summary of global economy essay

The Global Economy: on Track for Strong but Uneven Growth as COVID-19 Still Weighs

A year and a half since the onset of the COVID-19 pandemic, the global economy is poised to stage its most robust post-recession recovery in 80 years in 2021. But the rebound is expected to be uneven across countries, as major economies look set to register strong growth even as many developing economies lag.

Global growth is expected to accelerate to 5.6% this year, largely on the strength in major economies such as the United States and China. And while growth for almost every region of the world has been revised upward for 2021, many continue to grapple with COVID-19 and what is likely to be its long shadow. Despite this year’s pickup, the level of global GDP in 2021 is expected to be 3.2% below pre-pandemic projections, and per capita GDP among many emerging market and developing economies is anticipated to remain below pre-COVID-19 peaks for an extended period. As the pandemic continues to flare, it will shape the path of global economic activity.

The United States and China are each expected to contribute about one quarter of global growth in 2021. The U.S. economy has been bolstered by massive fiscal support, vaccination is expected to become widespread by mid-2021, and growth is expected to reach 6.8% this year, the fastest pace since 1984. China’s economy – which did not contract last year – is expected to grow a solid 8.5% and moderate as the country’s focus shifts to reducing financial stability risks.

Lasting Legacies

Growth among emerging market and developing economies is expected to accelerate to 6% this year, helped by increased external demand and higher commodity prices. However, the recovery of many countries is constrained by resurgences of COVID-19, uneven vaccination, and a partial withdrawal of government economic support measures. Excluding China, growth is anticipated to unfold at a more modest 4.4% pace. In the longer term, the outlook for emerging market and developing economies will likely be dampened by the lasting legacies of the pandemic – erosion of skills from lost work and schooling; a sharp drop in investment; higher debt burdens; and greater financial vulnerabilities. Growth among this group of economies is forecast to moderate to 4.7% in 2022 as governments gradually withdraw policy support.

Among low-income economies, where vaccination has lagged, growth has been revised lower to 2.9%. Setting aside the contraction last year, this would be the slowest pace of expansion in two decades. The group’s output level in 2022 is projected to be 4.9% lower than pre-pandemic projections. Fragile and conflict-affected low-income economies have been the hardest hit by the pandemic, and per capita income gains have been set back by at least a decade.  

Regionally, the recovery is expected to be strongest in East Asia and the Pacific, largely due to the strength of China’s recovery. In South Asia, recovery has been hampered by serious renewed outbreaks of the virus in India and Nepal. The Middle East and North Africa and Latin America and the Caribbean are expected to post growth too shallow to offset the contraction of 2020. Sub-Saharan Africa’s recovery, while helped by spillovers from the global recovery, is expected to remain fragile given the slow pace of vaccination and delays to major investments in infrastructure and the extractives sector.  

Uncertain Outlook

The June forecast assumes that advanced economies will achieve widespread vaccination of their populations and effectively contain the pandemic by the end of the year. Major emerging market and developing economies are anticipated to substantially reduce new cases. However, the outlook is subject to considerable uncertainty. A more persistent pandemic, a wave of corporate bankruptcies, financial stress, or even social unrest could derail the recovery. At the same time, more rapid success in stamping out COVID-19 and greater spillovers from advanced economy growth could generate more vigorous global growth.

Even so, the pandemic is expected to have caused serious setbacks to development gains. Although per capita income growth is projected to be 4.9% among emerging market and developing economies this year, it is forecast to be essentially flat in low-income countries. Per capita income lost in 2020 will not be fully recouped by 2022 in about two-thirds of emerging market and developing economies, including three-quarters of fragile and conflict-affected low-income countries. By the end of this year, about 100 million people are expected to have fallen back into extreme poverty. These adverse impacts have been felt hardest by the most vulnerable groups – women, children, and unskilled and informal workers.

Global inflation, which has increased along with the economic recovery, is anticipated to continue to rise over the rest of the year; however, it is expected to remain within the target range for most countries. In those emerging market and developing economies in which inflation rises above target, this trend may not warrant a monetary policy response provided it is temporary and inflation expectations remain well-anchored.

Climbing Food Costs

Rising food prices and accelerating aggregate inflation may compound rising food insecurity in low-income countries. Policymakers should ensure that rising inflation rates do not lead to a de-anchoring of inflation expectations and resist using subsidies or price controls to reduce the burden of rising food prices, as these risk adding to high debt and creating further upward pressure on global agricultural prices.

A recovery in global trade after the recession last year offers an opportunity for emerging market and developing economies to bolster economic growth. Trade costs are on average one-half higher among emerging market and developing economies than advanced economies and lowering them could boost trade and stimulate investment and growth.

With relief from the pandemic tantalizingly close in many places but far from reach in others, policy actions will be critical. Securing equitable vaccine distribution will be essential to ending the pandemic. Far-reaching debt relief will be important to many low-income countries. Policymakers will need to nurture the economic recovery with fiscal and monetary measures while keeping a close eye on safeguarding financial stability. Policies should take the long view, reinvigorating human capital, expanding access to digital connectivity, and investing in green infrastructure to bolster growth along a green, resilient, and inclusive path.  

It will take global coordination to end the pandemic through widespread vaccination and careful macroeconomic stewardship to avoid crises until we get there.  

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The State of Globalization in 2021

• Steven A. Altman
• Caroline R. Bastian

Trade, capital, and information flows have stabilized, recovered, and even grown in the past year.

As the coronavirus swept the world, closing borders and halting international trade and capital flows, there were questions about the pandemic’s lasting impact on globalization. But a close look at the recent data paints a much more optimistic picture. While international travel remains significantly down and is not expected to rebound until 2023, cross-border trade, capital, and information flows have largely stabilized, recovered, or even grown over the last year. The bottom line for business is that Covid-19 has not knocked globalization down to anywhere close to what would be required for strategists to narrow their focus to their home countries or regions.

Cross-border flows plummeted in 2020 as the Covid-19 pandemic swept the world, reinforcing doubts about the future of globalization. As we move into 2021, the latest data paint a clearer — and more hopeful — picture. Global business is not going away, but the landscape is shifting, with important implications for strategy and management.

• Steven A. Altman is a senior research scholar, adjunct assistant professor, and director of the DHL Initiative on Globalization at the NYU Stern Center for the Future of Management .
• CB Caroline R. Bastian is a research scholar at the DHL Initiative on Globalization.

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5 things you should know about the state of the global economy

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Is this the year we overcome the global economic crisis caused by the pandemic? Are our jobs in danger? Who has lost the most in the crisis and what can be done to recover? As the UN Department of Social and Economic Affairs (DESA) prepares to launch the mid-year update of the 2021 World Economic Situation and Prospects (WESP) report, here are five things you need to know about the state of the global economy.

1) US and China bounce back, but a slow recovery for developing countries 

While economic output in the United States and China is expected to grow robustly and lift global growth, many developing economies are not expected to return to pre-pandemic output levels anytime soon. The pandemic is far from over for most developing countries where vaccination is advancing slowly, and fiscal pressures have intensified.

2) The situation of the most vulnerable has become even more precarious

Lockdowns and social distancing measures resulted in large job losses in contact-intensive and labour-intensive service sectors, which predominantly employ women. The pandemic has also exposed the vulnerability of informal employment, which is the main source of jobs in many countries and which offers less job security, social protection and access to healthcare.

3) Global trade recovery is strong, particularly in Asia

Merchandise trade has already surpassed pre-pandemic levels, buoyed by strong demand for electrical and electronic equipment, personal protective equipment (PPE) and other manufactured goods. Trade in services remains constrained by restrictions on international travel. While exports from Asian economies have soared, exports from Africa, Western Asia, and the Commonwealth of Independent States has stalled.

4) The COVID-19 crisis has inflicted more harm on women and girls

This crisis disproportionately affected women, who suffered significant job and income losses, contributing to the worsening of gender poverty gaps. Burdened by increased home care duties, many girls and women gave up on schools, and the workforce altogether. Returning to school and work might take longer or may not happen at all for many of them, further widening gender gaps in education, income and wealth.

5) Countries need to do more to address the uneven impact of the COVID-19 crisis

There is an urgent need for countries to formulate better targeted and gender-sensitive policies to drive a more resilient and inclusive recovery from the crisis. Though on the frontlines of the pandemic, women have been under-represented in pandemic related decision-making and economic policy responses. The severe and disproportionate impact of the pandemic on women and girls call for more targeted policy and support measures for women and girls, not only to accelerate the recovery but also to ensure that the recovery is inclusive and resilient.

A version of this article first  appeared in the May edition of the Department of Economic and Social Affairs newsletter, UN DESA Voice .   

The Truly Global Economy Essay

Introduction, globalization, a truly global economy, globalization theories, political and financial instabilities, ways in which people are still connecting despite economic crisis, factors affecting globalization, reference list.

Many people have had different questions regarding globalization, some asking whether it is the integration of economic, social, political and cultural systems across the world or the dominance of the developed countries in making decisions at the expense of the poor regions.

Others have questioned whether it can contribute to the economic growth, prosperity or the democratic freedom or it is a force for devastation of the environment and exploitation of the developing countries. This paper handles what a truly global economy is with emphasis on the consequences of the current economic crisis.

Globalization refers to all aspects that seek to increase not only the connectivity but also the interdependence of the world’s markets. The main factor that has led to the increase in globalization is the technological advancement that allows people to freely move communicate and trade internationally. It is the interconnectedness of production, communication and technologies all over the world. It involves both cultural and economic activities.

Additionally, it is said to be such a diverse, deep-rooted force that not even the current massive economic crisis can break it down or permanently destroy it. Many argue that globalization has brought about increased opportunities for everybody in the world, irrespective of their social backgrounds.

The rich and poor actively participate in globalization. On the other hand, others who are against globalization claim that it has deprived some people in terms of resources, as they cannot compete with the rest of the world. “Globalization raises new challenges for governance, especially vis-vis the roles of government, workers, and citizens in the new economic order” (Ashford, 2004, pp.52). The differential success of regulation regimes affects the progress of globalization within many nations around the globe.

Introduction of global markets has lead to many changes. One of the major changes is the harmonization of principles. This has been a success through the integration of ILO conventions and international environmental agreements. Many nations are reluctant in surrendering their overall autonomy since they are afraid of the possible negative impacts of the possible economic integration.

Nations around the world began to globalize their economies towards the end of the eighteenth century as major discoveries on geography started influencing everyday’s business life. During this time, the economic interests as well as the advancements in technologies could not stand to integrate the world’s economies.

Community wars and political instabilities have made the economic integration process and creation of a unified market place more unrealistic. This has caused the world economy to continue with the strengthening of integration. It is also being taken to the oblivion further by the differences in national developments that have proved to be increasing on a daily basis. As far as technology is concerned, many countries are lagging behind and have no characteristics of a global economy.

Countries that have large populations and provinces have a continual disparity in terms of economic and technological developments. For instance, in Bangladesh, the large populaces have never made a telephone call. The gap between the rich and the poor continue to widen. However, the companies in different regions and continents have integrated and made it a reality.

This does not mean that it is a truly global economy because globalization does not revolve around trade only. Countries such as Myanmar are working hand in hand with developed countries causing global economic harmonization. This creates GMP. A truly global economy requires a complete economic integration of the the various aspects of the national economy.

Several terms bring out several aspects of the term globalization in different ways and contexts. Globalization has been like an extension of modernization. The instability in capitalism and traditional sovereignty has sparked reaction against reason. According to the World Polity theory, globalization is about culture.

By the end of the twentieth century, world culture had crystallized and become part of the world society: a common heritage. Even so, it has not been able to claim global consensus. The main reason behind this is that different communities in different geographical locations differ in their interpretations of some aspects such as the rights each community in globalization.

This definitely makes it hard for the world to attain a homogenous state of economy. According to Meyer, “A polity system is a system of creating value through the collective conferral of authority” (1980, pp. 52). The players in the system happen to be “entities constructed and motivated by enveloping frames” (Boli and Thomas, 1997, pp.22).

This is why the nations have adopted analogous constitutional forms as well as educational systems among others. The international non-governmental organizations also play a big role in world citizenship. Some ample room is created for innovation while in pursuit of similar goals by the states thus causing intense competition. The competition as part of the world’s cultural standards causes reactions that later demands putting things right. This will continue for as long as the world lives.

Thirdly, there is so much pressure on survival brought about by the capitalists. According to Robertson “globalization is the compression of the world and the intensification of consciousness as a whole” (1992, pp.8).

By the end of the twentieth century, the world was in chaos as more people were being exposed to the need to live independently in such of sovereignty. According to the World System theory, globalization is a process by which the world’s system eventually becomes harmonized around the globe. It maintains that globalization is not a new phenomenon.

Wallerstein argues “the current ideological celebration of the so-called globalization is in reality the swan song of our historical system” (1998, pp.32). It started with the Europeans whose desire for feudalism provoked technological innovations and developments of market institutions in the quest for production. This made it even easier to reach the other parts of the world. Military strength and a good transportation system made it easier to establish economic ties with other nations.

The peripheral areas provided raw materials while the semi-periphery regions had little if not zero benefit. It reached its geographic limit with the extension of capitalist market. Even with this, there was no way to change the situation because polarization of the system had taken place. Crisis arose that could not be solved by exploitation of new markets and there could never be a more equal or democratic world. The periods of innovation had a negative impact to the economy.

Businesses experienced a reduction of profits, an aspect led to not only recession but also economic stagnation. It is clear that even with the theories, globalization actualization in its full capacity is an issue that seems to be at its peak though it is still in the process of winning many participants-nations.

The increased economic interaction between different nations has led to the propagation of a different and deep-rooted political change. This has been evident in that most of the poor or rather third world countries have become more dependent of the developed countries for everything. In addition, economic power has shifted from the nation-state to multinational corporations.

This is characterized by circulation of technologies, practices as well as ideas. “The intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa” (Anthony, 1990, pp.64).

With the current technological advancement, people are in a position to buy goods from the internet. They do not interact with the suppliers or the sellers but can only interact with the delivery personnel. Banking has also facilitated virtual interactions between the parties involved. The other casualties of this kind of a process have been a decline in national governments failure to direct and have an impact in their economies.

A good example could be Japan whose economic shifts can be felt in countries all over the entire universe because of the interconnectivity. The lack of influence in the national governments does not mean that they are gone completely but in essence they remain “pivotal institutions especially in terms of creating the conditions for effective international governance” (Hirst and Thompson, 1996, pp.170).

Multinational corporations are literal beneficiaries of globalization. The car manufacturing companies for instance go global in search of the parts required for the assembling of the same. According to Hirst and Thompson,

International businesses are still largely confined to their home territory in terms of their overall business activities, they remain heavily ‘nationally embedded’ and continue to be multinational rather than transnational corporations (1996, pp.98).

The impact of this globalization on the local communities is evident. The multinationals can influence local communities in many ways. First, in order for them to operate, they establish operations that include sales and services in the regions that will eventually offer cheap labor and resources as required.

