A Game of Thrones:Economic Power in the Hands of States
No theory of international relations has yet to provide a definition of economic powerthat scholars can agree on. This ess...
economic power: it is closely associated with the creation of wealth, pertaining tofinancial matters and profitability (Di...
would assume, [however] empirical research has shown that over the last decades theUSA have had increasing difficulties sa...
States kept their hegemony in economic power and Multinational Corporationspotentially fell short of such a moniker for th...
thus have influence but also responsibilities over microeconomics and macroeconomics,on which the former is dependent upon...
economy as the playing field of its converging markets. The chess game will be playedbetween states and replicate the scen...
greater outcome possibilities. That influence was exerted through state capacity,manipulating the use of resources and str...
References:- Carpaso, J. 1978. Introduction to the special issue of International Organization ondependence and dependency...
Figure	  1.	                                                                                                       Develop...
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A Game of Thrones

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Strategic exploration of a State's control of economic power

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A Game of Thrones

  1. 1. A Game of Thrones:Economic Power in the Hands of States
  2. 2. No theory of international relations has yet to provide a definition of economic powerthat scholars can agree on. This essay revisits the debate with radical lens and aninnovative approach to understanding the controversial term by offering its owninterpretation based empirical evidence. The foundation of the argument will first addresswhy economic power is defined in this way, and secondly, why this definition can beused to identify the actors with the least and most economic power within theinternational political economy. In an effort to illustrate and test the arguments putforward, the essay will then use a relevant comparative approach to extend the dynamicsof the international political economy and its actors onto a modified chess game. Thistechnically sound, but generalised conceptual model, will attempt to prove that strategicpositions of influence combined with efficient use of resources, allow states tomanipulate the forces that shape the international political economy, in which all otheractors operate. Power, in its simplest definition is the ability to “get B to do something that B wouldnot otherwise do”, meaning that bargaining power refers to the resources available tocarry out such a purpose (Dahl, 1957). However, the concept of power highlights anasymmetrical relationship between two or more figures, and is thus seen as relationalsince it exists only through interactions between actors or groups (Pustovitovskij, 2011:4). The above-proposed definition describes economic power as: efficient control overresources and international political economy structure (the set of laws and economicpolicies regulating the IPE market), in a way that advances an actor’s objectives despitethe interests of another (Frieden, 1995: 3). Viewed from this perspective, economicpower becomes applicable to a wider range of scenarios that govern and directmacroeconomic shifts on the IPE; its presence, becomes apparent behind decisions andnegotiations among players in the international political economy as: the physicalmanifestation of their bargaining power. To understand the relevance of this essay’s definition of economic power, amisconception must be clarified and preexisting definitions expounded on. The meaningof the word ‘economic’ is a misleading starting point when trying to understand   2  
  3. 3. economic power: it is closely associated with the creation of wealth, pertaining tofinancial matters and profitability (Dictionary, 2012). In this light, economic power couldmistakenly be understood as the possession of a significant amount of wealth from whichpower is derived. This is not the case. “In the field of bargaining theory, on a case-to-casebasis, empirical studies have shown that the outcomes of bilateral and multilateralnegotiations frequently do not directly correspond to the distribution of resourcesbetween the negotiating parties” (Pustovitovskij, 2011: 5). Clearly then, the simpledefinition of wealth as economic power fails to include a variable conducive to itssubsistence. Referring back to the aforementioned definition of relational power, if theeconomy is the “system of producing, distributing, and using wealth”, in order to possesseconomic power and maximise potential gains or outcomes, one must hold control overboth the resources and goods that circulate within the market, as well as the structuresthat govern the system (Frieden, 1995: 1). This amended definition of economic powercan now be used to identify the actors with the most and least economic power in theinternational political economy; but the environment in which they fall must first beexamined. Economic power is defined under the blanket of international trade. Trade is thetransfer of goods and finances across