Chapter 1: Understanding International Relations designed to extract resources (like taxes) and provide defense

and justice. In this system, political power was often

1.1. Introduction to International Relations (IR) concentrated in a monarch.
 The Nation: In contrast, a nation is a community of people
International Relations (IR) is a field of study that goes beyond the joined by a shared identity, common social practices, myths,
daily news of leaders meeting, wars starting, and negotiations legends, and songs. Nations are historical entities that evolve
concluding. Academically, IR simplifies this complex picture by from ethnic communities.
focusing on the basic principles underlying global events. It is not just  The Nation-State: The modern nation-state is a compound
a university subject but an integral part of our increasingly entity that emerged when the nation took over the state's
interconnected lives. Today, IR describes a wide range of interactions institutional structures to pursue its own goals. Nationalist
between various entities, including people, groups, firms, nations, and leaders argued that the nation (the people) should control the
states, as well as governmental and non-governmental international state to further its ends. This process added an "interior life" or
organizations. "soul" to the state machinery. The revolutions in America
(1776) and France (1789) provided powerful models for this
A crucial distinction exists between domestic and international transformation, establishing the principle that the nation—"We
politics. the People"—should govern itself.

 Domestic politics operates within a state where the Nationalism is the doctrine asserting the nation as the basic political
government holds a monopoly on the legitimate use of force. unit for organizing society and has been one of the most influential
Laws are generally obeyed, and if not, police and courts can forces in international affairs. It has caused wars, the collapse of
enforce them. This system is considered hierarchical. empires, and the emergence of new states. The core principle of 19th-
 International politics, by contrast, is described as anarchic. century nationalism was self-determination—the right of a people to
Anarchy here does not mean chaos, but the absence of a determine its own fate. This idea undermined the legitimacy of
common sovereign or central world government over states. Europe's empires and, after World War I, led to the formation of many
In this system, no single entity has a monopoly on force, and new nation-states in Europe. As a result, the international system, once
international law relies on competing legal systems without a centered on relations between states (inter-state), became truly "inter-
common enforcement mechanism. This makes international national," concerning relations between nation-states.
politics a "realm of self-help" where each state must rely on
its own resources or alliances for security. 1.3. The Nature and Evolution of International Relations

1.2. Conceptualizing Nationalism, Nations, and States The modern international system has its roots in medieval Europe,
which was characterized by overlapping jurisdictions and loyalties.
In common language, 'nation', 'state', and 'country' are often used Political power was mostly local, held by feudal lords, cities, and
interchangeably, but this is incorrect. For instance, the 'United Nations' clerics. Two institutions claimed universal authority: the (Catholic)
is a misnomer, as it is an association of states, not nations. Church and the Holy Roman Empire.

 The State: Before the late 18th century, the state was primarily The emergence of the sovereign state involved a struggle against both
a political and administrative machine with institutions these universal powers and local authorities. This process was
intensified by events like the Reformation, which broke the religious
unity of Europe and allowed kings to align new Protestant churches States are sovereign, territorially defined, and possess the
with their states. ultimate authority within their borders. They hold a monopoly
on the legitimate use of violence.
The Thirty Years' War (1618–1648) was a defining conflict of this  Non-State Actors: It is now recognized that the state's central
era. Often called a religious war between Catholics and Protestants, it role has diminished. Global interactions related to finance,
was fundamentally a struggle over which state would dominate production, travel, and terrorism increasingly occur outside
Europe. The war ended with the Treaty of Westphalia in 1648, which state channels. This has led to a shift from an "inter-national"
symbolized a new way of organizing international politics. (between-states) to a "trans-national" (across/beyond states)
perspective. Key non-state actors include:
The Westphalian system established key principles: o International Governmental Organizations (IGOs):
Organizations like the United Nations (UN).
 States interact as equals in international politics. o Non-Governmental Organizations (NGOs): Groups
 Sovereignty = full control inside borders + freedom in foreign like Amnesty International.
policy. o Multinational Corporations (MNCs): Global firms
 All states have equal rights and duties. with headquarters in one country and operations in
 No world government = global anarchy. many others.

