Nowadays, the state-market relationship has become more important since the 1970s after Susan Strange, the pioneer of IPE, brought the idea that states and markets cannot be looked at separately, but the two things should be combined when talking about IPE.1 Her ideas have encouraged other scholars to look at states and markets as a whole. Geoffrey R.D Underhill is another IPE scholar who first used the word ‘state-market “ensemble” or condominium’.2 From many of his work, it can be seen that it is impossible to focus either politics or economy, but both of them should go together.
In the first part of this essay, I will show the definition of states and markets for common understanding. In the second one, I will roughly talk about realism and liberalism. Realism focuses on politics more than economy. On the other hand, liberalism gives priority to markets over states and believe that states should not interfere markets. In this section, I will give the aspects of both realism and liberalism towards states/politics and markets/ economic system and point out the weakness of them for explaining IPE. Finally, I will demonstrate why the state-market condominium is the most suitable idea to focus on IPE. And the conclusion of the essay will be stated in the last.
I. Definitions of Markets and States
Before I start the discussion, I would like to clarify the definitions of both states/ politics and markets/economy to make sure that we focus on the same things.
Based on the definitions of Underhill, markets relate to what business, labours and consumers do. They are part of a private domain wherein individual and companies interact to decide prices trough the interaction of production, supply, demand and other allocative decisions. Individuals enjoy the principal benefits of private property and the ‘fruit of one’s labour’. Moreover, they can freely do anything under markets as long as whatever is done commands a reasonable price and under the law. 3
On the other hand, states are mainly relevant to politics which is about what governments, political parties and electorates interact in a complex pattern , domestics and international. Public domain is the most important and the political process aims at ensuring that politician serve the ‘public good’.4
According to Balaam and Veseth’s ideas towards states and markets, when people say about states, they usually mean the political institutions of modern nation-state, a geographic region with a relatively coherent and autonomous system of government that extends over that region5. As well as market, it also means the economic institutions of modern capitalism. Individual self-interest and conditioned by the forces of competition make the markets exist.6
From the definitions of both markets and states, it can be clearly seen that markets relate to private or individuals, but states relate to public or civil. Markets are the most important part of economy; without markets, without economic system. As well as, power which is the most important body of states or politics; without talking about power, that topic cannot be a political issue.
II. Ideas of realism and liberalism towards states and markets
Before supporting that ‘ the state-market condominium’ is the most suitable idea for IPE right now, I want to illustrate another two grand theories, realism and liberalism, to show how each looks at states and markets so that it can be comprehended why none of them can explain IPE as good as ‘ the state-market ensemble’ does.
At first, I will roughly illustrate the main aspects of realism and liberalism towards states and markets. After that, I will focus on state-condominium model.
Tim Dunne and Brian C. Schmidt give ideas that realists ,such as E. H Carr, Hans Morgenthau (classical realist), Stephen Krasner, Kenneth Waltz (neo-realism) and so on, see states as the main actor and sovereignty is its distinguish traits.7 Although, there are many types of realism ,for example, classical realism , structural realism, liberal realism and so on, the basic elements of realism are the same; self-help, statism, and survival.8 Realism regards that all politics, both domestic and international politics, struggle for power because states with more power stand a better chance of surviving than states with less power.9 About the international system, realists think that anarchy, chaos and lawlessness, can take place anytime because of no global government. Therefore, self-help is the most important action in an anarchical system. States have to ensure their own well-being and survival, the core national interest of all states, by engaging, for example, in a military arms build-up whenever they feel threatened. However, economic is mentioned under the term of national interests. Realists accept that interests of states are not only power but also economic, environmental and humanitarian ones, but other interests cannot exist if states cannot survive10. In other words, survival of states is on top; economy and markets are considered as supplementary interests.
From the basic idea of Adam Smith, liberalists believe in ‘invisible hand’ that can mange markets and economic continue smoothly without any helping hand from states.11 The neo-classical economists define ‘the market as an organising principle for our developing world political economy’12
From the explanation of Stanley Hoffman ‘ The essence of liberalism is self-restraint, moderation, compromise and peace’13 Another main focus of liberalism is democratic peace. This idea can be seen that the stability of states comes from the stability of economy. They believe that ‘Liberal states do not go to war with other liberal states.’14 Therefore, one can imply that as long as liberal states gain what they want, the stability of world system will be maintained. The stability of states refer to survival of states and peace in global system. As a result, freely markets can create the security of states. In the 1940s, liberals changed to international institutions called liberal institutionalism to compensate a number of functions the state could not perform15. It was the onset of integration theory in Europe. From the integration theory of Bela Balassa, economic integration can finally lead to fiscal integration, which integrates states in both economic and political way. 16
From the aspects of liberalism, markets which relate to individuals or private are the most important basic that can bring states or public to a stable position.