the international political economy between itsvarious actors (Frieden, 1995: 9). James A. Carpaso defined this ability to govern therules that determine and shape bargaining power [during trade decisions or negotiations]as: structural power (Pustovitovskij, 2011: 4). Through his definition, trade becomesconstrained by a set of laws that confine actor behaviour. Hence, structural power, whichaccording to Carpaso refers to the ability to manipulate these restrictions in order to gaina better strategic position from which to produce, distribute or influence globalconsumption patterns of goods, is a necessary component to the acquisition of economicpower. To illustrate the fact that monetary resources are insufficient to acquire and maintaindominance in the IPE, this essay will point out the shortcomings of this popularconception using a case study below.The United States possesses enough capabilities “to shape outcomes such that they matchtheir preferences in international politics, as the power-as-resources/hard power approach   3  
  4. 4. would assume, [however] empirical research has shown that over the last decades theUSA have had increasing difficulties satisfying their preferences unilaterally. Especiallyin spheres like global economics.”1 (Pustovitovskij, 2011: 5).This example demonstrates that the United States’ success, when exerting political will,depends not only on their economic leverage, but an isolated external factor: control overthe formation of structures that make up the international political economy. As shown above, the international political economy takes into account thesociopolitical dynamics of actors when judging the extent of their respective economicpower. This is relevant because it shows that economic power stems from more than asingle force. It acknowledges factors such as the state’s level of involvement in themarket actors’ available productive resources (Land, labour forces, technology, capital),and again its strategic position within the international political economy (Silbiger, 2010:328). An actor within the IPE is only as competitive as its economic power; hence only ascompetitive as the combination of individual forces that together form the latter. Keepingin mind the arguments above explaining how economic power is defined in terms ofinternational trade as well as the given definition of economic power, this essay holdsthat states bear the most by making use of international institutions to influence themacroeconomics of the international political economy. They do so in a way thatadvances their interests and places them in strategic positions that increase their long-term bargaining power, and thus, economic power. According to Neoliberals who advocate freedom from government, MultinationalCorporations should have possessed the highest degree of economic power within theIPE; their numbers rose simultaneous to increased trade liberalisation and regionalisationafter 1970 (Frieden, 1995: 8). The argument claimed: “ the increasing sensitivity ofnational governments to the rising economic expectations of their societies […] madethem dependent upon the benefits provided by a liberal world-economic system” (Gilpin,1975: 40). However, what happened instead was a restructuring of state forces post-reforms leading to the increased privatisation of industries circa 1973 (Frieden, 1995: 8).                                                                                                                1  Take for example the problems of the U.S. to achieve its preferences in the North Korea and Iran   4  
  5. 5. States kept their hegemony in economic power and Multinational Corporationspotentially fell short of such a moniker for the following reasons:In a market structure, competition between actors determines supply, demand and prices(Silbiger, 2010: 297). Governed by market logic, firms are vulnerable to forces of supplyand demand while seeking to maximise their profits (Silbiger, 2010: 200). Withoutgovernment subsidies or accommodating policies created to foster their growth,economic power within Multinational Corporations remains volatile (Frieden, 1995: 4).To expatiate, keeping to their objective of maximising wealth, firms invest minimally inareas conducive to structural power and reinvest most of their revenues towardsproduction of assets destined for selling (Silbiger, 2012: 227). However, lack of corporateplanning against unforeseen drops in demand can transform these assets into significantliabilities2 The final key distinction to make lies in The Quantity Theory Equation ofMoney, where monetarists consider money to be the main driver of GNP and economicgrowth (Silbiger, 2010: 306). It should then be counter-argued that this essay disregardsthe translation of economic wealth as economic power, focusing instead on the efficientuse of resources and control over structural power in the IPE. Although firms have little or no say over major policies of macroeconomics, they dopossess what this essay will coin as: ‘negative economic power’. Firms may have littleinfluence over the structure of the international political economy and a volatilebargaining power due to their large resource-base, but it should be nevertheless concededthat they form an