Challenges Facing the International Political Economy - Essay Example

Challenges Facing the International Political Economy Challenges Facing the International Political Economy Introduction International political economy (IPE) refers to the study of how economics and politics interact to influence the distribution of wealth among nations(Frieden & Lake, 2003). In a general sense, economy is the system of generating, distributing and using wealth. Politics is the set of rules and institutions that govern social and economic interactions. Some scholars see IPE as the study of a set of related problems. Traditional IPE problems include international trade and finance, north-south relations, hegemony and multinational corporations. In recent years, however, IPE has broadened its scope to focus less on the sometimes exaggerated role of the nation-sate in international politics and trade. Today, IPE is affected by a myriad of challenges. This paper examines three of these challenges paying special attention to their roots, causes and possible solutions. IPE’s three most pressing challenges today are globalisation, environmental degradation and international organised (Frieden & Lake, 2003). Globalisation For years, the state has played a dominant role in both local and international political economy. However, IPE scholars believe that that this is no longer the case: the state is being transformed within a wider, more complex context. Some scholars have even claimed that the state is being eroded. The international system is no longer based on states; instead, it is increasingly shaped by a plural and composite structure. This transformation disrupts the logic of collective action. At the centre of this transformation is what has come to be known as “globalisation”, a term that describes the process of change that has culminated in greater economic and cultural interconnectedness and interdependence (Albrow & King , 1990). However, by definition “globalisation” is a problematic term. It is not homogeneous, its boundaries are unclear and its constituent components and multi-dimensional nature are not fully understood. While many scholars hold that globalisation is a recent phenomenon, others locate its origins in the European voyages to the New World(Frank, 1998). Some scholars even trace globalisation to the third millennium BC. Regardless, its origins, however, widespread globalisation began in the 1800s. Then, during the 20th century, the world’s economies and cultures became interconnected at an even faster pace(ORourke & Williamson, 2000). The rapid spread of globalisation is attributable to a number of factors. These include the advances made in transport and communication(Frieden & Lake, 2003). The effect of these two has been the overcoming of the friction of distance such that it is now possible to conduct business across national borders expeditiously. For instance, a flower farmer in Kenya can airlift his flowers and sell them in London while they are still fresh. However, the advances in transport have also been responsible for environmental degradation, a major issue in IPE today, as will be seen shortly. The advent of the Internet has taken globalisation a notch higher by speeding up communication(Frieden & Lake, 2003). However, the Internet is a double-edged sword: whereas it has revolutionised the way firm and states conduct business with their global partners, it has also exposed financial transactions to greater risk of fraud(Stever, 1972). More recent globalisation trends are attributable to developed economies collaborating with the less developed ones by means of a host of economic reforms that include direct foreign investment and the removal or reduction of barriers to trade. However, whether developed economies benefit equally from such integrations has been the subject of much debate (International Monetary Fund (IMF), 2000). In principle economic globalisation is desirable (Chaudhuri, 1990). For instance, it facilitates the transfer of technologies and skills among countries such that the recipient countries become more efficient and competitive locally and on the international market. However, globalisation has also opened up national markets to multinational corporations (MNCs). Usually, MNCs are bigger and more established and, therefore, more competitive than local firms. The local firms, particularly those in the developing world find it extremely difficult to compete against MNCs(Hitt, et al., 2006). Thus, developing countries fear that globalisation of trade, and especially the opening up of local markets to MNCs, could stifle local industries (International Monetary Fund (IMF), 2000). The issue of MNCs was particularly a thorny one during the Cold War as they were seen as an important element of the war strategy (Ingham, 2004). During the Cold War, American and western international businesses were believed to be tied to their governments by what was called an “invisible handshake”(Friedman & Martin, n.d.). The home governments used their influence to open markets for the MNCs abroad. In turn, the businesses furthered the economic and political interests of the government in the host country. When the Cold War ended, the concerns around MNCs changed in nature to focus on such issues as capital accumulation; the MNCs are known to repatriate huge proportions of their profits to their countries at the expense of the development of the host nation(Joshi, 2009). Over the years, countries have resorted to the economic policy of protectionism in efforts to protect their local industries against global competition (Fouda, 2012). The policy employs such methods as imposing tariffs on imported goods and restrictive quotas among a host of other methods. Scholars have put forward many arguments for and against protectionism, but these are beyond the scope of this paper. Since the end of WWII, most developed countries pledged to eliminate protectionism and instead promote free trade policies. International treaties and bodies such the World Trade Organisation (WTO) monitor the latter. However, the journey towards a free trade world is not without challenges. The capacity of WTO to compel developed nations to totally eliminate protectionist policies is questionable (Anon., 2010). For instance, the Common Agricultural Policy pursued by the European is still viewed as largely protectionist. Moreover, efforts so far seem to have centred on the developed economies at the expense of the developing ones. A lot needs to be done to achieve a level playing ground for developing economies to compete globally without resorting to protectionism. Environmental Degradation In recent times, concerns over the contribution of international trade to environmental