To what extent do economic forces determine the policy of states?

Trading agreements and military alliances influence both the economic and political relationships between states. However, arguably economic forces are more important to states and state policies are used as a tool for economic gain. For states, the economic prosperity is vital for its survival, therefore, improving its political ties helps gain economic success through various alliances and trade blocs. An important basis for political power is a strong economy; some describe economics as the pursuit of wealth and politics as the pursuit of power, both with a complicated correlation with one another. Politics and economics are intertwined and it is perceived that economics is more central and influences the political or ideological strategies for its benefit, this will be further explored in the article.

Many scholars have debated that in a free trade economy the interests of powerful states can be understood by the nature of its strategies and some believe that this gives rise to a dominant power which influences its counterparts. Therefore, a single hegemonic power can cause power struggles and eventual conflicts for its own interests. Economic instability leads to potential political turmoil within a state, therefore, the governments usually prioritise economic success. In the current global order, there are issues regarding the economic and political strategies of the Western powers and among rising Eastern powers that only serve to feed their economic needs. For instance, China’s BRI ambitions to further its market to the rest of the Eurasian landscape and Western powers primarily USA’s interest in the Gulf Middle East region for the survival of the Petro-Dollar. It is important to try and discern to what extent economics have to influence over state policies by analysing and explaining various contemporary events.

After the fall of the Soviet Union and its communist expansion has halted, as a result, capitalism has flourished and played a key role in modern day global economics in the international system. For instance, the creation of global trade organisations such as the World Trade Organisation (WTO) upholding the concept of free and fair trade. Consequently, with substantial technological advances and the demise of trade barriers from the Cold War period has enabled a more interconnected trading system. This has allowed some nations to obtain an economic advantage through political means, without having a balance of power which ceased to exist after the fall of USSR. For instance, the USA, the EU, Japan, and China have more trading freedom which has escalated their economic stature, therefore, their political power among other states.

Within the EU, Germany has surpassed its partners and has relatively dominated the policies of EU due to its superior economic position. In Asia, China developed its political relations with neighbouring states and European counterparts due to its massive economic potential. Economic liberals believe that the capitalist system brings about leveled playing fields which profit all. From Adam Smith’s theory, limited government intervention brings significant market growth within a country; consequently increasing the wealth and influence of that state. He further mentions that extensive state regulations and interference lead to instability and low market growth which might lead to conflict thus indicating that state policies are to an extent dependent on economic conditions.

According to some scholars, powerful states determine the direction of the global economy; Stephen Krasner notable American scholar states that a central hegemonic power is required to provide structure and leadership in order to maintain a free-trade regime in the short-term. Therefore, in the contemporary global order, it is witnessed that the major economies compete politically and militarily to have an economic influence on others. This prediction is also supported by American sociologist Immanuel Wallerstein, he expressed that capitalism from the sixteenth century onwards has been about putting economics first and the policies being dependant on it. In his theory of the World System, he explains the current World Order being divided into three major groups, the Core, Periphery and Semi-Periphery states. The Core are the most developed consisting USA, Canada, Western Europe, Japan, Australia and New Zealand they usually produce high-end products and export knowledge while importing raw materials from the Periphery countries who are according to him are doomed to poverty. The interesting fact he mentioned in his theory is that the Core countries control the economic system through International Organisations such as WTO, World Bank, and the IMF to maintain their superior economic position.

In order to expand economic profit, pursuits of global power have existed from the times of empires, to the times of colonies and to this day. Wallerstein and Cox suggest that the current capitalist system is based on an unequal paradigm where the economically advantaged gain at the cost of the economically deprived they control the political institutions and policies in order to establish a more beneficial economic outcome. This is further supported by neo-Marxist theory, where the weaker states are ‘oppressed’ by the dominant states, which creates international struggles. This is also evident throughout history: for example, the Roman Empire and its bloody conquests in the Mediterranean, the French and British subjugation of North Africa and Indian Subcontinent, and today American military expeditions in Iraq, Afghanistan, Libya and other Arab countries. All these expeditions were primarily intended to attain resources for the economic wellbeing of the dominant states.

According to neo-Marxist theory, the ‘ruling class’ in the contemporary system with the acquiring of political power through economic means, only benefits themselves in times of downturn. For instance, after the global recession, the Wall Street bankers and other financial institutions were bailed out and continued to receive financial benefits while the population was facing a crisis and was put to austerity. This implies that economic and financial institutions were prioritised ahead of the population in the US; risking public turmoil and demonstrating the inequality within the contemporary system. This struggle of stronger and the weaker forces also reflect on to the global political and economic environment.

Throughout history, many conflicts have arisen because of economic competition between states. Most notably in the wake of twentieth-century Germany having an economic growth while its competitor Britain having an economic decline eventually lead to the Great War. The fierce competition between the British Empire which was based on exploitation from Africa and the Subcontinent was not able to cope with German efficiency and economic growth. The competition eventually led to the devastating War in 1914. This is also evident in the Cold-War period between USSR and USA however due to nuclear deterrence no direct conflict ever took place. Similarly, in the contemporary world, the ‘Middle-Eastern-Cold War’ between Iran and Saudi Arabia is of concern and so is the potential escalation between USA and China reflected in the recent trade war which is all primarily due to the economic competition. The events in the South China Sea and the trade agreement of TPP indicate the Chinese and American economic advents and competition in the region. From which the Trump Administration just backed out of.

