Systemic Theories of IPE

1. Systemic Theories of IPE Lecture 4 – Thursday, 16 September 2010J A Morrison Steve Krasner Robert Keohane

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3. Agenda: Systemic Theories of IPE • The Big IPE Puzzle: Globalization • Systemic Theories • Interstate Competition • Hegemonic Stability Theory • Institutions “After Hegemony” • Conclusion

4. Agenda: Systemic Theories of IPE • The Big IPE Puzzle: Globalization • Systemic Theories • Interstate Competition • Hegemonic Stability Theory • Institutions “After Hegemony” • Conclusion

5. What is globalization?

6. Let’s say globalization is the minimization of the influence of space on social, political, and economic outcomes.

7. Clearly, technology is lowering the cost of moving people, products, and capital across space.So, is globalization inevitable?

8. What do Grieco & Ikenberry (Ch 1) say about the inevitability of globalization?

9. In IPE, we might assess the level of globalization by measuring the level of trade, cross-border capital flows, and international migration.

10. Measures of Globalization • Trade: Share of Exports in World Output • Peaked in 1913 • This point was not surpassed until 1970 (G&I, 5) • Capital: Flows relative to National Income • Level of integration still has not reached the levels achieved among developed countries between 1870 and 1913 (G&I, 217) • Migration: Movement relative to World Population • More people crossing borders in 1900 than today (Hatton & Williamson, 1998; Ratha & Xu, 2008.)

11. By some measures, the world was more fully globalized in 1900 than it is today.

12. Damn.

13. Imagine the implications for production costs, product selection, social stability, and even international relations.

14. This raises a vital question: If globalization isn’t inevitable, then what explains variation in the last century of globalization?

15.  Politics.States’ foreign economic policies mitigated against (minimized) economic integration.

16. Economic models don’t tell us what happens on the ground.For a variety of reasons—some “good” and some “bad”—policymakers often don’t heed the prescriptions of economists.

17. “Neoclassical theory recognizes that trade regulations can . . . be used to correct domestic distortions and to promote infant industries, but these are exceptions or temporary departures from policy conclusions that lead logically to the support of free trade…Historical experience suggests that policy makers are dense, or that the assumptions of the conventional argument are wrong. Free trade has hardly been the norm. Stupidity is not a very interesting analytic category.” (Krasner, 20-21)

18. “[I]n the absence of cooperation, governments will interfere in markets unilaterally in pursuit of what they regard as their own interests, whatever liberal economists may say.” (Keohane, 50)

19. Here’s the point...We can’t understand the development of the global economy without understanding foreign economic policy.That means understanding politics.

20. Agenda: Systemic Theories of IPE • The Big IPE Puzzle: Globalization • Systemic Theories • Interstate Competition • Hegemonic Stability Theory • Institutions “After Hegemony” • Conclusion

21. Trying to understand the retreat of globalization between 1914 and 1945 is one of the biggest questions in IPE.So-called “structural” and “systemic” theories were among the first attempts to resolve this puzzle.

22. What are structural/systemic theories?

23. Structural/systemic theoriesemphasize the role of structure of the international system in shaping outcomes of interest.

24. Focus is on Waltz’ 3rd Image: the level of the international system. This structure is independent of the ideas, institutions, and interests that exist within states. (We’ll look within states next week.)

25. What defines the structure of the international system?

26. Key Structural Elements of International System • Anarchy: the absence of overarching political power • The existence of exit-options for market actors • The distribution of power among states (see Krasner, 20) • The scope and influence of international regimes

27. Agenda: Systemic Theories of IPE • Some Key Terms • Systemic Theories • Interstate Competition • Hegemonic Stability Theory • Institutions “After Hegemony” • Conclusion

28. G&I retell the story (from Doug North and others) about the role of interstate competition in shaping political and economic development. (See p 107.)

29. What’s that story?

30. Agenda: Systemic Theories of IPE • Some Key Terms • Systemic Theories • Interstate Competition • Hegemonic Stability Theory • Institutions “After Hegemony” • Conclusion

31. IV. HEGEMONIC STABILITY THEORY Overview The elegance of HST Krasner’s theory Testing Krasner

32. Hegemonic Stability Theory (HST) is a systemic theory of international politics (IP):“the openness and stability of the world economy depends on the presence of a hegemonic power that, acting in its own enlightened self-interest, plays the role of organizer and supervisor of the world economy.” (G&I 111)Distribution of Power (IV)  Patterns of Interstate Relations (DV)

33. Major Variants of HST • Kindleberger (1973): Willing hegemon is needed to support international monetary system • Krasner (1976): Hegemony brings economic openness (read: free trade) • “State Power and the Structure of International Trade.” (1976) -- (There are lots more theorists in this tradition!)

34. We’ll focus on Krasner today and Kindleberger when we study money in several weeks.

35. IV. HEGEMONIC STABILITY THEORY Overview The elegance of HST Krasner’s theory Testing Krasner

36. HST is elegant. It resolves Thomas Hobbes’ old question…

37. We know that economic integration generally does not follow without some cooperation.Why not?

38.  A state might use asymmetric costs of closure as leverage against other states(e.g. After opening Canada’s markets, the US could threaten to close the borders if Canada does not support the US in Iraq.)

39. But states exist in anarchy, in a “self-help” system.As Hobbes asked, how do we get cooperation without a state authority to enforce agreements?

40. HST provides a potential answer: hegemons serve as a proxy for state authority to reduce the “anarchy.”Hegemons can use both sticks and carrots to open foreign markets.

41. IV. HEGEMONIC STABILITY THEORY Overview The elegance of HST Krasner’s theory Testing Krasner

42. Be sure to “Get” Krasner • Exemplary of Systemic Approach • Classic, widely cited article with extraordinary influence • Lucid—if not problematic—analysis of IPE (see Keohane, 1997) • Notice the explicit discussion of his research design: defines his variables clearly, highlights his operationalization, and discusses all of his findings

43. Puzzle: Openness vs Social Stability • Policymakers have cross-cutting preferences: power, wealth (income & growth), social stability, • Openness brings wealth, choice, and interdependence • BUT openness also undermines social stability: inequality, shocks, transition costs (job loss)

44.  Given these cross-cutting preferences, how do policymakers choose the degree of openness they’ll allow?

45. Who wants what? • Small, Developed Economies  Openness • Large, Unequally Developed  Closure • Hegemonic System  Openness • In interest of hegemon • Small states have little choice; mine as well get benefits of openness

46. Krasner: Hegemony  Trade “The most important conclusion of this theoretical analysis is that a hegemonic distribution of potential economic power is likely to result in an open trading structure.” 20

47. IV. HEGEMONIC STABILITY THEORY Overview The elegance of HST Krasner’s theory Testing Krasner

48. Now, let’s operationalize and test the argument.

49. The DV: “Economic Openness” “The degree of openness can be described both by the flow of goods and by the policies that are followed by states with respect to trade barriers and international payments.” 24

50. The IV: Distribution of Potential Economic Power Narrower version of “potential power,” “such factors as gross national product, per capita income, geographical position, and size of armed forces.” 28