-l

8 Chapter I International Political Economy

currencies to float? why do some governments allow MNCs to ooerate in +L

economies with few restrictions, while other governments attempt to'r"J"t"'*TT
activity? Each of these quesuons asks us to explain a speciftc
made by a government, or to explain a patterir of choices within""olr"r"r" o'ai"rl#)u
ments. In answering such questior,s,
. ;;;;i;.;:y
choices that governments r'|raL
-e "re most concerned with
"rpi"iJig ;h:;;:il
'""" make qru
and p4l
pay rurs a(Lelr'orl
less attention to tne
the welfar
weltare consequences q1
these poricy
"i"i""r.
Evaluative studies, which are related most closely to our second abstract
o'o.
tion, are oriented toward assessing policy outcomes, making judgments
and proposing alternatives when theludgment made about
J.;i,iJ'
"?'"rd:il;;lt;;;;
ative one. A welfare evaluation is primarily interested in wiether
;".T:
choice raises or lowers social welfare. For example, does a decision "
dt;l;;;;r*
i"'rtU".Jtr"ta."Jl
raise or lower national economic welfare? Does a decision
to tum to th" t.t"*ui'olli
Monetary Fund and.""""pj a of economic reforms promote or retard eco-
-package
nomic growth? More brgadly, do current policies encourage thi society to use its avail-
il *?r that maximize
*]: I:r_r"."r a different allocationeco^nomic welfare, Ir would a.!-"or"
that encouraged f"rt"il,
result in higher economic welfare? d"";;;
such evaluations are concerned with the economic wlHare
consequerr"", orpoh"y oui_
ty,pic,ally based on economic criteria and rely h""rrity
.":l_".tlah?,are ,rpo.r^""oio*i.
theories' other scholars evaluate particular outcomes in terms
that ertend beyond
considerations of economic welfare. In some instances, scholars
evaluate outcomes in
terms of their distributional consequences. For example,
,n*y of th" groups that are
members of the contempotary.baci.lash against globalizauon
*" r"lrrr! of in-
ternational trade because they believe that"worke"rs lose
and busi.rerl gains".ilcal
from trade
liberalization. Implicit in this criticism is an evaluation
of how liberal trade in the
global economy distributes income across groups within
countries and across countries
within the international system. Evaluatiolns riay also extend
the frame of reference
within which outco-.: evaluated p,-,."Iy po, example,
evln thgse who agree that ^.:internationarleyo1d ";;;;a"n".
trade ;r"r;rld;;;;J*efare might re_
main critical of globalization because they believe
that it degraJ"r arr" environment,
disrupts traditio;ar merr.rods of producti#,
t*.,h".;";;?;io"iur
that outweigh the economi: gai;s. Explanation ", and evaruati?"
role in internauonar politicalEcono*y.
u"tr, pr"y"or,r"quences
an important
planation and secondarily unon evaluagng
rhi, b;r[i";;;;-il;il'Jn,"ariry upon ex_
policies' I devote little attention to evaluaiing
the;"r*; Jo^;;i"""i"!, or government
outcomes in terins that extend beyond
economic welfare consideration.. "

Srunylrvc ImnrsenoNAr porrncar Ecowovrr

,t^:T,iT y,"rkrF.fft: the {ield

of international political economy have developed a
large number of theories to answer the two
q,r"rti-o.r, posed above. Three tradilonal
schools of political economy-the me.c"ntil'ist school,
the liberal school, and the
Marxist school-have shaped the development of these theories over
the last one hun-
dred years. Each of these three tradition^al schools offers distinctive answers
to the two
questions and these differences have stmctured much of the scholarly
and public de-
 Economy e
Politicd
Studying International

##r:r;T;rgiffi$ll1r]#l;:t$H:,.;r;
ffi:"ff*;"'*"**i*"H':iil,gH[Ttll;;.ffi
ffiffi**mj#+sln**r':'r*
:,ffih?":d:tt::l*#ii:'ilff
'T':u#ifil:*:n'#
#;ther"i" "r tr'"':Yff" institutions and ap-
;f"H:milh:
the tor
set
iisue-area specific explanations
we de-
to
I here 'tage
liliia"' "rthe
book'