integral part of the international political economy’s structure. In thatsense, states constantly revise their economic policies to accommodate the flow of capitalthat firms generate and on which they are dependent. To highlight this point and providea critique to the claim of states as principal holders of economic power, the internationaleconomic [theoretical] perspective emphasises “the importance of constraints external toindividual nations” in terms of socioeconomic factors, by affecting the “setting withinwhich national governments make policy” (Frieden, 1995: 9). When a firm’s economicactivities suffer, its stakeholders are negatively impacted and costs must be subsidised tobuoy the corporation’s net revenues above its margin of safety (Silbiger, 2010: 70). States                                                                                                                2  Consider  the  1980  debt  crisis  caused  by  the  unforeseen  spike  in  petrol  prices  (Cohen,  2005:  195).     5  
  6. 6. thus have influence but also responsibilities over microeconomics and macroeconomics,on which the former is dependent upon for stability and predictability (Silbiger, 2010:298). The chief mechanism for creating prosperity in the IPE is the expansion of traderelations through either free trade or regulating price of currency (Frieden, 1995: 9).However, another critique undermining state economic power may be the latter’s validitywhen talking about regional blocs. Formations of regional blocs such as the EuropeanUnion force states to give up some of their sovereignty over their own macroeconomicpolicies (ex: interest rates) (Goldstein, 2012: 362). This could be argued as loss of controlover both structural power and competitive advantage vis-à-vis a loss of monopoly overexpertise, technology and goods, due to the free flow of labor and goods among EU statesenforced by the Treaty of Rome (Goldstein, 2012: 359). Although a logical critique, thelong-term benefits the agreement engenders relative and equal gains for the members ofthis multilateral agreement. It safeguards the international political economy’s long-termproductive capacity through sustainable development and the EU’s mutual protection oftheir resources (Land, labour forces, technology, capital). Placing them in a position ofself-sufficiency, they develop less incentive to trade and contribute to the decline ofMultinational Corporation economic power by centralising the latter within a charter(Goldstein, 2012: 357-60). Having argued the case for states as principal bearers of economic power, this essaywill now use a relevant comparative approach to extend the dynamics of the internationalpolitical economy and its actors onto a modified chess game. This example will strive toprove that strategic positions of influence combined with efficient use of resources, allowstates to manipulate the forces that shape the international political economy in which allother actors operate.1. Rules Keeping to this essay’s definition of economic power and recognising the need for amulti-dimensional chess games in order to adequately mimic the dynamics of the IPE, thechessboard used in the example will represent a model of the international political   6  
  7. 7. economy as the playing field of its converging markets. The chess game will be playedbetween states and replicate the scenario of Canada’s creation of the Dispute SettlementMechanism. The pawns will represent MNCs3, Institutions, policies and interests as themain forces present in this case study, as part of the IPE.The sole object of the game is strategic advancement of interests while incurringminimum losses; every pawn-movement exerts pressure, furthers state objectives andrepresents a shift in macroeconomics. Interactions between the different pieces will beresolved using basic game theory4, taking into account the individual interests/capacitiesof the pieces, thus consequential strategies available to them based on their resources andstructural power.2. Background of Case Scenario LDC members of the WTO wanted to be protected from excessive dumping in theagricultural sector. Faced against the Developed Countries’ large-scale economies,resources and resulting control of the WTO, they were in no position to leverage a deal.Their ill combination of minimal resources and structural power meant that theDeveloped Countries had naturally, all of the competitive advantage and no incentive tonegotiate.Canada broke the deadlock by manipulating the macroeconomic structures and creatingthe Dispute Settlement Mechanism, where states with smaller economies now had greaterleverage over DCs through a new strategic position: The DSM thus heightened the LDCseconomic power by increasing their structural power (Srinivasan, 2005). This power,albeit small since the DSM’s rule of law was disproportionately against them, was theironly recourse in securing bargaining power and the rationale behind the generalconsensus.3. Chess Dynamics and Game Theory Rationale On the chessboard, any shift in position changes the strategy available to the actor andthus the outcome available to him. Canada’s manipulation of the WTO’s structureprovided LDCs with a new position and strategy, resulting in their consequent gain of                                                                                                                3  MNCs  are  immune  to  direct  state  control  and  allowed  to  move  on  their  own.  4 Game theory is a method that explains strategies and outcomes of a potential choice and how it affects theopponent’s interests and strategy.     7  
