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What is the relationship between the state, the economy and power?

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There is no doubt that economics has played a significant role in international politics throughout history. The desire for control over economic resources has been part of struggles among political groups for along time. One can say that economic factors have always been essential to the affairs of nations. The interaction between economic and political factors has been transformed in fundamental ways over the past few centuries and decades. How scholars have come to understand these changes has given rise to different theoretical and ‘scientific’ perspectives on international relations, and new fields of study being pursued, such as international political economy. I will begin by giving a liberal account of the relationship between the economy, the state and power.

Liberal idealism in international politics did not re-emerge, after the devastation of the Second World War, until the 1970s. Rapid advances in technology, the growth of organisations like the European Community, and the impact of events like the 1973 oil crisis pointed towards evidence of growing interdependence between states.

At the same time liberal literature made significant inroads into the rigid inside/outside, domestic/international distinctions characteristic of realism, with the emergence of trans-national relations and world society.

Modern interdependency theory uses free trade and the removal of barriers to commerce as proof to their claims. “The rise of regional economic integration in Europe was inspired by the belief that the likelihood of conflict between states would be reduced by creating a common interest in trade and economic collaboration amongst members of the same geographical region.”

European powers, instead of resolving their differences militarily, would cooperate within a commonly agreed economic and political framework for their mutual benefit. Eventually cooperation between states would increase and broaden as mutual advantages could be gained. Membership of the European Union would entail compliance with its rules, which itself would discourage the absolute pursuit of national interests and weaken state sovereignty.

Liberal institutionalists such as Rosecrance argued that the “growth of economic interdependency had been matched by a corresponding decline in the value and importance of territorial conquest for states.” In the modern world the benefits of trade and cooperation among states greatly exceed that of military competition and territorial control. Traditionally nation states regarded the acquisition of territory and land as the means to increasing national wealth. The state has transformed from being a ‘military state’ to a ‘trading state’.

Statesmen increasingly became aware that the accumulation of national wealth and development relied more heavily on macro-economic policies that increased the competitiveness of their economy compared to other states. Higher levels of efficiency, technology intensive modes of production and valuable human capital all give incentives for multi-national corporations and businesses to invest in the country. Neo-liberals point out that commercial relations between businesses and individuals have diminished the influence and power of the state.

Although there is suspicion the role oil has played in the ongoing war in Iraq one cannot doubt the repercussions the war has had internationally. Britain and America have to some extent isolated themselves diplomatically from Europe (their closet allies) and the wider world.

Nowadays due to the complications of economic interdependence it makes states less able to act aggressively because otherwise they face risking economic penalties imposed by other members of the international community. Economic success of individual states now rests on the success of the global economy.

Liberals strongly believe that in order for economies to strive, the embodiment of the free market is a prerequisite, i.e. minimal state interference. However this requires a nation-state to have a democracy where the state is accountable and proper checks and balances in place to prevent possible abuse by the state. Liberals are deeply suspicious of concentrated forms of power especially that of state power.

Liberals who studied the international system during the nineteenth and twentieth centuries, viewed power being exercised by and in the interests of the governing elites against that of the masses. This form of diplomacy “gave no credence to the common interests of humankind and the just claims of small nations seeking self-determination… [Rather] it was the product of elite collusion which resulted in international relations being arranged to suit the interests of those who ruled great powers.” These elites contested that foreign policy was best made by professional diplomats away from the influences of national politics. Therefore further democratisation of domestic politics (popular participation) was the way forward into transforming foreign policy. For liberals a peaceful global world order is one where all societies are democratic, civil liberties are protected, and where markets prevail. Now I will focus my attention on giving a realist account of the relationship between the economy, the state and power.

Realism prevailed in the post-Second World War period as a pessimistic view of world politics; they argued that their views were more realistic than the idealist and utopian beliefs of the liberals. E.H. Carr believed that it was dangerous to base the study of international politics on an imaginary desire of how we would like the world to be. Utopian influence on government policy towards peace and disarmament can lead to it being vulnerable to foreign attack. Liberals were so concerned with eradicating the source of war that the underlying rationale was neglected, that of power.