Currently, an unconventional war is being fought in Syria initially between the elected Syrian government of Bashar Al-Assad who are supported by Iran and the Free Syrian Army (FSA) supported by Saudi Arabia and its regional allies. As the conflict escalated some of the NATO counties such as Turkey, USA, Britain, and France have sponsored the FSA, meanwhile, Russia has been assisting Assad due to geopolitical interests, such as the naval base in Tartus, Syria. Observations from these events are indicative of economic interests. Saudi Arabia and Iran are key competitors economically and geo-strategically. Iran had been sanctioned when the conflict began only until recently had an enormous economic disadvantage and it is only regional economic and political ally being Assad’s Syria, therefore survival of Assad is economically advantageous for Iran. The US’s preference of ousting Assad serves in their interest of helping their economic-ally Saudi Arabia and disadvantaging their political adversary Russia. Furthermore, there are oil pipeline projects that are planned to be built through Syria and the supplying to Europe, many have argued one of the main reasons for this conflict was Qatar’s proposed Gas and Oil Pipelines (supported by the Western powers) that were rejected by the Assad government. Also, countering that Iran has now proposed pipelines through Iraq and Syria into the Mediterranean. Consequently, this implies that in a contemporary global system economic competition of major powers often leads to conflicts and validates that political forces are used to serve economic interests.

Since WWII the Bretton Woods agreement with the change in 1971 made the US Dollar the world reserve currency and that made it the sole international trading currency in the global market, giving the USA a monetary advantage in trading explaining the superior economic position of the US for half a century. The IMF and the World Bank established under Bretton Woods has a system where the state with the most number of monetary contributions gets higher priority in terms of voting rights, giving economically dominant countries political power over weaker states. These institutions demonstrate the power obtained through political means in order to get economic benefits. Further, this emphasises the economic importance of political forces.

By instilling loans to developing nations the dominant states through the IMF and World Bank forces terms and conditions on developing nations in order to influence them and make them economically dependent as mentioned by the famous former employee of renowned MNCs John Perkins in his book the Confessions of an Economic Hitman. In the wake of the twenty-first century new alliances between South Africa, Brazil, India, China and Russia also known as the BRICS have opposed the perceived unequal system of IMF and World Bank by founding new institutions such as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) to compete with the existing global financial institutions.

The AIIB and NDB have had some states join and have expressed commonality with the initiative. Moreover, the use of the Chinese RMB as the reserve and trading currency for BRICS and the AIIB and NDB threatens the US dollar’s dominance for half a century as the single dominant currency. Therefore, political tensions have been growing between the current dominant states and the rising BRICS countries it can be witnessed in the BRICS protection of Syria, Iran, and Venezuela. Furthermore, the dominant states (the Western countries) of the contemporary system has established the Trans-Pacific-Partnership Agreement to compete with the BRICS economy, also the political advents in the South China sea involving various TPP countries show potential tensions being aroused due to the economic rivalry. Although the Trump Administration has halted the TPP agreements, however, he has challenged the BRICS especially China with the increasing tariffs opposing the principles of free trade which the USA have been professing to the rest of the World for more than a century. These events of Trump Administration and USA’s wars further prove the ideological and belief are nothing but a tool for them to advance their economies and they are ready to abandon their crusading principles if necessary in order to maintain superiority in the current World Order.

It is evident that increased wealth for states enables them to have political influence over other states. Political and economic forces are used concordantly with one another for beneficial purposes; however, it has been argued that economic forces are prioritised over political ones. Furthermore, economic stability is vital to a state’s political success and longevity. Therefore, many economic issues have boiled over into conflicts in the past and competition has led many states to cooperate politically in order to have economic benefits over common adversaries. Through political institutions, economically dominating powers instill their influence on weaker states and continue to benefit economically by overpowering them politically.  After the Cold War, the USA and its allies had a considerable advantage over other powers and have dominated the global politics and economy without opposition. Recently the BRICS countries began collaborating to challenge the authority and the institutions established by the dominant force by competing in all grounds; indicating that political ties and policies are made in order to serve the economic needs of the state. It can be concluded that economic force has influence over policies of states and the policies are, in turn, used in order to maximise economic benefits.

Bibliography and Further Reading:

Callinicos, A. (2009) Imperialism and global political economy, 1st edn., Cambridge: Polity.

Daniels, J. D.; Radebaugh, L. H. and Sullivan, D. P. (2015)International Business Environments and Operations, 15th edn., : Prentice Hall.

Friedman, G. (2015) Beyond the Post-Cold War World, Available at: 20th November 2015).

Jackson, R. H.; Jackson, R. and Sørensen, G. (2012) Introduction to International Relations: Theories and Approaches, 5th edn., : OUP Oxford.

Lyon, R. (2015) ‘The U.S.-China Relationship: War, Peace or Just Troubled Times Ahead?’, The National Interest, 25 November, p. 1.

O’Brien, R. and Williams, M. (2013) Global Political Economy: Evolution and Dynamics, 4th edn., : Palgrave Macmillan.

Perkins, J. (2006) Confessions of an economic hit man, 1st edn., New York: Plume.

Rivera-Batiz, F. L. and Rivera-Batiz, L. A. (1994) International Finance and Open Economy Macroeconomics, 2nd edn., New York: Macmillan Publishing Company.

Anon. (2015) ‘BRICS, WTO Members Should ‘Multilateralize’ TTIP, TPP’, Sputnik International, 1st October, p. 1.

Stewart, P. (2015) ‘U.S. training of Syria rebel fighters expands to Turkey: source’, Reuters, 28th May, p. 1.

Vogler, J. (2015). Solutions to the Security Problem: Neutrality, The Balance of Power, Deterrence and Collective Security, Retrieved 2nd November 2015, from Keele International Relations, Introduction to International Relations PIR-10041.

Yashar, A. (2013) ‘Russia Sends Most Powerful Ships to Mediterranean’, Arutz Sheva (Israeli National News), 11th April, p. 1.

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