To manage their complex relations, states began dispatching 1.5. Levels of Analysis in International Relations
ambassadors, creating a diplomatic network for gathering information
and negotiation. To understand complex global events, scholars use different levels of
analysis. Kenneth Waltz famously identified three "images" or levels,
Initially, the European system was of marginal relevance to the rest of to which a fourth is often added: the individual, the state, the
the world. However, the industrial revolution in the 18th and 19th international system, and the group level.
centuries dramatically increased Europe's economic and military
power, leading to a "scramble for colonies," particularly in Africa. By 1. The Individual Level: This level focuses on the personalities,
1914, most of the world was under European control. beliefs, motivations, and decisions of individual leaders. For
The European model of the state and international relations spread example, one could analyze World War II by focusing on
globally not directly through colonization, but through the process of Adolf Hitler's psychology or the end of the Cold War through
decolonization, as newly independent nations adopted the statehood the personal relationship between Reagan and Gorbachev.
model of their former colonizers to gain sovereignty. 2. The Group Level: This level examines how groups within
society influence foreign policy. This includes the actions of
1.4. Actors in International Relations lobbying groups, political parties, social movements, or even a
country's voters in a general election.
While IR traditionally focused on states, this view has broadened to 3. The State Level: This perspective regards states as the central
include various political entities. Actors are now categorized as state actors, analyzing their foreign policies, interactions, and
and non-state actors. national interests. It considers states as unified entities with
specific preferences. This was the dominant view during the
 State Actors: For many, especially from a realist perspective, Cold War, when much of international affairs seemed to be run
the state remains the primary actor in international politics. by states pursuing national security and stability.
 4. The System Level: analyzes international politics focusing on Liberalism is a "utopian" theory that views human beings as innately
the structure of the global system itself, particularly the good, believing that peace and harmony are achievable. Key liberal
distribution of power among states—whether it is unipolar ideas include:
(one dominant power), bipolar (two), or multipolar (several).
From this perspective, the anarchic nature of the international  Democratic Peace Theory: Originating with Immanuel Kant,
system conditions and constrains the behavior of all states. It this theory posits that liberal/democratic states have no reason
also considers global linkages beyond state interactions, such to go to war with one another. Democracies are seen as
as the global economy or transnational terrorism. inherently peaceful because citizens, who rarely desire war,
hold power through representative governments.
1.6. The Structure of the International System  International Institutions: Liberals believe in creating
institutions to oversee relations between states and maintain
Its defined by the distribution of power. peace. This idea led to the creation of the League of Nations
after World War I, which aimed to establish a system of
 Unipolar System: One state possesses the greatest military, collective security to replace the old balance-of-power politics.
economic, and cultural power, allowing it to control other  Cooperation and Free Trade: Liberals argue that states can
states. cooperate, especially on economic issues, and that free trade
 Bipolar System: Two dominant states or superpowers exist, promotes peace by creating interdependence.
and less powerful states align with one side or the other. The
Cold War is the classic example of a bipolar world. This However, the failure of the League of Nations to prevent World War II
system is vulnerable to zero-sum game politics, where a gain was a major blow to liberalism and led to the rise of realism.
for one side is a loss for the other.
 Multipolar System: Several equally powerful states compete B. Realism
for power. This is the most common system throughout history,
seen, for example, around World War I. Realism purports to reflect the "reality" of a world driven by self-
interest and a struggle for power. Its core assumptions are:
Power is the currency of international politics. Realist thinker Hans
Morgenthau famously stated that "international politics, like all  Pessimistic View of Human Nature: Realists, following
politics, is a struggle for power". Power can be defined relationally, as thinkers like Thomas Hobbes, believe individuals are selfish
Robert Dahl did: "A's ability to get B to do something it would not and act in their own self-interest. They see conflict as
otherwise do". The shift in the balance of power after the collapse of unavoidable and inherent to humankind.
the Soviet Union, which favored the U.S., is a clear example of this  Anarchy: The international system is anarchic, lacking a
dynamic. central authority. States must rely on self-help for survival.
