This essay tries to raise arguments that place domestic factors into the study of International Political Economy.

“Failure to examine the international structural factors first leads to misattribution of states’ behavior. This failure leads to the infinite proliferation of variables as explanatory factors.” [Waltz 1979]

Waltz conceived international factors as the leading factors in order to define states’ behavior. In Waltz’s opinion there is only room for international effects, putting domestic on the margin. But is this the case? Is this the reality that history and facts do tell us?

This essay tries to raise arguments that place domestic factors into the study of International Political Economy. IPE has as a target the explanation and analysis of world order and world transformation both from political and economical aspects. We are going to imply that both international and domestic are the causes of how the world, nations, societies are formed and the explanation of social changes. So IPE cannot afford putting aside domestic no matter how irrelevant it may seem through the ‘globalization era’ of our times. We are going to follow Jan Aart Scholte in his effort to explain the causes of social change. It is necessary to also introduce a historical site of how, if at all, domestic interacts with international and whether it can still affect political or economical changes. At last we have to investigate what is the case in the modern times, in the new millennium where everything seems so international or global.

Many scholars have showed that domestic and international politics are interdependent to a really big extent. Till the 1960s and 1970s researchers used to hold internal variables and domestic factors as key elements of their surveys. But in the 1980s there was a shift in thinking, gradually upgrading international to the primer and afterwards to the only explanatory factor of social behavior. But it was not always only one or two factors that affected the world.

As Jan Aart Scholte has written, one can identify three ‘levels’ of social causation: local, national and international. By local it is described small societies, a neighborhood or a village or a town where individuals are interacting with each other in their everyday life. In the ancient times, of course, local could only describe a neighborhood, as a town would constitute a state. By national it is described a country, a state. National, as described above, can be found only in the past 500 years of human history; it is well known that states, as we know them now, were formed slowly through the Middle Ages and afterwards. Finally by international it is described what is formed by the interaction of states with each other. Although international might seem something new, one would argue that even in the ancient years city-states were interacting with each other; Greeks were interacting with Persians and Egyptians. International was always there, to the extent that human technology could afford.

These three levels of social causation are interconnected and constantly interacting with each other. For that, none can disagree.

“There are no separate local, national and international societies; there is only a world society with local, national and international dimensions.” [Scholte 1993, 27].

It is only then to define the relationship of these three levels, in order to discover the actual causes of changes.

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These three levels of social causation are interconnected and constantly interacting with each other. For that, none can disagree.

“There are no separate local, national and international societies; there is only a world society with local, national and international dimensions.” [Scholte 1993, 27].

It is only then to define the relationship of these three levels, in order to discover the actual causes of changes.

One approach would be local determinism, which posits that social change proceeds ‘from bottom up’ [Scholte 1993, 27]. Thus local measures can affect the world society, they can spread first in national level and then in international level. But there are national and international forces that can stop the spread of local changes. For example the demand of higher government protection of a sector of a nation economy, nowadays, would not bring protectionism to all the economy. Liberalism prevails in the international and would not allow protectionism to take effect, especially in a big extent like in a whole national economy.

Another approach would be to explain the process of transformation primarily in national terms [Scholte 1993, 26]. The state is the one above all, the national influences both local and international. But how can national be the regulator of social change when itself looses some of its sovereignty? In our times no European nation can directly influence the international or to an extent the local as it has given much of his authorities to the EU. And of course one can argue that some local spheres maintain their autonomy against the state government, as for example some provinces of China or in Spain.

Taking as the primer causation of change the international, we would commit the same mistake [Scholte 1993, 26]. International does effect world order and world transformation. International does, most of the times, regulate national and local actions. But international is created through the integration in a first level of local and in a second of national. And many states don not follow international ‘orders’ or they implement them in their territory as national and local allow to.

What Jan Aart Scholte concluded, and to which I agree, is that none of the above three levels of social causation can by itself bring changes. There is the need of interaction of all three of them in order to have an effect. “World economy encompasses both the international economy and the various national economies” [Scholte 1993, 33]. So domestic is taking part in the process of social changes. A scholar could find it next to international, and could identify as the primer cause of change their interaction and the outcome of their struggle to prevail against each other. From this perspective IPE is in need of domestic factors and must take them into consideration. All analysis would be illogical without focusing in the interrelation of international with domestic. As Peter J. Katzenstein would argue: in the times of ‘international interdependence’ domestic and international are both very important. Especially economics are constructed through foreign policies. And foreign policies depend on the interplay of domestic and international forces.

Throughout history no decision was made without taking into consideration of both internal and external facts. Interaction was always there, as people searched for communication and exchange of knowledge. As mentioned before ancient Greece was interacting with the Egyptians, the Persians and afterwards with Romans. This interaction was not, of course, to the same extent of today’s interaction and interdependence but it was enough in order to formulate ideas and to affect the development of each civilization. In that times domestic seemed more powerful than this first form of international. For example inside the Roman Empire there were many areas that were not assimilated by the roman culture. Domestic played a significant role in areas such as Greece and Near East.