This can bring wealth to the areas that the multinationals have elected; for instance, people can choose to work at the plant, on the one hand, or to be unemployment, on the other hand.

This is because incase of relocation, the locals who had been offering services as workers would be rendered jobless, and this could be devastating. In most cases, the public spaces like the parks are eroded with their activities. Social places become privatized and commercialized leaving the locals with no social grounds. Everything eventually becomes expensive and inaccessible for the locals.

Globalization is well thought-out to be a line in the sphere where the economic world is developing irremediably as well as irreversibly. Financial globalization presents a very high degree of development, especially within the financial markets. Technological changes in communication and data processing have made globalization to be identified as the irrefutable proof of huge capital movement achieved.

Nonetheless, a global financial industry has not been established yet. The current financial crisis around the globe is a major barrier to the advancement of the process of globalization especially to the developing nations. Though it has been of great help to not only the developing but also developed countries by alleviating their poverty levels, it is very vulnerable to terrible and costly backlashes, as history has shown.

The constantly changing global economy and market are challenges for all nations. The deteriorating economy poses a challenge to issues such as employment, occupational health and safety as well as people’s wages among others. (Ashford 2008, pp. 304). To achieve an affluent global economy, it is necessary for all nations to be aware of their rights to take part in the world trade and use the advantages of the innovations (Ashford 2004).

Nothing good comes on a silver platter and to achieve globalization in the vast continent has been a great achievement even with its failures. The failures that have brought about dysfunctional globalization as some view it, has been brought about by political and financial instabilities.

Many countries have outstretched to their limits in an attempt to adapt to globalization but ended up being exhausted especially in cases of financially driven globalization. These mainly are the developing countries whose financial status fails to handle their capital city’s economy and operations. Technical advances are the sole drivers for the upswing that causes many of the institutions to foster ways to adjust with some ending up being poorer than before. Protectionism became a key consequence in many of the countries.

This is why the G-20 summit of November 2008 in Washington produced some reverberating denunciations of countries and nations being protective of their possessions. This did not last long before measures regarding protectionism were implemented in many of the countries like China. This at some point brought about a misconception of the end of globalization because globalization is not just about international trade and investment, which the countries were shielding.

It is true that trade has plunged and financial flows drastically fallen and to some extent may not recover any time soon unless the main economic pillars are reignited. Although international trade plays a pivotal role in globalization, there other factors that are essential in enhancing the full realization of the process in developing an affluent global economy.

All over the world, people are still connecting despite economical crisis threatening the countries. Internet connectivity is a key boost in the advancement of the great relationships among the people in the world.

Social sites, like MySpace, Twitter, Facebook, have enabled communication to be cheaper and accessible even in the most of the remote areas one can ever think of. People from North islands can relate with people from Africa. E-bay also allows people to transact irrespective of their geographical locations. Their international activities could be bolstered regardless the current economic crisis.

As witnessed all over the world, the global charities might bring people together in one way or another. This is so because many countries are in need and none seems to be isolated to live on its own without ever mingling with the others. Amazingly enough, the ability of a national government to protect its economy and society from outside influences has no strong roots recently.

The current wave of globalization has proven to have unprecedented impacts, and this explains the reason why it is hard to tame and curb external influences. The internet allows Vietnam to trade their handicrafts in Europe without travelling there. The cultural, political, social, economic as well as military components have been quantified, so it is a matter of time before a qualitative change takes place.

Nevertheless, even with the financial crisis still going on, nations from all over the world are interconnected. Globalization has multiplied the number of problems that have made it hard for any country to solve them on its own. These problems include such issues as financial problems, climate changes, terrorism that has interconnected the East African countries with America in one way or another to curb the menace.

Pandemics like HIV/AIDS have brought together countries looking for cure, nuclear proliferations, among others. With the current global crisis, global governance will increase respectively. Countries in East and Central Africa have signed partnership deals to enable them to transport and export their products like oil through Kenya from South Sudan.

One of the major factors that affect globalization is the barriers associated with immigration. Some countries have imposed trade-impairing policies besides taking strict measures to curb immigration. Such an approach will work for a while, but the financial support will fail after a while.

The world culture theory also called the Homogenism theory acts in unison with these findings concerning globalization being there no matter what happens. The theory marks differences in cultural homogenization and sees globalization broadly being the increasing uniformity of cultures all over the world, instead of just viewing it from an economical perspective.

Transformational theory is handled in these findings as well. The theory focuses on the global forces that increase the powers of the nation-state. It maintains thinking globally as people or nations act locally, as well as maintaining diversity in the face of economic forces that encourage uniformity.

In conclusion, globalization presents both the opportunities and risks to every nation that indulges in it, especially the African nations. In most developing countries especially those in Africa, globalization presents certain risks. For instance, one of the possible impacts of globalization is the increase in political costs as well as the social tensions that come with (Ikeme 1999).

Owing to this, the economic state of most developing nations may end up being strained to levels beyond their abilities or rather resources. This translates to economic redundancy in such nations, which will have a negative impact on the global economy as well. It is no doubt that globalization has tremendous potential benefits for any developing country.

The bigest “challenge is to realize the potential benefits without incurring huge offsetting costs in loss of the ecological basis for development and in the increase of inequality and impoverishment of the public” (Ikeme 1999). Developing country should, therefore cease to see globalization as a result but as a means to the end. The end is sustainable wellbeing for everyone.

The chance is created by the opportunity that the fender-bender of the two approaches towards globalization and sustainable progress will cause a new stage of human development, “which offers up-to-the-minute opportunities for the re-negotiation, and re-juggling of the world economic configuration” (Ikeme 1999). Both the developing and developed nations have equal opportunities to participate in the globalization of the word’s economy.

However, their contribution is dictated by their economic stability. To do this, they must set free from all the stereotypes on frameworks for development that the Western powers have created in favor of their origin. To be competitive in the global economy, the nations should invest their natural capital in their economy. They should also train their locals and ensure that foreigner does not have too big share in the development of their economy.

Thus, making sure that local companies are owned by the locals themselves ensures that profits are reinvested in the country as well as innovations in technology are never imported but developed in their own homeland. Following this way, they will make quick leaps in attaining the global goal and they will benefit from it just like the rest of the developed countries.

Globalization is to stay and the countries that will be the most successful in the next near future will be the ready to take all the obligatory informed decisions of their endeavors and in light of their goals irrespective of the misinformed guidance from the development experts. The so-called experts and giants in the economy have little business in enhancing the locals of other nations to remain superior and relevant.

However, once the rest take up the task upon them to educate and take their country to the next level, the superiors will have no business with it. Unless this hard but fruitful task is yoked in the locals of the developing countries, the economic giants will always mingle in their affairs with no tangible returns witnessed. They should engage the global economy on the own terms and not using the preset order by the developed country. Until then, they will always have a way to elude them.

Ashford, NA 2004, “Sustainable Development and Globalization: New Challenges and Opportunities for Work Organization”, in C Nova-Kaltsouni & M Kassotakis (eds.) Promoting New Forms of Work Organization and Other Cooperative Arrangements for Competitiveness and Employability , National and Kapodistrian University of Athens, Athens, pp. 50-61.

Ashford, NA 2008, “Environmental Regulation, Globalization, and Innovation,” in KP Gallagher (ed.), Handbook on Trade and the Environment, Chettendam and Northampton, Virginia, USA, pp. 296-307.

Boli, J. and Thomas, G., 1997. World Culture in the World Polity. American Sociological Review, 62(2), pp.171-190.

Ikeme, J 1999, ‘Sustainable development, globalisation and Africa: Plugging the holes’, Africa Economic Analysis . Web.

Hirst, P & Thompson, G 1996, Globalization in question: The international economy

Meyer, W., Boli, J., Thomas, G. and Francisco O., 1997. World Society and the Nation-State. American Journal of Sociology, 103(1), pp.144-181.

Robertson, R., 1992. Globalization: Social Theory and Global Culture. London: Sage.

Wallerstein, I., 1998. Utopistics: Or, Historical Choices of the Twenty-First Century. New York: The New Press.

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Countries with the highest growth of the gross domestic product (GDP) 2022

The 20 countries with the highest growth of the gross domestic product (GDP) in 2022 (compared to the previous year)

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The 20 countries with the greatest decrease of the gross domestic product (GDP) in 2022 (compared to the previous year)

GDP growth in the leading industrial and emerging countries 2nd quarter 2023

Growth of the real gross domestic product (GDP) in the leading industrial and emerging countries from 2nd quarter 2021 to 2nd quarter 2023 (compared to the previous quarter)

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Unemployed persons in selected world regions 2024

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Youth unemployment rate in selected world regions 2022

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Monthly unemployment rate in industrial and emerging countries August 2023

Unemployment rate in the leading industrial and emerging countries from August 2022 to August 2023

Breakdown of unemployment rates in G20 countries 2024

Unemployment rate of G20 countries in 2024

Global trade

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Monthly change in goods trade globally 2018-2023

Change in global goods trade volume from January 2018 to October 2023

Leading export countries worldwide in 2023 (in billion U.S. dollars)

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Leading import countries worldwide in 2022 (in billion U.S. dollars)

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Trade: export value worldwide 1950-2022

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Global merchandise imports index 2019-2023, by region

Global merchandise imports index between January 2019 to November 2023, by region

Global merchandise exports index 2019-2023, by region

Global merchandise exports index from January 2019 to November 2023, by region

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Global inflation rate from 2000 to 2022, with forecasts until 2028 (percent change from previous year)

Inflation rate in selected global regions in 2022

Inflation rate in selected global regions in 2022 (compared to previous year)

Monthly inflation rates in developed and emerging countries 2021-2024

Monthly inflation rates in developed and emerging countries from January 2021 to February 2024 (compared to the same month of the previous year)

Inflation rate of the main industrialized and emerging countries 2022

Estimated inflation rate of the main industrialized and emerging countries in 2022 (compared to previous year)

Countries with the highest inflation rate 2022

The 20 countries with the highest inflation rate in 2022 (compared to the previous year)

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Global Economic History: A Very Short Introduction

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Global Economic History: A Very Short Introduction considers the wealth and economic history of countries worldwide. Why are some countries rich and others poor? The various factors that influence economic growth, including culture, globalization, institutions, technology, the natural environment, income distribution, and the standard of living are discussed. From the industrial revolution in Britain in the 18th and 19th centuries, the range of processes and developments that have led to economic growth in Western Europe, North America, China, India, South America, and Africa are considered. Historical examples to show the strengths and weaknesses of state intervention in the economy are also used.

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Article contents

International political economy: overview and conceptualization.

• Renée Marlin-Bennett Renée Marlin-Bennett International Studies, Johns Hopkins
•  and  David K. Johnson David K. Johnson Political Science, Johns Hopkins University
• https://doi.org/10.1093/acrefore/9780190846626.013.239
• Published in print: 01 March 2010
• Published online: 22 December 2017
• This version: 22 January 2021
• Previous version

The concept of international political economy (IPE) encompasses the intersection of politics and economics as goods, services, money, people, and ideas move across borders. The term “international political economy” began to draw the attention of scholars in the mid-1960s amid problems of the world economy and lagging development in the third world. The term “global political economy” (GPE) later came to be used frequently to illustrate that what happens in the world is not only about interactions between states and that the GPE includes many different kinds of actors. The survey aims at a comprehensive picture of the different schools of IPE, both historically and as they have developed in the early 21st century. Authors of antiquity, such as Aristotle and Kautilya, explored the relationship between the political and the economic long before the term “political economy” was coined, presumably by Antoine de Montchrestien in 1613. The mercantilist writings of the 17th and 18th centuries, including those of Colbert, Mun, and Hamilton, argued in favor of the state using its powers to increase its wealth. List, writing in the 19th century, emphasized the tension between national economic self-determination and free markets. The 19th- to 20th-century iteration of the mercantilist view can be found in the form of economic nationalist policies, which link to a realist approach to international relations more generally. Theorists of the Global South have adapted economic nationalist policies to address the problem of development. The liberal tradition of IPE also has historical antecedents, beginning with classical political economy. Examples include the influential works of Locke, Hume, Smith, and Ricardo. After World War II, the economic writings of Keynes, Hayek, and Friedman were influential. Variants of neoliberal IPE can be found from the 1950s with scholarship on integration and from the late 1970s with scholarship on international regimes. Late-20th-century and early-21st-century liberal scholarship has also explored varieties of capitalism and economic crises. An alternative stream of IPE can be traced through Marxian political economy, beginning with the work of Marx and Engels in the 19th century and proliferating globally. This approach provides a critique of capitalism. Other critical approaches that have emerged in the 20th and 21st centuries include feminist global political economy and postcolonial critiques of liberal and Marxian analyses. Trends in scholarship include analyses of China and transition of the neoliberal order, queer theory for global political economy, and studies of growing trends toward precarious forms of labor. A final section discusses research beginning in the 1990s that is relevant to the global political economy of transborder transmission of disease, a topic of special concern in light of the Covid-19 pandemic of 2020.

• international political economy
• global political economy
• mercantilism
• economic nationalism
• classical liberalism
• neoliberal institutionalism
• neoclassical liberalism
• postcoloniality

Updated in this version

Light revision throughout, added discussions of postcoloniality and Covid-19

Introduction

Research in the field of international political economy, as described in this overview, includes work grounded in different schools of thought and drawing upon distinct conceptualizations of important concepts, relationships, and causal understandings. Antoine de Montchrestien ( 1889 ) is reputed to have introduced the term œconomie politique in his treatise of 1613 , by which he referred to the study of how states should manage the economy or make policy. The concept of international political economy has come to encompass a larger range of concerns, including the intersection of politics and economics, as goods, services, money, people, and ideas move across borders. The term “international political economy” (IPE) began to appear in the scholarly literature in the mid-1960s as problems of the world economy and development in the third world gained scholarly attention. The term “global political economy” (GPE) came into sporadic use at about the same time. GPE was (and is) often used more or less synonymously with IPE, though IPE approaches usually emphasize the individual nation-state as the basic unit of analysis, while GPE approaches tend to be more holistic, placing states and other kinds of actors within larger structures or the global system. Gill ( 1990 ) notes that in the 1980s, the terminological difference between IPE and GPE came to mark a difference in methodological orientation, mapping onto more or less “mainstream” and “critical” approaches, respectively. By the end of the 1990s, the GPE came to be used by both mainstream scholars (Gilpin, 2001 , and Cohn, 2016 , are examples) and critical scholars, although critical scholars are more likely to use GPE exclusively. (This article omits a full discussion of the development of IPE in the Global South and its engagement with GPE, a topic covered in Deciancio and Quiliconi, 2020 ). This survey of IPE and GPE scholarship proceeds in a roughly historical plan and consists of eight sections. It begins with some very early works on the intersection of politics and economics, and then it turns to the mercantilist school and its 20th-century successor, economic nationalism. The next section traces the development of the liberal tradition of political economy, including classical political economy, Keynesianism, neoclassical economics, and neoliberalism. This discussion is followed by sections on the Marxian, feminist, and postcolonial global political economy. The penultimate section briefly discusses some trends of scholarship in the 21st century , especially moving into the 2020s. The survey concludes with a discussion of scholarship (published prior to May 2020 ) that is relevant for assessing the global political economy reverberations of the COVID-19 global pandemic.