 The State as the Primary Actor: The state is the dominant
1.7. Theories of International Relations actor, and its primary interest is security and survival.
 Power: International politics is fundamentally a struggle for
Theories provide different lenses to make sense of the world. power, which is the ultimate goal and instrument of statecraft.

A. Liberalism (Idealism) Neo-realism (Structural Realism), developed by Kenneth Waltz,

shifts the focus from human nature to the anarchic structure of the
international system as the primary cause of conflict. Realists are E. Critical Theories
skeptical of international organizations, believing states only use them
when it serves their national interest. Critical theories oppose the mainstream assumptions of realism and
liberalism. They provide a voice for marginalized groups, particularly
C. Structuralism/Marxism women and people from the Global South.

This perspective critiques both realism and liberalism, focusing on the  Questioning the State: Critical theorists often argue that the
inequalities within the international system. Key ideas include: state system divides ordinary people who should recognize
their common identity as a "global proletariat". Emancipation
 Class Conflict: Marxism argues that society is divided from the state is a common goal.
between the business class (bourgeoisie) and the working class
(proletariat), and this conflict is the main source of instability. Post-colonialism: focuses on the inequality between nations and
 Dependency and Exploitation: Inspired by Marx and Lenin, regions, tracing the ongoing effects of colonialism. Developed by
structuralists analyze the dependency and exploitation that scholars like Edward Said, it critiques the "Western" mindset of
characterize the relationship between the rich "North" (the traditional IR and seeks to include the voices and perspectives of the
core) and the poor "South" (the periphery). Global South. Post-colonialists might critique the UN Security
 World Systems Theory: Developed by Immanuel Wallerstein, Council, for example, for its lack of permanent members from Africa
this theory provides a historical account of how the capitalist or Latin America and for perpetuating a form of indirect colonial
world system creates a global division of labor that benefits the exploitation.
core at the expense of the periphery. The global capitalist
structure is seen as the cause of inequality, debt, and violence. Theory Core Focus Key Assumptions Main Actors
Structuralism Global inequalities World system is Economic
D. Constructivism shaped by divided into core, classes, states
economic periphery, and
Constructivism is seen as a middle ground between mainstream and structures (e.g. semi-periphery
capitalism)
critical theories. Its central claims are:
Realism Power and security States act in self- Sovereign
in an anarchic interest to survive; states
 Importance of Ideas and Norms: Constructivists highlight the international conflict is
power of shared values, norms, and interests. system inevitable
 "Anarchy is What States Make of It": This famous phrase Liberalism Cooperation States can States,
by Alexander Wendt means that the nature of the international through cooperate via institutions
system is not fixed but is shaped by the interactions and beliefs institutions and diplomacy, trade,
of its actors. Anarchy does not inherently lead to conflict; it is interdependence and international
the process of interaction that determines whether relations are law
conflictual or cooperative. Constructivism Ideas, norms, and Reality is socially States,
 Identity and Interests: Structures (like the state or the identities shape constructed; individuals,
international system) not only constrain agents (like individuals international interests are shaped NGOs
behavior by culture and
or leaders) but also construct their identities and interests.
discourse
Critical Challenge IR should expose Marginalized alliances and actions.
Theories dominant power oppression and groups, Partisan & Let party, ethnic, or agency interests shape national policy.
structures and promote justice thinkers Bureaucratic
advocate (e.g. feminism, Foreign Dependency Rely on powerful countries for aid or security, often seen in
emancipation postcolonialism) developing nations.

2. Understanding Foreign Policy and Foreign Policy

Objectives
Chapter 2 Foreign policy refers to the set of objectives, priorities, and
instruments a state uses to guide its relations with the outside world. It
1. Defining National Interest encompasses the general purposes and specific strategies a state
employs to promote its national interest. In essence, national interest
National interest is the fundamental driver of a state's foreign policy. is considered the objective of foreign policy.
