Key Points

• The way that any national economy fits into the international economy produces distinct polit­ical problems—for the state and international relations—depending on the nature of that state's economic activity and the power it has to structure the system.

• The fundamental problem for IPE is the actual or potential mismatch between an international political system based on territorial states and an economic system increasingly non-territorial and globalized.

• The 'international economy' is the sum total of the economic relations between national economies, mediated and controlled by the national governments and their international organizations and regimes.

• A 'global economy' is the 'international econ­omy' plus the activities of the 'integrated pro­duction and service economy' operating as a total system, with much of the dynamic provided by the latter—crucially the objectives and inter­ests of global economic actors may not be the same as or in support of individual governments or the system as a whole.

• The greater the degree of 'globalization' the more complex the IPE becomes, the greater the prob­lems of control for states and international gov­ernmental organizations, the more difficult it is to achieve any democratic control of national economic life and historically the greater the gap between rich and poor in the global political economy.

What Kind of World have We made? 'International' or 'Global'?

Our first task is to establish exactly what kind of world we live in—is it more like our traditional 'international economy' or is it closer to a 'global economy'? (See Figs. 11.2 and 11.3.) In either case we can safely conclude at a minimum that it is a political economy we are investigating, rather than a pure economy. However, the extent and implications of 'globalization' are perhaps the most hotly debated questions in IPE (see Boyer and Drache 1996; Hirst and Thompson 1996). It is prob­ably fair to say that for most commentators and for some policy-makers the jury is still out on whether or not we have a 'globalized political economy' that has made the state increasingly redundant and will continue to do so, although some regard capitalism as necessarily 'global' in extent and clearly domi­nant as a form of political economy (see, in particu­lar, Gill and Law 1988).

Of course, any international activity or event external to the territorial space of the 'nation state' is more of a problem in terms of governmental con­trol than a similar activity or event within the terri­torial space. This is one of the bases of the claim to political sovereignty and economic autonomy made by national governments. And national gov­ernments have responded to growing international linkages through trade, investment, and techno­logy for the past 250 years and have also initiated forms of political organization designed to enable the collective 'management' of the international economy (see Murphy 1994). So even within a firmly traditional 'international economy', with the added complication for Western Europe of the EU, the level of complexity of policy and collective decision-making is very high, and the conse­quences of failure can be catastrophic. Hence, even if we decide that the fundamental basis of IPE remains the national/international economy, the policy problems are still immensely difficult.

Whatever our eventual judgement on the nature of our international/global world, it is relatively clear that some important aspects of the interna­tional system of political economic relations have changed and contribute centrally to the world we have made. We shall briefly consider five: the con­centration of economic activity within the 'Triad' of North America, the European Union, and Japan/Asia; the vast increase in capital flows in the world economy; the growth of global firms as inter­national 'actors' and the nature of 'international production'; the further blurring of boundaries between domestic and international realms; and the ideological basis of international economic relations.

More and more advanced economic activity takes place amongst the three most developed regions of the world: 'the process of technological, economic and socio-cultural integration amongst the three most developed regions of the world (Japan plus the NICs from South-East Asia, Western Europe and North America) is more diffused, intensive and sig­nificant than 'integration' between these three regions and the less-developed countries, or between the less-developed themselves' (Petrella 1996: 77). Thus, national economies outside of the Triad are increasingly marginalized from the processes of wealth creation whilst the levels of economic inter­dependence within the Triad are increasing. With this development comes an intensification of the knowledge content of advanced production and a de-linking of production to raw material resources. Both these developments further disadvantage those outside of the Triad. Moreover, with this process of economic concentration comes also the political domination of the management of the world political economy, brought into stark relief by the admission of Russia to the group of richest coun­tries that collectively 'manage' the world economy. Of course, this begs the question as to where China fits and will fit within the global political economy, and no simple answer is possible given the unique constellation of forces and ideas that characterizes the current situation.

Hence, globalization is partial in spatial terms and selective in its impact—this conclusion is sup­ported by a number of indicators (see Petrella 1996):

• Triad countries in 1980 accounted for 55 per cent of total world exports of manufactured goods; in 1990 the figure was 64 per cent. Imports are sim­ilarly distributed: in 1980 Triad countries accounted for 60 per cent of all imports of manu­factured goods, in 1990 64 per cent.

• the poorest countries' (102 countries) figures are as follows: exports of manufactured goods: 1980—7.9 per cent, 1990—1.4 per cent; imports of manufactured goods: 1980—9.0 per cent, 1990—4.9 per cent.

• capital flows—each of the three components of capital flows (see Box 11.5) has demonstrated concentration within the Triad countries. In the 1980s the Triad accounted for approximately 80 per cent of all international capital flows.

• in knowledge and technology firms—where a growing and highly significant percentage of wealth is created—co-operation between firms on 'strategic technology' is becoming the best indicator of economic success. Of the 4,000+ inter-firm agreements made in the period 1980-9 over 90 per cent were between Triad firms.

Box 11.5. Global Capital Flows

Three main categories of capital flows:

• money and finance—linked to trade in goods and services (e.g. imports, airline tickets)

• foreign direct investment—financial capital trans­fers, also physical, human, and technological capi­tal

• portfolio investments (investing in a range of instruments for financial gain, rather than control over an enterprise) and various other forms of transactions (including speculation)

Source: (after Petrella 1996)