Page 142 - Global Political Economy_Understanding The International Economic Order

CHAPTER SIX
The Political Significance of the
New Economic Theories

HE NEW economic theories have a number of significant implica-
T tions for analysis of the world economy. Even though all three
theories remain highly controversial within the economics profession,
they nevertheless provide important insights into the nature and dy-
namics of international economic affairs, and they reinforce the state-
centric interpretation of this book. In addition to emphasizing the
central role of national governments in economic affairs, the theories
emphasize the crucial nature of oligopolistic competition and the im-
portance of technological innovation as determinants of international
economic affairs.

National Governments and Domestic Economies
Although every actor within the modern economy—whether a corpo-
ration, an interest group, or whatever—attempts to influence that
economy, national governments and their policies are by far the most
important determinants of the rules and institutions governing the
market. Despite increasing globalization of economic activities, most
such activity still takes place within the borders of individual states.
Each state establishes limits that determine the movement of goods
and other factors into and out of its economy, and through their laws,
policies, and numerous interventions in the economy, governments
attempt to manipulate and influence the market to benefit their own
citizens (or at least some of their citizens) and to promote the national
interests of that country. Every state, some more than others, at-
tempts to use its power to influence market outcomes.
The new theories call attention to the importance of national gov-
1
ernments and domestic economies within the world economy. They
1
The theories complement a similar change in scholarship in the field of interna-
tional political economy, where the role of domestic factors has been given much
greater attention in recent scholarship. A pioneering study on the interaction of domes-
tic and international matters is Peter Gourevitch, Politics in Hard Times: Comparative
Responses to International Economic Crises (Ithaca: Cornell University Press, 1986).
An important analysis of the impact of domestic affairs on the international economy
is Helen V. Milner, Interests, Institutions, and Information: Domestic Politics and In-
ternational Relations (Princeton: Princeton University Press, 1997).
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