The Impact of Globalization on the International Political Economy

Globalization is often viewed as an irreversible integration of economies and cultures worldwide. However, globalization is an evolving process that depends on government policies, individual decisions, and market forces, not a one-way flow that cannot be reversed.

Despite the fact that globalization has been reversed in certain instances, available evidence suggests that it is still possible to reverse in the modern world. Contrived barriers to globalization, such as linguistic, cultural, and politically imposed barriers, can fluctuate over time and are not immune to being reversed even if technological advancements cannot be generally undone without a large-scale calamity.

The Idea of Globalization

Globalization essentially refers to increased intercommunication and interconnectedness, including the movement of goods and services among nations. This encompasses international economic exchange, financial flows, trade, foreign direct investment (FDI), expansion of global markets, and the integration of technologies, innovations, and liquidity.

The post-World War era saw significant economic integration among liberal capitalist economies, with an increasing number of developing and communist nations adopting open market reforms. The international political economy (IPE) has utilized globalization as a key source of financial, economic, and institutional integration.

Globalization and Finance

Globalization significantly increased cross-border flows of capital, including portfolio investments, which encompass the purchase and sale of bonds, establishment of money market accounts, and foreign equity securities. Since the collapse of the Bretton Woods system in 1971, capital liberalization has taken place in response to stagflation, where prices rose as US budget deficits trickled down into the world economy.

At this time, the US lifted restrictions on banks to generate funds to finance budget deficits. Multinational companies (MNCs) have become crucial sources of FDI, leading to a situation where a country cannot pursue monetary policy independently.

Globalization and Economic Integration

Advancements in technology, telecommunications, and transportation have facilitated cross-border linkages, primarily through MNCs. These firms play the role of knowledge brokers—knowledge-based producers who acquire, process, and apply knowledge. Strategic alliances enable firms to cope with rapid change, risks, and dynamism, giving them a competitive edge over local firms due to access to global markets and profits from the globalization of productive assets.

However, the cost of innovation and risk-sharing for participating nations increases. States must cooperate to address global interests, although wealthy/core nations wield more bargaining power compared to poorer/periphery nations. Real incomes have not seen sustained growth in many regions, and state autonomy has diminished, leading most nations to focus on policies enhancing competitiveness.

Embedded Liberalism

The phenomenon of embedded liberalism refers to the rise of economic nationalism after the 1930s and World Wars. Industrialized economies now prefer an open IPE that operates on market principles with limited government intervention. Key actors in the international political economy include MNCs, the International Monetary Fund (IMF), the World Bank (WB), the World Trade Organization (WTO), and the General Agreement on Tariffs and Trade (GATT).

The decline of US hegemonic leadership has led to a push for international openness, transparency, and economic cooperation, particularly among US allies.

Conclusion

Globalization is a continuously evolving process that requires a balance between international cooperation and individual nation's autonomy. Understanding its impact on the international political economy will help shape future policies and strategies.