Political Economy
Schools of International
intemationt nor'ti;a
eories of intemauo'ar
theories "11:T*T1|3filiberalism' andi;*;:
,|il:tffi Marxism'
H"("t
'!xdil;J*:?5:.'"xni1::"*J::
""[t"aittl'
hm t'S,H*TJIilffi
is rlooted in seventecuur 'rs
ffi;;;"'micactivitvandstateq'-*"':.TL"Ifi:T*Jff ;;:
il:ffitril ;d; .h:i_""*"' power and wearth
varied,andyet*"'"*oill;;;t;1".g^l:*^":':"*:";T5ltti'1,'"'.1
were
ffi"ill;ff
rcmnected. National power in the
intern^o*J{"11
;i:1:: li:Lf$:Xtfi::
Second' the crassi-
:'#:51il.t"txl;#;; ;""""*'rut" power'
arguedthattrade*'*t:t'4:Zy":'i:,:::".1itilX"Xl$
i,id", r,o*"u"r, only if the country
sffiT"ff.b:"":"q#;;;;a
ijii""-il""t.1
trade, ,n"
mce or .'auti'
balance urdr " -' 'ou i1:-"s:*j:i"r'"?Sil:
argued that som'e
from foreigPers' Third, ;; "r*tt"Jr
mercantilisti
:-activitv",".T:*lillTil*^:*:Jil,i"T":tff*:";T:['::
;;;y:*tT::i*ii3*S*
Hffiffi:Y-T:"ffi::'ffi
tnrineactivitiesrr,o"ra'i""ti"*le"J';n't"u"*li:f:lPrlil:t:1"::
ffiffiff lJHffi;J;;;;;e;lT::T::f :0,"1^Y.'"*T*"'
slrtuBuri' " "iti'"1,"o1n;"e"*:Jl*::1rnlil'"",1-
o
ergue that ectlnomrc
Orgue economic
be valued fo,
'#;ili
, i"t"gou"**"n11.should
whe'-
&scourage imports
"*port*";;;"i Pl isttt"
dble. In addition, contemporary mercantilist'
csible.
preferred *"il;
ur'rLcr.-r""uTJ*ri"g
Try" f11:
to the
..&tt are more'valuable than others' Man
dmof agriculturar*a'.n"'in-*ry,::l*:::*iy*t::1ilffifl ilTl-
are pre
and telecommunications
iod*&i", such as
"ornp,,t"-tt
i", ,och as steel or textiles Td "pp{"l'
dacturinE indurt
ffiffit#|"lff ; a critical component of nadon"l power' the insistence
Eetoiningpositive;ffi;ffi;;, ;i 'h" mercantilists
a
&::",*:t:3*: Ht":t'i;::.
to arsue that the state
;TffitJ"T::;ffff;;;;,h;,,leads resources are allocated' Eco-
play a laqge role in determining \1v socr;Vs
activity is too important to allow deci'io"' "oot'i
t"t"*""
|,|1r1j"ffi H:*
ffiJil,ffiil1ild;r;;;;;h ;a;
can
mar-ket. uncoordinated decisions
and technologies that may
in an.inappropn"r",, Industries
"J'i"Ltl'r'i-.*..
 ,"."i;: ffi"":- :;.mightbe negrected,
tries that do little to strengthen the nation in the internauonal staie system
*n,,.',J
ish' In addition, the country could develop an unfavorable balanc" of t.o.t,,
-.,ri"l]' I

"l'.
become,dependent upon foreign countries for critical technologies. The onlv ,r;;:
I

I
emure that society's resources are appropriately used is to have-the state play
role in the economy. Economic policy can be used to channel resources t. ttt .,- "
*;: I

..ll ]
nomic activities that promote and protect the national interest and away fro,r, tho[
that fail to do so. ]

