Economic Interdependence Essay ⋆ Political Science Essay Examples ⋆ EssayEmpire

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Economic interdependence is a concept from the international political economy area of study, and it relates to the level of interconnectedness between two nation-states. The idea of political economy dates back to the birth of liberalism in the seventeenth century and is further discussed by eighteenth-century European philosophers Immanuel Kant,

Baron de Montesquieu, and Adam Smith. The modern discussion of economic interdependence dates primarily to the 1970s. States may be dependent on each other for trade and investments but may also be sensitive and vulnerable to events and trends in the global economy. The world financial crises of 1997 and 2009 are contemporary evidence demonstrating the large degree of economic dependence between states and the global economy, as these financial crises spread like a contagion from state to state. States today are typically economically interdependent on other states, although the degree of dependence varies across states. North Korea is relatively isolated and is the least economically dependent state in the global economy, whereas small export-based economies, such as Singapore’s, rank as highly dependent on other states.

Robert O. Keohane and Joseph S. Nye’s Power and Interdependence (2001) discusses two dimensions of interdependence: sensitivity and vulnerability. Some nation-states may be sensitive to events or trends in other states and thus alter their domestic and foreign policies in response. However, states that are highly interdependent economically may be vulnerable to shifts in the global economy and the specific economic actions taken by sensitive states. As such, the level of economic interdependence between states may not be symmetric. For example, one state may be highly dependent on and thus vulnerable to another state for energy, such as Ukraine has been vis-à-vis Russia in recent years. In this situation, Ukraine is vulnerable to any fuel embargo by Russia, which provides political leverage for the latter.

Historical Obstacles To The Concept

The conception of economic interdependence was obstructed first by imperialism in the nineteenth and early twentieth centuries and then by the Great Depression in 1929 and the cold war from 1945 to 1991. Levels of economic interdependence between states were extant but low leading into the twentieth century. There was hope by economic and political liberals such as Norman Angell (1933) that economic interdependence would bind states together peacefully, but this hope was dashed by the onset of World War I (1914–1918) and the Great Depression, followed by World War II (1939–1945). Still, policy makers in the leading capitalist states, particularly the United States and the United Kingdom, identified the lack of cooperation between liberal states in the face of economic interdependence during the Great Depression. As World War II was coming to a close, the existing liberal economic regime, led by the United States, the United Kingdom, and the Allied nations was established to manage the postwar world. Key western leaders and policy makers had come to the conclusion that World War II was potentially incited by the breakdown of economic cooperation among major European nations.

In addition, the Great Depression was exacerbated by the major global economic powers’ raising tariffs against each other in the hope of obtaining external revenue to fix their own economic problems, which led to a collapse in international trade. Therefore, the postwar Bretton Woods system devised by representatives of the forty-four Allied nations fostered global monetary and financial coordination through the International Monetary Fund, reconstruction and development through the World Bank, and free trade through the General Agreement on Trade and Tariffs. These three multinational corporations helped to dramatically increase the level of international trade and investment worldwide and thus increased economic interdependence worldwide.

While the new postwar economic policies and practices led to much higher levels of economic interdependence between global states, the concept of economic interdependence remained unnoticed or irrelevant by many political scientists during the cold war for two reasons. The first is that the specter of nuclear holocaust and the cold war arms race drew attention to policies related to military strength, acquisition, and security. The second is that because Marxist-Leninist theory and rhetoric provided a connection between economics and politics, the discussion of this nexus became stigmatized as radical and class based. However, the Vietnam War from 1959 to 1975 demonstrated military prowess did not equate to economic immunity as the oil crises, discontinuation of the gold standard to back currencies, hyperinflation, and the economic stagnation of the 1970s led to a renewed recognition that even the military powers of the world were sensitive and vulnerable to trends or fluctuations in the global economy.

Contemporary Economic Interdependence

At the beginning of the twenty-first century, the concept of economic interdependence is intermixed with the term globalization. While the economic dependence of states has grown in the past sixty years, so have the global connections between people as a consequence of significant increases in direct foreign investments, portfolio investments, trade, telecommunication technologies, and foreign travel. This growth in economic interdependence is a by-product of classical liberalism, emphasizing free economic markets and trade with limited government oversight, returning to the economic theories emerging in the eighteenth century, and moving away from the broader theoretical perspectives of realism and Marxism in international relations theory at times witnessed in the twentieth century. Thus, the General Agreement on Trade and Tariffs was replaced by the member states in 1995 in an effort to improve the enforcement of international free trade through the creation of the World Trade Organization. Furthermore, the emergence of economic integration treaties and regional organizations as characterized by the 1993 European Union model reinforces modern liberalism concepts. While the European Union created a single common market for goods, labor, and investments contributing to prosperity, it also provided a means for the once war-prone European states to form common preferences and negotiate peace terms. Similarly, examples of geopolitical organizations are the Gulf Cooperation Council, formed in 1981, and the Association of Southeast Asian Nations, formed in 1967. The Gulf Cooperation Council continues to seek to strengthen economic cooperation among its six member states in areas of agriculture, industry, investment, security, and trade. The Association of

Southeast Asian Nations aims not only to accelerate economic growth across its ten participating countries but to serve as a platform to jointly settle domestic instability or foreign political intervention. However, there is still debate about whether the growth in economic interdependence in particular and globalization more generally are beneficial.

Current debates about economic interdependence surround issues relating to world peace, prosperity, and democratic stability. Recent U.S. leaders, such as Presidents Bill Clinton and George W. Bush, and some international scholars argue economic interdependence contributes to world peace by making military conflicts between states too costly. In contrast, realists tend to argue that current patterns of economic interdependence reinforce the power of the major power states in the world and the prospect for future wars is not reduced. Marxists point out that although there have been increases in total wealth in the world economy, there is still a gap between the rich and poor states of the world because of exploitation by multinational corporations, including the World Trade Organization and the International Monetary Fund. Last, some academics and policy makers debate whether economic interdependence makes some states, specifically third world or developing nations, more politically unstable and/or unable to sustain democracy by their vulnerability to global economic and market trends.

Bibliography:

Angell, Norman. The Great Illusion. New York: Putnam, 1933.
Brooks, Stephen G., and William Curti Wohlforth. World Out of Balance: International Relations and the Challenge of American Primacy. Princeton, N.J.: Princeton University Press, 2008.
Di Mauro, Filippo, Stephane Dees, and Warwick J. McKibbin. Globalisation, Regionalism and Economic Interdependence. Cambridge: Cambridge University Press, 2008.
He, Kai. Institutional Balancing in the Asia Pacific: Economic Interdependence and China’s Rise. London: Routledge, 2009.
Keohane, Robert O., and Joseph S. Nye. Power and Interdependence. 3d ed. New York: Longman, 2001.
Milner, Helen V., and Andrew Moravcsik. Power, Interdependence, and Nonstate Actors in World Politics. Princeton, N.J.: Princeton University Press, 2009.