International Political Economy

1. International Political Economy Deepak Prakash Bhatt, PhD

2. Politics • Politics refers to achieving and exercising positions of governance - organized control over a human community • Politics is the practice and theory of influencing other people on a civic or individual level • Politics is exercised on a wide range of social levels • Clans and tribes of traditional societies • Local governments and up to sovereign states, to international level • Methods • Promoting own political views among people • Negotiation with other political entities • Makinglaws • Exercisingforce

3. Economy • An economy or economic systemconsists of the production, distributionortrade,and consumptionof limited goodsandservicesby different agents in a given geographical location • The economic agents can be individuals, businesses, organizations, or governments • Transactions occur in a certain currency

4. …. • A given economy is the result of a set of processes that involves its- • Culture • Values • Education • Technological evolution, history, social organization, political structure and legal systems • Geography, natural resource endowment, and ecology • These factors give context, content, and set the conditions and parameters in which an economy functions • Some cultures create more productive economies and function better than others, creating higher value, or GDP

5. Political Economy • The original term used for studyingproduction, buying, and selling, and their relations with law, custom, and government, as well as with the distributionof national incomeandwealth • Political economy originated in moral philosophy • Developed in the 18th century as the study of the economies of states • Introduced in France in 1615 with the well-known book by Antoine de Montchrétie ”Traité de l’economiepolitique” • The world's first professorship was established in 1754 at the University of Naples, Italy • In the late 19th century, the term economics came to replace political economy

6. Today • Political Economy refer to very different things- • Chicago school • Marxian analysis • Virginia school • Advice given by economists to the government • Public on general economic policyor on specific proposal • A rapidly growing mainstream literature from the 1970s has expanded beyond the model of economic policy in which planners maximize utility of a representative individual toward examining how political forces affect the choice of economic policies • It is available as an area of study in colleges and universities

7. International Political Economy • IPE is an interdisciplinary field comprising approaches to the actions of various actors • Rapidly developing social science field of study that attempts to understand international and global problems using an eclectic interdisciplinary array of analytical tools and theoretical perspectives • The growing prominence of IPE as a field of study is in part a result of the continuing breakdown of disciplinary boundaries between economics and politics in particular and among the social sciences generally • Increasingly, the most pressing and interesting problems are those that can best be understood from a multidisciplinary, interdisciplinary, or transdisciplinary point of view

8. …. • Anthropologists, sociologists, and geographers use political economy in referring to the regimes of politics or economic values • This emerge primarily at the level of states or regional governance, but also within smaller social groups and social network-Micro finance in Bangladesh • Because these regimes influence and are influenced by the organization of both social and economic capital • The analysis of dimensions lacking a standard economic value e.g., the political economy of language, of gender, or of religion

9. New dimension • Global political economy (GPE), is an academic discipline within thesocial sciences that analyzesIR in combination with political economy • IPE scholars are at the center of the debate and research surroundingglobalization both in the popular and academic spheres • Other topics that command substantial attention among IPE scholars are international trade and development • The relationship between democracy and markets, international finance, global markets, multi-state cooperation in solving trans-border economic problems, and the structural balance of power between and among states and institutions • Unlike conventional international relations, power is understood to be both economic and political, which are interrelated in a complex manner

10. Liberal View • Liberal believes in freedom for private powers at the expense of public power (government) • It asserts that markets, free from the distortions caused by government controls and regulation, naturally will harmonize demand and supply of scarce resources resulting in the best possible world for populations at large • David Ricardo whose theory of comparative advantage suggested that trade between different nations • Adam Smith’s formulation that nations could benefit both parties even in circumstances where one would feel intuitively that one nation would benefit from trade at the expense of the other

11. Realist View • The 'realist' view, also known as nationalist accepts the power of free markets to deliver favorable outcomes • While it holds that optimum conditions generally are obtained with moderately strong public power exerting some regulatory control

12. Marxist View • The 'Marxist' view believes that only robust application of strong public power can check innate tendencies for private power to benefit elites at the expense of populations at large

13. Constructivist View • Constructivists assumes that the domain of international economic interactions is not value-free, and that economic and political identities, in addition to material interests, are significant determinants of economic action

14. USA Vs the UK • The Americans are positivist and attempt to develop intermediate level theories that are supported by some form of quantitative evidence • British IPE is more "interpretivist" and looks for "grand theories” • They use very different standards of empirical work • This characterization of IPE has been hotly debated • Forum was the -2008 Warwick RIPE Debate: ‘American’ versus ‘British’ IPE

15. Globalization and Theories about the Global Economy • Globalization is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture • Advances in transportation and telecommunications infrastructure, including the rise of telegraph and the internet are major factors in globalization • Globalization is interdependence of economic and cultural activities

16. Time • Two views are pertinent • Age old or Modern process • Several scholars place the origins of globalization before the European age of discovery and voyage to the New World • Others trace the origins to third millennium BC • But in the late 19th century and early 20th century, the connectedness of the world's economies and cultures grew very quickly

17. Silk Road or Route • The Silk Roadis a series of trade and cultural transmission routes that were central to cultural interaction through regions of the Asian continent connecting the east and west by linking traders, merchants, pilgrims, monks, soldiers, nomads and urban dwellers from China to the Mediterranean sea • Extending 6,437 km., silk trade begun during Han Dynasty (206 BC to 22- AD) • They took great interest in the safety of their products being traded and extended the Great Wall (21,196km.) to ensure the protection of the trade route