degradation date back to 1906 when the United States banned the importation of insects it believed could harm crops and forests (Frieden & Lake, 2003). In 1926, the Alaska Fisheries Act stipulated the type of nets and other fishing gear that could be used in Alaska and prohibited the importation of salmon caught in waters outside the jurisdiction of the US using nets that did not meet the specifications of the Act. In more recent years, a US legislation prescribing the methods of harvesting tuna as a means of protecting dolphins has been at the centre of a trade dispute between the US and Mexico. In recent years also, the awareness of global warming has given more prominence to environmental issues in trade negotiations, thereby further complicating already difficult negotiations (Frieden & Lake, 2003). Environmental degradation, such through pollution, is caused primarily by the lack property rights(Butler, 1992). This point is best illustrated by a classic example presented by Pigou in his 1920 The Economics of Welfare. Early in the twentieth century, factory chimneys in many of British towns released smoke into the atmosphere, resulting in heavy pollution. Wet clothes hung outside to dry got stained by smoke. A comparative study on the cost of washing was done in two cities: the heavily polluted Manchester and the cleaner Harrogate. The total extra cost of washing for the 750,000 or so residents was 290,000 pounds a year, taking into account only the extra cost of fuel and washing materials. Had the study taken into account the extra cost of labor involved, the total cost would have been much higher. Thus, smoke, the product of production had an unintended effect on cloth washing. Because on one “owned” the air, the factories in Manchester did not consider the extra costs of washing they imposed on the residents of the town. More pollution than was socially permissible occurred because the private cost of the smoke emissions to the firms was zero compared to the social cost of 290,000 pounds. In order to eliminate, or at least reduce environmental degradation, the difference between private and social costs must be eliminated. This can be achieved by either assigning ownership rights or through direct government regulation (Broad, et al., 1991). The approach taken will depend on whether property rights are assignable. An example of assigning property rights would be a scenario where a town pays a factory to reduce its emission of pollutants into a river that provides the town with water. The examples and solution offered here apply to a national context. Negotiating environmental interventions is much harder among nations for a number of reasons. First, there exist differences in preferences and levels of income among nations (van Calster, n.d.). Secondly, scientific evidence is rarely conclusive of the effects of certain environment-degrading activities(Frankel, n.d.). Finally, some countries may use environmental protection as an excuse to pursue protectionism (Mansfield & Busch, 1995). International Organised Crime (IOC) International crime is one of the ten threats and setbacks to international peace and security as identified by the United Nations. The most common IOCs include money laundering, human trafficking, arms smuggling, cybercrime, drug peddling and poaching of endangered animals among others. In tracing the origins IOC, Europe, and especially Italy forms a good starting point. Europe is home to the world’s oldest known mafia, the Sicilian Mafia and a host more others.it is reported that at least five mafias are currently active in Italy. The “Russian Mafia” is an umbrella group that brings together a number of mafias. Other European countries are also home to mafias – Macedonia, Albania, Estonia and Bulgaria. Italy alone has been home to hundreds of mafias over the centuries. To date, no one has offered a concrete explanation as to why the home to the Roman Catholic Church is also the breeding ground of the world’s most dangerous mafias. Neither is such an explanation the subject of this paper. Besides international peace and security, IOC disrupts free markets because mafias are involved in the supply of massive volumes of legal and illicit goods alike, raking in colossal profits(Arlacchi, 1986) besides extortion (Konrad & Skaperdas , 1998). Indeed, IOC threatens some governments, especially the weak ones that lack the power to contain mafias. While an exhaustive list of the causes of IOC may not be furnished in this paper, one cross-cutting factor will explain the emergence of IOC. One of the factors that give rise to mafias is power vacuums (McCarthy, 2011). For instance, for a long time, Italy has lacked effective civil authority at central and local levels of government. By the time Italy became a unified state in the 1860s, many Italians had lost confidence in the ability of any governmental power to protect. The lack of confidence stemmed from centuries of numerous political powers rising and falling. As a result, people took to protecting themselves (Konrad & Skaperdas, 1999), a situation that created fertile ground for mafias to flourish. Other factors that may lead to the rise of mafias include the geographical expansive of a country that hampers effective government control and negative ethnicity (Reuter, 1995). The fact that even the strongest of economies cannot eliminate organised crime is a puzzle. Nonetheless, governments can do a number of things that governments can do to stamp out organised crimes within their borders. The starting point is for authorities to come to grips with the reality of organised crime (Akerlof & Yellen, 1993). Authorities must stop seeing criminal gangs as “those evil people” who are inclined to do commit crimes. Instead, they must seek to understand basic facts about organised crime and criminals: (1) like everyone else, the people who engaged in organised crime are trying to earn a living, except by unorthodox means, (2) organised crime appears and flourishes because the material and institutional conditions are optimal, (3) organised criminal groups enjoy popular support among their communities ad their leaders are revered(Skaperdas, 2002). The state and the police must become more professional in their dealing with criminal gangs (Fiorentini & Peltzman, 1995). Rather than prohibiting every activity that mafias are involved in, states should instead consider legalising some of them. By so doing, the mafias may be mainstreamed into society. Finally, in order to end IOC, nations must coordinate their efforts from drug policies to monitoring laundered profits – the Interpol and the United Nations provide frameworks for such coordination. 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