Christ College of Law, Bangalore

POLTITICAL SCIENCE ASSIGNMENT - 4

3rd Semester, July – December 2007

“POST WAR EVOLUTION OF THE GLOBAL

POLITICAL ECONOMY”
Project assignment submitted by
Nishit Gupta (06D3422)

II Year, B.A. LL.B.,

On

29th October 2007

On

25th October 2007

Table Of Contents

Introduction...........................................................................................1
Chapter 1 – Post World War Scenario - Economic and Political..................3
Europe Immediately after Post World War...............................................................3
Economic Recovery of Europe.................................................................................5
Chapter 2 –Change in World Economic Framework...................................7
The Relationship Between Politics And Economics: US Hegemonic Stability ..........8
Chapter 3 - Introduction Of Concept of International Political Economy
(IPE) – Study of IPE in International Relations........................................10
International Political Economy (IPE).....................................................................10
International relations (IR).....................................................................................12
IR and International Political Economy (IPE)..........................................................13
Chapter 4 – Dominance of Globalization In Political Economies..................9
Conclusions..........................................................................................13
Bibliography........................................................................................14
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

INTRODUCTION

Over last two decades or so the world has developed to a very large extent,
with emergence of many strong players. The rapid growth and development
of technology, trade and commerce, the distances have reduced; the world is
now like a global village with borderless states. Apparently the sovereign
power is shifting to the market forces in the new globalized world giving rise
to new standard of rules and regulations. Neoliberalism, which means
blending of literal political views with an emphasis on economic growth, is
making the domestic economies adapted to the exigencies of the world
economy; as a result the markets are now becoming free from the national
boundaries and are getting global.1

Immediately after the end of the second world war US and European
economies faced serious economic challenges, mainly rebuilding of the war-
torn nations and to check the great depression, which led to the creation of
many international institutions like the International Bank for Reconstruction
and Rebuilding (now known as the World Bank), the International Monetary
Fund for facilitating stable economic order within the states. The beginning of
the cold war postponed the functioning of the organizations as the United
States stepped into the rebuilding the European nations and the monetary
system became based on the Dollar.2 US became a hegemon, it helped in
rebuilding Europe and Japan which enhanced trade and commerce all over
the world. It rebuilt Europe by the time US itself started facing economic
problem.

The concept of International political economy (IPE) which is the interaction

of economics and politics in world affairs emerged as a result of increase in

1
A.F.M. Maniruzzaman, Global Governance, International Political Economy, and The Global
Legal order - The Challenge Ahead, 1(3) Manchester J. Int’l Econ. L. 4 (2004).
2
JOHN BAYLIS & STEVE SMITH GLOBALIZATION OF WORLD POLITICS 327 (3rd ed.,2006)
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

global trade. This concept was earlier neglected but in early 1970s when
international relations began to change when the policy makes and the
scholars where forced to think about the economic relations. Mainly the
study of International Political Economy became important after the US
failure in Vietnam and decline in US economic prevalence. The rise in oil
price and many other new economic problems made the study of the
International Political Economy more important.

There are various concepts regarding the study of International Political

Economy (IPE) and International Relations (IR) which gives a complete
understanding of the concepts.

The project is entitled to give a comprehensive knowledge of IPE, IR and

Globalization to the reader. The research paper has been chapterised
accordingly for the ease of the reader to get through. Initially chapter 1
describes the post war scene, how Europe got destroyed and how later it
recovered. Then secondly, chapter 2 will discuss about the changes in
economic framework all around the world. Thirdly, chapter 3 will illustrate
the rise of IPE and the concept of IR. Finally chapter 4 will explain the
phenomenon of Globalization.
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

CHAPTER 1 – POST WORLD WAR SCENARIO - ECONOMIC AND

POLITICAL

A
fter the end of the world war the first mottos was the rebuilding of
the war torn nations and revive the economies. In the year 1944, the
scholars and the law-makers assembled at Bretten Woods, United
States. They met to firstly solve two major problems – firstly to revive from
the Great Depression in late 1920s and 1930s, and secondly to rebuild the
war torn states of Europe. Accordingly at Bretten Woods itself three major
institutions were planned to be brought up i.e. the International Monetary
Fund (IMF), the International Bank for Reconstruction and Rebuilding (IBRD
now known as the World Bank) and finally the General Agreement on Tariff
and Trade (GATT) was signed3.