Politics and Economics: Early Works

The study of the relationship between economic activities and state interests originated long before the term “political economy” was coined. Two examples of very early works include writings by Aristotle ( 384–322 bce ), who criticized Plato’s conception of communal ownership and placed the state in the role of guarantor of private property in The Politics , and Kautilya ( ca . 350–283 bce ), the Indian author of Arthashastra , a book of statecraft, who wrote of the need for the ruler to send spies to the marketplace to ensure fair weights and measures (Kautilya, 1915 ). In the Middle Ages, Islamic social theorist Ibn Khaldun ( 1332–1406 ) wrote about the relationship between governing structures and productivity of people (Ibn Khaldun, 1967 ). Another Muslim scholar of this era, Al-Maqrizi (d. 1442) ( 1994 ), analyzed governmental policies, including monetary policy. Niccolò Machiavelli ( 1469–1527 ), generally seen as a political theorist, was mindful of the relationship between the state and the economy as well, at least in the sense that a primary role of the prince or of a republican government is to protect private property. He called “public security and the protection of the laws [. . .] the sinews of agriculture and of commerce,” and suggested that the protection of property rights was important “so that the one may not abstain from embellishing his possessions for fear of their being taken from him, and [. . .] not hesitate to open a new traffic for fear of taxes” (Machiavelli, 1882 , p. 448; see also Machiavelli, 1979 , ch. XVI, on how princes ought to spend—or not spend—money).

Governments traditionally were held responsible for defending their own citizens’ property, but they had no such obligation toward conquered peoples. The European Age of Exploration led unsurprisingly to the expropriation of resources, since the purpose of those conquests was to bring home wealth in the form of gold, silver, and other precious materials. Enslavement of the indigenous peoples and profiting from their resources was considered consistent with natural law, as Juan Ginés de Sepúlveda, drawing on Aristotle, argued in 1550 (Garcia-Pelayo, 1986 ).

Sepúlveda’s opinion was commonly, but not universally, held. The famous opposition to Spain’s inhuman treatment of indigenous people was published by Bartolomé de Las Casas in 1552 . He charged that the “avarice and ambition” that motivated the Spaniards and led them to perpetrate acts of barbarism were, to use a modern term, “illegitimate” (Las Casas, 2007 ). At a time when imperial conquest was considered the natural goal for states, Las Casas sounded a normative message—that the state cannot act with impunity and that the quest for riches does not excuse unjust forms of violence. The Sepúlveda–Las Casas debate prefigured future debates over the norms of international political economic interaction.

From Mercantilism to Economic Nationalism

Adam Smith referred dismissively to the various theories and policies on how states should intervene in markets to increase wealth and power as “mercantilism.” The more neutral-sounding “economic nationalism” became the successor term in more recent times. In both cases, assumptions about the role of the state conform to a general realist model, although a form of economic nationalism has also been espoused by theorists and polities of the Global South with the aim of “delinking” from relations of dependency on the North. This section traces the development of theories of mercantilism and economic nationalism from the 16th century to the 21st .

Mercantilism

The two-volume history of mercantilism by Eli Heckscher ( 1935 ) outlines at least four elements of this school of thought. Following List, and especially Schmoller, mercantilism is identified as the economic element of creating national states from disparate regions. Mercantilism is also characterized as a specific conceptualization of the nature of wealth that stresses the critical nature of inflows. The lack of reciprocal demand, the difficulty of facilitating accumulation in early agrarian societies, and the differential ability of various economic pursuits regarding generating employment opportunities are central to this element. A third characterization of mercantilism is as a body of policy designed to decrease the cost of inputs and facilitate production in the face of competition. Finally, mercantilism is characterized as a belief in the importance of enhancing the power and wealth of a state, so that it is better able to direct resources both at home and abroad. The best-known mercantilist theories focus on maintaining a positive balance of trade and payments by limiting imports or encouraging exports. One variant, bullionism, focuses on the desirability of increasing a country’s supply of gold and silver. (See Viner, 1937 , for a detailed history of English writings on mercantilism and “bullionism” prior to Adam Smith. A more recent and strongly proneoclassical liberal discussion of the relationship of historical theories of mercantilism to monetary policy can be found in Humphrey, 1999 .)

European exploration and conquest of new lands led to intellectual debate, starting in France in the 16th century , over which policies would best achieve these ends. An influx of gold and silver led to instability in the value of money. Commentators began to consider the government’s role in determining the value of money, the terms of trade, and other facets of what scholars since the mid- 20th century would call international political economy. Jean Bodin, for example, wrote in 1568 about how the value of specie would fluctuate with supply and demand and warned that government interference would only worsen the situation. “A ruler,” he wrote, “who changes the price of gold and silver ruins his people, country and himself” (cited in Turchetti, 2018 ). Instead, as Luigi Cossa ( 1880 , p. 117) noted, Bodin argued that the oversupply of money that resulted in price increases “would be turned to better advantage by a fiscal system promoting the growth of national manufactures in opposition to the excessive consumption of foreign goods.” Antoine de Monchrestien drew heavily on the work of Bodin to advocate for government protection of manufactures. (See Ashley, 1891 , and Perry, 1883 , for discussions of Monchrestien’s work.)

An influential supporter of mercantilism was Jean Baptiste Colbert, minister of finance for King Louis XIV of France. He increased taxes, created benefits for production that would substitute for imports, and worked to bring wealth into the country through his policies, which were referred to as Colbertism. In 1664 , he wrote a memorandum to the king in which he argued “that only the abundance of money in a State makes the difference in its greatness and power.” He advocated government intervention in markets to increase domestic manufactures, to encourage imports of raw materials to be used for manufactures, and to support the exportation of manufactured goods. To encourage French traders to sell goods widely, he also advocated rewards for building or buying new ships and for long-distance voyages (Colbert, 1998 ). Thomas Mun, a director of the British East India Company, expressed similar views in a widely read defense of mercantilism. He argued that a country’s wealth is increased if a positive balance of trade is maintained. England should try to produce as much of what it must consume as possible and import as little as possible for its own consumption. People should tame their appetites to avoid wanting foreign garments and foods. However, having English traders purchase valuable wares from distant locales, bring them back to England, and, from England, reexport them would, according to Mun, serve to increase the national treasure. Mercantilism, in other words, would result in a net inflow of gold and silver—commodities not produced in any great quantity from English mines—and this would be the only way for England to increase its wealth (Mun, 1895 ).

The protectionist policies of mercantilism held considerable attractiveness as countries sought to industrialize and develop their economies. Alexander Hamilton, the first U.S. Secretary of the Treasury, provided a Report on Manufactures to Congress in which he outlined steps that the young country should take to secure its economy, especially in opposition to the economic might of other countries. Creating an economy based on manufactures, Hamilton argued, would protect the United States from being dependent on other countries “for military and other essential supplies.” He implicitly countered the argument of the physiocrats, discussed in the section “ Early Liberal Writers ,” who stressed the importance of agriculture over manufactures. Hamilton maintained that the country was best served by encouraging the development of manufacturing. Using machines would allow for the full employment of the population (including women and children) in order to increase the country’s self-sufficiency—and therefore its wealth and security (Hamilton, 1913 , p. 3).

Friedrich List, a German scholar and politician who later became a naturalized American citizen, extended Hamilton’s argument by emphasizing that states should take advantage of their own human resources—that is, the ability of people to produce agricultural and manufactured products through their innovation, hard work, and the natural environment. He argued that “it is of the utmost concern for a nation [. . .] first fully to supply its own wants, its own consumption with the products of its own manufactures,” he wrote. Only then should a country trade with others. List also developed the proposition that young economies could not compete with more established, more technologically advanced ones until the younger country had invested in developing its domestic industry. He emphasized “that a nation is richer and more powerful in proportion as it exports more manufactured products, imports more raw materials, and consumes more tropical commodities.” Government policies should therefore work toward these goals (List, 1909 , pp. 76–77). For a classic but much overlooked contribution to the tensions between protectionism and free trade in theories of IPE, see E. H. Carr ( 2001 , pp. 41–62).

Economic Nationalism

The 20th century marked a shift in theoretical labels. “Mercantilism” was supplanted by “economic nationalism,” a more neutral term and one that is more easily interpreted from a realist perspective. Economic nationalists are realists who expect the contest for wealth to mirror the contest for power in international relations. However, they often articulate a somewhat schizophrenic view: theorists who write about economic nationalism often see it as an unfortunate, economically inefficient, but unavoidable fact of international life. For example, in 1931 , T. E. Gregory criticized economic nationalism, but explained that such policies continued to be implemented because citizens and governments were reacting to six factors. They (a) feared “dependence on foreign markets for the sale of your products”; (b) saw “the danger of intervention in the domestic market by the foreign capitalist”; (c) desired “to reserve for the intelligence of the country itself such positions of honour and prestige as are offered by the existence of growing industries and a growing financial structure”; (d) realized “the undesirability of allowing [. . .] raw materials to be owned by foreigners”; (e) worried about the risk “that in a period of war, if you depend on foreign food supplies, you may find yourself in a very difficult situation, and therefore you ought to grow your own food”; and (f) believed that keeping “agriculture going as a type of economic production” would guarantee a supply of “vigorous manhood”—men who would be strong soldiers in times of war (pp. 292–294). Similarly, Gregory’s contemporary, Charles Schrecker, begins his discussion of “the causes, characteristics and possible consequences” of economic nationalism with the caveat that he “consider[s] this tendency [toward economic nationalism] in its ultimate effects to be regrettable and detrimental to the future economic welfare of humanity” (Schrecker, 1934 , p. 208).

This differentiation between the scholars’ personal beliefs and their analytical stance continues in more recent scholarship. Judith Goldstein ( 1986 ) discusses the principle of “free and fair” trade as a norm of U.S. trade policy, and she finds that while “free trade” is consistent with liberal economic analysis (which, by implication, she endorses), “fair trade” refers to protecting U.S. firms from unfair trade practices of other countries. In other words, U.S. trade policy ultimately pursues mechanisms that support the interests of those groups that capture the state and persuade policymakers of their claims. Eric Helleiner ( 2002 ), through a careful reading of the 19th-century economic nationalists, makes the sophisticated argument that economic nationalism has always been nationalist—that is, realist—first and economic second. In other words, he argues that countries choose economic policies for nationalist purposes. Sometimes these policies will be liberal, when it suits the country to deploy liberal policies; sometimes the policies will be protectionist, when protection is expected to lead to desired ends. In this analysis, liberal policies may be wholly consistent with theoretical explanations of economic nationalism. In a similar vein, Robert Gilpin clarifies the separation of analytical tools and preferred outcomes. He implicitly accepts the normative goals of liberalism while interpreting behavior in terms of “state centric realism,” a theoretical perspective closely connected to economic nationalism. He writes, “Although realists recognize the central role of the state, security, and power in international affairs, they do not necessarily approve of this situation. [. . .] It is possible to analyze international economic affairs from a realist perspective and at the same time to have normative commitment to certain ideals” (Gilpin, 2001 , pp. 15–16). Cohn ( 2016 ) elaborates these difficulties in the treatment of “neomercantilism.”

Economic Nationalism and Development

For many theorists, however, economic nationalism takes on a more positive hue when argued from the position of infant industries and developing country economies that need to develop internally before they can compete in global markets. Thus, tenets of economic nationalism have appealed to many writers in the Global South. Julius Nyerere, the first president of Tanzania, could be considered a (somewhat ironic) example. Nyerere’s ujamaa (“familyhood”) policies can be divided into two: a frankly socialist “villagization” policy in which people were moved onto collective farms and a mercantilist self-reliance policy in which Tanzania was supposed to detach itself from dependence on the industrialized world. Ultimately, his policy failed on both counts: the collective farms were unproductive, Tanzania became more dependent on aid from other countries, and the democratic ideals of the movement deteriorated (Prashad, 2008 , pp. 191–203). The idea of self-reliance, however, resonates closely with economic nationalist emphasis on the ability of states to produce for their own basic needs (Amin, 1990 ; Nyerere, 1967 ).

In general, theories advocating import substitution industrialization fall into this category of developing country economic nationalism. Economist Raúl Prebisch, working on behalf of the United Nations Economic Commission for Latin America, formulated the theory of dependent development, which explained how industrialization in the developing world could continue to keep countries dependent on advanced economies in the “core.” These peripheral country economies were too closely tied to production for export. Instead, he argued that developing countries needed to implement import-substituting industrialization (ISI) policies. By delinking from the dependent economic relationships that they have with core countries, developing countries could build their own economies. He advocated the mechanization of agriculture, industrialization, and technological advance (Prebisch, 1986 ). In short, “the fundamental arguments of [Alexander] Hamilton’s Report on Manufactures have a striking similarity with those of Prebisch and his staff” (Grunwald, 1970 , p. 826). (Of course, the results of ISI policies have been highly uneven. See, for example, the analysis of Albert Hirschman, 1968 , and Vijay Prashad, 2014 , on the difficulties of ISI as a development strategy.)

From Classical Liberalism to Neoliberal Institutionalism and Neoclassical Liberalism

In contrast to the emphasis on state power and state interests that characterizes mercantilism and economic nationalism, liberalism emphasizes possessive individualism and the individual as the bearer of rights (Macpherson, 1973 ). The political economic theory that results from the emphasis on the individual is grounded in the idea that markets should be allowed to function as freely as possible and that the purpose of economic activity is not to benefit the government but rather to benefit individuals who, through their efforts, earn income, purchase goods, and constitute the basic unit of economic life.

Early Liberal Writers

Among the most important of these liberal rights from the perspective of political economy is that of property. For John Locke ( 1884 ), the right to property was natural; for David Hume ( 1992 ), the right to property was the result of interactions over time between people. (See also Sugden, 1989 , on Hume’s view of property.) Liberals reject the idea that the purpose of the state is to gather wealth. Instead, the state exists to provide security and to safeguard property.

