern World System have accurately criticised neo-liberal policies of market-led reforms and how underlying capitalism will lead to the core being concentrated in areas of the North. However, there are flaws in the Dependency Theory, as mentioned, including the need to address the solutions of development in peripheral countries. Furthermore, Wallerstein’s World Systems Theory has successfully been able to incorporate not only core and periphery states but that of the semi-periphery, which include emerging market economies such of India, Brazil and China. These states act as a buffer between the core and periphery countries. Despite these flaws both theories present an excellent assessment of neo-liberal policies.

Neo-Gramscian

One strand of thinking about how and why actors have particular preferences draws on the ideas and insights of Italian political theoriest Anonio Gramsci to highlight the role of politics, law, culture, and knowledge generally in shaping the preferences and policies of actors.The starting point here is that interests, actions, and behavior in the world economy all take place within a structure of ideas, culture and knowledge.We cannot simply assume that the preferences of actors within the system reflect objectively definable competing ‘interests’. Rather, the way actors understand their own preferences will depend heavily upon prevailing beliefs and patterns of thinking in the world economy, many of which are embodied in institutions. The question this poses is: whose interests and ideas are embodied in the rules and norms of the system?

Neo-Gramscian

Neo-Gramscian see the world economy as an overarching structure of knowledge, ideas, and institutions which reflects the interests of dominant actors and within which competition takes place.They regard the structure of the systemitself as vital in understanding the identities and preferences of the actors.For Neo-Gramscians the key driving force of the system is capitalist competition, which is then constrained by the need of the powerful to gain the consent of the less powerful.Neo-Gramscians view simple dominance by one state as an insufficient condition for international order. Instead, they believe that hegemony requires control over the structures of knowledge and ideas as well.

For Neo-Gramscians, the answer to the question whose interest’ lies in hegemony. The dominant power within the system will achieve goals not just through coercion but equally by ensuring the consent of other actors within the system.This means that dominant powers will promulgate, institutions, ideologies and ideas all of which help to persuade other actors that their best interests converge with those of dominant power.For example, Neo-Gramscians interpret the dominance of neo-liberalism since the 1980s as a reflection of US interests in the global economy, successfully projected through 1) structures of knowledge (it became the dominant paradigm in top research universities); 2) through institutions (such as the IMF which became forceful proponents of neo-liberal policy prescriptions); and 3) through broader cultural beliefs and understandings (the very language of “free” market contrasting with restricted or repressive regimes).

Term “Hegemony” came from the writings of Karl Marx and was conceptualized by Antonio Gramsci, a Marxist social philosopher who lived in Mussolini's Italy. Because Gramsci was a Marxist, he subscribed to the basic Marxist premise of the historical dialectic. Therefore, according to classic Marxist theories, societies will transform over time from oppressive economic systems to more and more liberating ones, until finally the Utopian state of communism in society is reached.In his writings Gramsci claim that intellectuals create both, hegemony and counter-hegemony. He argues that "there is no organization without intellectuals," for to be without them is to be without "the theoretical aspect of the theory-practice nexus essential to all effective organizations"

Counter-hegemony (also sometimes known as Resistance) refers to attempts to critique or dismantle hegemonic power. In other words it is a confrontation and/or opposition to existing status quo and its legitimacy in politics, but can also be observed in various other spheres of life, such as history, media, music, etc. Neo-Gramscian theorist Nicola Pratt (2004) has described counter-hegemony as “a creation of an alternative hegemony on the terrain of civil society in preparation for political change”.According to Theodore H. Cohn, "a counterhegemony is an alternative ethical view of society that poses a challenge to the dominant bourgeois-led view".If a counterhegemony grows large enough it is able to subsume and replace the historic bloc it was born in. Neo-Gramscians use the Machiavellian terms war of position and war of movement to explain how this is possible. In a war of position a counterhegemonic movement attempts, through persuasion or propaganda, to increase the number of people who share its view on the hegemonic order; in a war of movement the counterhegemonic tendencies which have grown large enough overthrow, violently or democratically, the current hegemony and establish themselves as a new historic bloc.An example of counter-hegemony in politics is the “anti-globalization movement”. An example of counter-hegemony in media could be a documentary questioning the government’s involvement in a war.In the end, all individuals who experience the alienation and disempowerment of increased economic globalization are potential members of this “anti-globalization” bloc, not just those individuals who are reducible to the economic exploitation of the base. As a result, it is a commonality or similarity in experience – a shared perception of repression, exclusion, and marginalization – which creates a counter-hegemonic bloc regardless of a common or shared economic condition

Counter-hegemonic groups of people do not start off as radical or extremist groups; they encourage people to share their view against hegemony through the use of persuasion and/or propaganda whilst raising awareness. One view describes the possibility that once the Counter-Hegemonic group has gained enough support and consensus against the current powers, they would then attempt to overthrow them, whether through violence or democracy. Depending on whether full power is given to each individual, or if it is kept among a close few could be the deterministic factor between a decentralized government and a dictatorship.