Liberalism, the second traditional school, emerged,in Britain during the eight-
eenth century to challenge the dominance of mercantilism in government circ"les.
Adam Smith and other liberal writers, such as David Ricardo (who first stated the nod_
ern concept of comparative advantage), were scholars that were attempting to alter gov-
e-rnment economic policy. The theory they developed to do so, Iiberalism, challenged
all three central propositions of mercantilism. First, liberalism attempted to clrai, a
strong line between politics and economics. In doing so, liberalism argued that the pur-
pose of economic activity was to enrich individuals, not to enhance the state's
1loivs1.
Secold, liberalism argued that countries do not enrich themselves by runninf trade
surpluses. Instead, countries gain from trade regardless of whether the balance ol'trade
is positive,or negative. Finally, countries are not necessarily made wealthier by prc,cluc-
ing manufactured goods rather than primary commodities. Instead, liberalism argued,
countries are made wealthier by making products that they can produce at relatively
low cost at home and trading them for goods that can be produced at home only at rei-
atively high cost. Thus, according to liberalism, goue-*entr should make little effort to
influence the country's trade balance or to shape the types of goods the countr-,, pro-
duces. Government efforts to allocate resources will only reducJnational welfare.
In addition to arguing against substantial state intervention as advocated br.the
mercantilists, liberalism argued in favor of a market-based system of resource ail,r"u-
uo3, Giving priority to the welfare of individuals, liberalism argues that social u,r,liare
will be highest when people arc free to make their own decisiois about how to usc the
resources they possess. Thus, rather than accepting the mercantilist argument that tire
state should guide the allocation of resources, liberals argue that ."roir"",
shoulcl lrc
allocated through voluntary market-based transactions b!t*"e., individuals. Such ex-
change is mutually beneficial-as long as it is voluntary then both
parties to any trans-
action will benefit. M-oreover, in a perfectly functioning market, individu;ls will
continue to buy and sell resources ,tnul th" resulting alloc"auon offers
no further r.rp-
portunities for mutually beneficial exchange. The stat! plays an important, though lirn-
ited, role in this process. The state must es"tablish
property and resources. judicial system must"learigirts "o"":;;;;*''"r!i,'f "r
Jhe enfoie these rights and the con-
tracts that transfer ownership from one individual to another. Most li"berals also recog-
nizs fl1"1 governments can and should resolve market failures, which are instancr.s in
which voluntary market-based transactions between individuals fail to allocate re-
sources to socially desirable activities.
Marxism, the third traditional school, originated in the work of Karl Marx as a cri-
tique of capitalism. It is impossible to characteizebnefly the huge literature that has
erpanded on or been influenced by Marx's ideas. Accor&ng to Marx, capitalism is
characterized by two central conditionsr the private ownership of the means of pro-
 Studying InternaHonal Political Economy ll

,l_ and wage labor. Marx argued that the value of

manufactured goods
used to profucl *:T_
li ,oq ariount :f l?9:. Y:--"]":l:l!::t'_':'
amount of the value they imparted to the goods they pro-
,, in" f"U
paid workers onlya subsistence
the capitalists that owned the factories
th! rest as proftts with which to ffnance additional investment.
tA O* the dynamics of capitalism would lead eventually to a-revolution
E with private property and with the capitalist system that private
"r*y
would interact to drive this revolution. First, Marx argued that
;i"*l tendency toward the concentration of capital. Economic competition
oe capitalists to increase their efffcienry and increase their capital stock. As a
i"pitd would become increasingly concentrated in the hands of a small,
fo"",
ehte. Se"ottd, Marx argued that capitalism is associated with a falling rate o{
trnent leads to a growing abundance of productive capital, which in turn
return to capital. As profits shrink, capitalists are forced to further reduce
the plight of the already impoverished masses. Finally, capitalism is
by an imbalance between the ability to produce goods and the ability to pur-
ods. Laqge capital investments continually augment the economy's abfity to
goods, while falling wages continually reduce the ability of consumers to pur-
the goods being produced. As these three dy,namics interact over time, society
increasingly characterized by growing inequality between a small wealthy
elite and a growing number of impoverished workers. These social condi-
ercntually cause workers (the proletariat, in Marrist terminology) to rise up,
i5W the capitalist system, and replace it with socialism.
$.ntrast to liberalism's emphasis on the market as the principle mechanism of
p'allocaUon, Mancists th"t capitalists make decisilons a6out how society's
are used. Moreover, "rg,r"
because capitalist systems promote the concentration
igvestment decisions are not typically driven by market-based competition,
t in the classical liberal sense of this term. Instead, decisions aboufwhat to
are made by the few firms that control the necessary investment capital. The
is no autonomous role in the capitalist system. Instead, Marxists argue that
operates as an agent ofthe capitalist class. The state enacts policies that rein-
;capitalism and thus the capitalistl' control of resource allocation. Thus, in con-
the mercantilists who f6cus on the state and the liberals who focus on the
Marxists focus on large colporations as the key actor that determines how re-
are to be used.
he three traditional schools of political
economy thus offer three distinctive an-
to our question of how politics shape the allocation of society's
resources. Mer-
.f,ffilu argue that the state g,rid". ,"roi."" allocation in line with objectives shaped
quest for national po*J.. Liberals argue that
#fl: politics ought to piay little .oli i.t
ff^lT":t'.ext-olli_ng instead the role oT ,.r"rkei-based trinsactiions among au-
$uomous individuals. Marxists argue that the most important decisions *ai" by
"."
S:ffi :H;:':rffi.'#:'JI"",111".'-iJ.t*'J*"#;:;,:*xi.'t*"TxJ**
$nsequences of resource allocation. Mercantilists focus on the consequences of re-
$ourcE allocation
for national power. The central question .n"r"untilirt will ask is, ..Is
"
u,
L2 Chapter I Intenlational Political Economy