In the liberal tradition, “political economy” came to be associated expansively with the relationship between governments, markets, welfare, and wealth. Discourse on Political Economy by Jean-Jacques Rousseau ( 1983 ), originally written for Diderot’s Encyclopédie , was an example of this. For Rousseau, political economy referred rather generally to those policies and laws that aim to protect and promote society being governed. What set Rousseau’s view apart from mercantilism was the liberal ethos that pervaded his writing: citizens were individuals who held rights; they had private wills; and collectively the community as a whole had a general will. States were bound by the rule of law and, in adhering to the general will, had the responsibility for protecting citizens’ rights, including property rights, but Rousseau was silent on what later writers would term “laissez-faire” policies, a free market vision of popular (as opposed to tyrannical) political economy. Instead, Rousseau seemed to have a very specific view of important government intervention in the economy: “One of the most important functions of the government” is to prevent extreme differences in wealth, since extremes of opulence and poverty erode the sense of “common cause” among citizens. To prevent such inequality and to provide the other functions of government, the state must tax, but, because the right to one’s own property was fundamental, taxation must be limited and levied fairly and progressively (those living at subsistence levels paying nothing, the rich paying relative to their wealth), in accordance with the general will. Rousseau’s popular political economy was thus liberal in protecting rights yet interventionist with respect to taxation and the uses of taxes.

The physiocrats introduced the idea of laissez-faire , laissez-passer (“let do and let pass,” in other words, the government should not interfere in the market) as a goal for states. They argued that the state should avoid intervention wherever possible, and especially avoid the taxation of agriculture. François Quesnay’s Economical Table presented a view of economics that placed a strong emphasis on the value of agriculture and the “sterility” of manufactures (Quesnay, 1968 ), in contrast to the mercantile emphasis on encouraging manufactures. The physiocrats favored agriculture because, in their calculation, the value of the output—crops—exceeded the value of the inputs used to produce the crops: land, labor, seeds, and the like. Artisans who manufactured things, the physiocrats maintained, only produced goods that equal the value of the inputs because competition would drive prices down to the level that only covered costs. Quesnay and the other physiocrats understood the limited supply of land and the ability of farmers to produce more than was needed for subsistence as evidence of the superior productivity of agriculture (Quesnay, 1968 ; also Bilginsoy, 1994 ). A major policy goal of the physiocrats was to “prevent deviations of the market price of industrial goods from their fundamental price, and to guarantee the maintenance of the proper price in the agricultural sector—the price high enough to cover the unit costs and rent” (Bilginsoy, 1994 , p. 531). The government, in their view, should limit taxes on agricultural products to ways that meet this goal. The French policies then in place of protecting manufacturers from foreign imports and of the government selling the right to tax farming to wealthy citizens thus had a particularly deleterious effect on the economy (Quesnay, n.d. ).

Adam Smith, whose Inquiry into the Nature and Causes of the Wealth of Nations is often seen as the foundational work in the field of political economy, built on the work of the physiocrats, as well as that of Hume. Smith, who first referred to political economy in the eighth paragraph of the introduction to the book, understood the term as concerning causal theories about what governments believe they ought to do—which policies they think they should implement—to increase their wealth. The purpose of political economy, according to Smith ( 1904 ), was

first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign. (Book IV, Introduction)

The first purpose is achieved primarily through free markets, with Smith advocating for reliance upon “invisible hand.” The second is achieved through some government involvement in the economy, including the provision of funds for militias to defend against foreign invaders; setting up a system to pay for the administration of justice (with revenues for this purpose coming, perhaps, from court fees); providing public works such as roads, bridges, and postal services (which, with fees attached, may produce revenue for the government); and education (Viner, 1948 ).

For what later came to be known as international political economy, Adam Smith, like the physiocrats before him, made a major intellectual contribution with his rejection of the common mercantile practices of his age. In contrast to mercantilists like Colbert and Mun, Smith opposed the government’s intervention in markets to maintain a positive balance of trade. Smith ( 1904 ) wrote:

We trust, with perfect security, that the freedom of trade, without any attention of government, will always supply us with the wine which we have occasion for; and we may trust, with equal security, that it will always supply us with all the gold and silver which we can afford to purchase or to employ, either in circulating our commodities or in other uses. (IV.1.11)

Some IPE scholars, however, have highlighted Smith’s “agonism” in relation to the contradictions of the free market system, reading Smith not so much as an unequivocal supporter of the laissez-faire economics, as he is often assumed to be, but rather as a careful observer of the positive and negative aspects of the market economy (Arrighi, 2007 ; Blaney & Inayatullah, 2010 ; Shilliam, 2020 ). This reading both contributes to a reappraisal of the classical tradition and serves as a critique of its contemporary reception in neoclassical economic theory, suggesting a different path for economic studies at large.

Immanuel Kant, in his famous essay on perpetual peace, extended the liberal optimism about the beneficial effects of trade. An international federation of republics would naturally trade with each other, and the positive effects of commerce would stand as a bulwark against hostilities. “The spirit of trade cannot coexist with war, and sooner or later this spirit dominates every people. For among all those powers (or means) that belong to a nation, financial power may be the most reliable in forcing nations to pursue the noble cause of peace (though not from moral motives)” (Kant, 1983 , p. 125). Thus, as scholars such as Jahn ( 2013 ) and Ince ( 2018 ) have demonstrated, classical liberal thought has always contained an essentially international dimension, the study of which is instructive for understanding later forms of liberal IPE.

Comparative Advantage

An important question for international political economy is, Why engage in international trade? In On the Principles of Political Economy and Taxation , Englishman David Ricardo ( 1821 ) built upon Smith’s support for international trade. In this work, Ricardo outlined the theory of comparative costs (comparative advantage), a cornerstone of trade theory to the present day. The common view had been that states trade with one another when one has an absolute advantage in the production of something and the trading partner has an absolute advantage in the production of something else. (If England produced cloth more cheaply than Portugal did, and Portugal produced wine more cheaply than England did, then both countries would profit from trade.) Ricardo’s insight was that even if a country produced both wine and cloth more cheaply than another, it still made sense for the countries to specialize in and export that good it had the greatest advantage in producing. This theory depended on another theoretical contribution from Ricardo, the labor theory of value: the value of a product can be represented in the amount of labor (person-hours) needed to produce it (a good summary of the theory can be found in Ruffin, 2002 ).

Comparative advantage continued to be a topic of discussion in international political economy. Swedish economists Eli Hecksher and Bertil Ohlin ( 1991 ) contributed a major extension of Ricardo’s theory by focusing on the role that factor endowments play in determining comparative advantage. Since land, labor, and capital move less easily than goods, a country should specialize in those products that are produced with the factors that are relatively abundant in the country. (Jacob Viner, 1937 , pp. 500–507, provided a summary and critical analysis of this theory, and Wolfgang Stolper and Paul Samuelson further developed the theory by examining what happens to prices when two countries move from not trading to trading. The consequence can be higher prices, which can affect income distribution, as discussed in Lindert and Kindleberger, 1982 , pp. 58–60.)

Some scholars have begun to note areas in which the traditional understanding of comparative advantage no longer fits the evidence. For example, Michael Storper ( 1992 ) finds that

the world of production has changed fundamentally since the time of Ricardo. We now live in a world where factors of production for technologically stable products are not endowed, but produced as intermediate inputs. Almost any developed country making the effort can become as efficient as the next country in a technologically stable manufacturing sector. (pp. 63–64)

Storper ( 1992 ) argues that products that depend on technological innovation are traded with respect to “technological advantage” rather than comparative advantage.

Another question about the validity of comparative advantage is raised by strategic trade theory. James Brander and Barbara Spencer ( 1985 , p. 83) showed how protection through subsidies would “change the initial conditions of the game that firms play” and make a firm more profitable. By calibrating the protection properly—not too much, not too little—states, according to strategic trade theory, can lead to an equilibrium that may be jointly suboptimal, but the protecting country still gains because its firm is able to earn more. Although strategic trade theory shares some elements with mercantile support for the protection of infant industry, those arguing for strategic trade theory place themselves within a liberal model and seek rational intervention at the best possible levels (i.e., levels that provide net benefits). Some scholars suggest that strategic trade theory is most useful when considering the challenges faced by industries when there are large economies of scale, high learning curves, and knowledge-intensive advanced manufacturing processes. Paul Krugman and others offer a cautionary note, however. The benefits of strategic trade theory fall mainly to the protected firm or industry, not to the domestic economy. Overall costs are likely to outweigh benefits, especially when protectionism leads to trade war (Krugman, 1994 ).

Two Strands of Liberalism: Keynesianism and Neoclassical Liberalism

As the questions raised by strategic trade theory suggest, liberals wrestle with the appropriate role of the state in the economy. Since the middle of the 20th century , liberalism has been bifurcated into two major strands: Keynesianism and neoclassical liberalism. Keynesian economics, named after John Maynard Keynes, sees direct government intervention in markets as a way to improve welfare and make the economy function better, especially given inescapable market failures and inefficiencies. Neoclassical economics, sometimes understood as libertarianism, draws on the writings of Ludwig von Mises, Friedrich Hayek, and others who believed that governments had become too involved in the economy and that freedom suffered as a result. Keynesianism filtered into international political economy, with variants consistent with integration theory, neoliberal institutionalism, and regimes (which are a form of neoliberal institutionalism). Neoclassical liberalism can be seen in the “Washington Consensus,” which has led to deregulation of global and domestic economies, decreases in foreign aid, and further reliance on marketization.

Keynesianism and Neoliberal Institutionalism

John Maynard Keynes ( 1883–1946 ) served on the British delegation at the Paris Peace Conference in 1919 . He resigned from this position in opposition to the draconian terms of peace. The Allies, in ending the war “with France and Italy abusing their momentary victorious power to destroy Germany and Austria-Hungary now prostrate, they invite their own destruction also, being so deeply and inextricably intertwined with their victims by hidden psychic and economic bonds” (Keynes, 1920 , I.4). During World War II, he served on the British delegation in the Bretton Woods negotiations on the postwar monetary order. Central to Keynesian economics is the idea that free markets will not ( contra classical theory) always find an equilibrium at full employment. Instead, crises of underemployment call for public expenditures, for example, in public works (Keynes, 1936 , 1937 ; Galbraith, 1968 .)

Integration Theory

An important inference from Keynesianism is that institutions and governance can be used to create better political, social, and economic outcomes. In contrast to economic nationalism and to neoclassical economics, as James Caporaso ( 1998 , pp. 3–4) noted, integration theorists understood that institutions matter because institutions alter the conditions in which exchanges of various kinds take place by establishing rules. In addition, integration theorists explicitly tied a goal of peaceful relations among nations to integration: liberal markets, with well-functioning institutions, would lead to peaceful outcomes that would be conducive to commercial ties, which would once again feed back and encourage more cooperation. Drawing on both Keynesian liberalism and contributions from sociology to an understanding of cooperative action (Parsons, Shils, & Smelser, 2001 ), integration theory sought a formula for creating the institutions that would promote positive, peaceful outcomes.

Historically, integration theory emerged with discussion by David Mitrany ( 1948 ) of functionalism and world organization. With the cataclysmic effects of both world wars firmly in mind, Mitrany described a world in which functional integration—cooperation and institution building on specific functional tasks and in specific functional areas—would lead to a more peaceful outcome. He wrote:

If one were to visualize a map of the world showing economic and social activities, it would appear as an intricate web of interests and relations crossing and recrossing political divisions comes that would be conducive to commercial, but a map pulsating with the realities of everyday life. They are the natural basis for international organizations: and the task is to bring that map, which is a functioning reality, under joint international government, at least in its essential lines. The political lines will then in time be overlaid and blurred by this web of joint relations and administrations. (Mitrany, 1948 , pp. 358RERL)

Karl Deutsch and Ernst Haas both furthered the study of how functional cooperation may lead to political cooperation. Deutsch found “economic ties,” communication across territorial borders and social strata, “mobility of persons,” and a wide range of different kinds of communication and transaction (among other factors) to be necessary conditions for amalgamation of separate states into a “security-community” (Deutsch, 1957 , p. 58). Haas ( 1964 ) further emphasized the connection between liberalism and functional integration theory. “Integration,” he wrote, “is conceptualized as resulting from an institutionalized pattern of interest politics, played out within existing international organizations. [. . .] There is no common good other than that perceived through the interest-tinted lenses worn by the international actors” (p. 35). Having functional interests in common, states would be able to cooperate, especially when international organizations create the conditions that would facilitate cooperation. Unfortunately, this theory failed in that the hopeful expectations about how international organizations would foster integration and peaceful cooperation did not come to fruition (at least not in the near term, after the publication of these works). Philippe Schmitter offered a revision of the theory that was at once more modest in its predictions and less precise in its specifications of complex expected interactions. Schmitter ( 1970 ) thus presents a less deterministic version: under some conditions, integration may result from the complex functional interactions of states.

Interdependence, Regimes, and Neoliberal Institutionalism

Although it soon became apparent that the hopeful expectation about how international organizations would foster integration and peaceful cooperation would not come to fruition, the main liberal tenets of integration theory continued to play a role in IPE theory. Neoliberal institutionalism soon superseded integration theory as the major approach to IPE among those who followed this Keynesian side of liberalism. The “institutionalism” in neoliberal institutionalism may have been drawn from the economics literature, in which institutionalism referred to “an approach which stresses the interactions between social institutions and economic relationships and aspects of behavior, aims to present an orderly arrangement of economic phenomena in which institutions are elevated from the status of the exception and the footnote, and integrated with the main body of economics” (Eveline Burns, in Homan et al., 1931 , p. 135). Both sociology (Parsons, 1935 ) and political science (Apter, 1957 ) adopted the term, to refer to approaches that explore how organized groups are and what they do in society.

Early links between institutionalism and political economy can be found in an International Studies Association conference panel on “Patterns of International Institutionalism” (Rohn, 1968 ). James March and Johan Olsen ( 1984 ) reviewed the revival of institutionalist thought in political science in the 1970s and 1980s and suggested that the new institutionalism is “simply an argument that the organization of political life makes a difference.” From this parsimonious insight, however, institutionalists opened the examination of how cooperative interactions could regularly, even ubiquitously, comprise IPE. These investigations resulted in the development of both interdependence theory and the concept of international regimes.

“Interdependence,” encapsulating various kinds of interactions and mutual dependencies that promoted peaceful interactions, did not rise to the level of significant scholarly appreciation until the 1970s. The idea had been around for a while. In 1958 , John Foster Dulles, then Secretary of State of the United States, referred specifically to interdependence when he asserted that providing development aid and encouraging trade would combine with military security cooperation to prevent developing countries from falling into the Soviet orbit. A few years later, Vincent Rock ( 1964 ) suggested, perhaps in a fairly unrealistic vein, that interdependence in scientific, trade, and other kinds of interactions would lead to peace between the United States and the Soviet Union. Edward L. Morse refined the concept of interdependence to argue that the “low policies” that involved economic transactions and welfare interests were becoming more important for international relations than the “high policies” of military strategic concerns. Consequently, “the classical goals of power and security have been expanded to, or superseded by, goals of wealth and welfare. [. . .] [T]he old identification of power and security with territory and population has been changed to an identification of welfare with economic growth” (Morse, 1970 , pp. 379–380). Richard Cooper ( 1972 , p. 159) further developed the idea “to refer to the sensitivity of economic transactions between two or more nations to economic developments within those nations.” Cooper, however, saw interdependence as a policy conundrum for states, rather than as a means to more peaceful outcomes in international relations. Richard Rosecrance and Arthur Stein ( 1973 , p. 22) emphasized the unpredictability of the situation in the 1970s: “Whether interdependence will emerge as positive or negative will depend largely on old-fashioned cooperation among governments.”

