Approaching the two level game: International-domestic, IPE and China

Approaching the two-level game in the dichotomy international-domestic International Political Economy (IPE) and the Chinese hybrid system

Xhensila Gaba

Course: Foreign Policy Analysis Instructor: Aida Hasanpapa Spring 2012

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Structure of the paper I. Introduction II. Research questions III.Thesis statement IV. Methodology V. Literature review a. Defining IPE b. Approaches to dichotomy international-domestic VI. Body paragraph 1: Chinese peculiarity of political economy VII.

Body paragraph 2: Shifts in the Chinese foreign policy

VIII. Conclusions

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Abstract The emergence of the new discipline such as International Political Economy has been priceless in explaining complex process and behaviors in the IR community. The theoretical framework of IPE aims at integrating and bridging the gap between international politics and international economics. It provides insights on how international factors can impact the domestic environment, which in turn impacts the foreign behavior of states. According to the macro-micro linkage approach developed by James Roseau, the external factors influence the domestic interests, institutions and policy-making as well. Moreover, the domestic alteration of a state structure affects the behavior and priorities of the leadership. Thus different outcomes with regard to foreign policy are expected. The IPE theoretical backdrop is applied to the case of China. In this paper, I will argue that the macro-determinants from the international system have impacted the domestic structure of China by altering its interests, its idea-embedded institutions and thus its policy-making with regard to foreign policy.

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Introduction International political economy is relatively a new social subfield, but for almost two decades her theoretical framework has been enriched by applicative case studies. One of those cases is China’s peculiarity with regard to political economy as well as international relations.

China’s revolution into a capitalist system has given more input to the field of international political economy. The economic boom of China recently has increased its political influence by shifting this way the international relations. China has undergone a domestic change with regard to economic markets, institutions and policy-making processes. China left behind its centralized economy and adopted more liberal economic strategies which first began under the reformist period of Deng Xiao-Ping in the late 1970s. In a short period of time, China has managed to transform itself from being poor, isolated and with weak influence on the global economy to one of the countries with the highest rate of economic growth and one of the world’s most important providers of labor-intensive industries by being very competitive in costs and prices of goods.

Entering the World Trade Organization (WTO) ranked China with other important trading nations and boosted its impact on international economy. However, the stunning economic achievement has influenced even the political power of China in the international arena by altering the balance of power, the hegemony of US and the inter-state relations. As Kenneth Waltz would have described it, China and its economic boom have altered the configuration of the international system, if analyzing in the systemic level of it.

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China has pursued a hybrid and peculiar economic and political model which combines economic features of capitalism and political features of socialism. Therefore, this “state capitalism”, as it is been addressed by scholars, has served as an incentive for the alteration of interests, institutions and policy-making of China as well. Ideas of “social capitalism” have been embedded in several institutions (Fearon, 1998). Thus, one might think that Chinese economic and political change has come as a result of external factors, which on the other hand are influencing the internal environment of China.

Research questions What factors have contributed to the ideological and institutional change of Chinese political economy? What has been the role of external factors? How does China case fit into the theoretical framework of international political economy (IPE)? On the other hand, what is the theoretical added value of China in the realm of IPE? Why is the study of the relation between international economy and international politics important, especially in the case of China? How does the altered domestic environment of China impact its foreign policy decision-making?

Thesis statement In this paper, I will argue that the macro-determinants from the international system have impacted the domestic structure of China by altering its interests, its idea-embedded institutions and thus its policy-making with regard to foreign policy. The adaptation of China towards a new hybrid system was facilitated by the processes of learning, an input that would be appreciated from constructivist lenses.

Methodology

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The research method used in this paper is mostly a bibliographic research consisting of reviewed articles. I aim to research on the relation between external international factors (independent variable) and their impact on the domestic environment of China (dependent variable). Moreover, I will elaborate on the how the altered domestic system of China influences the behavior of foreign policy makers (feedback of the relation between the two abovementioned variables).