Table 1.1
Three Tradltional Schools of lnternational Polltical Economy
=--
Mercantilism Liberalism MArxism
Most Important The State In&viduals Plticufuly
!las1a,
Actor the Capitalist Cln55
Role of the State Intervene in the Establish and Instrument of the
Economy to Enforce Property Capitalist Class
Allocate Resources Rlghts to Facilitate Uses State Powsl 16
Market-Based Sustain Capitalist
Exchange System

Image of the Confliaual: Harmoniou.s: The Erpbitatioe:

International Countries compete intemational Capitalists exploit
Economic System for desirable economy offers labor within
industries and beneftts to all countries; rich
engage in trade countries. The countries exploit
conflicts as a result challenge is to poor countries in the
thg
of this competition create a political international
I
framework that economy
enables countries
1e lsalize tlese
I
benefits
I

Proper Objective Enhance Power of Enhance Aggregate Promote an

of Economic Policy the Nation-State in Social Welfare Equitable
International State Distribution of
System Wealth and Income

there some alternative allocation of resources that would enhance the nation's power
in the international system?'r Liberals rely heavily upon economic theory to focus prin-
cipally upon the welfare consequences of resource allocation. The central question a
liberal will ask is, "Is there some alternative allocation of resources that would enable
the society to improve its standard of living?" Marxists rely heavily upon theories of
class conflict to focus on the distributional consequences of resource allocation. The
central question a Mancist will ask is, "Is there an alternative political and economic
system that will promote a more equitable distribution of income?" Thus, liberalism
emphasizes the welfare of resource allocation, while mercantilism and
Mancism each emphasize"orrr"qrr"rr"-"s
a different aspect of the distributional consequences of these
decisions.
These very different allocation mechanisms and unique evaluative frameworks
generate three very different images of the character of-the international politlcal
economy. Mercantilists argue that the international political economy is character-
ized by distributional conflict as governments compete to attract and maintatn
desired industries. Liberals argue that international economic interactions are es'
sentially harmonious. Because all countries benefft from international trade, power
has titdl impact on national welfare, and international economic con{licts are rare.The
central problem, from a liberal perspective, is creating the international institu-
 Studying International Political Economy 13

to enter into agreements through

rk that will enable governments
',J;; international system of free-trade. Marrists argue,that
t}re

;#;J *ono-y is characterized by distnbutional conflict between

,#i*J,ni. and by distributional conflict between the ad-
"orrrriti"r
countries and developing countries within the international

debate about the in-

tradidonal schools have structured studies ofand
ol *oorny for a very long time. And while the presence_ of all three
thioughout the pages of this book, we will spend little more
--".*tt
,E thlm iirectly. In their place, we will emphasize an analytical frame-
#en derreloped during the last 15 years or so that focuses on how the in-
societal interests and political institutions determine the foreign
that governments adoPt.
l;