It is the set of values, goals, and objectives a country aims to achieve
in its international relations, essentially serving as the raison d'être Foreign Policy Objectives: These goals can be categorized based on
(the reason of state) for its actions towards other countries. It their importance, time element, and the demands they place on other
represents the ambitions of a government for the future and what it states. They are generally classified into three types:
wants to achieve through its interactions with other states.
1. Core Interests and Values (Short-Range Objectives): These
 The main tool for achieving national interest is power, are the most critical goals, for which a state is willing to make
specifically the ability to influence the behavior of other states. the ultimate sacrifice. The primary short-range objective is
 Despite its importance, there is no universally accepted survival, which includes protecting the state's physical,
definition of national interest. The process of defining it is political, and cultural identity. This translates to:
complex and often subjective, leading to a debate on whether it o Ensuring sovereignty and territorial integrity.
is a science or an art. o Preserving the existing political and economic system.
o Protecting the cultural, ethnic, and religious norms of
Criteria for Defining National Interest: There are numerous conflicting its people.
criteria that decision-makers use to shape the content of national interest. o Sometimes, these interests are projected beyond a
state's borders (extraterritoriality), such as when a
These include: country acts to protect its citizens or ethnic kin in other
nations, or when it seeks to control neighboring
Criterion Simplified Meaning
Operational Act boldly with big plans (synoptic) or cautiously with
territories for resources or strategic advantage. The US
Philosophy small steps (incremental). and Israel are examples of countries that pursue such
Moral & Legal Follow international law, keep promises, and act ethically. policies.
Criteria 2. Middle-Range Objectives: These goals focus on improving
Pragmatic Criteria Make logical decisions based on cost-benefit analysis, not the domestic economic and social welfare of a state's
emotions. population through international action. Due to global
Ideological Criteria Use political beliefs (e.g. capitalism, communism) to guide
interdependence, no state is self-sufficient. Therefore, states
 must interact with others to secure trade, foreign aid, o Alliances: Formal agreements for mutual military
technology, and access to foreign markets to meet the needs of assistance (e.g., NATO).
their citizens. o Neutrality: A formal stance of non-partisanship in
3. Long-Range Objectives: These are the ultimate visions and world affairs (e.g., Switzerland).
dreams a state has for the international system. They often o Nonalignment: A policy pursued by many developing
involve trying to reconstruct the global order according to a states during the Cold War through the Non-Aligned
particular universal plan or ideology. These goals seldom have Movement (NAM) to avoid aligning with either the
definite time limits and their realization depends heavily on the Western or Eastern blocs and to promote South-South
state's capabilities and power. cooperation.
 Scope: The extent of a country's international activities and
interests.
o Global Actors: Major powers like the USA and China,
3. Foreign Policy Behavior and Dimensions which have interests and interactions in nearly every
region of the world.
Foreign policy behavior refers to the actions states take toward each o Regional Actors: Most countries, which interact
other. Scholar Arnold Wolfers identified three main patterns: primarily with their neighbors. Examples include South
Africa in Africa and India in South Asia.
1. Self-Preservation (Maintaining the Status Quo): This is o Isolationism: A policy of having a very narrow scope
pursued by powerful states that benefit from the existing of foreign policy, which is increasingly difficult in an
international order. The United States, having shaped post- interdependent world.
WWII institutions like the UN, IMF, and World Bank, is a  Modus Operandi (Method of Operation): The approach a
prime example of a state that seeks to preserve the current state takes to solve international problems.
system. o Multilateralism: Seeking solutions through diplomatic
2. Self-Extension (Revising the Status Quo): This pattern is forums with multiple states, such as the United Nations.
typical of newly emerging powers like China, India, and This is often preferred by developing countries to
Brazil, which seek to restructure international institutions to enhance their collective bargaining power.
better serve their national interests. o Unilateralism: A tendency to act alone or resist
3. Self-Abnegation (Revising the Status Quo in Another's initiatives from others. This is more common for
Favor): This often applies to Less Developed Countries powerful states with significant economic and military
(LDCs) that are weak and dependent on foreign aid. They may strength.
be forced to compromise their own long-term interests for
immediate benefits or due to external pressure. 4. Instruments of Foreign Policy
Foreign policy can also be analyzed along three key dimensions: States use various instruments to achieve their foreign policy
objectives, which can be categorized as political, economic, or military
 Alignment: Refers to a state's decision to ally with others, tools.
remain neutral, or be non-aligned.
