Promoting economic welfare and creating the environment in which international trade and business communication could be a possibility is a crucial requirement for the existence of the contemporary global market. The significance of international trade can hardly be overrated; it allows building international ties all over the world, enhancing communication and cooperation on business and economic levels globally. Thus, global economic governance, which can be defined as a set of principles and ideas by which essential business transactions in the context of the global economy are determined, is built. Serving as the pillar for the management of international economic operations and providing regulations concerning a range of international business and trading processes, the World Trade Organization has become the institution that controls and manages the relationships between the stakeholders involved in the process.
Therefore, a detailed overview of WTO, as well as the context of the International Political Economy (IPE), in which it operates, is crucial. By identifying the key characteristics of the two, one will be able to determine the essential characteristics of the contemporary economic environment, as well as determine the tendencies for its further development. As a result, the foundation for analyzing the contemporary economic environment is created.
International Political Economy
The concept of IPE is rather basic; according to the existing definition, the subject matter can be viewed as the discipline that explores the notion of economics and the relationships between the parties involves in economic processes.1 It should be noted, though, that the notion in question is unique due to its attempt to marry the areas of economy and politics, therefore, introducing the idea of multiculturalism to economic relationships. Therefore, the decision-making processes in the environment of IPE is constrained by not only economic and financial but also legal factors, i.e., the necessity to choose the techniques of business management that are in line with the legal standards of the states involved in the economic process. The necessity to modify the behavior of the participants by the existing political standards of the states involved in the economic process and comprising the IPE environment can be deemed as the essential characteristic of the present-day IPE.
It should be borne in mind, though, that there are several ways of viewing IPEs. As a rule, two big groups thereof are identified in the context of the modern economy. Particularly, British and American IPEs exist in the modern economy. The American IPE can be defined by the propensity to focus on the interactions between nation-states as the primary stakeholders in the context of the target market. Furthermore, the tendency to use deductive logic as the tool for analyzing the changes in the target market, exploring the specifics of the relationships between the parties involved, and making forecasts concerning the future changes can be considered the crucial elements of the American IPE framework. In other words, the use of the Positivism philosophy as the epistemological approach toward the analysis of the relationships between the participants should be regarded as the crucial element of the American IPE.2
The British IPE, in turn, is remarkable in its endeavor at exploring the opportunities provided in the global economy realm by applying an evidence-based approach; particularly, the active use of case studies and other types of research based on observations of relationships in the realm of the global economy should be named among the key strategies used by the proponents of the British school.3 Furthermore, one must bear in mind that other approaches toward IPE classification exist. For instance, the framework implying stratification into classic and neoclassical schools deserves to be mentioned among the existing approaches to differentiating between various types of IPE. Particularly, the emphasis on promoting uninhibited economic relationships in the context of the target market deserves to be listed among the crucial features of the classic IPE framework. 4 The neoclassical approach, in its turn, implies that the supply and demand changes observed in a target market should become the foundation for further decision-making.
It could be argued, though, that the history of the IPE development is much longer and more intricate than the one described above. For example, the development of IPE can be traced back to the ideas promoted by Adam Smith.5 To be more specific, the liberal tradition of IPE may be viewed as the extension of the theory suggested by Smith. Indeed, a closer look at the system that Adam Smith built to represent this concept of economic relationships will show that Smith pointed to the significance of innovations as the foundation for further growth. Similarly, David Ricardo, in his turn, emphasized the gravity of failing to promote the consistent improvement across the industry to an even greater degree than Smith did, therefore, creating the context in which the economic development could be not only possible but also essential. As a result, the importance of comparative advantage became increasingly high, thus, pointing to the importance of enhancing the efficacy of business performance.6 As the chart below demonstrates, the IPE environment is growing, and the U.S. and China are currently leading in it.
Most Applicable Schools
When considering the approaches that can be applied to the realm of the contemporary economy most efficiently, one must give preference to the neoclassical model. Indeed, the framework. Seeing that the neoclassical approach to exploring the opportunities of IPE implies that the intrinsic value of a commodity does not necessarily define its price, the identified approach allows focusing on the degree of utility that can be derived from a specific product based on the perspective of a consumer.7 Because a consumer-oriented approach has become the foundation for the contemporary economy, it can be assumed that the neoclassical specimen of IPE has become the basis for modern economic relationships.
The identified framework produces major effects on the relationships within the context of the modern economy. The first and most obvious, the fact that the maximization of utility is viewed as the foundation for building the language of the economy, and the economic inquiry needs to be addressed. Indeed, by viewing the problems that occur in the environment of the IPE framework from the perspective of the utility maximization theory, one will be able to study the opportunities for the actors operating in the target environment to enhance the output and reduce waste so that the output could reach its maximum and, therefore, the foundation for the consistent economic growth could be provided.