and Institutions in lnternational Politicat Economy

the policy choices made by governments, this book concentrates on the in-
societal interests and poliUcal institutions. This approach suggests
the foreign economic policy choices that governments make, we
two aspects of politics. First, we need to understand where the in.
economic policy preferences of groups in society come from. Second, we
bxamine how political institutions aggregate, reconcile, and ultimately trans-
demands into foreign economic policies and a particular international
gntem. Each of these aspects warrants further elaboration.
*s are the goals or policy objectives that the central actors in the pollUcal
in the economy-individuals, ffrms, labor unions, other interest groups,
nts-want to use foreign economic policy to achieve. In focusing on in-
assume that individuals and the interest groups that represent them al-
foreign economic policies that raise their iicomes to poliicies that reduce
:s. Thus. whenever a group confronts a choice bptween one policy that
incpme and another thatlo*irs its income, it wil jways prefer'the policy
s its income. we focus on two mechanisms
to explain the fo^rmatio.r ofih"sb
First, people have material interests that arise from their position
. We can summarize the essence of this approach in a simpL state-

l:I1:.*h"re you work and what you do and I'll til yo,, what you'r foreign
1_tc,qolicy
preferences are. consider once again the American si""l t".rff. tt
expect that whether a particular inJividual supports or opposes this
f:::a,a *l^".r" they work. If you are an American steel wirker you
*T*:|t
favor llo"
the tariff becauie it reduces the likelihood that you will.lose your
arealso likely to favor the tariff if you
own an American steel mill, because
ff_I1nt."nr"i9." market frig}, price for the steel you pro-
"r.d ","I'"tir"if
*"r"
;rtlttff llstead,
a substantial
howev_er that_you
share of General Motors. In
American autoworker or'that you
"r, this
case it is not unreasonable to
oppose the steel tariff. The higher steel prices caused by the
:::Jo.,| lvguld
means-ttrat it costi-more- to- produce cars. As-cars becoioe more expensive,
are sold and consequently
fewer are produced. The tariff thus increases the
 14 Chapter I International Political Economy

chances that autoworkers will be laid off and it causes GM to earn smaller n.^c.
These are comp-e-lling reasons for autoworkers and their employ"tr to opp,]." ttl
higher steel tariff. In short, one's position in the economy powerfully t#p". ;,;l:
preferences about foreign economic policy. As we shall see, economic theory
",,.i1]
us to make some powerful statements about the foreign economic poU"y pr"f"r*,r.i*
of different groups in the economy.
Second, interests are often based on ideas. Ideas are mental models that provids
a coherent set of beliefs about cause and effect relationships. In the context of ecol
nomic policy, these mental models typically focus on the relationship betwe*n gou-
ernment policies and economic outcomes. Not sulprisingly, therefore,
theory is a very important source of ideas that influence how actors perceive""nr,,rlrp1o
and for-
mulate their interests. By providing clear statements about cause and effect ecor]omic
relationships, economic theories can create an interest in a particular economic pol-
icy. The theory of comparative advantage, for example, claims that reducing t,rrlffs
raises aggregate social welfare. A government that believes this theory might lre in-
clined to lower tariffs in order to realize these welfare gains. Alternatively, a go\:ern-
ment might adopt high tariffs because a different economic theory (the irrfant
industry argument, for example) suggests that tariffs can promote economic procluc-
tion-in ways that raise national income. What matters, therefore, is not whether a par-
ticular idea is true or not, but whether people in power, or people with influence over
people with power, believe the idea to be tme. Thus, ideas about how t]'re ecorromy
operates can be a source ofthe preferences that groups have for particular economic
policies.
understanding where interests come from will enable us to specif with :;ome
precision the competing demands that political leaders will confront when making for-
eign economic policy decisions. It does not tell us anlthing about how these cornpet-
ing_ demands are reconciled and transformed into foreign economic policie.s. To
understand how interests are transformed into policies wJneed to examine politlcd
institutions. Political institutions establish the rules governing the political p.,,..s.
By establishirg rules, they enable grolps within counties, und-group, of countrics in
the internatiorral state system, to reach and enforce collective i"cisions. On t|e one
hand, poliucal_institutions determine which groups are empowered to make choices
and establish the rules these "choosers" will ir" *h"r, doing so. In domestic political
systems, for example, democratic institutions promote mass participation in c;llective
choices, while authoritarian systems restrict p^articipation to-a narri* set of incliviclu-
als. In international economic aftairs, governmenti from the advanced industrialized
countries often make decisions with little participation by developing countries. Poliii-
cal institutions also provide the rules that ihese g.o,-,p, ,rs" to *"i" Eecisions. In dern-
ocratic
fptems, the usual choice rule is majority rule, and policies are supposed to
reflect the preferences of a rnajority of voteri or iegislators. Ii internatioralLcon.rr''tic
organizations, the choice rule is often relative bargaining power, and decisions tlpi-
cally reflect the preferences of the more powerful naUons. Political institutions thus irl-
low groups to make collective decisions, and in doing so determine who gets to rnake
these decisions and how they are to be made.
Pohtical institutions also help enforce these collective decisions. In many in-
stances, individuals, groups, and governments have little incentive to comply with tlie
 r5
The Organization ol'the Book