In a 1974 publication, Robert O. Keohane and Joseph S. Nye Jr., focused on interdependence between the United States and Canada. Drawing on Oran Young’s definition of interdependence (Young, 1968 ), Keohane and Nye ( 1974 , p. 606) studied “patterns of interdependence, particularly with regard to symmetry” on policy issues and how patterns of interdependence were “used as sources of bargaining power.” Keohane and Nye ( 1977 ) further developed this concept into “complex interdependence,” in which actors would have varying levels of sensitivity or vulnerability to each other across “multiple channels” (i.e., across different issue areas) in which military issues would not be more important but rather there would be no clear hierarchy among the issues; and in which these ties across these issues would preclude the use of military force.

Attention to interdependence and international institutions highlighted how states and other actors were sensitive and vulnerable to each other. Scholars also questioned whether the interdependence would lead to coordinated action to solve collective international public goods problems. Even if integration, in the functional sense, was not happening completely and directly, could some sort of coordination short of full-fledged integration be going on? International “regimes,” a term borrowed from the legal scholarship by Ernst B. Haas, provided a tentative affirmative answer to this question. In Haas’s description, international regimes were “collective arrangements among nations designed to create or more effectively use scientific and technological capabilities” and that would “minimize the undesired consequences associated with the creation and exploitation of such capabilities” (Haas, 1975b , p. 147; see also Haas, 1975a ). Later debates over the definition of the term included Haas’s restatement: “ Regimes are norms, rules, and procedures agreed to in order to regulate an issue-area ” (Haas, 1980 , p. 358 (emphasis in the original); see also Young, 1980 ). Keohane and Nye ( 1977 , p. 19), in their book on interdependence, took up the issue of regimes as well, referring to them as “the sets of governing arrangements that affect relationships of interdependence.”

The concept of regimes became more formalized in 1982 with the publication of a special issue of the journal International Organization edited by Stephen D. Krasner ( 1982a ), which was republished as an edited book (Krasner, 1983 ). The group of influential scholars writing for this publication agreed upon a uniform definition:

Regimes can be defined as sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors that affect relationships of interdependencees” (Haasterdependence would lead to coordinated action to solve collective inte. Norms are standards of behavior defined in terms of rights and obligations. Rules are specific prescriptions or proscriptions for action. Decision making procedures are prevailing practices for making and implementing collective choice. (Krasner, 1982b , p. 186)

Under this umbrella definition, the authors divided themselves into three separate groups: those who understood regimes to be ubiquitous, “Grotians,” since their views were consistent with that of the 17th-century scholar of international law, Hugo Grotius (Young, 1980 ; e.g., Puchala & Hopkins, 1982 ); those who saw in regimes a possibility for states to escape—sometimes—the pessimistic outcomes of a realist world by creating opportunities for rational actors to cooperate (the “modified structuralists,” like Stein, 1982 ); and those, represented in the volume by Susan Strange ( 1982 ), who thought that regimes obscured, rather than elucidated, what was really going on in the world. (None of these authors questioned who “gave” the issue area, or how it was given, a question that was later raised by constructivists such as Onuf, 1989 , and Marlin-Bennett, 1993 .)

Notwithstanding criticisms, the usefulness of the analytical construct of regimes was that it shifted attention to issues, those questions of international political economy around which negotiations were held, agreements struck, deals kept or not kept. The regimes literature spawned a host of studies of different kinds of issues. By looking at the institutions and the normative structures that made cooperation possible, regimes theorists and empirical researchers opened up the opportunity to see how the vast majority of interactions in the world—those that do not involve military hostilities—actually occur and are ordered. Among the many such works are Rittberger ( 1993 ), Martin and Simmons ( 1998 ), Nadelmann ( 1990 ), Nye ( 1987 ), Peterson ( 2005a ), and Cogburn ( 2017 )

The attention to institutions and the role they play under conditions of a relatively liberal international political economy led scholars to start referring to all these approaches to integration and regimes in a globalizing world as “neoliberal institutionalism” (Keohane, 1984 ). Often contrasted with structural realism, neoliberal institutionalism assumes that rational actors can cooperate under conditions of anarchy because institutions provide rules that the actors are willing to accept and because actors are happy with absolute gains, rather than struggling for relative gains (as a state-centric realist or economic nationalist would assume), from any set of proposed arrangements. Many, however, see flaws in the theoretical edifice of neoliberal institutionalism. Robert Powell ( 1991 ), for example, suggests that both structural realism and neoliberal institutionalism are special cases of a single model of states attempting to pursue their interests under conditions of anarchy and constraints imposed by different capabilities among the actors in the system. Others contest neoliberal institutionalism’s empirical validity (Drezner, 2001 , among others) and its conceptualization of anarchy (Grieco, 1988 ). Yet others disagree with the implicit assumption that neoliberal institutionalist cooperation is good , that cooperation necessarily leads to more peaceful, more materially comfortable, and more emancipatory outcomes (Keeley, 1990 ; Kokaz, 2005 ; Marchand, 1994 ). The intellectual history by Cohen ( 2008 ) provides an overview and assessment of the development of regimes theory.

Neoclassical Liberalism

The other major stream of liberalism diverges from the neoliberal institutionalism and the Keynesian emphasis on coordination through regulation of (global) economic interactions. The neoclassical liberals, including economists of the Austrian School and leading U.S. economists such as Milton Friedman, understood government intervention as damaging to markets and consequently to the economic freedoms of society. Ludwig von Mises and Friedrich A. von Hayek, two leaders of the Austrian School, advocated antisocialist, antigovernment intervention policies (Hayek, 1994 ; von Mises, 1998 ).

Milton Friedman similarly argued in favor of letting markets operate without government intervention. Government policies that seek to manipulate markets for political outcomes are unavoidable errors, in his view. In an article coauthored with Anna J. Schwartz, the economists conclude that

leaving monetary and banking arrangements to the market would have produced a more satisfactory outcome than was actually achieved through governmental involvement. Nevertheless, we also believe that the same [political] forces that prevented that outcome in the past will continue to prevent it in the future. (Friedman & Schwartz, 1986 , p. 311)

For Friedman, the role of government is important but limited. With Rose Friedman, he wrote:

“Government is essential both as a forum for determining the ‘rules of the game’ and as an umpire to interpret and enforce the rules decided on.” Markets, on the other hand, “reduce greatly the range of issues that must be decided through political means, and thereby [. . .] minimize the extent to which government need participate directly in the game.” (Friedman & Friedman, 1982 , p. 15)

The ascendancy of laissez-faire economics resulted in the dominance of the “Washington Consensus,” which changed the way the international financial institutions (especially the World Bank and the International Monetary Fund) and governments made policies on foreign aid from the 1980s through the 1990s. Proponents of the Washington Consensus placed efficiency of the economy as their highest objective. Further, they did so under the assumptions that efficiency was good and that they understood mechanisms of economics sufficiently to identify good, efficient policies (Williamson, 1993 , p. 1330). Though pursuing equity or more fair distribution of resources had often been considered a goal of policy, supporters of the Washington Consensus were not concerned with equity; at best, they saw the possibility that some improvements in equity could come about “as a byproduct of seeking efficiency objectives” (Williamson, 1993 , p. 1329). As Dani Rodrik ( 2006 ) sardonically recounted:

Any well-trained and well-intentioned economist could feel justified in uttering the obvious truths of the profession: get your macro balances in order, take the state out of business, give markets free rein. “Stabilize, privatize, and liberalize” became the mantra of a generation of technocrats who cut their teeth in the developing world and of the political leaders they counseled. (p. 973)

Ultimately, the popularity of the Washington Consensus waned as it failed to produce positive economic growth in developing countries. By 2005 , the World Bank issued a careful analysis of the failures of its own policies that implemented the neoclassical economics of the Washington Consensus (Zagha & Nankani, 2005 ). The failure of the Washington Consensus cast attention back onto other liberal, but not neoclassical, political economy theories, specifically those dealing with how institutions can resolve externalities and other forms of market failure in an otherwise liberal global political economy.

In the wake of the decline of the Washington Consensus and the financial crisis beginning in 2008 , special mention of the scholarship of Susan Strange must be made. Strange, who could be classified, broadly, as a liberal in her understanding of markets and efficiency, strongly criticized the neoclassical position. She understood that markets did not function in the absence of good governance. Indeed, in 1986 and again in 1998 she analyzed a global political economy in which states had ceded control to markets, with the expectation of disastrous results for volatility and the health of the global economy (Strange, 1986 , 1998 ). She saw clearly the danger of fast-moving financial flows in a global political economy in which no government provided the appropriate regulation to ensure fair dealing and protect against the negative externalities that result when rational self-interested agents pursue their self-interest in the absence of such regulation. No one has been overseeing the global financial system, and the result has been, as Strange ( 1986 ) predicted, serious harm.

Strange’s contributions have only been confirmed in the wake of the global financial crisis of 2008 , in response to which liberal theorists have been challenged to critically reformulate the ideal and real relations between market forces and state planning. Landmark works in the empirical study of financial crisis and contemporary inequality such as Picketty ( 2014 ) and Tooze ( 2018 ) are essential contributions to the study of the contemporary salience of finance and financial crisis in contemporary global capitalism. Indeed, as John Ikenberry ( 2018 ) observes, the liberal international order faces grave challenges from resurgent economic nationalisms and social conservatisms. In addition to this 21st-century political challenge, the liberal tradition has historically been most broadly and deeply challenged by Marxian theories of global political economy.

Marxian Global Political Economy

The third major school of thought in international political economy has been Marxism, along with several “neo”-variants. Karl Marx, along with Friedrich Engels and (later) Vladimir Lenin, is considered the progenitor of a political economy that emphasizes the role class plays in society. Although the dissolution of the Soviet Union and the systemic changes within the People’s Republic of China have demonstrated the failures of Marxian-influenced policies, Marxian thought offers a useful critique of the structure of the global political economy by shedding light on capitalism and the production of inequities.

Marx, writing in the mid- 19th century , combined philosophical investigation of political economy with activism. He witnessed a world that was being changed by industrial development, in which the workers were increasingly subject not just to the authority of the state but also to the control of the capitalist. Marx adapted Hegel’s dialectic to the material world, seeing the contradictions within capitalism driving change, which he expected to lead to revolutionary transformation of society. This notion of the dialectic and the teleological view of history—that these contradictions would inexorably lead to a communist society as the predictable end state and (ironically, somewhat self-contradictorily) that this unavoidable revolutionary change should be fomented—has not been borne out and, arguably, has been contradicted. The Communist Manifesto (Marx & Engels, 1983 ) remains, though, the clearest explication of Marx’s view.

In terms of the development of political economy, Marx broke with the liberals in his identification of the sphere of production, as opposed to the sphere of exchange, as the focal point of sociopolitical and economic dynamics. Market mechanisms were relatively fixed, but the politics of production—whether it is on land used to grow food or on the shop floor—determined the nature and dynamics of the social order. Though there are several “Marxian” variations of the broad sweep of history, we basically find a succession of stages that are differentiated by the nature of the ownership of the means of production. Early history is characterized as an era of “primitive capitalism” without specialization where all members of the human community were essentially equal in the tasks they pursued and the status they held. A long period characterized by slavery followed, where some people subjugated others to the status of chattel and appropriated their labor power directly. This system is inefficient and comes to be plagued with high costs involved in maintaining order and overseeing production. In Europe, the period of slavery is followed by feudalism, where direct ownership of individuals ends, but peasants are nonetheless tied to the land, which itself can be owned. The peasant thus owes the owner of the land a level of labor dues. The transition to capitalism emerges when the social relations of production (the social overlay of the feudal system in this latest stage) become impediments to further development. Feudalism’s limits lead to changes that find landowners failing to control their charges, and peasants taking up a new position in the economy. They are stripped of their land and put in a position where they must sell their labor power in the market for a wage.

Marx extended this concept of alienated labor in two ways that are important for the study of global political economy. First, he emphasized the alienation of labor as the definitive element in the capitalist system. The division of labor in an industrializing society meant that workers would have no choice but to sell their labor power as a commodity to survive. In doing so, the worker sells his power of production to the capitalist. The alienation of the worker from his own labor gives a special viciousness to the class relations that characterize the capitalist mode of production (Marx, 1983a ). Second, Marx examined how the alienation of labor led to the accumulation of “surplus value,” the profit that accrued to the capitalist when the price of a good exceeded the wages the capitalist paid the laborer for its production. The wage laborer would only earn enough for their subsistence, but the capitalist would be able to take in the surplus, which would be much greater than that needed for the capitalist’s subsistence (Marx, 1983b ).

Vladimir Lenin’s tract, Imperialism: The Highest Stage of Capitalism—A Popular Outline , brought Marxian thought into the global political economy. Lenin extended Marx’s predictions, showing how capitalism would spread around the world, leading to an ultimate contradiction of inter-imperialist conflict. As capitalism became more advanced, the accumulation of surplus value led to the concentration of ownership through the rise of monopolies. Bank ownership became concentrated and closely interconnected with the interests of monopoly capital. According to Lenin, the results were monopolistic “finance capital.” Further, the connections between capital and banks were “completed” by tight connections between each of these and the state. The consequence, Lenin wrote, was a shift in capitalism. “Under old capitalism, when free competition prevailed, the export of goods was the most typical feature. Under modern capitalism, when monopolies prevail, the export of capital has become the typical feature” (Lenin, 1982 , p. 62). He argued that the “superabundance of capital” in the advanced capitalist countries drove exports, and capitalism spread throughout the world. Furthermore, imperialism was the natural result, as finance capital moved to expropriate the raw materials of the colonies. The result was the immiseration of the masses, both within the advanced capitalist countries and abroad, “for uneven development and wretched conditions of the masses are fundamental and inevitable conditions and premises of this mode of production” (Lenin, 1982 , pp. 62–63 [emphasis in the original]). The ultimate contradiction between capitalism and monopoly and the push for domination eventually must lead, Lenin stated, to inter-imperialist rivalry and, finally, the decay of monopoly capitalism.

