INTRODUCTION TO INTERNATIONAL POLITICAL ECONOMY

1. INTRODUCTION TO INTERNATIONAL POLITICAL ECONOMY Political Science 186 Global Studies 123

2. I. Introduction – Conceptual and Analytical Issues • 1. What is International Political Economy? • 2. What are the issues? • A. Actor behavior • B. System governance • C. Globalization

3. I. Introduction (cont’d) • A. Actor Behavior. How do we explain and evaluate the actions of states? • 1. Levels of analysis: international (structural, systemic) vs. domestic • 2. State (government, public sector) vs. society (markets, private sector)

4. I. Introduction (cont’d) • B. System Governance. Formulation, implementation, and enforcement of rules; promotion of cooperation; management of conflict • 1. Governance without government; governance mechanisms (regimes) • 2. Organizing principles: automaticity, supranationality, hegemony, pluralism (negotiation, cooperation)

5. I. Introduction (cont’d) • C. Globalization. Inter-national vs. globalized model of world economy

6. II. Analytical Perspectives on Political Economy • 1. Liberalism • 2. Realism (statism, economic nationalism, mercantilism) • 3. Structuralism (Marxism, historical materialism)

7. II. Analytical Perspectives on IPE - Liberalism • A. Focus: individuals, households, enterprises • B. Nature of economic relations: harmonious; interests reconcilable • C. Relationship between economics and politics: economics drives politics

8. II. Analytical Perspectives on IPE -Realism • A. Focus: states • B. Nature of economic relations: conflictual (zero-sum game) • C. Relationship between economics and politics: politics drives economics

9. II. Analytical Perspectives on IPE - Structuralism • A. Focus: classes, social forces • B. Nature of economic relations: conflictual (zero-sum game) • Relationship between economics and politics: economics drives politics

10. III. Alternative Perspectives on Globalization • 1. Definition: a broadening, deepening, and acceleration of interconnectedness of states and markets; networks of connections at intercontinental distances • 2. Alternative views: from “hyperglobalists” to skeptics • 3. Why do we care? By creating a dissonance between the jurisdiction of states and the domains of markets, globalization problematizes governance: who is in charge?

11. III. Globalization (cont’d) • 4. Perspectives on causes and consequences • A. Liberalism: triumph of markets; good for economic welfare • B. Realism: product of state policy; bad for power of states • C. Structuralism: triumph of markets; bad for poorer states and disadvantaged classes

12. IV. International Economic History – Nineteenth Century • 1. Three major developments • 2. Political economy issues • 3. Key lessons

13. IV. Nineteenth Century - three major developments A. Monetary system: classical gold standard B. Trading system: movement toward free trade in 1860s-70s, then back toward protectionism C. Core-periphery relations: rise of “new imperialism” after 1870s

14. IV. Nineteenth Century - political economy issues • A. Gold standard: What accounted for its stability and relatively smooth operation? • B. Trade: What accounted for the free trade movement in the 1860s-70s? What accounted for the subsequent return to protectionism? • C. Core-periphery relations: What accounted for the “new imperialism?”

15. IV. Nineteenth Century - key lessons • A. No single (mono-causal) explanations; need to sift the evidence. • B. No single rule for all regimes; different governance mechanisms can exist side by side

16. V. International economic history – interwar period • 1. Major developments • A. Breakdown during World War I • B. Attempted reconstruction during 1920s • C. Renewed breakdown (Great Depression) during 1930s

17. V. Interwar period (cont’d) • 2. Political economy issue: What explains the failure of the attempted reconstruction? • A. Liberalism: markets failed because of wrong-headed government policies • B. Structuralism: internal contradictions of capitalism • C. Realism: absence of effective governance (theory of hegemonic stability)

18. VI. International economic history – postwar period • 1. Major developments • A. Creation of new international institutions: IMF, World Bank, GATT • B. Cold War, leading to two separate blocs (East-West) and the rest (Third World) • C. Unprecedented economic growth (early years) • D. Globalization • E. Rise of Europe, Japan; East Asia; China and BRICs • F. From G-7 to G-20 • G. Increasing instability

19. VI. Postwar period (cont’d) • 2. Political economy issues • A. What explains the origins of the postwar system? • B. What accounted for the relative success of the system in its early years? • C. What accounts for the increased instability in more recent years?

20. The World Economy Today • 1. Major developments • A. Globalization and Regionalism • B. Shifting balance of power among states • C. Key challenges: trade, finance, development, environment, energy • 2. Political economy issues • A. Can key challenges be managed? • B. Where will leadership come from?

21. VII. International Trade 1. Basic issue: a tension between desire for material benefits of an open system and pressure to promote/defend state and/or particularist interests a. Advantages of free trade: efficiency, growth b. Disadvantages of free trade: dependence, losses to key constituencies c. Collective action problem: how to manage the basic tension

22. VII. International Trade (cont’d) • 2. Postwar experience: GATT/WTO • a. Purposes: liberalization, dispute resolution • b. Principles: non-discrimination, reciprocity, safeguards • 3. Protectionism (actor behavior) • a. Instruments of trade policy • b. Arguments for protection • c. Practical motivations

23. VII. International Trade (cont’d) • 4. Managing the system (system governance) • a. Promotion of liberalization • b. Dispute resolution • c. Safeguards • d. Other current issues

