Politics play a significant role in shaping the global economy. Several theorists have, over the years, developed multiple arguments to explain this concept, and the most popular theories being Mercantilism, Marxism, and Liberalism. Oatley indicates that the mercantilist theory is based on the relationship between the power of the state and economic activities(8). Classical mercantilism has three primary arguments. The first argument considers that there is a tight connection between wealth and power. For instance, the theory argues that accumulating wealth guarantees a state’s influence in the global system. Another viewpoint is that trade facilitates a state’s wealth accumulation through increased exports and minimal imports. The third argument is that the implemented policies in a countryshould encourage particular activities such as manufacturing and discourage others like agriculture. All these arguments focus on enabling the state to increase its wealth, and as a result, improve its power on the international political and economic systems. Wealthy countries are, therefore,considered authoritative by this theory.Therefore, based on the above arguments the Mercantilists argue that the nation should play a vital role in ensuring the allocation of resources. And through economic policies, countries can maintain balanced trade and promote local economic development to improve their capacity to acquire more power over other less developed states.

Karl Marx, on the other hand, introduces Marxism theory which critiques capitalism. Marx argues that the amount of labor used in the production of goods determines their value. His observation was that investors did not pay the wages of their workers equivalent to the value of their participation in the production process. As a result, Marx predicted that there would be an economic revolution that would scrap away private properties and the capitalist systems through a natural tendency. The theory suggests that increased economic competition would encourage capitalists to increase their capital stock and efficiency. Therefore, a country’s wealth will be in the hands of a few elite and the impoverished majority would bring revolutionary change through socialization worldwide.

Further, Marxists argue that capitalism exhibit characteristics such as increased investments that enhance production and decreased capability of the consumers to purchase the products. Such a situation creates a trade imbalance locally and internationally. Nevertheless, these conditions continue to foster the widening of wealth gaps between the rich and the poor and result in social unrest that advocates for socialism.

Liberalism intended to alter the arguments of mercantilists on the role of government’s economic policy on a state’s development and power. Liberalists first asserted that “the purpose of economic activity was to enrich individuals, not to enhance state’s power” (Oatley, 9). Secondly, they argued that states benefit from the trade irrespective of whether the balance is negative or positive and not just surpluses. Thirdly, the liberalists argued that countries do not accumulate wealth only by engaging in manufacturing practices but through the production of low-cost products and selling them in exchange for those that are relatively expensive to produce. Therefore, liberalist argues that the government should not interfere with the country’s economic balance. Its involvement in resource allocation and attempt to establish the stability of trade lowers the national welfare.

Furthermore, liberalists push for approval of market-based systems in resource allocation and the promotion of social welfare. In this case, trading parties mutually benefit through transactions and sharing of resources. However, the theory suggests the limited intervention of the government through the establishment of rights of ownership of resources and property. Free markets give people the freedom to carry out trade with minimal regulations and eventually stabilize the economy.

Liberalists aim to give people the freedom to carry out business transactions under minimal government control as they improve their financial status. Thus, the distribution of resources in a country is dependent on the other forces of the market and not on government decisions. Therefore, these conditions make it the best and most favorable school of thought characterized by satisfying the interests of people.

Question Two

The post-World War II consequences demanded the creation of an institutional structure that enabled the growth of the global economy. Igwe indicated that the Bretton Woods framework facilitated the establishment of major international financial institutions such as the International Monetary Fund (IMF), World Bank, and International Trade Organization (ITO)(105). The technique led to the establishment of post-war monetary systems such as the use of dollars as a medium of exchange in international trade to replacing gold. The integration and adoption of the monetary system were perceived just since it resulted in a system that enabled the measurement of a state’s capital and importation and exportation of commodities.