Where Marx saw the spread of the capitalist mode of production to all societies as inevitable, other critical scholars were concerned that capitalism was creating not models of itself but of a new kind of social order. Dependency scholars argued that instead of facilitating the growth of capitalism in the third world, capitalist and imperialist actions were leading to a system where real capitalism could not possibly develop. What we were witnessing, they argued, was “the development of underdevelopment” (Gunder Frank, 1969 ). Dependency scholars argued that capitalist interests often strengthened precapitalist forms of exploitation. Hence, large landowners would solidify their position in a society by reaping the benefits of a captive population of laborers in a system more akin to feudalism than capitalism, but without the internal contradictions that would lead to its transformation. The ability of one society to warp the subsequent developmental path of another, given the incentives that trade relations with capitalists offered, was described by Sweezy ( 1942 ), Baran ( 1957 ; Baran & Sweezy, 1969 ), Gunder Frank ( 1969 ), Cardoso and Faletto ( 1979 ), dos Santos ( 1970 ), and Amin ( 1976 ). Amin, for example, examined how accumulation differs in the core of developed countries and the periphery of developing countries. In the wealthier core, the masses are essentially co-opted through the production and availability of the consumer goods needed to satisfy them. In the periphery, production is focused on luxury goods and exports, thereby further enriching the dominant classes and leaving the needs of the masses unfulfilled and the people marginalized.

Marxist scholars considered this analysis to be flawed by its concern for actions taking place in the sphere of exchange (trade between core and periphery) and not the sphere of production (more class-based analysis). Supporters of the original Marxian formulation like Laclau ( 1971 ) and Warren ( 1973 ) produced critical analyses of dependency arguments. Brenner ( 1977 ) labels dependency and related schools of thought “neo-Smithian” in orientation and therefore fundamentally un-Marxian.

Dependency scholarship was quite popular given its ability to explain both underdevelopment and the failure of class politics to grow along traditionally identified Marxist paths. In the 1970s, Immanuel Wallerstein brought dependency and a desire to reconceptualize the developmental paths of the advanced industrial states in the long-term approach of Fernand Braudel ( 1982–1984 ) together to form world-systems analysis. Wallerstein ( 1974 ) dated the origins of the development of the “capitalist world-economy” to the long 16th century . He was able to add political and cultural conditions to the essentially materialist analyses of longer-term critical history. Wallerstein ( 2004 ) understands a world-economy as

A large geographic zone within which there is a division of labor and hence significant internal exchange of basic or essential goods as well as flows of capital and labor. A defining feature of a world-economy is that it is not bounded by a unitary political structure. Rather, there are many political units inside the world-economy, loosely tied together in our modern world system in an interstate system. And a world-economy contains many cultures and groups—practicing many religions, speaking many languages, differing in their everyday patterns. This does not mean that they do not evolve some cultural patterns, what we shall be calling a geoculture. It does mean that neither political nor cultural homogeneity is to be expected or found in a world-economy. What unified the structure most is the division of labor which is constituted within it. (p. 23)

Wallerstein also came under critical scrutiny for keeping “capitalism” at the core of his analysis. Scholars like Chase-Dunn and Hall ( 1991 , 1997 ) sought to push the elements of world-system analysis to earlier eras in explicitly comparative work. Others, like Gunder Frank and Gills, argued for the abandonment of “capitalism” as the core of global developmental concerns, and argued for the development of a world system history that would cover the last 5,000 years of human history (Gunder Frank, 1998 ; Gunder Frank & Gills, 1993 ). All these works are essentially emancipatory in their intent. They share the view that poverty is a central problem, that global inequalities should be addressed, and that remedies must be adopted.

Italian communist Antonio Gramsci continues to have a major influence on the field of international political economy. Gramsci, who was influenced by Marx, Lenin, and other socialist and communist thinkers, contributed the concept of Gramscian hegemony to the study of IPE. While in liberal and realist IPE, hegemony simply refers to a single state having a preponderance of power, Gramsci looked at the complex interconnection between the material and productive base of the social order (the structure) and philosophy, ideas, culture, and relationships (the superstructure). Hegemony is in place “in so far as it creates a new ideological terrain, determines a reform of consciousness and of methods of knowledge” (Gramsci, 1988 , p. 292). For Gramsci, a class is hegemonic when it is able to lead through the consent of those it controls, because of this complex set of dominant “ethico-political” ideas, and through force, in terms of ownership and organization of economic activity. Giovanni Arrighi ( 1994 ) summarizes Gramsci’s definition of hegemony as

the capability of a state to lead the system of states itself in a desired direction—that is, to set the rules for the system in ways that buttress rather than undermine the world power of the hegemon. [. . .] (p. 365)

Here we should remember Gramsci’s point that intellectual and moral leadership (Machiavelli’s consent) is as critical to the effective exercise of hegemony internationally as coercion pure and simple is at the national level. Henk Overbeek ( 1994 ), however, emphasizes that hegemony in the global political economy has to do more with dominance of a class—specifically of the capitalist class.

Another important Gramscian term is “historical bloc,” which refers to the dynamic dialectical relationship between the material and productive base and the superstructure of ideas. As Robert W. Cox ( 1999 , p. 5) explains, “Gramsci was less concerned with the historic bloc as a stable entity than he was with historical mutations and transformations, and with the emancipatory potential for human agency in history.” In short, the relationship between civil society and the state within any historical bloc will embody both the existing hegemony and the seeds of counterhegemonies. “Civil society was the ground that sustained the hegemony of the bourgeoisie but also that on which an emancipatory counterhegemony could be constructed” (Cox, 1999 , p. 3).

Like Gramsci, Karl Polanyi ( 2001 ) saw society resisting the negative consequences of capitalist markets. In The Great Transformation , he argued that a “double-movement” resulted from social forces pushing back against the aspects of a market-driven society. Polanyi also saw the relationship between society, markets, and the state as historically situated, with technological and policy innovations leading to changes in society. Polanyi traced the creation of the self-regulating market economy through the commodification of land, labor, and specie, social changes that made the industrial revolution and the rise of “haute finance” possible.

Both Gramsci and Polanyi have influenced a cohort of critical IPE scholars, including Robert Cox ( 1996 ), Stephen Gill ( 2003 ; see also Gill & Mittelman, 1997 ), Craig Murphy ( 2005 ), James Mittelman ( 2004 ), and Mark Rupert ( 2000 ). Gramscian global political economy has been particularly relevant to the study of globalization and the spread of liberal markets around the world. These approaches to global political economy suggest that the existing tension in the world between the antiglobalizers and the proglobalizers has at root a dialectical contestation between hegemonic and counterhegemonic groups. These authors focus on the importance of groups and other nonstate actors, as well as states, since civil society within the global political economy includes a variety of types of actors.

The global financial crisis of 2008 provided the impetus for Marxian-influenced scholarship focusing on globalization. Marxian analyses of global financial crises differ from their liberal counterparts in emphasizing the structural nature of these periodic crises. That is, Marxian theorists tend to locate the tendency for economic crisis in the very nature of the system, as a necessary and (relatively) predictable feature, impossible to explain by reference to the individual decision-making of leaders and firms alone (Harvey, 2010 ; Krippner, 2011 ).The tensions between a liberal and a Marxian analysis of capitalism’s crisis tendencies are displayed in the substantive critique of the liberal approach in Crashed by Adam Tooze ( 2018 ; see Anderson, 2019 ). Some of this research, as discussed in the section “ Postcolonial Approaches ,” emphasizes the consequences of capitalist crises in postcolonial societies (e.g., Krishna, 2009 ).

Feminist Global Political Economy

Despite the differences among them, the three most common approaches to global political economy (liberal/neoliberal, mercantile/economic nationalist, and Marxian) tend to assume that the buying, selling, and production of goods and services are what matter. Important actors in the analysis, be they firms and consumers, states, or classes, are all engaged in buying and selling, producing goods and services for sale, and seeking wealth (Tickner, 1992 ). Feminist approaches to global political economy highlight two important points that are usually overlooked. First, people are gendered, and gender is generally understood hierarchically, with men and activities that are understood as masculine (competing, making money) being valued more highly than women and women’s activities. Second, productive (i.e., market-based) activities are not the only things that happen in society; rather, society needs, but, again, does not value as highly, the activities of the reproductive economy—the unpaid work necessary to create a home life, provide leisure activities, and care for family members. These reproductive activities are almost universally associated with feminine characteristics and are not considered by mainstream global political economy analyses. As V. Peterson ( 2005b ) argues, however, understanding the analytical implications of gendered hierarchies provides a more complete understanding of processes of the global political economy (see also Griffin, 2007 ). The approach by J. K. Gibson-Graham ( 2006 ) to decentering and reconceptualizing the capital-labor relation opens an analytical space for feminist theorizations of GPE along these lines.

The marketization of the global political economy, including the integration of emerging market economies, also has important gender implications. As some scholars note, these changes are not necessarily simply good or bad. On the negative side, the informalization of labor—the changing nature of available jobs from regular, full-time employment to part-time, temporary, or independent contracting arrangements—adds significant uncertainty to households’ economic stability. The effect is more pronounced on women’s work and on the feminized jobs held by men. On the positive side, globalization has also brought increasing equity in educational opportunities and increased access to some jobs (Benería, Floro, Grown, & MacDonald, 2000 ; Peterson, 2005b ). Similarly, Jacqui True, in a case study of the Czech Republic, finds that “the commodification of gender is facilitating the extension of markets,” with the dual effect of “empower[ing] women as much as it subjects them to new forms of discipline and market civilization” (True, 1999 , p. 363).

Consequently, a further contribution of feminist GPE has been to challenge the pervasive association of the study of the global or the totality with a masculine drive to dominance. Instead of combatting the impulse to study the global by turning to a study of microrelations, feminist GPE has developed theories and methods for understanding gender as a mechanism of producing and rationalizing the inequalities within global capitalism (Bhattacharya, 2017 ; Fraser, 2013 ; Tepe-Belfrage, 2016 ). Hozic and True ( 2016 ) bring together a variety of feminist and queer perspectives on global financial crisis, highlighting how these concerns cannot be consigned to the margins of the study of global economic processes.

Postcolonial Approaches

A burgeoning literature in postcolonial political economy has emerged through critical conversation with traditional IPE. This literature mobilizes a critique of Eurocentrism in political economy and foregrounds the structural impact that colonial histories continue to exert on global economic life (Dirlik, 1994 ; Grovogui, 2011 ; Lowe, 2015 ; Shilliam, 2018 ). Another key contribution of postcolonial theory to political economy has been its critique of Eurocentric epistemologies and its attention to the knowledge traditions and economic formations of the non-West (Agathangelou & Ling, 2003 ; Blaney & Inayatullah, 2010 ; Ling, 2000 ; Shilliam, 2012a , 2020 ). Robbie Shilliam ( 2009 , 2012b ), for example, theorizes about Atlantic slavery and its consequences for our understanding of liberal and Marxian IPE.

Debates continue over whether Marxian theory is essential to a postcolonial project of emancipation and self-determination (Rao, 2017 ). On the one hand, the reading of Marx by Dipesh Chakrabarty ( 2008 ) has inspired new possibilities for the critique of the coloniality and the racism of capitalism’s history and present (e.g., Persaud & Sajed, 2018 ; Tilley & Shilliam, 2018 ). On the other hand, Hobson ( 2012 , 2013a , 2013b ) argues that Marx and Lenin’s theoretical edifice is too indebted to a colonial worldview in which the West represents the model of future progress and social development. An influential Marxian critique of postcolonial studies can be found in Chibber ( 2013 ). Notwithstanding these tensions, scholars continue to draw inspiration from both postcolonial theory and Marxian theory to construct critiques of contemporary global capitalism. For example, Anievas and Nişancıoğlu ( 2015 ) have brought the sensibilities of the Marxian tradition together with postcolonial theory to highlight the irreducibly global or intersocietal history of capitalism, and Khalili ( 2020 ) takes stock of the colonial echoes that resonate within global trade flows from the standpoint of the Arabian Peninsula.

Upon entering the third decade of the 21st century , three rapidly evolving areas of scholarship, discussed briefly in this section, are likely to continue to be of interest and grow in importance: China and the transition of the neoliberal world order, queer global political economy, and “precarity” of the global workforce.

Prior to the 1990s, research on China generally focused on processes of development and modernization of a peripheral country. As China made initial changes to its economy and began to participate more in global trade, new questions emerged. Jacobson and Okensenberg ( 1990 ), for example, examined the impact of the participation of China, a developing country with a command economy, in the International Monetary Fund and the World Bank (it had been a member since 1980 ) and the likely consequences for the global economic order of its signing the General Agreement on Tariffs and Trade. At the end of the 20th century , China’s economy underwent a major transformation, including the growth of its private sector, reliance on exports, and full engagement with international trade and finance. These changes spurred assessment of the IPE implications of China as a rising power. This research is consistent with mainstream IPE schools of thought, framing China’s opening and market reforms in terms of realist/economic nationalist expectations of conflict between China and the liberal capitalist countries (Layne, 2018 ) or liberal expectations that China will end up conforming to Western liberal capitalist norms (Deudney & Ikenberry, 2018 ; Ikenberry, 2009 ).

The new trend in the research moves away from this “binary orthodoxy” (De Graaff, ten Brink, & Parmar, 2020 ). Instead, this trend provides empirical and theoretical analysis of how China reshapes but does not necessarily remake global capitalism—not overturning global capitalism and the neoliberal order but rather exerting influence on and shaping its contours (Hung, 2009 , 2015 ). This stream of research avoids theorizing China as a unitary actor and instead looks closely at the global consequences of how the Chinese economy is organized domestically and in the global context. Hung ( 2008 ) assesses the overaccumulation of capital in China resulting from the state’s decentralization of regulatory authority, local actors’ overinvestment in productive capacity, and widespread underconsumption. China has been able to maintain strong growth and an export-driven trade policy in this unstable circumstance only because of overconsumption and debt in the United States. Other scholars have explored how China’s trade policy is both influenced by and promoted by transnational networks that Chinese elites have entered (de Graaff, 2020 ; Huo & Parmar, 2020 ). Disruption of neoliberal globalization is another important theme. For example, Hopewell ( 2016 ) argues that Chinese inconsistency—sometimes supporting and sometimes contesting neoliberal rules—is the root of its disruptiveness. Ironically, by supporting liberal rules, China shines a light on the “hypocrisy” of illiberal trade policies of the United States and other Western countries. Weinhardt and ten Brink ( 2020 ) suggest that explanation for this inconsistency can be found in domestic differences in the structure and degree of government intervention in sectors. McNally ( 2020 ) identifies the source of instability in the contradictions of Sino-capitalism, described as both neoliberal and neostatist and as organized top-down by the state and bottom-up through networks of entrepreneurs.

The second trend, queer global political economy, can be seen within the broader category of queer international relations (IR) theory (Weber, 2015 ), while overlapping substantially with feminist and other critical approaches. Queer IR theory uncovers and problematizes the political consequences of assumptions, grounded in naturalized cultural practices, of binary constructions of identity—of assuming the world is divided into male and female or similarly into normal and abnormal, heterosexual and homosexual, or other taken-for-granted dichotomies. Applied to the substantive domain of global political economy, this approach focuses attention on “heteromasculine and cissexist assumptions and biases” and “the differential—and productive—impact of processes and policies associated with neoliberal globalization sexualized and gendered subjects, practices, and kinship relations” (see article “Queer International Relations”). Peterson ( 2014 ), for example, explores “global householding,” a term that encompasses the many transborder processes of social reproduction necessary to sustain families and the wider society, especially in the Global North. These processes include “marriage/partnership, earning income, managing daily life, securing childcare, eldercare, healthcare, and education, acquiring domestic ‘help,’ relocating for retirement” (p. 606). Smith ( 2016 ) investigates how neoliberal policy responses to global financial crises disadvantage those whose lives differ from that of the presumed “normal” family, a husband and a wife and their children. “Imaginaries” of the family, she argues, reproduce the neoliberal economic order.

