2.4 Comparative Analysis of Major Theoretical Perspectives

International political economy explores three main theories: mercantilism, liberalism, and Marxism. Each offers unique perspectives on economic relations, trade, and power dynamics between nations. These theories shape our understanding of global economic systems and policies.

Mercantilism emphasizes state power, while liberalism focuses on free markets and individual freedom. Marxism critiques capitalism and class struggle. These theories have influenced historical events and continue to shape modern economic debates and policies worldwide.

Theoretical Perspectives in International Political Economy

Assumptions of economic theories

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• Mercantilism
  • State power and wealth are the primary goals of economic activity
  • International trade is a zero-sum game, with one country's gain being another's loss
  • Emphasizes maximizing exports and minimizing imports to accumulate gold and silver (bullion)
• Liberalism
  • Individual freedom and private property rights are essential for economic prosperity
  • Free trade and market forces lead to economic efficiency and growth through specialization
  • Comparative advantage drives mutually beneficial trade between countries (Ricardo's theory)
• Marxism
  • Class struggle between the bourgeoisie (owners of capital) and the proletariat (workers) defines economic relations
  • Capitalism leads to exploitation, inequality, and economic crises due to the extraction of surplus value
  • Historical materialism posits that economic forces shape social and political structures, leading to the inevitable transition to socialism

Applications in international economics

• Mercantilism
  • Historical applications
    • European colonialism and the rise of nation-states in the 16th-18th centuries (Spanish Empire, British Empire)
    • Trade rivalries and economic nationalism, such as the Anglo-Dutch Wars
  • Contemporary applications
    • Neo-mercantilism in some developing countries, such as China's export-led growth strategy
    • Strategic trade policies and industrial policy to support domestic industries (subsidies, local content requirements)
• Liberalism
  • Historical applications
    • Rise of laissez-faire capitalism in the 19th century (British Corn Laws repeal, Cobden-Chevalier Treaty)
    • Bretton Woods system and the post-World War II economic order (GATT, IMF, World Bank)
  • Contemporary applications
    • Neoliberal policies and the Washington Consensus (privatization, deregulation, trade liberalization)
    • World Trade Organization and regional trade agreements (NAFTA, EU, RCEP)
• Marxism
  • Historical applications
    • Socialist revolutions in Russia ($1917$), China ($1949$), and other countries
    • Dependency theory and the critique of imperialism (Prebisch-Singer hypothesis, world-systems theory)
  • Contemporary applications
    • Anti-globalization movements and critiques of neoliberalism (World Social Forum, Occupy Wall Street)
    • Debates on global inequality and the role of multinational corporations in perpetuating uneven development

Strengths and limitations of theories

• Mercantilism
  • Explanatory power
    • Highlights the role of state power in shaping economic relations and pursuing national interests
    • Explains the historical roots of economic nationalism and protectionist policies
  • Limitations
    • Overlooks the benefits of international trade and specialization based on comparative advantage
    • Underestimates the importance of market forces and individual incentives in driving economic activity
• Liberalism
  • Explanatory power
    • Provides a framework for understanding the gains from trade and the benefits of economic integration
    • Explains the role of comparative advantage in driving economic efficiency and growth
  • Limitations
    • Assumes perfect competition and overlooks market failures, such as externalities and information asymmetries
    • Underestimates the distributional consequences of free trade and the potential for rising inequality
• Marxism
  • Explanatory power
    • Highlights the structural inequalities and contradictions inherent in the capitalist system
    • Explains the historical dynamics of class struggle and the tendency towards economic crises
  • Limitations
    • Overemphasizes the deterministic role of economic forces in shaping social and political outcomes
    • Underestimates the adaptability and resilience of capitalism in the face of challenges and reforms

Debates among economic paradigms

• Debates between mercantilism and liberalism
  • Role of the state in the economy: active intervention (mercantilism) vs. limited involvement (liberalism)
  • Benefits and costs of free trade versus protectionism: economic efficiency (liberalism) vs. national self-sufficiency (mercantilism)
• Debates between liberalism and Marxism
  • Nature of capitalism: engine of growth and prosperity (liberalism) vs. system of exploitation and crisis (Marxism)
  • Possibility of reforming capitalism (liberalism) versus the need for revolutionary change (Marxism)
• Synthesis efforts
  • Embedded liberalism: combining free trade with domestic social protection (Keynesian welfare state)
  • Developmental state: strategic state intervention to promote economic growth and industrialization (East Asian model)
  • Global governance: international cooperation to manage the challenges of globalization (climate change, financial stability)