Page 143 - Global Political Economy_Understanding The International Economic Order

CHA PTER S IX
helpexplain continuing government intervention in the economy de-
spite the apparent triumph of neoliberalism and increasing globaliza-
tion. In a world where economic growth, the geographic location of
industry, and comparative advantage are frequently produced by ar-
bitrary decisions and cumulative processes, national governments
have an almost overwhelming incentive to intervene in their domestic
economies. Through industrial, strategic, and other interventionist
policies, every nation, to one degree or another, does attempt to affect
the international division of labor. There is growing concern within
nation-states about which countries produce what and about the lo-
cation of high-tech jobs and industries; this makes it unlikely that
such crucial matters will be left solely to the interplay of market
forces. National governments repeatedly attempt to use their political
power and their position in the international political system to in-
fluence the international division of economic specialization as much
as possible.
National leaders are reluctant to leave economic outcomes entirely
upto market forces. This is reflected in the considerable differences
among national economies regarding the relative importance of the
state and the market in national economic structures and outcomes.
Economic structures and institutions constitute what Nobel Laureate
Douglass C. North has called “the incentive structure of a society,”
2
and are powerful determinants of economic performance. Domestic
structures also affect the interactions among national economies and
between national and international economic affairs.
I shall use the term “national system of political economy” to refer
to domestic structures and institutions that influence economic activi-
ties. The principal purposes of every national economy shape the de-
fining characteristics of each system; these purposes may range from
promotion of consumer welfare to creation and expansion of national
power. The role of the state in the economy is a particularly impor-
tant aspect of each national system; the differences among market
economies range from the generally laissez-faire, noninterventionist
stance of the United States government to the central role of the Japa-
nese state in management of the economy. Yet, a third feature of a
political economy is found in the mechanisms of corporate gover-
nance and private business practices; here again, the fragmented
American business structure contrasts dramatically with the Japanese
system of tightly integrated industrial groupings (the keiretsu).
The national system of innovation is another important aspect of a
2
Douglass C. North, “Economic Performance Through Time,” American Economic
Review 84, no. 3 (June 1994): 359.
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