The great depression had ruined all the economies, when all of the
governments tried to protect themselves, they started imposing trade
barriers and devaluing their currencies.

The Second World War had badly hit Europe. It had completely ruined Europe
both economically and politically. Europe used to be one the major powers
before the Second World War; it lost all its powers and dominance after the
Second World War.

EUROPE IMMEDIATELY AFTER POST WORLD WAR

Till the 19th Century all the big powers were European but the 20th century
marked basic shifts in European power in respect to the world. After six years
of the war completely different image of Europe emerged. Italy had been
liberated from the fascist regime, even though it was constantly struggling

3
Id. at 326
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY ”

both economically and politically. France was almost in the same situation
compared to Italy. It was defeated by the Nazi’s and was humiliated by the
defeat and the collaborationism. Basically the war was not the reason for
Europe’s decline; it just accelerated its decline as it was suffering from many
political and economical issues.4

Economically speaking the restorative powers of the continent was not at all
sufficient for recovery of the war–torn Europe. Europe was suffering from
massive capital loss and its earning from the capital investments had gone to
zero. There were no shipping as neither well as tourism neither trade nor
there imports; which largely hit Europe’s earning. It was complete failure of
state of Europe.5

The hopes for rehabilitation and recovery of Europe also declined, the
dictates of cold war took over more priority than the rehabilitation of Europe.
The destroyed continent, which needed to utilize its resources efficiently for
its recovery, was divided into two parts the Eastern Europe and the Western
Europe, which ran from Stettin on the Baltic to Trieste on the Adriatic. The
division clearly divided the communist and the non-communist. These
developments had seriously decelerated the economic rehabilitation. The
same old problem again started to recur; the problem of security of the
nation against foreign aggression again became a problem. The future of
Europe was endangered by the influences of the cold war.

Having the fear of rise of communism in Europe which was completely war-
torn, United States announced the Marshall plan, in 1947, which directed
heavy financial aid to Europe for its rehabilitation. In other words United
States took a far direct role in the reconstruction of Europe and managing
the world-economy. This plan replaced the ‘gold standard system’ by the
‘dollar standard system’ which was directly controlled by US itself. The

4
NORMAN D. PALMER & HOWARD C. PERKINS INTERNATIONAL RELATIONS 398 (3rd Revised ed.,2007)
5
Id. at 399
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY ”

International Monetary Fund and the GATT which started functioning were
completely dependent on the US.

This US support didn’t last long when the US economy started to dwindle. At
this stage the US started spending more money on education and
infrastructural developments programmes in the United States itself that too
without raising taxes. Consequently the US economy started to degrade. The
US goods and services started loosing it competitiveness and subsequently
the dollar system also lost its confidence. Countries turned back to the gold
system from the dollar system

ECONOMIC RECOVERY OF EUROPE

The great powers collaborated and pledged on the Moscow Declaration of
1943, in the United Nation Charter, for having peace. The Soviet Union
refused to take part in the Marshall Plan which was earlier laid down by the
US and also didn’t allow the nations in its orbit to participate in it. The refusal
of the Marshall Plan gave a clear indication that the recovery of Europe was
no more could be considered to be in continental scale6.

The Western Europe took up its rehabilitation task in a regional basis rather
than in a continental basis. The basic problems faced by the Western Europe
were inflation, distribution of goods, rebuilding of factories and other basic
economic problems. But the major problem related to political, spiritual and
moral issues.7

The United State’s support to rebuild Europe and Japan also helped Europe to
gain pace in its development process. The funding and aid from the US
helped to rebuild the war-torn Europe, which later made US suffer with losses
and Europe itself becoming stronger.