$*"il*
; r

:* It$ ;5r I: : ;: i rii

; I ri ::' lri'; :r
"
ffi**ff*f";tlflfilii
Afocusoninterestsandiristiirrtitlnsrr.illallor,vusttlclcr'elopirseltrllrcas.llrab]r'
slralx..st,t.i..tltl rlt'r.isj.'rrs
ttt orrr first tlttestirltt: lror,r,.lo pt-,litit.s
The es.plit'aliorrs *e t'.,rtsl.tt't *ill rrlrtr"st 'tlrt'trs
comprehensiv" 1""-
"n,*".,
allocate;;;;";,:",
ebouthowto

H,y:t;"tril1t11'.:5 ;1,,ffi ::;::T:ii":llli'Xll"ii:ni5:11ilil:

into foreigrr t'ctlllottli('politit s atl<l u |ltttitrtlitt'itttt'ttrrttiot"'l ''t'u-
competingdemands
,1,o. ttot rtl*iLvs tr'oride rr {irll "r1'lar'ttr.tt
.l llr'' ttrt''rrrt -
ffii;yril. rrr,. s.li'l
"ffr,,..lt r'('()norr'r\' lrrrt il t'r'': rr
6ons we observe t,"ii"'*"",ii,,,,,,t 1'oliiit''ll
point of deParture.
'r'ori'''