Furthermore Carr claimed that the post-war utopia was being used to preserve the status quo in the interests of the ‘satisfied powers’, or in other words the states that had a vested interest in upholding their current position in world politics. “The doctrine of the harmony of interests thus serves as an ingenious moral device invoked, in perfect sincerity, by privileged groups in order to justify and maintain their dominant position.”

Hans Morgenthau believed that the problem lied in thinkers within the Enlightenment tradition substituting science for political thought, leading to the eclipse of power and the erection of an artificial standard for politics in science. “The emasculation of political consciousness resulted in an unsatisfactory form of theory, leading to the substitution of scientific standards for political evaluations and, ultimately, the destruction of the ability to make intelligent political decisions at all.” For Morgenthau, the assumption that scientific truth could be carried over from science to the realm of politics was wrong, since politics was the realm of power rather than truth.

Realism holds that states are the central actors in international politics, and therefore to study international politics is to study states and how they interact. They maintain that this holds true because states retain a legitimate monopoly on the use of violence. Realists argue like liberals that inter-state behaviour takes place in an environment of ungoverned behaviour or anarchy, where they disagree is the extent to which international laws and organisations can bring stability and order. For realists power is the key to understanding state behaviour and motivation, and the pursuit of power takes the form of national interest.

Realism in its traditional sense asserts that military capability is the essence of power, reasonably so because the stronger you are the more able you are to defend yourself and hence acts as a deterrent against foreign invasion. Not only does it ensure security but enables a state to pursue their interests abroad if desired or felt necessary. For realists it “represents the ‘bottom line’, the ultimate arbiter of international disputes.”

Realism takes into account that military capability depends on a number of factors such as abundance of resources, size of population, and size of territory. Even so the military does not give an accurate account of the power of a state and could be misleading. Efficiency, morale, readiness of armed forces and leadership all have a crucial part in determining the extent of a state’s power. Power itself is a highly contested concept.

For example insurgents in Iraq have been able to use the power and influence of the media to their advantage. Leaders including Tony Blair and George Bush have been pressured on numerous occasions into making public speeches, in direct response to media reports induced by insurgents. In Saudi Arabia, the oil industry has been subject to continued terrorist sabotage, and as a result of each attack the price of oil raised, sending negative ripples through world market shares. The power of the state in terms of destructive power has undergone significant changes as well.

After the creation of the nuclear bomb states need not require a strong military to deter potential threats from others. “Nuclear capabilities were the ‘absolute’ weapon; they enabled states to provide for their security without continually worrying, as traditional great powers had to, about their relative position in great power economic competition.” Michael Mastanduno argues that as nuclear weapons took centre stage in US defence strategy during the Cold War, the connection between economic and military power became less proximate and direct. The US and USSR never actually came into direct combat contact out of fear that it could lead to a nuclear catastrophe.

Neo-realism was a response to the emergence of neo-liberalism and new developments in international politics. Globalisation for neo-liberals is proof that the international structure is undergoing considerable change, in the direction towards a borderless world and greater interdependency. At first this was a major challenge to realist thinking, but neo-realists eventually responded.

Neo-realists argue that globalisation has been exaggerated in a number of ways. Firstly globalisation is not a world phenomenon but rather a Western one. Stephen Krasner argues that third world states are far from being ‘globalised’. In many parts of Africa, society is organised around feudalism and peasant farming. Subsistence farming is predominant rather than industrial size, economically efficient farms characteristic of developed countries. In the third world most governments are authoritarian and perceive themselves to be excluded from the benefits of globalisation. To them, globalisation is purely a Western experience.

Secondly although neo-realists accept that international money markets have been globalised through the advancement of information technology, they still point out that international trade during the 1900’s was just as high as present. Neo-realists further claim that economic activity is not as global as some liberals would have us believe. The largest economies continue to conduct most of their business in their home markets. For example 90% of the US economy produces goods and services for Americans rather than the export market, the same roughly applies to European countries. Although trans-national corporations might manufacture and sell their goods in a number of countries, headquarters, management and ownership etc are principally located at home.

