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Contrast Liberal And Mercantilist Theories Of International Political Economy And Consider Which Approach Is Most Apparent In The Contemporary World

1452 words - 6 pages

Contrast liberal and mercantilist theories of international political economy and consider which approach is most apparent in the contemporary world.

The following seeks to contrast liberal and mercantilist theories that have developed to describe and analyze the international political economy. Once the contrasts have been made conclusions as to which theory is the most apt or apparent in the contemporary world will be drawn. Both liberal and mercantilist theories have advantages and disadvantages when used to understand the international political economy in the present global system. Perhaps it would be more apt to describe the liberal theory as being neo-liberal as it has undergone a ...view middle of the document...

However fluctuations within the free market can have serious political as well as economic consequences such as unemployment and poverty that can be made worse by international competitors. Governments have attempted to circumvent these problems by setting up welfare states, imposing strict tariff restrictions on imports or subsidizing industries and businesses. The restriction of trade and the use of tariffs are the main basis of mercantilist theory (Harvey, 1995, p. 6).

Liberalism was apparently strongest in the international political economy during the 19th century as Britain dominated world trade removing barriers in it's way to free trade. Liberal capitalism seemed to be unstoppable during this period. The economic elites of the less developed states were content to play a subordinate role as they were still making profits for themselves (Hobsbawm, 1975, p. 38). However, there were moves away from free trade towards a more mercantilist or restrictive trade practices most notably in Germany and United States whilst even the British started to doubt free trade. After World War One liberal theory seemed to decline in prominence within the international political economy (Hobsbawm, 1987, p. 54).

It was a great paradox that liberal theory would regain some of its prominence in international political economy after 1945 just as the free market within most of the world was either tempered by welfare states or communist takeovers. The United States promoted freer trade both out of self-interest and the desire to prevent the great failings within the international political economy during the inter-war period. Through the World Bank, the International Monetary Fund and the Bretton Woods agreement the United States government ushered in an era of liberalism that is still in operation to this day. However, it was not the unrestrained free trade international political economy of the 19th century but without American aid it is doubtful if Western Europe and Japan would have recovered so well to play such key roles in the present global economy. However the World Bank and the IMF are founded on the principles of liberal theory and generally insist that all countries they loan money to adopt those free trade policies that stem from liberalism. Governments that have to accept these loans leave their economies open to multinational companies and have to reduce spending on welfare and education (Keegan, 1992, pp.16-17). United States domination of the international political economy meant that it could promote the liberal theory of free trade even if it allowed its partners to have tariffs whilst it did not. United States share of world trade declined its share of global exports declining to 13% in the 1980s from its high point of 29% in 1953. However the American based multinational companies such as Coca-Cola and Microsoft have great influence on the global economy due to their size and profitability. Americans continue to believe that liberal...

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