The growing “precarity” of the global workforce, the subject of the third new direction of research discussed here, has emerged as a grave side effect of the processes of globalization, a reality acknowledged by all the different schools of IPE. Guy Standing ( 2016 ) has introduced and popularized the concept of the “precariat,” which he regards as a new stratum of the working class marked by an extreme lack of job security and basic benefits like healthcare and paid time off. This class, according to Standing, represents a growing contingent of the global workforce, a verdict corroborated by many empirical studies, especially from a comparative political economy perspective (Agarwala, 2013 ; Kalleburg, 2018 ; Mosoetsa, Stillerman, & Till, 2016 ). This framing of the issue of precarious labor, however, is not without its critics. With a properly global analytic lens, some argue, precarity does not appear to be a new phenomenon at all but a condition that has characterized the Global South since its inception and which now threatens the North as well (Scully, 2016 ). Moreover, as Ritu Vij ( 2019 , p. 504) has argued, the idea of precarity as it is popularly conceived rests on “the pathologization of vulnerability,” an ideological process which normalizes a liberal individualist political economy and understands nonliberal forms of life as “abject.”

It is also worth mentioning a trend that seems to have petered out. At the time the original 2010 version of this article was drafted, communitarianism seemed to be a promising, emerging stream of normative research that would address problems of global capitalism. Largely associated with the work of Amitai Etzioni ( 1991 , 2004 ), communitarianism can be seen as a countertheory to the idea that liberal markets are natural and that men and women are naturally economically rational, self-interested agents. Etzioni’s communitarianism does not eschew liberal economics wholly, nor does he advocate a loss of individual freedoms; instead, he looks for a via media in which the interests of individuals are balanced by the interest of the communities of which they are a part. The local, national, and global political economies are in essence communities. The connection to community seems to draw on the feminist idea of an ethic of care (Tronto, 1987 ). William Galston ( 2002 ), in a similar vein, argues for a rejection of both socialist and laissez-faire economics in favor of an approach that he calls “mutualism”; the policy implementation would be a “progressive market strategy,” in which policies would promote “moderate self-interest, regard for others, and internalized norms” of responsibility. Communitarian global political economy, however, failed to gain traction, perhaps because other, more normatively progressive critical approaches came to the fore.

GPE Research Relevant to COVID-19

As this article was being prepared for publication ( May 2020 ), it became difficult to ignore the severe implications of the COVID-19 pandemic for the global political economy. The robust literature dealing with the global history of pandemics and the dangers that a new pandemic would pose in a world marked by increasingly intensifying processes of economic globalization are highlighted here.

A review of GPE’s engagements with the history of global pandemics reveals a wide variety of analytical lenses, including descriptive accounts of the impact of environment on society and more politically focused accounts of the differential impacts suffered by different peoples. The account by McNeil ( 1998 ) of the history of plagues is notable for its emphasis on intersocietal transmission, highlighting how the world’s peoples have been interconnected long before the emergence of 20th-century globalization. The work of Pirages ( 1995 , 1997 , 2007 ) deserves special mention for its wide historical and geographical scope and its sensitivity to the intersections between international politics, infectious disease transmission, and the coordinated social responses (or lack thereof) that have been implemented historically to combat the worst consequences of infectious disease. Work by Paul Farmer ( 2004 ) seeks to highlight how the social toll of pandemics largely depends on preexisting power relations and inequalities in society, which he theorizes in terms of “structural violence.” Another key scholar of pandemics is Mike Davis ( 2005 ), whose study on the Avian Flu offered a prescient warning of the political–economic threat of a new global pandemic. Davis ( 2020 ) has published an analysis of COVID-19 in a periodical issue focused on the pandemic (NLR Editors, 2020 ).

A special issue of Review of International Political Economy on Political Economies of Global Health, edited by Susan K. Sell and Owain D. Williams ( 2020b ), appeared online just a few months before the first reported cases of COVID-19. The issue focuses on global capitalism’s effects on the health of the world’s people across multiple scales and through multiple processes. Neoliberalism and policies insisting on free markets, Sell and Williams ( 2020a ) argue, have negative effects on global health through “regimes and institutions in areas such as trade and investment policy, austerity programs, pharmaceutical and food governance, and the rules that support globalized production and consumption” (p. 1). Though this observation focuses on health more generally, the global, national, and local responses to pandemics are certainly a part of the larger global health system. Three of the articles are especially relevant to the GPE aspects of pandemics and other instances of the spread of infectious disease. Rebecca J. Hester and Owain D. Williams ( 2020 ) ground their exploration of the political economy of the “somatic-security industrial complex,” upon influenza and its movement around the world. Stefan Elbe and Christopher Long ( 2020 ) explore global assemblages of medical molecules that become valuable for biodefense against disease outbreaks, bioterrorist attacks, and the like. João Nunes ( 2020 ) examines Brazil’s domestic political economy within the neoliberal order, the precarity of health workers’ jobs, and the consequences for Brazil during the Zika virus outbreak.

Much of the salient research on the global politics of infectious diseases prior to COVID-19 has occurred in fields of global health governance (Huang, 2014 ; Youde, 2018 ) and security studies (Davies, 2008 ; Price-Smith, 2009 ), and these studies will likely prove essential for future pandemic-related knowledge production in GPE. New materialist approaches that privilege the impact of nonhuman life processes will likely contribute in important ways to pandemic research (White, 2015 ).

Though COVID-19 was only recognized as a global pandemic in March 2020 , the sheer scope of the crisis resulted in immediate scholarly attention. Notable analyses of the pandemic and its reverberations in the global economy include the world-systems approach of Silver and Payne ( 2020 ) and a short but generative series of contributions to the journal of Foreign Policy (Walt et al., 2020 ). Certainly, many scholars of GPE will be turning to these contributions and constructing their own in responses to the global crisis of COVID-19.

Links to Digital Materials

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Global Economy, Global Technology, Global Corporations: Reports of a Joint Task Force of the National Research Council and the Japan Society for the Promotion of Science on the Rights and Responsibilities of Multinational Corporations in an Age of Technological Interdependence (1998)

Chapter: 1 conclusions, recommendations, and executive summary, u.s. working group conclusions, recommendations, and executive summary, benefits of foreign direct investment.

Conclusion One: The available evidence indicates that, in almost all cases, foreign direct investment (FDI) is beneficial for investing firms and host countries, and the importance of multinational corporations (MNCs) in the world economy will continue to expand

The joint task force focused its study on high-technology and other manufacturing industries, because those industries are and will continue to be central to U.S.-Japan technological and economic policy issues.

Through direct investment, U.S. industry has transferred critical technologies and skills to Japan for many years. One example from early in the century is Western Electric's formation of NEC as a joint venture. Prominent postwar examples are IBM and Texas Instruments. Although by 1980 Japan had lifted most formal restrictions, inward direct investment has remained very low because of the legacy of those restrictions and continuing informal barriers, as well as the current high cost structure in Japan that discourages direct investment in manufacturing. 1

More recently, Japanese manufacturing investments in the United States have begun to deliver benefits to the U.S. economy, mainly by demonstrating the applicability of Japanese manufacturing management techniques in the American setting, through the expansion of productive capacity and contributing to a more competitive environment. An increasing number of U.S.-Japan technology-oriented strategic alliances involve reciprocal, mutual benefits, in contrast to established patterns. The openness of the U.S. economy has attracted world-class manufacturers from around the world—a unique advantage that will benefit U.S. competitiveness into the next century.

Today, nations across the globe are moving toward a more open and positive approach regarding MNCs and FDI, a trend that has been reinforced by recent international agreements and new institutions, such as the World Trade Organization (WTO), the Asia Pacific Economic Cooperation (APEC) forum, and the North American Free Trade Agreement (NAFTA). Both the United States and Japan have important responsibilities to sustain this progress toward open and liberal trade and investment throughout the word. In addition to their participation in international forums, the United States and Japan can provide leadership through their domestic economic policies, including efforts to reduce continuing large current account imbalances. Japan, perhaps, faces the larger challenge here. Trends in currency values ultimately are set by the market, as well as in the long-term move with the demand and supply of currencies as reflected by current account balances, long-term capital flows, and other factors.

Recommendations

The United States can contribute to expanding the benefits of FDI in the global economy by providing leadership in a variety of international economic institutions and initiatives. The United States also must avoid protectionist and discriminatory policies at home while pursuing more open markets abroad.

As it recovers from its lengthy recession, Japan can make the most important contribution to its own long-term prosperity and to overall stability and growth in the world economy by aggressively striving to reduce the current account surplus, including significantly reducing public and private sector barriers to imported products and services. Japan also can contribute in international forums by providing leadership in promoting open trade and investment.

Despite conditions that constitute significant barriers to FDI in Japan, U.S. MNCs should resist the temptation to “bypass Japan.” Despite the necessity in many cases for high initial investments, promising opportunities exist for U.S. companies in a variety of industries, and prospects are likely to improve. In addition, a presence in Japan often is critical for the strategic purpose of challenging Japanese competitors on their home turf, both through preventing Japanese firms from earning extranormal profits in the home market and as a mechanism for staying abreast of technological and business trends.

EQUAL ACCESS AND NEW RULES OF THE ROAD

Conclusion Two: Because trade and investment issues inherently are intertwined, an integrated effort to liberalize trade and investment with the long-term goal of equal access to markets and economies is the only guarantee for long-term stability and expansion of the global trade and investment systems.

Despite greater progress toward free and open investment flows, the historical experience of U.S. and Japanese approaches toward FDI and foreign participation in the domestic economy indicates that a variety of approaches is possible. In addition, domestic systems affecting the microeconomy—in regulation, intellectual property, competition policy, R&D subsidies, corporate finance and other areas —have a significant impact on market access and direct investment flows.

While continuing to work toward broad multilateral progress in realizing the principle of national treatment, the United States should pursue new initiatives that go beyond this principle toward the goal of “equal access” to market and innovation systems. Conditions of equal access will prevail when MNCs of equal competitive strength—including management skill and effort, technological capabilities, and other factors— have an equal opportunity to participate in markets and innovation systems globally, wherever they are based. Although establishing the principle of equal access involves a number of practical difficulties, will take significant effort, and can be accomplished only in the long term, the United States must begin this effort with other like-minded countries, perhaps beginning in the developed world. The U.S. working group believes that all developed countries, including Japan, have an interest in achieving equal access through domestic reforms and collegial international negotiations, and that real progress toward equal access would help to prevent acrimonious bilateral trade disputes in the future.

Equal access should be measurable on a sector or economy-wide basis, but ensuring equal access does not mean adopting market share targets and emphatically does not mean guaranteeing equal results. The primary mechanism of ensuring equal access would be international negotiations aimed at effective convergence in policies and private practices governing aspects of national microeconomic management. Such negotiations could be undertaken on a comprehensive or system-specific basis. An example of the former would be a world investment treaty negotiated under the auspices of the Organization for Economic Cooperation and Development (OECD) or the WTO. An example of the latter would be international harmonization in intellectual property protection— a system with a large impact on the returns on innovation and MNC activities.

In addition to pursuing broad global progress toward open trade and investment based on the principle of national treatment, the United States should explore and pursue initiatives with like-minded nations in a variety of forums aimed at going beyond national treatment toward equal access by MNCs to market and innovation systems.

Harmonization of intellectual property protection systems, including enforcement, should be a particular priority in working toward a convergence of systems and equal access. Despite the significant differences in perspective remaining between the two countries on intellectual property issues, the United States and Japan have a strong commonality of interest in promoting strong, global protection of intellectual property. The U.S. and Japanese governments should pursue, as a top priority, the goal of world patent harmonization.

Conclusion Three: MNCs and international organizations have increased their efforts, in recent years, to define “best practices” for MNCs operating in host countries. Elements of the definitions developed are relevant to scientific and technological relationships. By continuing these efforts to define best practices, MNCs can gain insights that help them conduct innovative activities abroad in ways that serve their own long-term interests and lead to enhancing the innovative capabilities of host countries.

U.S. working group members' experience shows that the primary areas where MNCs make technological contributions to host countries are in helping to create a more competitive environment, thereby raising standards for domestic firms and in enhancing host country capabilities by engaging in a full line of business activities, such as creating productive capacity, working with local suppliers, hiring and training local technical personnel, and performing substantial R&D activities locally. A significant part of this contribution generally is accomplished through effective long-term management that leads to business success.

For both Japanese MNCs operating in the United States and U.S. MNCs operating in Japan, success generally has involved the application of superior technology and other business innovations to local market needs; it is a process in which learning and adaptation generally are required. The Japanese working group has developed a list of key determinants of business success, which constitutes a useful start in defining “best practices.” It would have been desirable to go beyond this to discuss more concretely how MNC business practices affect

innovation in host countries, but different perspectives on the project prevented this. The U.S. working group has outlined some possible approaches in the body of this report.

MNCs in both the United States and Japan have made efforts to better define and implement policies of corporate social responsibility in their global operations. As discussed in the report, several of these principles, such as the commitment to undertake business activities and exercise authority locally to the extent possible, should lead to significant technological benefits for host countries. The U.S. working group believes that, in particular, accelerated movement toward utilization of U.S. suppliers by Japanese MNCs would bring expanded mutual benefits. 2

In addition, MNCs that enjoy significant benefits from access to a host country's technology and research base and that wish to be seen as local companies may have a long-term interest and obligation to contribute to sustaining that asset. This could be accomplished by conducting a significant amount of fundamental, published research locally; by maintaining a consistent level of contributions to host country educational and research institutions on a non-quid pro quo basis; and by managing host country R&D facilities and high-technology subsidiaries so that they retain their competencies over the long term.

The United States and Japan—at the government, industry, and individual company levels—should continue efforts to understand the growing technological implications of foreign direct investment and should incorporate their insights regarding technological contributions into the development of concepts for corporate responsibility and the management policies of their companies.

Conclusion Four: Growing technological and economic competition and cooperation between the United States and Japan are facts of life. At the political and corporate levels, however, U.S. and Japanese leaders continue to hold very different concepts of interdependence, which are likely to persist. These differences affect MNC interactions and the overall bilateral relationship.

Recently, some elements of the business and opinion leadership in both the United States and Japan, reflecting fatigue and frustration over prolonged and often acrimonious bilateral trade negotiations, have appeared to be increasing their focus on domestic issues and developments in Asia and decreasing their focus on the U.S.-Japan relationship. Although such a trend probably is natural in the short term, building a U.S.-Japan relationship that delivers long-term mutual benefits is an important interest of both countries.