THr Oncar'uzATIoN oF THE Boor

In applying this framew;rk to the inter.atiorrirl lxllitical ccorlonr\'. ne ertiplor th.ret:
a fr"fp orgarrize tlie subiect ,rrltt.,'. First. u't'tli'itlt'tlrr' [ier]tl ol'irr-
"aalo"Aievices
temationalpolitical distlrict irr.,.',..,,,.r. Tlr,'lirst bllf'ol'thc lrook is tlt'-
""o,i.rnrijint,r
rroted to trade and prodrictiorr. \\rr' look at tire crerttiotl rtrrcl errrltrtion o[' tlrc
multilateral t.ad..lotirn. We t,xanrine rvhv tliis svstcrrt u'ris t't't'ittt'tl lirliouinq \\orlcl
WT II, and how go,rernrr-rerrts liave useil tlris sr.st.'r,, t,, liht'r'rtlizc tlatle. \\'t'tn ttr
make sense of theiattern o1'tracle liberalizrrtiorr trncl prott'ction that \\'('s('('to rrtttler-
standwhy governrielts have bc.en rvilling to iiberalizt'tracle iti solrl€'rlrcils llrrt rrot irr
othgrs. We"alsu exanrilrt.tlrr.irosition t,l tlre tL,reloprrrg t't,rttrtrit s irr llri: rrrrrllil'ttt |rrl
bade system. Finally, *.. the role of nmltinatiorritl corporirtions irr tlie {lobirl
ecbnomy. The secorrcl bali"r"n1i,-r"
oi tlre l.,t,ok lircuses on the intcrtratiortal tttortctan rrtltl l'i-
nancial systems. We
exarring t|e crt:ation iurd c.r'oltrtiorr of tht'ytostn'itr irlttrrrlltiorlal
monetarysystern, tryrng irr
particular to nrake st'nsr: o{ the ercltiurgt'r'ate policics tlrat
governments have
adoitecl. We aiso eraurirrt' thc dcr eloping courttrit's' prtsitiorr irr tlrc'
international monetary
iincl linancial sr.sterns. ri,ith a plirticular' lbcus tirt intt'rriatitlrlal
cebt and financial
criscs.
Second, each issue area is {ir.iclecl into chapters that firrrs prirrcipallv on politi-
^-,
caleconomyin
the interriationirl sr.stenr arrcl chiiptcrs tirait fbcus principallr on politi-
caleconomyin
the <lonrestic.ar."r,,t. Tlre,.rirrrriru,li,,r, ,'i t'eclr issrte;tt't l lrt'{irts rvith:r
b.,
 16 Chapter I Internatioo"l *oftti"-, Economy
I
chapter that focuses on the interaction between interests and institutiom in ,x^ .I
ternational syste-m. In these chapters, we examine how the &stribution .f
";",T1
ffi ;mffi ,ffi t;:rti*r:;t;T::ff*:::ffffi:::;;ffi :n:l"",.,i$l
fi lT:,*f *:H[""";:ffit""lT;:",ffillJ*"::ilffi :T,:T:'[1"'Hl*:tl
capital flows, as well as changes in the distribution of po*"r, trausform tt
ni.illil
economy and the national economies upon which it is based. The second "
"h;o?'".T
each issue area examines the interaction between interests and institution.''.-rll
I
mestic politics. In each of these chapters, we develop two approacrr"r a ar," arrll
I
tic politics of foreign economic policy, one that is society-centered and one ttr.t i" I
state-centered. A society-centered approach puts greatest emphasis on the i.p""t j
I
competing interests in explaining the foreign economic policies that gou"n1*uni.
I
adoPt.-Such an approach argues that politicians are highly responsivelo a.n.,^nal
I
made by private interest groups within their societies. As a corrseq,renc", tor"iJ
I
economic policies are determined by the balance of power
"*o.rg f,J I
mestic interest grouPs. A state-centered approach puts greatest "o*p"tine
emphasis on"state I
institutions in explaining the foreign economic policies that governments adopt. This
I
approach argu€s that policymakers enjoy considerable adton--omy from societal int"r-
|
est groups and can use this autonomy to make foreign economic policy independent
I
of the narrow interests of particular groups. As a -conseqrr".r"", foreig.,
I
""onori. I
policy ry'pically is designed to promote the national interesi. Of course, international
pohtical economy and domestic pohtical economy do not function in isolation from
I
each other. Thus, even *" r"p"."te them for tlre pulpose of discussion, the book I
"t between international
strives to make connections and domestic political
in each chapter. '
""ono*y I
I
Third, the examination of each issue area is divided into chapters that focus p.in-
|
cipally on the advanced industrialized countries-the United StaLs, Westem nuiop",
I
Japan-and chapters th-at fogus principally on developing This division tas I
"ou.rtrier.
little to do with the need to devetp disti"ct theoretical frimeworks fi";;"h-ii,"-"iouor
;;,;o. I"_ |
stead, the reason for this organization has more to do with the
fact ttr"t tfr" I
differ on a number of important dimensions, and these diff"r";;",
ent relationshiq^s with and policies toward the international economii;;"
ir" .?rrir.ir- |

ryri"*. itr" *, I

Sotpt have different economic structures. The advanced industrializei countries pro-
duce and capital intensive and technology intensive goods and ,"J"", *t itt
f*nort
most developing countries are heavily dependerii upon laboiintensive goods
and pri-
mary commodities. In the internationJ linancii system, advanced"industrialized
countries are lenders whiledeveloping countries are borrowers. The two groups ar€
not equally powerful. The advanced industrialized countries have more
oo#r and can
use this power to shape the rules goveming international trade and finance. The devel-
oping countries have less power, and have typically had to accept the rules of the sys-
tem as given. As a result of these differenceJin economic structure and international
Power, the two groups have had very different experiences with the international eco-
nomic system. For this reason, one chapter in each issue area focuses more heavily
upon the advanced industrialized countries while another focuses more heavily upon
the developing countries.
 Key Terms

Material Interests
Marxism
Mercantilism
Political Institutions
Welfare Consequences
Welfare Evaluation

.T