Another effect that the incorporation of the neoclassical school of IPE is bound to have on the modern economy, the fact that the moment of exchange is viewed as the paramount event that cancels the significance of any other event occurring in the target market environment needs to be mentioned as one of the implications of using the neoclassical model of IPE as the tool for regulating relationships and transactions in the target market. In other words, the exchange relations to which specific events in the global economy realm can be linked define the significance thereof. The identified phenomenon is especially important in the realm of international communication and the global economy since it allows exploring the opportunities for all negotiators involved in the dialogue to contribute to the development of a particular scenario.
As a result, the positive outcomes of the latter can be maximized for all parties involved. Put differently, the framework that views the moment of exchange as the pivotal stage in the development of business relationships creates the opportunities for each of the sides to work toward increasing the potential benefits that it may receive from the business operation.8 Furthermore, the adoption of the identified line of thinking is bound to contribute to a massive rise in the competitive advantage of organizations worldwide. One might argue that reconciling Ricardo’s concept of comparative advantage with the idea of a competitive one is too complicated to be implemented in the present-day economic environment. However, the reduction of the relative costs, which the theory of comparative advantage implies, may coexist with the idea of competitive advantage as the foundation for building the realm in which companies may compete based on the quality of their products and the offers that they make to the target population.
World Trade Organization, Its Creation and Purpose
World Trade Organization (WTO): Definition, Creation, and Purpose
The World Trade Organization (WTO) is a global entity that was created to coordinate trading processes in the context of the world economy.9 It was founded in 1991 based on the essential provisions of the Marrakesh Agreement and was initially viewed as the body for regulating trade between the countries involved in signing the agreement.10 Nowadays, however, its functions extend to regulating the global trade and making sure that all states have equal chances of participating in the global economic processes.11 The specified definition of WTO begs the question of whether the very existence of the organization may conflict with the concept of economic liberalism as one of the foundational concepts of the present-day global market. Indeed, by definition, the phenomenon implies that the parties involved in economic relationships should not be inhibited from performing crucial business operations and restricted in any way by any organization. WTO, in turn, sets tangible principles that ostensibly contribute to the development of trade yet may become obstacles to the economic growth of the companies involved in the global trade.
At this point, one needs to mention that the General Agreement on Tariffs and Trade (GATT), which is typically viewed as the predecessor of WTO, was viewed as the embodiment of liberalism since the principles of embedded liberalism became its foundation.12 Therefore, arguably, liberal ideas as far as the relationships in the realm of the global economy are concerned should be viewed as the very basis of the strategies used by WTO to assist organizations in engaging in the global trade process. However, in some respect, WTO’s regulations can be viewed as restricting to the firms that operate in the global economy. Indeed, a closer look at the nature of the organization will reveal that it attempts at imposing restrictions on the processes of international trade based on a set of specific standards.
Balanced Global Trade
The organization has also reported recently that the analysis of the global value chains has been incorporated into the set of tools for determining and measuring the effects of global trade and the associated processes in the economic growth and the overall progress.13 Therefore, it can be assumed that WTO has spurred the development of balanced global trade in the context of the global market. It should be noted, however, that the promotion of the concept of the balanced global trade has been experiencing significant impediments over the past few years. For instance, India’s refusal to participate in the process and engage in the balanced global trade may signify the beginning of an impressive crisis in the WTO’s environment:
India has refused to sign the Bali accord put forward by the world trade organization (WTO) that would have resulted in the conclusion of the first global trade deal in 20 years. It is undoubtedly a failure for the WTO and leaves the organization in a cul-de-sac.14
Nevertheless, WTO members insist that the adoption of the balanced trade system is more beneficial than the alternative in the long term. Particularly, the organization strives to encourage the principles of economic bilateralism, which implies cooperation between two states in the realm of the global market15 The enhancement of the balanced trade system is expected to help address the threats that oligopoly may entail. On the one hand, the concept of an oligopoly incorporates a range of positive changes for the global economy, such as the opportunities for generating high profits for the companies that operate in the global economy, the changes to promote the consistent improvement of information management and, thus, the management of supply channels.16 On the other hand, the dominance of oligopoly in the global market is bound to lead to a significant drop in competition levels among companies. With several large organizations taking over the global market, companies with a smaller number of assets will be ousted from the economic environment. Therefore, the latter is bound to become unhealthy for new companies that enter it. WTO offers a solution to the identified concern by creating a set of rigid guidelines that will allow exerting tight control over the essential transactions and processes occurring between organizations in the global arena.