Thirdly neo-realists stress that military power is still far more important in conditioning international politics than economic globalisation. “The most important events in international politics are explained by differences in the capabilities of states, not by economic forces operating across states or transcending them… [Neo-realists add that liberals ignore or forget that] states perform essential political, social and economic functions, and [that] no other organisation rivals them in these respects…the sovereign with fixed borders has proved to be the best organisation for keeping peace internally and fostering the conditions for well-being.” The nation-state has no other alternative as a form of political community, and that it is the “nation-state which has the exclusive authority to bind the whole community to international law.”

Neo-realists such as Waltz contended that realism ignored the constraints the international system had on states, given its anarchical nature. Instead of relying on human nature to explain inter-state behaviour Waltz believed that international relations should be treated as a separate domain that shapes and conditions the way states behave. What Waltz advocated was the need to study how structural conditions which belong to the international system impose the outcomes of interactions between states.

Michael Mastanduno focused on how changes in the international system affect the way US foreign policy is formulated and conducted. “Different international structures provide different incentives for integration or separation [of security and economy policy]. Multi-polar world politics creates incentives for integration – great powers tend to be economically interdependent, they rely heavily on allies for their security, and the risk that allies will defect is relatively significant. Economics is a critical instrument of statecraft in this setting.”

While “Bipolar world politics encourages the separation of economics and security. Bipolar great powers tend to be economically independent, they rely less on allies, and the risk that allies will defect from more fixed, as opposed to more fluid, alliance structures is relatively low.”

Finally he later argues that unipolarity motivates the dominant state to integrate economic and security policies. The dominant state, in trying to preserve its privileged position, moves towards lining up its economic strategy behind its national security strategy, as a means of reinforcement in relations with potential challengers.

Criticisms of Waltz point out that he is too willing to discount the degree to which states can change the international system by changing their internal or domestic dispositions. Susan Strange distinguishes between relational power and structural power. Relational power is described as the power of A to get B to do something they would otherwise do. While structural power is the power to “shape and determine the structures of the global political economy within which other states, their political institutions, their economic enterprises…..have to operate.”

Another criticism is Waltz’s insistence that interdependency cannot pose a threat to the anarchical nature. Over the past few decades we have seen increased collaboration and a movement towards an international order.

In response, structural realists such as Buzan suggested that the constraint of the international system on states has in fact conditioned them into tackling anarchy inherent in the system.

Vincent Sica argues that money laundering forces states into cooperation. The international financial system involves the “combination of twenty four hour markets, the instantaneous execution of cross border transactions, and sheer volume of capital movements, [which] can literally devalue a nation’s currency overnight.” It is in the state’s crucial interest to ensure that this system is regulated, however it is impossible to monitor all activity if it is restricted to its domestic economy, therefore collusion is a required necessity between states. It doesn’t only stop with the international financial system. An increase in the movement of terrorists around the globe has meant that it is harder for states to track down those they believe to be a threat to national security. After the terrorist attacks of September 2001, states have increasingly begun to track down terrorist cells in a more collective fashion. Now I shall write my conclusion, based upon my findings and views on the subject at hand.

Over the past century international relations scholarship has undergone a number of changes. Not only has it attracted more attention, but more developed and wide ranging theories and perspectives on international politics can be found.

The differences between liberals and realists not only lie around the nature of interactions and the relationship between economies, states and power, but to what extent change has occurred, by how much, and how it will change in the future.

Whether globalisation is an inevitable and irreversible process in which unprecedented change is taking place, similar in nature to the industrial revolution, or that in the long it will prove to be a figment of the imagination, we will have to wait and see.

It is apparent the need to understand the interaction between economies and politics on a domestic and global scale, but a number of difficulties arise as trying to understand these social sciences individually is already challenging and diverse. The international domain itself is so complex it brings with it a whole array of ways of trying to study it. What role does culture, religion or language play for example in relations between nation-states, its peoples and of power. After all surely globalisation itself is not only a process whereby interactions between countries are of purely economical and political factors.