24. VII. International Trade (cont’d) • 5. From multilateralism to regionalism • a. Types of regional trade agreements (RTAs, PTAs) • b. Advantages and disadvantages • i. For individual countries • ii. For overall system (trade creation, trade diversion) • c. Postwar experience • i. First wave: 1950s-60s • ii. Second wave since 1980s • d. Why the renewed interest in RTAs? • e. Significance for system governance

25. VIII. Money and Finance • 1. Basic issue: as with trade, a tension between desire for the material benefits of an open system and pressure to promote/defend state and/or particularist interests • 2. Basic concepts • a. Balance of payments; deficits • b. Financing: reserves, borrowing, liquidity • c. Adjustment: the “Three D’s,” “Unholy Trinity”

26. Balance of payments deficits • In case of deficit, two basic choices • Finance: (1) run down assets or (2) build up liabilities (borrow) • Adjust: (1) reduce external spending or (2) increase external revenues • How to adjust: the “Three D’s” • Deflation: (1) tighter fiscal policy (decrease gov’t spending, raise taxes) or monetary policy (higher interest rates) • Devaluation (depreciation): lower exchange rate • Direct controls: (1) trade controls (tariffs or NTBs) or (2) capital controls • Is there another D? Answer: D’em others… • Summary: the Unholy Trinity

27. The Unholy Trinity

28. VIII. Money and Finance (cont’d) • 3. Postwar experience • a. IMF, Bretton Woods system • b. Financing: US dollar, SDRS, capital markets • c. Adjustment: breakdown of pegged exchange-rate system – currency wars? • d. Debt problems; financial crises • 4. Managing the system • a. Exchange rates • b. International capital markets • c. International currencies • d. Who’s in charge?

29. IX. Economic Development • 1. The developing world: differentiated, difficult to generalize • 2. Postwar rules: based on principle of non-discrimination; trade was to function as an “engine of growth” • 3. Postwar experience: mixed – some success stories, many disappointments

30. IX. Development (cont’d) • 4. Why has trade failed as an engine of growth for so many? • a. Liberalism: market failures -- weak demand, weak linkages, weak adaptive capacity • b. Structuralism: natural result of capitalist exploitation • c. Realism: result of power politics • i. Role of great powers in writing the rules • ii. Attempts at collective action by LDCs • iii. Outcomes: partial success

31. IX. Development (cont’d) • 5. Options for development strategies • a. Export promotion • i. Traditional exports • Problems: inelastic demand, protectionism • Cartels? Three conditions necessary for success: control largest part of supply; no close substitutes; agreement on the sharing of benefits • ii. Non-traditional exports: manufacturing, services • b. Import substitution (“import substitution industrialization” – ISI) • c. Regionalism

32. X. The Environment • 1. Basic problem: the environment is a collective good, shared by all and owned by none (“tragedy of the commons”); core issue is “externalities,” which can cross borders • 2. Economic functions of the environment • a. A consumption good • b. A supplier of resources • c. A receptacle of wastes • d. The problem: not always mutually consistent, hence a collective action problem – a system governance issue

33. X. Environment (cont’d) • 3. Practical dimensions • a. Pollution (air, water, etc.) • b. Deforestation • c. Endangered species • 4. Possible solutions – approaches to governance • a. Laissez faire • b. National regulation • c. Formal regimes • d. Market approaches • e. Paris Climate Accord (2015)

34. XI. Energy • 1. Importance: the world’s single most widely traded product • 2. First regime: the Seven Sisters – a classic cartel, successful because it met all three key conditions necessary for success: control of supply; no close substitutes; agreement on sharing of benefits. In place until late 1960s • 3. Second regime: OPEC • a. Dramatic emergence in 1973 • b. Ups and downs of OPEC power since 1973

35. XI. Energy (cont’d) • 4. Reasons for variations of OPEC power over time – back to the three key conditions for a successful cartel • 5. OPEC’s biggest challenge: agreement on benefits (limiting free riding) • a. Low absorbers vs. high absorbers • b. Special role of Saudi Arabia • 6. Prospects • a. Demand side (conservation) • b. Supply side: exploration, alternative forms of energy, technology

36. XII. Multinational Corporations • 1. Definition • 2. Perspectives on the MNC • 3. History • a. Until 20th century, mostly extractive (farming, mining, etc.) • b. Real growth began in 1950s, for 2 reasons • i. European Common Market (trade diversion) • ii. Decolonization (ISI development strategies) • c. Changing sources and destination of foreign direct investment (FDI) • i. Increasing share of FDI from developing world • ii. Increasing share of FDI going to developing world

37. XII. MNCs (cont’d) • 4. Perspective of home country • i. Advantages: profits, market share • ii. Disadvantages: avoidance of taxes, regulation • 5. Perspective of host country • i. Advantages: capital, technology, management expertise, market access • ii. Disadvantage: loss of control • 6. Shifting and uncertain balance of power between states and markets • i. The obsolescent bargain • ii. Multinational production, supply chains

38. XIII. Prospects for the Future • 1. Postwar period has seen major structural changes • a. Distribution of power between states • b. Distribution of power between states and markets • c. Global security environment • 2. Future scenarios • a. Automaticity? • b. World economic government (supranationality)? • c. Renewed hegemony (US? Europe? Japan? China?)? • d. Cooperative regimes (automaticity + pluralism)? • e. Governance by MNCs? • f. Collapse and economic warfare? • g. Most probable: a “mosaic” (all of the above)