A. Diplomacy
Diplomacy is the art of conducting international relations through o Military Aid: The oldest form of aid, used to
peaceful dialogue and negotiation. It is not foreign policy itself, but an strengthen allies and safeguard the donor's own security
essential tool of it. interests.
o Political/Economic Objectives: Aid is often not purely
 Evolution: Modern diplomacy has evolved from secret, humanitarian; it is frequently tied to conditions
bilateral practices to include multilateral diplomacy, public designed to change the recipient's domestic or foreign
diplomacy, and summitry (leader-to-leader diplomacy). policies, such as implementing political or economic
 Core Element: Regardless of its form, the essence of reforms.
diplomacy is bargaining—the attempt to settle differences by
exchanging proposals and changing the behavior of others 5. Overview of Ethiopia's Foreign Policy
through persuasion, rewards, concessions, or threats.
 Legal Framework: The Vienna Convention on Diplomatic The sources outline the evolution of Ethiopia's foreign policy through
Relations (1961) is the primary international law governing different regimes, showing both change and continuity. The primary
diplomacy, though it only references states as actors. Today, and continuous foreign policy objective across all regimes has been
non-state actors like IGOs and INGOs also play a significant the maintenance of territorial integrity and national independence.
role.
 Rules for Effective Diplomacy: Key principles include being  Emperor Tewodros II (1855-1868): Sought to modernize
realistic, being careful with words, seeking common ground, Ethiopia and create a united state by establishing diplomatic
understanding the other side, being patient, and leaving relations with Western Christian nations (Britain, France,
avenues for retreat open for both sides. Russia) for assistance against Muslim neighbors (Turks,
Egyptians). His efforts failed when Britain did not reciprocate
B. Economic Instruments his desire for equal recognition and modern technology,
leading to a military confrontation and Tewodros's suicide.
States use their economic power to influence other nations by offering  Emperor Yohannes IV (1872-1889): Also viewed Islam as a
rewards or punishments. These instruments are used to achieve foreign threat and successfully repelled Egyptian invasions. He saw
policy goals, increase a state's own capability, or create economic European expansionism as an even greater threat but died
dependencies (satellites). Key techniques include: fighting Sudanese Mahdists who believed he was collaborating
with the British.
 Tariffs: Taxes on imported goods used to raise revenue,  Emperor Menelik II (1889-1913): Expanded the empire
protect domestic industries, or as a tool of punishment or southward, seeking access to a seaport. He managed the threat
reward. of European colonialism through a dual strategy: diplomacy
 Quotas: Limits on the amount of a certain product that can be (e.g., the Wuchale Treaty with Italy) and military preparation.
imported. When Italy misinterpreted Article 17 of the treaty to claim a
 Boycotts: Eliminating the import of specific or all goods from protectorate over Ethiopia, Menelik abrogated it, leading to the
a targeted country. Battle of Adwa in 1896, where Ethiopia decisively defeated
 Embargos: Prohibiting domestic businesses from trading with Italy. This victory secured Ethiopia's recognition as a sovereign
a targeted country. state by European powers.
 Foreign Aid: The transfer of money, goods, or technical
advice from a donor to a recipient.
 Emperor Haile Selassie I (1916-1974): Focused on
centralization and international recognition, securing Ethiopia's
entry into the League of Nations in 1923. After the League Of course. Here are your merged notes on International Political
failed to act against the Italian invasion (1936-41), he used his Economy, combining information from the "Global Affairs Module"
diplomatic skills to secure British aid for liberation. Post-war, and the "global trend Chapter 3" sources.