It would be unfair to criticise the liberals for being over optimistic, political theory gives scholars the impression that unfortunately the gap between ‘what ought to be’, ‘what is’ and ‘how to get there’ has not really narrowed over time. It is full of empty promises and unfulfilled expectations. In any case taking a view such as realists have, do give us a realistic account but it is depressing to say the least.

Perhaps the reason why liberals gave such a utopian and idealist account, was not only out of an attempt to prevent war and explain the international system as it was, but inspire, energise and enliven people into moving towards a more peaceful solution. Maybe it was necessary and inevitable in its historical context, people wanted to be optimistic and wanted to believe however improbable, that they could live lives without fear and conflict.

By giving such high expectations of leaders, it might have even made peace far more attainable, since pressure was put on them that to fail would not do. For realists it seems their case lies successfully on reality, but stop shorts of inspiration.


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(Basingstoke: Palgrave, 2001)

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(Cambridge: Cambridge University Press, 2003)

Buzan, Barry. Reconceptualizing Anarchy: Structural realism meets world

(European Journal of International Relations 2 (4): 403-438, 1996)

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(London: Macmillan, 1942, 1939)

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(Princeton, N.J: Princeton University Press, 1987)

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(Berkeley; London: University of California Press, 1985)

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(International Organisation 52 (4): 825-854, 1998)

Molley, Sean. Truth, power, theory: Hans Morgenthau’s formulation of realism.

(Journal of Diplomacy and Statecraft, Vol. 15, 1-34, March 2004)

Morgenthau, Hans Joachim. Politics among nations: the struggle for power and peace.

(New York: Alfred A. Knopf, 1967)

Morgenthau, Hans Joachim. Scientific man vs. power politics.

(Chicago, Ill: The University of Chicago press, 1946)

Rosecrance, Richard N. The rise of the trading state: commerce and conquest in the modern world.

(New York: Basic Books, c1985)

Sica, Vincent. Cleaning the laundry: states and the monitoring of the financial system.

(Millennium: Journal of International Studies, Vol. 29, No. 1, Pg 47-72, 2000)

Steans, Jill & Lloyd Pettiford. International relations: perspectives and themes.

(Harlow, England; New York: Longman, 2001)

Strange, Susan. States and markets.

(London; New York: Pinter Publishers; New York, NY: Distributed in the USA and Canada by St. Martin’s Press, 1994)

Waltz, Kenneth Neal. Theory of international politics.

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Waltz, Kenneth Neal. Man, the state and war: a theoretical analysis.

(Columbia U.P.; Oxford U.P, 1959)


Robert Gilpin: 1987: pg 4

J. Steans & L. Pettiford: 2001: pg 46

Scott Burchill: 2nd ed: Pg 39

Scott Burchill: 2nd ed: Pg 40

Scott Burchill: 2nd ed: Pg 41

Scott Burchill: 2nd ed: Pg 45

Scott Burchill: 2nd ed: Pg 72

Scott Burchill: 2nd ed: Pg 73

E. H. Carr: 1939: pg 102

Sean Molloy: diplomacy and statecraft: March 2004: pg 5

Sean Molloy: diplomacy and statecraft: March 2004: pg 6

J. Steans & L. Pettiford: 2001: pg 30

J. Steans & L. Pettiford: 2001: pg 31

Michael Mastanduno: international organization: Autumn 1998: pg 836

Stephen Krasner: 1985: pg 4

Scott Burchill: 2nd ed: Pg 97

Scott Burchill: 2nd ed: Pg 96

Scott Burchill: 2nd ed: Pg 96

Kenneth Waltz: 1979

Michael Mastanduno: international organization: Autumn 1998: pg 827

Susan Strange: 1994: pg 24

Barry Buzan: 2003

Vincent Sica: Millennium: 2000: pg 24

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