Page 54 - Global Political Economy_Understanding The International Economic Order

THE NATUR E OF PO LITIC AL ECO NOMY
too much that we do not know and perhaps never will know. As
international economist Robert Baldwin has commented, an adequate
theory of international political economy would have to be built upon
a theory of how governments reach decisions, and, of course, there is
no such theory. 23 Achievement of our goal of comprehending how
the international political economy functions will probably always be
elusive no matter how hard we work to improve the study of the
international economy.

Embeddedness of the Economy
The central idea that markets are embedded in larger sociopolitical
systems underlies my interpretation of both political economy and
international political economy. The government, powerful domestic
interests, and historical experiences determine the purpose of the
economy and establish the parameters within which the market (price
mechanism) functions. Contrary to economists’ belief that economic
activities are universal in character and essentially the same every-
where, the specific goals of economic activities are in actuality socially
determined and differ widely over the face of the earth. For example,
although neoclassical economists assert that the primary purpose of
economic activities is to satisfy the desires of individual consumers,
this characterization applies to the United States but not to every
other economy. Japan and many Asian societies, for example, place
a high priority on the welfare of the community and on social cohe-
sion. In fact, the idea that markets should be free to promote the
private interests of individuals is a rather recent belief, and the
strength of the welfare state in Western Europe indicates that even in
the West this idea is not universally accepted.
In addition to determining the purpose of economic activity, the
sociopolitical system and a society’s values determine the role that the
market or price mechanism in a particular society legitimately plays
and the socially approved ways in which economic objectives may be
pursued. Every society has values and beliefs that circumscribe the
ways in which the market is permitted to function; societies establish
rules and set boundaries that govern the range of activities in which
the price mechanism is considered legitimate; what is considered to
be “fair” economic behavior in one society may not be considered
fair in another. For example, bribery is a serious offense in the United

23
Robert Baldwin, in Jaime De Melo and Arvind Panagariya, eds., New Dimensions
in Regional Integration (New York: Cambridge University Press, 1993).
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