he shifted Ethiopia's allegiance from Britain to the United
States, securing military and economic aid in exchange for a Chapter 3: International Political Economy (IPE)
US communications base in Eritrea. This aid was crucial for
consolidating his power, suppressing internal dissent, and 1. Meaning and Nature of IPE
countering external threats like Somali irredentism and Eritrean
nationalism. He was a key figure in the pan-African movement,  Definition: International Political Economy (IPE) is a field of
founding the OAU in Addis Ababa. study focusing on the ever-changing relationships between
 The Military Government (Derg) (1974-1991): Adopted a governments, businesses, and social forces across different
socialist ideology, making regime survival and territorial geographical areas and throughout history. It consists of two
integrity its primary goals. It shifted allegiance from the US to central dimensions:
the Soviet Union, becoming heavily dependent on the USSR o Political Dimension: This involves the use of power by
for military aid to fight Eritrean rebels and the Somali invasion various actors—such as individuals, states, international
of the Ogaden. The regime was deeply influenced by the USSR organizations (IOs), non-governmental organizations
and its allies, who provided extensive military, economic, and (NGOs), and transnational corporations (TNCs)—to
technical assistance. Its foreign policy was also shaped by its make decisions about the distribution of both tangible
strategic location and regional issues like the Nile River. goods (like money) and intangible things (like security).
 Post-1991 (EPRDF): The foreign policy vision shifted to Politics involves creating rules and institutions that
focus on democracy and development. The primary goal societies use to achieve their goals.
became ensuring the survival of the multi-national state by o Economic Dimension: This deals with how scarce
addressing internal problems first. This "inside-out" resources are distributed among individuals, groups,
approach prioritizes solving domestic issues like lack of good and nations. The market is a key part of this, acting as a
governance, instability, and poverty to reduce the country's force that shapes human behavior through a vast web of
vulnerability to external threats. Key strategies include: transactions that coordinate economic activities
o Economic Diplomacy: Attracting foreign investment, globally.
seeking markets, and securing aid and loans to support  Core Tension: A common definition describes IPE as the
domestic development. study of the tension between the self-interested activities of the
o "East-look" Policy: Learning from the economic market and the collective actions of the state. While this
development models of successful East Asian countries highlights the key roles of states and markets, it is sometimes
like Singapore and Malaysia. seen as too simple because their relationship can also be
o Military Deterrence: Building a strong military cooperative, and it overlooks powerful non-state actors like
capability to deter potential aggressors while TNCs.
prioritizing peaceful dialogue and negotiation.  From "International" to "Global": The term "international"
is becoming problematic because it implies a clear distinction
 between domestic and international affairs. Today, much  Marxism:
economic activity is conducted by non-state actors that operate o While its influence as a model for managing economies
across national borders, such as TNCs. This has led to a shift has declined since the end of the Cold War, Marxism
from IPE to Global Political Economy (GPE) to better capture remains a powerful critique of capitalism.
these transnational dynamics. o It views the international capitalist system as inherently
unstable and defined by inequality and exploitation.
2. Theoretical Perspectives of IPE o Marxists point to persistent global problems like
extreme income inequality, labor exploitation, and child
There are three main traditional perspectives on IPE, each offering a labor as evidence of capitalism's flaws.
different view on the relationship between the state and the economy.
3. Contemporary IPE Theories
 Mercantilism/Nationalism:
o This is the oldest perspective, advocating for a strong  Hegemonic Stability Theory (HST):
and pervasive state role in the economy to promote o This theory, closely related to mercantilism, argues that
national interests. a stable international economic system requires a
o It emphasizes policies like autarky (economic self- benevolent hegemon—a dominant state willing to take
sufficiency) and achieving balance-of-payment responsibility for the system's smooth operation.
surpluses. o It posits that the Great Depression of the 1920s-30s
o The state should identify and develop strategic occurred because Britain had lost its hegemonic
industries through tools like subsidies, tax policies, and capacity and the U.S. had not yet accepted this role.
banking regulations. The establishment of the post-WWII Bretton Woods
o Modern examples of mercantilist policies can be seen in institutions (IMF and World Bank) under American
the "developmental state approach" of East Asian leadership is seen as proof of this theory.
economies like Japan, South Korea, and China.  Structuralism:
 Liberalism: o A variant of Marxism, structuralism analyzes the global
o This mainstream perspective champions a free market economy in terms of a center-periphery (or North-
system, advocating for the removal of barriers to the South) dependency relationship.