The Western Europe had made many programmes for its development, but
all the efforts were made with respect to the Marshall Plan. Fearless of
6
Id.
7
Id. at 410-411
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY ”

Russia’s action, the foreign ministers of the West European nations framed
the European Economic Cooperation (EEC). The EEC in 1947 prepared a two
volume report8 which gave the four-year programme sketch which was
equivalent to what the US achieved in the years 1940 to 1944. The report
was the result of the Europe Recovery Programme.

8
Committee of European Economic Cooperation Report, Department of State Publication,
1930, European Series 28 (Washington D.C.: Government Printing Office, 1947), Volume I
contains general report and Volume II contains technical reports. As cited in Supra note 4, at
412.
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY ”

CHAPTER 2 –CHANGE IN WORLD ECONOMIC FRAMEWORK

W
ith the upcoming pressures over the US economy, the US started
to change its rules regarding the international monetary system
in the year 1971. US made its policy that it will not convert
dollars to gold at 35$ per ounce9. It also imposed a 10% surcharge on its
imports. This weakening of US economy and making this new policy made
the Bretten Woods system come to end.

1970 experienced many economic changes all around the world; collapse of
the Bretten Wood System was one. The Second World War left all the
economies with very high inflation which was very difficult to manage. The
IMF collapsed with the break down of the Bretten Woods System; major
industrialized nations failed to coordinate their exchange rate policies.
Instead the industrialised nations started to frame and discuss monetary
issues among themselves; the industrialised nations comprised of the US,
UK, Japan, Germany, France, Italy and Canada which were called the ‘group
seven’; they first had their meeting in the year 1975. Then in the year 1973,
oil crisis started to hit the economies. The world-economy faced very low
growth rate and which in turn increased the inflation level. In the 70s the
policies of reducing the import tariffs were reversed. As the economies faced
the challenges of inflation and low growth rate, the nation’s framed new
trade polices which mainly aimed to keep out the new competitive goods fro
the developing economies. These polices were referred as ‘new-
protectionism’, which clearly violated the GATT principles. This new-
protectionism charged anger among the developing nations who in turn
launched a campaign in the United Nations General Assembly (UNGA), in
1970, for New International Economic Order (NIEO). The agenda of NIEO
were trade, investment, international monetary and financial system and
9
BAYLIS & SMITH, Supra note 2, at 326-329
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY ”

institutional reforms. The NIEO campaign wasn’t a success as UNGA had no

power for implementing any such agendas. Earlier in 1970s there were
government who were sympathetic for the developing nations but later by
1980s the new governments were less sympathetic and hence were least
interested in acting on the agenda.

The work of the institutions changed. The World Bank is now a developing
agency who provides loans for the developing nations. The GATT failed to be
at par with the aspirations of the developing nations but the trade
negotiations of 1980 created a new body, the World Trade Organization
(WTO), which was made for better enforcement of the trade rules. The IMF
collapsed with the break down of Bretten Woods but was later called back
with a new role of debt crisis management in 1980s.

THE RELATIONSHIP BETWEEN POLITICS AND ECONOMICS: US HEGEMONIC

STABILITY
A hegemon which means a dominant military and economic power and
stability is very important in having full development in the present liberal
world economic market. It enables a uniform liberal rule everywhere in the
world. This dominant power not just manipulates economic affairs for its own
profit but also helps to create an open world economy which is based on free
trade which in turn benefits all competing partners. In the absence of such a
hegemon, it would be more difficult to sustain on open world economy.

There were two major hegemon’s in the past i.e. the Great Britain in early
20th century and the US after the Second World War. Britain was powerful
and was interest in maintaining open world economy in early 20th century but
its power declined when other nations gained power especially Germany and
United States. The US then took over the responsibility of maintaining the
liberal world economy.