Going further through history domestic always prevailed international, or better external. It prevailed in the sense that it filtered external influences and was the major cause of social changes.

Till the Middle Ages, domestic would describe local, cause national as we know it now did not exist. After this period of time states were formulated, so domestic will be describing both local and national. At that time domestic seemed to be on top of influencing world order and world transformation. And it had strong allies: protectionism and mercantilism. Existing technology did not help trade and people tried to secure themselves through being sufficient in food. This situation did not leave a lot of space for strong interaction and interdependence. So international could not have then distinctive effects on nations.

Not till the 18th century that things changed with Great Britain introducing the idea of liberalism and ‘free trade for all’. This new era of free trade would bring international into the game of influence. But it is only since the postwar period that international did take the position it now has in the world order. With the emergence of interdependence scholars turned to international factors diminishing the importance of domestic factors. Adams Smith’s and Ricardo’s liberalism tends to lessen the importance of state and therefore of domestic.

Staring again to historical facts and the hegemonic stability theory one can easily distinguish that in the times that hegemony of Great Britain was strong, liberalism was spreading. And through the spread of liberalism international became the apparent cause of change. States were loosing their sovereignty and therefore domestic its influence in changes. But then in the periods of hegemonic decline one could see the ‘revenge’ of mercantilism and of domestic.

Though history we can see that international and domestic influences are competing. It would, however, be a fraud statement to argue that in times of international dominance domestic has no power at all. Domestic is always there and that can be proven if you identify that in the time of multilateralism, regionalism and strong interdependence, countries are acquiring in some situations different approaches. Sweden for example has constructed a strong welfare state while internationally voices urge for less protection. If it was for the Swedish government to agree with what liberalism propose (and is the international trend) then it would have lessen public funding to society; but that is not the case. Domestic factors are not letting international thinking to penetrate Swedish thinking. Swedish society has a strong an idea of what a state must provide and it is not changing in that matter. To my knowledge, it is the only country where promises for less taxation are not used by any party in its campaign!

As we have indicated before domestic and international were always present through history. So IPE till nowadays should take into consideration both.

But can domestic stand in our times? Can local or national be of any importance in the era of globalization, of regionalism and of supranational institutions? How can domestic have a role in formulating changes when state is loosing much of its sovereignty?

The argument that states are loosing ground is not entirely correct. Their sovereignty may be diminishing but on the other hand states have formed institutions to regulate the new world order. Who could argue that Japan or USA has lost much of their sovereignty? It is obvious that international eras are stronger now, but only to the extent that they don’t touch valuable, for each society, matters. In the example, already mentioned, of Sweden, liberalism cannot overcome society’s needs for a strong welfare state. In France, despite the urge of globalization for no protectionism, farmers are strongly protected. And this protection has been passed to all 15 members of the EU through the Common Agriculture Policy (CAP). In general, although globalization tends to minimize state protection and welfare, European countries fight back this proposition. Through history workers in Europe have earned rights that are unacceptable by liberalism. But because of domestic pressure governments cannot change this situation. We can see that some sectors cannot be touched by external factors.

The importance of domestic can be shown also by another case: from the creation of the EU a lot of companies have opened political offices in Brussels in order to influence European regulations in favor of them. Among these companies only a few of them were European. This is because European companies can influence their home countries and succeed favorable regulations. This indicates that there is the faith that domestic can prevail international or regional and secure its interests.

Finally a more updated example is the problem with Iraq. If international was dominant then all countries would agree to the attack. In reality different nations have different interests in the area and that is why they cannot agree. Both France and Russia have beneficial contracts with the Iraq government in the domain of exploiting oil. Domestic reasons in this incident are above international. National interests undermine international ideas and that is descriptive of the power domestic can have.

We can argue therefore that in our times we have a ‘two-level game’ with political leaders constantly playing in the domestic and international arenas simultaneously [Milner 1997, 3]. Political leaders are trying to stay in power; and for that they need votes, which are generated by satisfied people. So local demands can reach national governments and, going further on, international institutions. Power relations are dominant and there is no distinction between domestic and international field; satisfaction of needs is the primer goal and attempts towards that satisfaction are made both on domestic and on international.

Conclusion

This entire struggle between domestic and international, all this interaction between local, national and international makes a really strong point: interests play a significant role. IPE has to analyze these power relations and it is insufficient trying to explain using only one part (even the stronger one) of global governance.

We have argued that domestic and international are interrelated and interdependent. They interact constantly and struggle to prevail against each other.

Domestic is more benefited by protectionism and mercantilism while international seems to be more benefited by liberalism and the ‘globalization era’. This is not to say that when we have mercantilism international does not exist; both of them are always there struggling to get on top.

Through history this ‘battle’ has been significant of social changes; and still is dominant into the transformation of the world order. I

Any field of study has to take into consideration all elements of a procedure in order to come up with the right explanations. In IPE both international and domestic are the basic elements. IPE needs both of domestic and international so that it can analyze world order and transformation. The explanation of how the world is running is not therefore a matter of domestic or international but the relationship of them.

Technology of that time could not afford same proportions of interrelations