free flow of goods, services, and capital among o It argues that this structure leads to "unequal exchange"
countries. that benefits the wealthy "core" nations at the expense
o It argues that free trade leads to lower prices, a higher of the poor "periphery" nations.
standard of living, greater product variety, and better o It advocates for protectionist policies and
quality. industrialization through import substitution, a
o The core idea is comparative advantage: if countries model that was influential in Latin America, Africa, and
specialize in what they produce best and trade freely, all Asia in the 1950s.
will benefit. However, this theory is challenged by  Developmental State Approach:
modern realities like the rise of MNCs and government o This approach is a variant of mercantilism that
protectionism, leading to a focus on "competitive advocates for a robust state role in guiding economic
advantage". development and structural transformation.
 o Key features include: mercantilism". It uses industrial policy, including
 Strong interventionism using policy tools like "infant industry" protection, subsidies, and
subsidies, import controls, and export administrative guidance, to promote strategic sectors.
promotion. o Corporate Structure: Characterized by close
 An efficient bureaucracy to implement cooperation between government, business, and labor,
development plans. with large corporations playing a key role. Banks are
 Active participation from the private sector. more important than shareholders in governance, and
 Regime legitimacy based on ensuring firms prefer to produce at home.
development benefits are shared equitably.  The German System: Social Market Capitalism
o Primary Purpose: To balance social concerns with
4. National Political Economy Systems market efficiency. It emphasizes exports and savings
over consumption, similar to Japan.
National economies differ in their primary purpose, the role of the o Role of the State: The state plays a strategic role and
state, and the structure of the corporate sector. provides a highly developed social welfare system. The
system is described as "welfare state capitalism,"
 The American System: Market-Oriented Capitalism featuring cooperation between capital, labor, and
o Primary Purpose: To benefit consumers and maximize government. State intervention in the microeconomy is
wealth creation, with wealth distribution being a modest, making it closer to the American system than
secondary concern. the Japanese.
o Role of the State: Generally non-interventionist o Corporate Structure: Dominated by alliances between
(laissez-faire), with government action justified mainly major corporations and large private banks. Labor has a
to correct market failures. However, the government significant role in corporate governance through the
does have responsibilities for social welfare and "law of co-determination".
employment, though this commitment has varied over
time. 5. Governing the International Political Economy
o Corporate Structure: Characterized by managerial
capitalism, dominated by large corporations where  International Trade and the WTO:
management is separated from ownership. Shareholders o International trade involves the exchange of goods and
play an important role in corporate governance, and services across national borders, mediated by national
firms frequently invest abroad. governments. While liberals see this as beneficial,
 The Japanese System: Developmental Capitalism tensions exist over fairness and who benefits.
o Primary Purpose: To achieve economic self- o The World Trade Organization (WTO), established
sufficiency, catch up with the West, and promote social in 1995 as the successor to GATT, sets the rules for
harmony. The economy is subordinate to these social global trade. However, major economic powers like the
and political goals. US, EU, and Japan often shape these rules to their
o Role of the State: The state plays a central role in advantage, leading to complaints from developing
guiding national economic development, a system often countries.
called "developmental state capitalism" or "neo-  International Investment and the World Bank:
 o Transnational production, where different stages of
production occur in different countries, is a major
feature of the global economy.
o The World Bank, created in 1945, focuses on
development in developing countries by providing
loans and grants for projects in areas like human
development, infrastructure, and governance.
o It is often criticized for imposing stringent conditions
and forcing free-market reforms on poorer nations,
thereby setting their economic agendas.
 International Finance and the IMF:
o The global financial system includes a monetary system
(governing exchange rates) and a credit system
(facilitating capital flows).
o The International Monetary Fund (IMF) oversees
international financial institutions and regulations.
o Decision-making power in the IMF is based on a quota
system, where a country's financial contribution
determines its voting power. The United States has the
largest quota and therefore the most influence, ensuring
the institution primarily represents the interests of
developed economies.