US being the largest economic and political player never wanted to take up
the responsibility of being the hegemon for creating a liberal world economic
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY ”

order. The willingness among the Americans only came after abrupt end of
the Second World War when US became exceptionally strong after the
decline of the powerful nations like Europe, Japan and Britain. The American
politicians thought other than US there was no other post-war nation who
could take up the responsibility of being a hegemon.

The US provided military support to the Western Europe for its security
against Soviet threats which in turn helped the US to gain trade influence
over that region. The US in this position gave more access to the world
economy. The Marshall Plan helped the US in reconstruction of Europe and
Japan. US had another motto in helping the reconstruction was to its security
against Cold War Struggle with the Soviet Union.

By late 1950s and 1960s Japan and Western Europe were built and started to
catch up very fast when US started to loose its dominance. US economy
started facing problems of Balance of Payments, deficits started to rise. This
was the first time in post-war era when US economy became unstable. US
started making policies for its own national interest. In 1945 more than
sustaining world liberal market, maintaining its own economy became US’s
main motto. A new era of monetary instability and economic crisis emerged,
when US dominance declined and no more played a role of a hegemon.10

10
ROBERT JACKSON & GEORG SORENSEN INTRODUCTION TO INTERNATIONAL RELATIONS THEORIES AND APPROACHES 196
(3rd ed.,2007)
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

CHAPTER 3 - INTRODUCTION OF CONCEPT OF

INTERNATIONAL POLITICAL ECONOMY (IPE) –
STUDY OF IPE IN INTERNATIONAL RELATIONS
INTERNATIONAL POLITICAL ECONOMY (IPE)
In our daily practical life, we need food to survive. We buy
food from the market after paying a specified amount of
price. We cannot buy anything without paying money. Today
the modern market is based on political rules without which
a market would be a ‘mafia market’ i.e. markets based on
bribes and thefts. Hence the market functions in the political
rules framework. The economics which is the study of wealth
and the politics which is the study of power interact in a very
complicated way as both of them are inter-related to each
other. Hence International Political Economy is an academic
study of social sciences which analyses the international
relations in relation to the political economy11.

There were two main approaches to the study of the IPE –

the traditional approach and the modern approach.

TRADITIONAL APPROACH

THE LIBERAL TRADITION – the world economy has the power to be

seamless global market place where the market forces will
determine the political system i.e. it will shape the policies
and the laws of the government. The powerful nation will be

11
See also, Supra note 10, at 179, it is the complex interplay in the international context
between politics and economics, between states and markets, which is the core of
International Political Economy.
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

decided with the kind of competence it has in respect to

other economies12.

THE MERCANTILIST TRADITION – the world economy is a place where

everyone tried to increase their power and wealth with
respect to other nations. The world economy is believed to
be a sphere where inter-state competitions13.

THE MARXIST TRADITION – the world economy can be divided into

class i.e. the capitalists and the workers and social groups.
Marx says the world economy is an arena of capitalist
competition. The economy progresses with the increase in
competition14.

MODERN APPROACH

THE INSTITUTIONALIST APPROACH – the world economy is a field of

inter-state cooperation, governments and the institutions
have the soul power and the driving forces are the power
gained from the cooperation. The Institutionalist approach is
applicable to the interaction of the states with other states in
order to define the states foreign policy in economic affairs15.

THE POLITICAL ECONOMIST APPROACH – the world economy is

categorized by the level of competition between the states.
The political economists are not concerned with the
hypothesizing of the conditions which are necessary for the
international order. The political economy is only applicable
to the rational choices of the bureaucrats, the interest
groups and the coalitions16.

12
BAYLIS & SMITH, Supra note 2, at 333
13
Id.
14
Id.
15
BAYLIS & SMITH, Supra note 2, at 337
16
Id.
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

THE NEO-GRAMSCIANS APPROACH – the world economy is central

structure of knowledge, institutions and ideas of the
dominant players within which the competition takes place.
This structure according to the Neo-Gramscians gives the
identity of the players17.

