Table of Content
3. The Post World War II Era
4. The Post Bretton Woods Era
5. Theoretical Approaches to the State and Underdevelopment
6. Options and Recommendations
6.1 Infant Industries
6.2 Promote Export / Discourage Rent-Seeking
One aspect of the study of International Political Economy (IPE) is the flow of goods, services and capital between the economies of different states. Is there a free flow of these things or is the flow somehow restricted and if so, why is this case? To answer these questions I will examine three periods in history and try to show the theoretical implications that can be seen in the respective free or restricted flows of goods, services and capital.
The first historical period I will examine is the period of great restrictions on trade and the flow of capital, namely the seventeenth and eighteenth centuries in Europe, mostly associated with the term mercantilism. The second period is the time after the Second World War in Germany, where trade and financial policies were applied to stimulate domestic growth. The third period begins with the collapse of the Bretton Woods System in the early 1970s and continues to this day with an emphasis on fewer controls and restrictions on trade and the flow of capital. Of course, this periodization is not the only way of looking at historical events and there are, within these large time frames, discontinuities. However, I believe it is helpful to define the mentioned periods rather generously, because this helps to discover certain general aspects that can be associated with different theories of trade and finance.
As mentioned before, the term mercantilism is mainly associated with the seventeenth an eighteenth centuries in Europe. According to a mercantilist approach to international trade and the flow of capital, it was only relative gains that mattered. In other words:
“[W]ealth was necessary for power, and power could be used to obtain wealth. Power is a relative concept because one county can gain it only at the expense of another; thus, mercantilist nations perceived themselves to be locked in a zero-sum conflict in the international economy.”
This focus on relative gains was motivated by several reasons. First of all, the great powers in Europe, namely Great Britain and France, were concerned to acquire a favourable balance of trade and payments. This was necessary to finance these countries’ military and political ambitions, namely to establish ever greater empires by establishing more and more colonies overseas. The resulting rivalries between the nations led to economic policies, in which it was regarded more important to guarantee the country’s autarky and independence than to open the respective markets for the flow of trade and capital. This can be observed by several policies that were intended to “expand production and wealth at home while denying similar capabilities to others.” Examples for such policies were the attempts to prevent the export of silver and gold from one’s country. Several laws were passed in France and Spain to declare these exports illegal. Another political measure was imposing high tariffs on the import of manufactured goods and thus import was limited to raw materials. This measure was intended to stimulate domestic production and at the same tome to weakening the export capacities of manufactured goods by other states. Other measures were the encouragement of exports of manufactured goods and the discouragement of the export of raw materials.
All the measures mentioned above make clear that the most powerful states in the mercantilist era had the goal to limit trade and the flow of capital in order to gain relative advantages over competing states. Their policies were based on the assumptions that a more open system of trade and investment would allow other states to gain power and that this power could be used against them, politically and militarily.
3. The Post World War II Era
Analysing the time period that followed the end of the Second World War in Germany, it is helpful to first take a look at the trade policies and then examine the policies regarding international finance.
After the war, the German economy was devastated and by no means competitive on the world market. Thus, ways had to be found to make German products competitive again. One measure was to apply certain strategic policies concerning trade. Strategic trade can be described as
 Jeffrey A. Frieden / David A. Lake. International Political Economy. Perspectives on Global Power and Wealth. Fourth Edition (Belmont: Wadsworth/Thomson Learning, 2000), p. 69.
 Gilpin, Robert. Global Political ‚Economy. Understanding the International Economic Order. (Princeton: Princeton University Press, 2001), p. 42ff