The debate over the realities and relative merits of Japanese, American, and other varieties of capitalism, launched by opinion leaders in Japan and by foreign commentators, should be rejoined and continued in a wider context so as to increase mutual understanding and find common ground. A useful focus for such an expanded dialogue is the concept of kyosei , or symbiosis, which constitutes a major theme of the Japanese working group's report.

Many in Japan continue to see their nation as fundamentally vulnerable and dependent on foreign markets, foreign raw materials, and the security alliance with the United States. A major goal for Japanese public and private sector leaders in recent years has been to structure interdependent relationships, including business alliances with U.S. companies, that would help

preclude denial of market access and other actions detrimental to Japan's vital interests. Many of these arrangements aimed at “comprehensive security” take place in the market but have a rationale that transcends pure market forces. Many Americans have expressed concern over growing dependence on Japan in such areas as critical components, advanced materials, and advanced production equipment. Trends that Japanese observers might see as the expansion of healthy interdependence often are interpreted by Americans as an indication of unilateral loss of U.S. independence.

Traditionally, Japanese government and business have had a more cooperative relationship than has been the case U.S. government and business. But under way in both countries is political and economic change, with possible implications for these traditional patterns. Trends in this area will affect all aspects of U.S.-Japan relations, as well as the future direction of the world economy.

It is imperative for the United States and Japan to continue and to expand private sector exchanges on issues related to trade, the world economy, direct investment, and technological competition and cooperation on a bilateral and multilateral basis, as appropriate. Needed is a greater mutual understanding of the differing assumptions and goals of Americans and Japanese regarding interdependence and national interests, particularly in light of ongoing changes in both countries.

New institutions, such as APEC, can play a useful role in increasing private sector interactions, particularly regarding critical issues on which the current information base is thin or nonexistent. One possibility is an APEC-organized program of targeted information collection and exchange on trends in Asia Pacific production, trade, and investment, including the role of MNCs, in important industries such as electronics and automobiles. The United States, Japan, and APEC can play roles in meeting the larger need for international coordination and harmonization of trade and investment data.

NOTES AND REFERENCES

1 An expanded discussion of these issues can be found in Chapter 3 of the U.S. working group in this report.

2 An expanded discussion of this point can be found in Chapter 4 of the U.S. working group in this report.

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Impact of Globalisation (Revision Essay Plan)

Last updated 11 Jan 2022

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Here is a suggested answer to a question on the impact of globalisation on developed and developing countries.

Introductory Context

An estimated 9 percent of the global population still lives below the international poverty line of US$1.90 PPP a day.Success in reducing poverty in East Asia is clear with 7 percent of the population in the region living below the US$3.20 PPP line and 25 percent living below the US$5.50 PPP poverty line in 2018. However, almost 70 percent of Sub-Saharan Africa’s population lives on less than US$3.20 per day. Progress in cutting extreme poverty has been halted by the pandemic. The World Bank estimated that the pandemic pushed between 119 and 124 million people into extreme poverty around the globe in 2020. Many developing countries have limited resilience to the impact of economic shocks and threats from climate change.”.

Source: Adapted from the World Bank Poverty Report, 2021

To what extent have the economic benefits of globalisation favoured developed over developing countries? (25 marks)

KAA Point 1

Globalisation involves deeper integration between countries through networks of trade, capital flows, ideas, technologies and movement of people. One argument that globalisation has favoured high-income countries lies in the growing dominance of TNCs from advanced nations. TNCs base their manufacturing, assembly, research and retail operations across several countries, and many have become synonymous with globalisation namely Nike, Apple, Amazon, Google (Alphabet) and Samsung. Some have annual revenues many times higher than the GDP of smaller low-income countries and there has been fierce criticism of numerous TNCs for following tax avoidance strategies such as transfer pricing. This has reduced tax revenues for governments in developing nations which then hampers their ability to use fiscal policy to fund public services such as education and basic health care. The effect is to limit progress in reducing extreme poverty and improving human development outcomes.

Evaluation Point 1

A counter argument is that globalisation is associated with a steady reduction in import tariffs around the world which has then improved access to high-income markets for businesses from emerging countries. Many nations in east Asia have achieved reductions in extreme poverty driven by export-led growth. The extract says that only 7 percent of this region’s population now live below the US$3.20 PPP poverty line and continued high growth – as economies recover from the effects of the pandemic - will lead to improvements in per capita incomes and living standards. Indeed, sixty percent of the value of world GDP now comes from emerging market and developing economies and several countries have their own TNCs operating on a global scale. The recent success of countries such as South Korea, India and Vietnam is testimony to the opportunities that globalisation has offered developing nations who have developed competitive advantage across a range of industries.

KAA Point 2

A second argument supporting the question is that nations succeeding in a globalizing world have diversified economies, a workforce with flexible skills and governments with fiscal resources to overcome external shocks such as the pandemic. In contrast, poorer low-income countries rely heavily on the production and export of primary commodities or incomes from tourism, both of which have been hit by the global recession in 2020-21. Many poorer nations also haveinadequate infrastructure which increases the costs of trade and their direct tax revenues as a share of GDP are low because of sizeable informal economies and persistently low per capita incomes. This means that national governments rely heavily on external debt, and many have low currency reserves. They are therefore more exposed to economic, financial and public health shocks. This is evidenced by the differences in vaccination rates between rich and low-income countries. As of January 2022, only 9% of people in low-income countries have received at least one dose and per capita incomes may take years to reach pre-2020 levels.

Evaluation Point 2

In evaluation, the globalisation process has been a catalyst for economic reforms in low and middle-income countries. Consider the example of Vietnam which has transitioned to a socialist oriented market economy and successfully attracted inward FDI from companies such as LG and Samsung. FDIhas flowed in helped by low unit labour costs costs, improving infrastructure and human capital and a deregulated business environment whilst the Vietnamesegovernment has moved to a managed floating exchange rateto help reduce some of the risks from regional and global economic shocks. Vietnam is a good example of a country that has successfully progressed from a low income to a low-middle income nation over the last two decades. The valueof their external trade accounts for roughly 180% of national output, more than any other country at its level of per-person GDP. And their educational scores on standardized tests are on a par with Germany and Austria.

Final Reasoned Comment

Overall, it is hard to reach a firm view on this question because globalisation as a process is uneven and not inevitable. Before and during the pandemic, there was evidence of a switch towards “regionalisation” rather than full-throttled globalisation. For example, most sub-Saharan African countries have joined the African Continental Free Trade Area which seeks to boost intra-regional trade and investment and encourage economies of scale among African businesses so that they can better compete against the dominance of Western TNCs. Developing nations often struggle to compete with developed countries, therefore it is argued free trade benefits high-income economies more. Gains from globalisation will never be equitably distributed.And this sense of deepening inequality and opportunity risks a further shift to tariff and non-tariff barriers to trade and moves towards economic nationalism.

• Globalisation
• Deglobalisation
• Hyper-globalisation
• Transnational Businesses
• Developing countries

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Trading blocs and regional trade agreements (rtas), explaining business objectives, international trade, sources of comparative advantage, import protectionism explained, our subjects.

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Source: Emmanuel Saez and Gabriel Zucman • Note: Tax rates shown include levies paid at all levels of government. Government transfers such as Social Security benefits have not been subtracted.

In the 1960s, the 400 richest Americans paid more than half of their income in taxes. Higher tax rates for the wealthy kept inequality in check and helped fund the creation of social safety nets like Medicare, Medicaid and food stamps.

Today, the superrich control a greater share of America’s wealth than during the Gilded Age of Carnegies and Rockefellers. That's partly because taxes on the wealthy have cratered. In 2018, America's top billionaires paid just 23 percent of their income in taxes.

For the first time in the history of the United States, billionaires had a lower effective tax rate than working-class Americans.

Guest Essay

It’s Time to Tax the Billionaires

By Gabriel Zucman

Gabriel Zucman is an economist at the Paris School of Economics and the University of California, Berkeley.

Until recently, it was hard to know just how good the superrich are at avoiding taxes. Public statistics are oddly quiet about their contributions to government coffers, a topic of legitimate interest in democratic societies.

Over the past few years, I and other scholars have published studies and books attempting to fix that problem. While we still have data for only a handful of countries, we’ve found that the ultrawealthy consistently avoid paying their fair share in taxes. In the Netherlands, for instance, the average taxpayer in 2016 gave 45 percent of earnings to the government, while billionaires paid just 17 percent.

Billionaires avoid taxes outside

the United States, too

United States

Netherlands

Lower earners

0-50th percentile

Middle earners

51-90th percentile

High earners

90-99.99th percentile

Billionaires

Billionaires avoid taxes outside the United States, too

50% total tax rate

Sources: Demetrio Guzzardi, et al., Journal of the European Economic Association; Emmanuel Saez and Gabriel Zucman; Institut des Politiques Publiques; Netherlands Bureau for Economic Policy Analysis

Note: Data is from 2015 for Italy; 2016 for the Netherlands and France; 2018 for the United States.

Why do the world’s most fortunate people pay among the least in taxes, relative to the amount of money they make?

The simple answer is that while most of us live off our salaries, tycoons like Jeff Bezos live off their wealth. In 2019, when Mr. Bezos was still Amazon’s chief executive, he took home an annual salary of just $81,840 . But he owns roughly 10 percent of the company , which made a profit of $30 billion in 2023.

If Amazon gave its profits back to shareholders as dividends, which are subject to income tax, Mr. Bezos would face a hefty tax bill. But Amazon does not pay dividends to its shareholders. Neither does Berkshire Hathaway or Tesla. Instead, the companies keep their profits and reinvest them, making their shareholders even wealthier.

Unless Mr. Bezos, Warren Buffett or Elon Musk sell their stock, their taxable income is relatively minuscule. But they can still make eye-popping purchases by borrowing against their assets. Mr. Musk, for example, used his shares in Tesla as collateral to rustle up around $13 billion in tax-free loans to put toward his acquisition of Twitter.

Jeff Bezos arriving for a news conference after flying into space in the Blue Origin New Shepard rocket on July 20, 2021.

Getty Images

Outside the United States, avoiding taxation can be even easier.

Take Bernard Arnault, the wealthiest person in the world. Mr. Arnault’s shares in LVMH, the luxury goods conglomerate, officially belong to holding companies that he controls. In 2023, Mr. Arnault’s holdings received about $3 billion in dividends from LVMH. France — like other European countries — barely taxes these dividends, because on paper they are received by companies. Yet Mr. Arnault can spend the money almost as if it were deposited directly into his bank account, so long as he works through other incorporated entities — on philanthropy , for instance, or to keep his megayacht afloat or to buy more companies .

Historically, the rich had to pay hefty taxes on corporate profits, the main source of their income. And the wealth they passed on to their heirs was subject to the estate tax. But both taxes have been gutted in recent decades. In 2018, the United States cut its maximum corporate tax rate to 21 percent from 35 percent. And the estate tax has almost disappeared in America. Relative to the wealth of U.S. households, it generates only a quarter of the tax revenues it raised in the 1970s.

The falling U.S. corporate tax rate

Reagan tax cuts

Trump tax cuts

Source: Internal Revenue Service

Note: Tax rates are for each year’s highest corporate income bracket.

So what should be done?

One obstacle to taxing the very rich is the risk they may move to low-tax countries. In Europe, some billionaires who built their fortune in France, Sweden or Germany have established residency in Switzerland , where they pay a fraction of what they would owe in their home country. Although few of the ultrawealthy actually move their homes , the possibility that they might has been a boogeyman for would-be tax reformers.

There is a way to make tax dodging less attractive: a global minimum tax. In 2021, more than 130 countries agreed to apply a minimum tax rate of 15 percent on the profits of large multinational companies. So no matter where a company parks its profits, it still has to pay at least a baseline amount of tax under the agreement.

In February, I was invited to a meeting of Group of 20 finance ministers to present a proposal for another coordinated minimum tax — this one not on corporations, but on billionaires. The idea is simple. Let’s agree that billionaires should pay income taxes equivalent to a small portion — say, 2 percent — of their wealth each year. Someone like Bernard Arnault, who is worth about $210 billion, would have to pay an additional tax equal to roughly $4.2 billion if he pays no income tax. In total, the proposal would allow countries to collect an estimated $250 billion in additional tax revenue per year, which is even more than what the global minimum tax on corporations is expected to add.

Bernard Arnault watching the men’s singles final at the French Open on June 8, 2014.

Abaca Press

Critics might say that this is a wealth tax, the constitutionality of which is debated in the United States. In reality, the proposal stays firmly in the realm of income taxation. Billionaires who already pay the baseline amount of income tax would have no extra tax to pay. The goal is that only those who dial down their income to dodge the income tax would be affected.

Critics also claim that a minimum tax would be too hard to apply because wealth is difficult to value. This fear is overblown. According to my research, about 60 percent of U.S. billionaires’ wealth is in stocks of publicly traded companies. The rest is mostly ownership stakes in private businesses, which can be assigned a monetary value by looking at how the market values similar firms.

One challenge to making a minimum tax work is ensuring broad participation. In the multinational minimum tax agreement, participating countries are allowed to overtax companies from nations that haven’t signed on. This incentivizes every country to join the agreement. The same mechanism should be used for billionaires. For example, if Switzerland refuses to tax the superrich who live there, other countries could tax them on its behalf.

We are already seeing some movement on the issue. Countries such as Brazil, which is chairing the Group of 20 summit this year and has shown extraordinary leadership on the issue, and France , Germany, South Africa and Spain have recently expressed support for a minimum tax on billionaires. In the United States, President Biden has proposed a billionaire tax that shares the same objectives.

To be clear, this proposal wouldn’t increase taxes for doctors, lawyers, small-business owners or the rest of the world’s upper middle class. I’m talking about asking a very small number of stratospherically wealthy individuals — about 3,000 people — to give a relatively tiny bit of their profits back to the governments that fund their employees’ educations and health care and allow their businesses to operate and thrive.

The idea that billionaires should pay a minimum amount of income tax is not a radical idea. What is radical is continuing to allow the wealthiest people in the world to pay a smaller percentage in income tax than nearly everybody else. In liberal democracies, a wave of political sentiment is building, focused on rooting out the inequality that corrodes societies. A coordinated minimum tax on the superrich will not fix capitalism. But it is a necessary first step.

More on tax evasion and inequality

This Is Tax Evasion, Plain and Simple

By Gabriel Zucman and Gus Wezerek

The Tax Pirates Are Us

By Binyamin Appelbaum

How to Tax Our Way Back to Justice

By Emmanuel Saez and Gabriel Zucman

The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips . And here’s our email: [email protected] .

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Gabriel Zucman is an economist at the Paris School of Economics and the University of California, Berkeley, and a co-author of “The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay.”

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