In addition to the current concerns regarding the promotion of the balanced global trade framework, WTO has been facing significant challenges in other domains. Much to their credit, the members of WTO have been placing a very strong emphasis on collaboration as the basis for the further improvement of trade relationships and cooperation between the states of the world, in general. For instance, the creation of the Group of 77 can be viewed as an essential step on the way to building the global network of economic and business-related interactions. According to the current definition, the Group of 77 is a group of developing nations aimed at encouraging consistent economic growth in their environment.17 Even though the group currently includes over 140 countries, it has retained its name and has been representing the needs of developing countries, which do not have an opportunity to engage in the active economic activities in the global market due to a small number of resources and high competition rates. According to the description provided by Ritzer and Dean, “It was formed because of a concern that Bretton Woods and Gatt did not serve the interests of developing nations.”18
However, Ritzer and Dean also stress that there have been several major hiccups in the functioning of the Group of 77.19 The problem with the lack of concord among the members of the organization can be attributed to the fact that, with its recent expansion and the inclusion of an increasingly large number of new states, the Group of 77 has become too diverse to embrace the needs of its initial stakeholders, i.e., developing countries with the population below the poverty line. Instead, the group nowadays features a diverse population with income levels ranging from extremely to moderately poor. While diversity is typically viewed as a positive phenomenon, in the context of the Group of 77, it tears the team asunder because of the inconsistency of the members’ goals and needs. As Ritzer and Dean explain, “its increasing size and diversity have created various divisions (e.g., large vs. small; rich and poor nations) within it that, among other things, led to the creation of the Group of 21.”20 The Group of 21, in its turn, can be viewed as a rather peculiar phenomenon in the environment of the global economy since it is represented by the states that are labeled as developing yet have a substantial amount of influence in the global market (e.g., China, India, Brazil, South Africa, etc.).
Therefore, the promotion of worldwide collaboration and the creation of opportunities for developing countries to engage in the global economy relationships successfully can be deemed as the primary challenges faced by WTO at present. The organization is striving to maneuver between the necessity to support developing countries in their endeavors to enter the global market and the need to engage in multicultural relationships with other states.21 Finally, the concern for the safety of the products that are transported in the course of international trade should be viewed as one of the aspects that WTO has been paying especially close attention to over the past few years.22 Because of the need to meet increasingly high-quality standards, organizations must develop the strategies that will allow improving the Supply Chain Management (SCM) processes and reduce the time taken for the transportation process. However, the current environment of the global market rarely allows for immediate and impeccable transportation of products. Therefore, the quality thereof shrinks, whereas the propensity to use environmentally unfriendly approaches grows. WTO, therefore, needs to keep an eye on the instances of violating global quality standards, which is quite hard because of the number of stakeholders operating in the global economy.
The contemporary economic relationships are based on multicultural communication and the active promotion of diversity. WTO controls the operations and transactions that are carried out in the realm of the global economy. Particularly, WTO manages the issues associated with the management of IPE-related concerns.
Because of the need to balance between supervising economic transactions and providing the participants of the economic communication enough room for independence and development, WTO has been experiencing significant challenges over the past few years. Furthermore, WTO must make sure that all states have equal opportunities, yet developing countries may suffer significant losses unless they are given extensive support. Therefore, WTO needs to get the key priorities straight and develop the framework for managing the interactions in the IPE realm. Thus, the opportunities for further growth will be created.
Broome, Amdre. Issues and Actors in the Global Political Economy. Palgrave Macmillan, 2014.
Johns, Leslie, and Krzysztof J. Pelc. “Who Gets to Be In the Room? Manipulating Participation in WTO Disputes.” International Organization, vol. 68, no. 03, 2014, pp. 663–699. Web.
Jones, Kent Albert. Reconstructing the World Trade Organization for the 21st Century: An Institutional Approach. OUP, 2014.
Keller, Ska. “World in Need of ‘Fair and Balanced’ Global Trade System.” The Parliament Magazine, 2017, Web.
Matsushita, Mitsuo, et al. The World Trade Organization: Law, Practice, and Policy. OUP, 2015.
Ritzer, George, and Paul Dean. Globalization: A Basic Text. John Wiley & Sons, 2015.
Roberts, Timmons J., et al. The Globalization and Development Reader: Perspectives on Development and Global Change. John Wiley & Sons, 2014.
Sharman, J. C., and Catherine Weaver. “RIPE, the American School and diversity in global IPE.” Review of International Political Economy, vol. 20, no. 5, 2013, pp. 1082–1100. Web.
- See Broome, especially p. 21.
- See Broome, especially p. 31.
- See Broome, especially p. 33.
- See Broome, especially p. 34.
- See Broome, especially p. 34.
- See Sharman and Weaver, especially p. 1038.
- See Broome, especially p. 36.
- See Broome, especially p. 34.
- See Jones, especially p. 8.
- See Jones, especially p. 8.
- See Jones, especially p. 11.
- See Jones, especially p. 18.
- See Jones, especially p. 32.
- See Keller.
- See Jones, especially p. 25.
- See Matsushita et al., especially p. 119.
- See Roberts et al., especially p. 475.
- See Ritzer and Dean, p. 149.
- See Ritzer and Dean, especially p. 147.
- See Ritzer and Dean, p. 143.
- See Johns and Pelc, especially p. 868.
- See Ritzer and Dean, especially p. 146.