The State-Market Condominium
General concepts of the state-market condominium based on Geoffrey R.D. Underhill’s ideas are that states and markets should be considered together under the term of political economy.17 They should not be viewed as separate things because they are parts of the same dynamic of governance; therefore, it is called ‘a state-market ensemble or condominium’.18
Basically, IPE scholars believe that the relationship between states and markets is dynamic. Whenever we look at IPE, International Political Economy, as its basic meaning, nobody can deny that it is not comprised with politics and economy. According to David N. Balaam and Michael Veseth’s ideas towards the meaning of IPE, I , international, refers to cross border relations between and among nation-states.19 In this sense, international may be interchanged with global because current problems and issues have impacts on the whole world; as a result, it is required a global perspective and understanding.
Then, P, political, involves the use of state power to make a decision on contributions of power and resources to people within the state.20 The level of political process is complex and mulitlayered and involves not only among nation states but international organizations also. Then, E, economy or economics, involves in scarce resources and a distribution among individuals through the decentralized market process. It focuses on how scare resources are allocated and distributed to people.21
As it can easily be comprehended from the meaning of IPE that politics or states and economy or markets are unavoidable to be mutually used in examining IPE.
If we analyse IPE from either the aspect of realism or liberalism, we can explain IPE in only some parts, but not all.
If we use only realism ,which mainly focuses on states and power, with IPE, one of the most important parts, markets, will be missed. It is impossible for states, including very strong military power states, to stand without having the wealth of nations. Because they will not be able to afford the expenditures on sustaining the military. Moreover, if states cannot provide welfare to people, their population will have low quality of life which can lead to low quality of state as well due to lacking of human resources. The less quality people states have, the harder develop they can. As a result, without trade and taxes, from both economic barriers and from people, states cannot sustain their power.
In this case, the idea of Susan Strange towards basic functions of society or states is a case in point. ‘ Once you have a society, therefore, you have arrangements made which provide some wealth, some security, some element of freedom of choice for the members or groups of them, and some elements of justice.’22
It can be implied that states have to provide wealth, security, freedom and justice for their people. They should not look at only the military factor or power; otherwise, they will not complete their duties.
Liberalism ,which centrally concentrates only on markets, sees that markets or economic system are all about allocation and distribution of scarce resources. ‘Markets are highly decentralized and individualistic way to decide how scare resources are used (allocation) and who get them (distribution)’23. Invisible hand can manage everything in suitable ways and states should not involve in any activity under the markets.
However, in the real situation it is difficult to accept that markets or economic system can sustain without any help from states. Markets alone cannot deal with the problems , for example, how the resources can be equally divided and used in the most efficient way or after goods is produced, how can merchants flow and trade their products. Although they can find their ways to exchange or flow their products, how can they ensure that they are treated fairly. As a result, states have to involve in the economic part to engage in collective action by enforce laws or regulations which promote fairness through international trade. That is why we have such an International Organization dealing especially on trade as WTO. As Underhill talks about Polanyi’s idea on markets without states that ‘ the market makes no sense without state, that indeed the market system was created and forced by the state’24
As shown from above, it can be now realised that states and markets are equally important. They cannot be looked at in separate parts, they, on the other hand, should go together as ‘the interaction of two highly important social institutions, states and markets, and on nature of their interaction within the international system (the international “rules of the game”)’.25 Both states and markets have a dynamic interaction. To make clear, the relationship between states and markets are reciprocal.
* States help markets expand economic networks and facilitate markets by seeking places for product distribution or making friends with other states where can give them economic interests such as plenty natural resources, cheap labours.
* Markets supply money to states , so states can afford to make an advancement of their military levels, provide social welfare to their people and develop their own counties.
From my viewpoint, the ‘state-market condominium’ or the interaction between states and markets towards IPE should be seen as this one.
The position of IPE is between states or politics and markets or economic system.
When we talk about IPE, nothing can be clarified this idea better than the state-market condominium model because it looks at IPE from the combined aspect of states or governments and markets. The basic idea of this model is to focus on the dynamic interaction between states and markets as a reciprocal relationship. States affect in markets and markets affect states as well. Neither states sustain without money (from markets) nor markets survive without help from states. The main focus of IPE, International Political Economy, which one can understand from its name, is to analyse the international or global situations through the aspect of politics and economy at the same time.
Although there are some grand theories, such as, realism and liberalism that are used to explain the current situations, but none of them cannot explain IPE as clearly as the state-condominium does. For instance, realism gives priority to states and powers over markets on economics. On the other hand, liberalism sees markets more important than states. However, to consider IPE , both states and markets are needed in this case.