INTERNATIONAL RELATIONS (IR)

The world is divided into various political economies and
independent states, according to which people derive their
identity. All together these states form an international state
system. This form of state system is the main subject of
study of IR. The states are embedded in international
markets which affect the policies and the laws made by their
respective governments which are for welfare of their citizen
for which there should be a relationship between each other.
IR is the study of such relationship, nature and consequence
of such relationship.18

There were five main issues regarding the study of the

International Relations which were international terrorism,
environment, gender, sovereignty and the theory of
changing statehood19.

International terrorism poses a threat to public security and

needs to be taken into consideration seriously.
Environmental degradation has always been a problem, the
modernists say that with the increase in the knowledge of
the humans and the technological advancement will help in
saving the environment for the future generations. Gender
issue speaks about the inequalities between the men and
17
Id.
18
JACKSON & SORENSEN, Supra note 10, at 2
19
Id. at 276
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

the women in the world, it helps to illustrate hoe the

international political and economic system helps to revive
the women from their deprived positions. Sovereignty as an
issue speaks about the changes in sovereignty i.e. new form
of conflict between the weak nations in the south and the
new forms of cooperation between the developed nations in
the north. The theory of changing statehood relates to the
problems of two types of states i.e. the postmodern states
and the ‘third world’ states

IR AND INTERNATIONAL POLITICAL ECONOMY (IPE)

The period after the Second World War, was the period of
decolonialization when many new states came up and old
colonial powers gave up the control and new states became
politically independent. Those new states were
comparatively both economically and politically weak, which
constituted the ‘third world’. In 1970s these ‘third world’
states started developing and started coming into a stronger
position. This proposed a major debate in study of IR about
the international wealth and international poverty – i.e. the
International Political Economy (IPE). Therefore IPE is
basically about which state gets in the international
economical affairs and the international political system20.

The concept of the International Political Economies was

hidden and neglected till 1970s but later on, since early
1970s the concept of international relations started to
change as the law-makers where forced to look into the
economic affairs of the their economies. The power and the
predominance of the US power remained unquestioned after

20
Id. at 50
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

the end of the Second World War till the decline of US power
in Vietnam. In the late 1960s the economic strains started to
wear away US political system and the economic relations
started to give problems and restrictions into both domestic
and international policies.21

The study of international relations showed the growing

economic inter-dependence of countries especially on United
States.

It was believed that the international relations could no

longer be taken as just competitions between the states.
Various economic issues, new channels of development and
communication gave rise to a new world politics in which
International Political Economy (IPE) and the international
institutions will play an important role.

Since 1970s the study of International Political Economy

started to increase and became a crucial topic in the study
of international relations.

Globalization and its effects on the nations not only on its

economic relations but also on its political relations started
defining the future of international relations.

End of cold war also decreased the dominance of the west

and many other geo-strategic articulations.

21
BAYLIS & SMITH, Supra note 2, at 327
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

CHAPTER 4 – DOMINANCE OF GLOBALIZATION IN

POLITICAL ECONOMIES

T
he globalization has always been in debate with the
study of International Political Economy. When it’s
the study of globalization there are four aspects or
processes which are followed in the world economy.

The four aspects are the internationalization, the

technological evolution, the deterritorailization and the
liberalization22.

INTERNATIONALIZATION – it explains the continous increase in cross

border economic transaction which started long back in
twentieth century and is now going on increasing in a very
fast pace when we see the present situation. There has been
a drastic increase in the flow of trade, investment and the
capital. The process of this cross border trade has been
constantly increasing and is constanltly being facilitated by
states. The rules are being framed accordingly for more in-
flow of capital.

TECHNOLOGICAL REVOLUTION – it basically signifies the technological

change which has taken a big leap since last few decades. It
describes the effect of new means of electronic
communication, the evolution of the internet, satellite
communication etc, where it enables firms to deal and

22
BAYLIS & SMITH, Supra note 2, at 338
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

function globally without having any place or time

restriction.