Literature review First, it is important to give a definition and also a theoretical backdrop for the subfield of International Political Economy. IPE is relatively a new social subfield that has emerged due to the intersection of international politics with international economics. Several events that were happening after the Cold War such as the rise of OPEC and the decline of US hegemony, took such a complex dimension that their cause-effect analysis could not be explained any further neither by international politics nor by international economics alone (Fearon, 1998). The division between units of analysis such as state and market, internal and external, and politics and economics were no longer enough to explain and analyze a wide range of issues. Thus, scholars widened the academic field by bringing in IPE as the study of how political actions of a nation-state affect economic aspects such as international trade and capital flows, foreign direct investments, which in turn affect the environment in which nation-states make political decisions and firms make economic choices. Among the authors who have managed to bridge the gap between international politics and international economics are Charles Kindleberger with his study on hegemony and the political scientist Kenneth Waltz with his attempt to inter-relate economics into politics in his book “Man, the state and war� (Odell, 2001). The issues that the agenda of IPE deals with are international trade, international finance, multinational companies, 6

hegemony and recently the issue of globalization has been added to this agenda. The globalization issue shifts the IPE approach from its classical model centering on the nation-state at the core of international relations towards interactions between state actors and non-state actors in IPE, by weakening the role of the state in the global village. Globalization, as Schumpeter asserts, is the example of a creative destruction; on one hand, it creates new paths for integrating economic and social relations, but on the other hand it ruins what came previously. IPE has at its core the dichotomy domestic-international, which aims at analyzing the mutual impact of domestic institutions and international interaction after the changes in domestic determinants. Robert Putnam refers to the “two-level game� as a metaphor for the interaction between the two levels of analysis: international and domestic (Odell, 2001). Within the realm of IPE, the interaction between domestic and international factors can be analyzed in terms of three components: interests, institutions and information. Interests are very essential elements because they drive economic policy decisions, thus it is necessary to know what influences the shaping of interests. Moreover, interests are translated into outcomes which are institutions and information.

Interests are embedded within institutions in order to structure the ideas and to institutionalize policy making processes. Information, which might derive from the interests directly or as a result of processes within the institutions, meaning as aggregated interests, are important in the feedback hallmark of the entire chain of state behavior because they influence the bargaining power and the policy choices. Constructivists would be delighted to elaborate more on these notions since they try to endogenise each component, even the initial interests. There are several ways to approach the dichotomy domestic-international so emphasized in IPE. One approach looks at how the international economy affects domestic interests, institutions and information and how this impact is translated into the national policies, being 7

them inward-oriented or outward-oriented. Moreover, this approach is split into two sub-models in how the international economy might affect foreign economic policy-making. The first submodel maintains that the impact of global economy is reflected directly into the preferences of both economic and political actors. Thus, the trends of the international economy directly affect the interests of the domestic group, and in this way it impacts the changes of their policy preferences and later their behavior as well. Since institutions are idea-embedded, a change in preferences and interests will result in changes of the institutions as well. The second sub-model maintains that international factors affect the national government at first and then the political and economic actors. Thus the national government is playing the role of the mediator in transmitting influences inward and outward.

While reviewing the literature, I wanted to put more emphasis on the micro-macro linkage approach, since its theoretical concepts and ideas will help in explaining the case of China better. James Roseau was the one who expressed the need for a linkage approach to analysis that would combine both the impact of international factors and domestic elements in the foreign policy behavior of a state (Fearon, 1998). This approach is characterized by the overlapping of national and international systems. Putnam says that policy makers play at the politics of both the international arena and the domestic environment. A multiple level of analysis would be much appreciated with regard to IPE in order to integrate the international structure, domestic institutions and individual actors.

Chinese peculiarity of political economy China is a sui generis case with regard to the way it has linked together economic aspect with the political one. Scholars use metaphors to describe its hybrid system by stating that China

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has married capitalism with the state role in the economy. The “state capitalism� of China has resulted to be very successful finalized with high economic growth and increase of welfare. If China continues to be such influential, then the position of US in the international system will be weakened and consequences will be viewed in the geopolitical order as well. The mixture of socialism with capitalism makes the case of China hard to integrate in any of the theories and particularly in classical IPE discipline.