The adoption of Bretton Woods’s framework enabled the government’s active roles in protecting the economic interests of its people through microeconomic policies. It facilitated the creation of safety nets aimed at protecting the vulnerable communities from the severe forces of the market (Oatley 19). For instance, achieving equilibrium during the gold standard monetary arrangement involved consideration of the role of international capital movements. Developed countries controlled their economies through actions such as slowing down foreign investments while the borrowing countries had little control over their economic growth; thus, increasing instability (Igwe 108). Because of this, the system facilitated the exploitation of vulnerable and less powerful nations. Therefore, the rules in the Bretton Woods framework developed a system that supported the global economy through the protection of international and domestic markets.

A set of agreements initiated by the Bretton Woods created the basis for the post-war worldwide economy that guided local and international trade. The report by Scott-Smith and Simon indicates that the multilateralism process was used to develop the financial institutions and agreements in the system to enhance the engagement of the participating countries(3). The scholars also explain that although the political power of the power-politics was dominant, especially in the US, the conference considered the interests of the other nations and focused on abolishing the imperial systems through adoptions of shared forms and rules of governance. Igwe, on the other hand, considers the Bretton Woods system as a constitution focusing on regulating the international financial system(112). Therefore, this framework avoided post-war consequences through the adoption of collective governance measures and supporting standardization of the financial transactions.

Question Three

In business transactions involving two or more countries but not subject to global economic policies, the particular governments should develop and adhere to agreements regulating the nature of the trade. In his work, Hakli indicated that cross-border cooperation benefits all parties in engagement based on their needs(165).Mainly, states get into cross border trade in search of fulfilling specific economic needs, for example, to purchase commodities that are expensive to produce locally. In this case, interstate business transactions offer the desired solutions. However, through politically negotiated agreements, the governments can communicate their expectations and share details of their requirements.

To create an effective and conducive trade environment, Oatley noted that trade relationships should be structured by the political institutions of the trading countries (22). This is because political negotiations are maintained within the sovereign of the states’ realm as they focus on improving the economic activities of both countries and meeting the needs of their specific populations. On the other hand, Haklipoints out that cross border trade involves multiple complexities resulting from factors such as institutional and sociocultural issues(163). Communication among the interstates before engaging in any dealings facilitates the standardization of the various vital elements such as the roles of each country and their respective contributions. Mutual understanding among the transacting parties makes it possible to achieve these conditions. Therefore, the engagement of another state without any interest in the agreement poses a potential risk of increased misunderstandings.

Additionally, the international political economy involves various elements such as the responsibility to protect, sustainable development, human security, and governance. For instance, the negotiation procedure should consider the different aspects of security threats and establish solutions.  Hakli suggested that cross border trade may involve collaborative efforts in developing public services and the establishment of forms of governments and institutions(163). Such practices include an in-depth understanding of each sovereign nation’s political dynamics and cultural beliefs. Therefore, the rules negotiated and implemented are only applicable to the countries whose interests are considered.

Incorporating rules that are outside their sovereign power, the trading parties are likely to embrace policies that are not beneficial. Scott-Smith and Simon suggested that in the multilateralism process the involved parties integrate the needs and interests of each other, which aids in implementing effective economic policies(3). The consequences of cross border trade only affect the countries bound by the agreement and their people. Therefore, by considering the rules within their borders, trading states confirm their commitment to protecting their citizens.

Works Cited

Igwe, Isaac O.C. “History of the International Economy: The Bretton Woods System and Its Impact on the Economic Development of Developing Countries.” Athens Journal of Law, vol. 4, no. 2, 2018, pp. 105–126.

Hakli, Jouni. “Boundary Objects in Border Research Methodological Reflections with Examples from Two European Bonderlands.” The Border Multiple: The Practicing of Borders Between Public Policy and Everyday Life in A Re-Scaling Europe, Edited by Dorte Jagetic Andersen, Martin Klatt, Marie Sandberg, Routledge, 2016, pp. 163-178.

Oatley, Thomas. International Political Economy. 6th ed., Routledge., 2019.

Scott-Smith, Giles, and J. Simon Rofe, editors. Global Perspectives on the Bretton Woods Conference and the Post-War World Order. Springer, 2017.