DETERRITORAILIZATION – the impact of the technological revolution

speeds up deterritorailization which means it reduces the
territorial influence form which people derive a political
recognition. Now the state has become some like a global
village.
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY ”

LIBERALIZATION – it illustrates the polices made by the states

which enables easy global trade, like reducing the trade
tarrif, reducing taxes polices which are made investor
friendly and privatisation of state organization.

For study of International Political Economy one takes the

economic aspect of globalization into account. Economic
aspect is the most important aspect of globalization as it is
related to interdependence of political economies. In modern
days the interdependence is rather considered to be
‘intensified interdependence’. Globalization is driven by
factors like technological advancement and constant
competition among economies. The various approaches of
IPE are in coherence with the economic globalization but
they disagree with the actual content and the future
consequences of globalization for the economies.

The Mercantilist position in the globalization is very crucial

as it takes both content and the consequences of
globalization on the state. Thus the mercantilists disapprove
the fact that the economies are being pressured and loosing
the pace, they say the economies fail to correspond to the
challenges on economic globalization23.

The Neo-Marxist believes that the globalization is the

combination of ‘economic interdependence’ and creation of
global economy. They say that economic globalization is an
uneven and hierarchical process where the economic power
and interdependence mainly rests with the developed and
the industrialized countries24.

23
JACKSON & SORENSEN, Supra note 10, at 211-215
24
Id.
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY ”

Globalization poses a common threat to all the nations both

the developed and the developing nations that they need to
frame their policies regarding the exchange rate and the
interest rate policies very carefully. The weaker nations need
to abide with the rules laid down by the major player; they
even have minimum role to play in the world-economy25.

25
BAYLIS & SMITH, Supra note 2, at 342
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

CONCLUSIONS

The poverty and wealth issues which were raised by IPE are
of main importance in the World-politics. The traditional
study of International Relations concerned only with war and
peace but now-a-days the problem is conflict between within
the small developing states; conflict related to development
and under-development which is one of the major issue in
the study of IPE. The IPE also discusses sovereignty
statehood. When the national economies and the
international economies are integrated in the course of
economic globalization, the states might be expected to
change significantly. This problem highlights the new
problems which may arise i.e. the problem of relationship
between the states and its ability to make policies relating to
the economic globalization. Study of IPE is not only limited to
the study of globalization. Some other aspects such as
‘international business’, ‘micro and macro – economics’,
‘international finance and banking’ and ‘economic
geography’ also becomes a part of the study of IPE.

Second World War led to creation of the concept of IPE to an

extent. Second World War left US to be the most dominant
player in the world and left Europe completely ruined. Taking
advantage of the situation US took over the responsibility of
being hegemon. Unaware of the future consequences US
framed policies for its own profit, which later on hindered
US’s progress itself. US economy started to face economic
problems like balance of payments, inflation etc., when US
gave up the position of the hegemon and concentrated on its
 “POST WAR EVOLUTION OF THE GLOBAL POLITICAL ECONOMY”

own economy. By this time Europe and Japan were rebuilt

and gave strong competition to US itself.

All this led to increase in trade and commerce and

consequently globalization came into existence. With
globalization being an integral part of nation’s progress
concepts like International relation and International Political
Economy came into existence.

It's not a single theory rather a combination of insights of

many other theories; which is the only way where one can
expect to develop an intense and well established
International Political Economy.

BIBLIOGRAPHY

BOOKS

• JOHN BAYLIS & STEVE SMITH THE GLOBALIZATION OF WORLD POLITICS.

(3 ed.,2006)
RD

• POLTICS AMONG THE NATIONS – THE STRUGGLE FOR POWER AND PEACE.

• NORMAN D. PALMER & HOWARD D. PERKINS. INTERNATIONAL

RELATIONS. DELHI, (2007).

• ROBERT JACKSON & GEORG SORENSEN INTRODUCTION TO INTERNATIONAL

RELATIONS THEORIS AND APPROACHES (3 ed.,2007)

RD