First I will explain what impact did the reforms of post-1979 had to the internal environment of China (Xinning, 2001). The reforms actually contributed in re-organizing the policy-making apparatus from vertical authoritarianism to horizontal authoritarianism. Vertical authoritarianism is a system in which the decision making is centralized in the hands of one actor who commands the whole chain of authority. The foreign policy under a vertical authoritarianism is highly unitary. Institutions do not play any significant role rather a passive one. On the contrary, horizontal authoritarianism refers to a system in which although the power is centralized, still various powerful groups at the top hierarchy try to reflect and coordinate different interests and preferences. Foreign policy is not unified but many actors participate in it, by depicting different voices and interests which later are translated into policies. China resembles more the system of horizontal authoritarianism in which the power is less personalized and more institutionalized and therefore it is interpreted as a more pluralistic policy-making system. This transformation of China from vertical to horizontal authoritarianism and the relation between domestic and foreign economic policy-making is linked with the triple transformation of the domestic determinants in Chinese system, which are: the inclusion of local marginalized interests into central government, the altering of institutions that participate in policy-making and

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the changing nature and functions of the state in China. China political economy fits better in the macro-micro approach elaborated by Roseau.

Since entering WTO, China has undergone many internal changes and this shows how ideas are transferred from one setting to another through educational exchanges, compliance with WTO rules, and higher access to the foreign markets. Entrepreneurs are developing new concepts and practices through processes of social learning. Chinese national policy is increasingly being oriented into supporting pro-market entrepreneurs (Rawski, 2011).

The entry of China in WTO has served as an external factor for China to adapt its economy according to the rules of capital markets. During the course of adaption, domestic elements have changed as they are mentioned before.

Shifts in the Chinese foreign policy As we have mentioned previously, there has been a decrease of state control in the economy and the authority has been delegated to enterprises. Market forces have taken priority in shaping choices regarding distribution and production. Thus, there is a shift in the relation and relative power that state and society have within the domestic level. There is more pluralistic input to policy-making. Another shift is reflected in making of economy the most important instrument of Chinese foreign policy. The economic growth of China and it being a leading trade nation manifest new ways for the foreign policy, not being based on political interest as in the Maoist period. The institutions have been affected by this economic reform as well. A quasicapitalist market requires new rules, thus the restoring of the legal framework has been a result of shifting interests.

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China has enriched the literature on IPE by emerging a New Political economy. It starts from an understanding that the way China receives or responds to globalization is very much embedded in the historical, political and cultural background, all of which have influenced the emergence of the current Chinese political economy. However, reasons for the domestic change of China are not merely internal.

Conclusion International political economy is a new subfield, but it has managed to integrate two different levels of analysis: international and domestic one. This discipline aims to explain complex cause-effect relations through pursuing a multi-level analysis, such as the interdynamics between international politics and international economics. The theoretical framework of this discipline has been enriched by various applied case studies, whose complex processes domestically and internationally seems to fit relatively good in the IPE context. China’s contribution in IPE is priceless. External factors, such as the entry in World Trade Organization have impacted the domestic environment of China, which in turn has impacted the foreign policy making and state behavior of China. China has been an actor in the game receive-respond. It has adapted its interest, institutions and its policy making in order to correspond to the peculiar system of “state capitalism”. China’s changes in the domestic environment are a major influence in the international politics, and if its economic boom will continue, major shifts might happen in the configuration of the international system.

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References

Fearon, J., D. (1998). Domestic politics, foreign policy, and theories of international relations.

Annual Review of Political Science, 1, 289-313

Frieden, J., & Martin, L. (n.d). International Political Economy: Global and domestic interactions. State in the era of globalization,

Odell, J. (2001). Case study methods in international political economy. International Studies Perspectives, 2, 161-176

Rawski, T., G. ((2011). The rise of China’s economy. Foreign Policy Research Institute, 16(6)

Xinning, S. (2001). Building international relations theory with Chinese characteristics. Journal of Contemporary China, 10(26), 61-74 12

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