  8. 8. greater outcome possibilities. That influence was exerted through state capacity,manipulating the use of resources and structural positions – in other terms, was amanifestation of state control of economic power. Taking into account the differingbargaining positions that international actors hold, these macroeconomic shifts aremanifestations of economic power and are responsible for affecting the ever-changingstructure of the global political economy. It is important to note that the MNC piecescould have exerted further pressure on the LDCs and exploited the DC’s position ofbargaining power and the existing economic interdependent structure. However,governed by profits and driven by resources, MNCs only maintained their positions ofpower due to the specific alignment of structural power present at the time; as was arguedabove, resources alone cannot qualify as economic power nor do they secure sufficientbargaining power without state and institution-shaped structural power. Therefore, MNCstructural power is directly dependent on state interest and can only exploit bargainingpower if permitted by state economic policies – Faced with ever-changing IPE dynamics,they adapt their resources to IPE structural realignments and sporadically inheriteconomic power rather than contribute to its creation. 4. Conclusion Analysing the international political economy’s environment in terms of this essay’sproposed definition of economic power, characteristics of the latter’s presence were mostsignificantly identified within states (using the example portraying the creation of theDispute Settlement Mechanism). To strengthen this claim, it disproved the ‘economicpower as wealth’ assumption by using as example the United States’ failure “to achieveits preferences in the North-Korea and Iran conflicts, as well as in the sphere ofinternational trade (e.g. implementing the Singapore topics into the WTO regime)”(Pustovitovskij, 2011: 14). Testing out the arguments put forward, the dynamics of theIPE were then extrapolated to a model case study using a simplified chess game. Provingthat efficient management of resources and structural power are both necessary attributesof economic power (and ensuing bargaining power), this essay maintains that by usingthese two capacities in tandem, states manipulate the forces that shape the internationalpolitical economy in which all other actors operate, and are therefore the principalholders of economic power within the IPE.   8  
  9. 9. References:- Carpaso, J. 1978. Introduction to the special issue of International Organization ondependence and dependency in the global system. International Organization. 32(1): 1-12.- Cohen, T. 2005. The Global Political Economy. (3rd Ed.). New York: PearsonEducation Inc.- Dahl, R. 1957. The concept of power. Behavioral Science. 2(3): 201- 215.- Dictionary.com, LLC. 2012. Word Dynamo: Economic Power. Available:http://dictionary.reference.com/browse/economic- Frieden, J.A., Lake, D.A. 1995. International Politics and International Economics. InInternational Political Economy: Perspectives on Global Power and Wealth. J.A. Frieden& D. Lake, Eds. London: Routledge.- Gilpin, R. 1975. Three Models of the Future. International Organization. 29(1): 37-60- Goldstein, J., Pevehouse, J. 2012. International Relations. New York: Longman.- Pustovitovskij, A., Kremer, J-F. 2011. Structural Power and International RelationsAnalysis: Fill your basket, Get your preferences. Bochum: Institut fürEntwicklungsforschung und Entwicklungspolitik der Ruhr-Universität Bochum.- Silbiger, S. 2010. The 10-Day MBA. London: Hachette UK Company.- Srinivasan, T.N. 2005. The Dispute Settlement Mechanism of the WTO: A BriefHistory an an evaluation from Economic, Contractarian, and Legal Perspectives.Available: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=898904 [2012, September30]   9  
  10. 10. Figure  1.   Developed  Countries   White  pawns     King:  Piece  to  be  acquired  for  game   Least  Developed  Countries   to  end   Black  Pawns   LDC  states’  interest   Agricultural  sector’s  protection   from  DC’s  dumping   Assortment  of   pieces:   MNC  Strategic   1  pawn  alignment   Pawn   2   confrontation  protecting  the  King     DSM   Pawns  1/2:    DC  economic  resources   WTO   membership     N.B: White has several possible offensive strategies: - Attack E5 (WTO membership) using F3 (Loss of benefits) - Attack D7 (Economies) using B3 (Economic sanctions) Both strategies incur a risk of generating repercussions and losses. Canada introduces a knight in C6 (DSM) in the form of the Dispute Settlement Mechanism. Although still at disadvantage vis-à-vis B5 (Economic resources), the knight protects E5 (WTO membership) and stabilises power through the illusion of increased security and representation on the chessboard.   10  
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