19. Proto age • Proto-globalization is a period of the history of globalization roughly spanning the years between 1600 and 1800 • the phase of increasing trade links and cultural exchange that characterized the period immediately preceding the advent of so-called 'modern globalization' in the 19th century • Proto-globalization was characterized by the rise of maritime European empires- Portuguese, Spanish, Dutch and British empire. • Proto-globalization distinguished itself from modern globalization on the basis of expansionism, the method of managing global trade, and the level of information exchange • Proto-globalization trade and communications involved a vast group including European, Muslim, Indian, Southeast Asian and Chinese merchants, particularly in the Indian ocean region

20. New age • The term globalization has been in increasing use since the mid-1980s and especially since the mid-1990s • In 2000, the International Monetary Fundidentified four basic aspects of globalization- • Trade and Transactions • Capital and investment movements • Migration and movement of people • The dissemination of knowledge • Further, environmental challenges-climate change, pollution, cross boundary issues • Globalizing processes affect and are affected by business, economic-cultural resources and natural envireonmet

21. …. • Ronald Robertson, professor of sociology at University of Aberdeen, defined globalization in 1992 as-the compression of the world and the intensification of the consciousness of the world as a whole • Sociologists Martin Albrow and Elizabeth King define globalization as-all those processes by which the peoples of the world are incorporated into a single world society • In The Consequences of Modernity, Anthony Giddensuses the following definition- Globalization can be defined as the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa

22. Institutions • After WW II, work by politicians led to the BWI, an agreement by major governments to lay down the framework for international monetary policy, commerce and finance, and the founding of several international institutions intended to facilitate economic growth multiple rounds of trade opening simplified and lowered trade barriers • GATT, led to a series of agreements to remove trade restrictions. GATT's successor was the WTO, which created an institution to manage the trading system • Exports nearly doubled from 8.5% of total gross world product in 1970 to 16.2% in 2001 • The approach of using global agreements to advance trade stumbled with the failure of the Doha Roundof trade-negotiation • IMF,

23. …. • International Tourism • International Sports • Drug Trade • Human smuggling and trafficking • Education • Economic-capital flight • Inter-banking system

24. Theories • World-systems theory is a multidisciplinary, macro-scale approach to world history and social change that stresses that the world system should be primary unit of social analysis • World-system refers to the inter-regional and transnational division of labor, which divides the world into • Core Countries • Semi-periphery countries • Periphery countries

25. Trade theory • Heckscher–Ohlin model the pattern of international trade is determined by differences in many factors • It predicts that countries will export those goods that make intensive use of locally abundant factors • These countries will import goods that make intensive use of factors that are locally scarce

26. New Trade theory • NTT is a collection of economic models in international trade which focuses on the role of increasing network effects, which were developed in the late 1970s and early 1980s • New trade theorists relaxed the assumption of constant returns to scale, and some argue that using protectionist measures to build up a huge industrial base in certain industries will then allow those sectors to dominate the world market • The value of protecting "infant industries" has been defended

27. Books • Apter, David E. Rethinking Development: Modernization, Dependency and Post Modern Politics, NewburyPark, Calif: Sage, 1987 • Gilpin, Robert, “Three Ideologies of Political Economy,” The Political Economy of International Relations, Princeton University Press, 1987 • Gilpin, Robert. “The Insecure Trading System” The Challenge of Global Capitalism, Princeton University Press, 2000. • Goldstein, Joshua S. International Relations, 6th edition (Ed.), Pearson Education: Delhi, 2006.

28. …. • Robertson, Justin. Power and Politics after Financial Crisis: Rethinking Foreign Opportunism in Emerging Markets(ed.), Palgrave McMilan: New York, 2008. • Stiglitz, Joseph, “What I learnt at the World Economic Crisis: the Insider” The New Republic, April 17 2000. • Sachs, Jeffrey D., The End of Poverty: Economic Possibilities for our Time, The Penguin Press: New York, 2005. • Wilber, C. K Ed.The Political Economy of Development ad Underdevelopment, 2nd Ed., New Random House, 1979.

29. Recardian Theory • The Ricardian theory of comparative advantage seen as a basic constituent of neoclassical trade theory • The Ricardian trade theory includes a presentation of Ricardo's example of a two-commodity, two-country model • A common representation of this model is made using an Edgeworth Box • This model has been expanded to many-country and many-commodity cases

30. International Production Fragmentation Trade Theory • Fragmentation and International Trade Theory widens the scope for application of Ricardian comparative advantage • According to this theory-producers in different countries are allocated a specialized slice or segment of the value chain of the global production • Allocations are determined based on on "technical feasibility" and the ability to keep the lowest final price possible for each product

31. International trade • Domestic or international trade depends upon • Capital • Goods • Services • In economics, capital goods, real capital, or capital assetsare already-produced durable goods or any non-financial asset that is used in productionof goodsor services

32. …. • Financial capitalwhich represents obligations, and is liquidated as money for trade, and owned by legal entities • It is in the form of capital assets, traded in financial markets • Its market value is not based on the historical accumulation of money invested but on the perception by the market of its expected revenues and of the risk entailed • Natural capitalwhich is inherent in ecologies and protected by communities to support life, e.g., a river that provides farms with water. • Social capitalwhich in private enterprise is partly captured as goodwillor brand valuebut is a more general concept of inter-relationships between human beings having money-like value that motivates actions in a similar fashion to paid compensation

33. …. • Instructional capitaldefined originally in academia as that aspect of teaching and knowledge transfer that is not inherent in individuals or social relationships but transferrable-knowledge or intellectual capital • Human capitala broad term that generally includes social, instructional and individual human talentin combination • It is used in technical economics to define balanced growthwhich is the goal of improving human capital as much as economic capital

34. Goods • In IPE or economics a good is a material that satisfies human wantsand provides utilityfor example, to a consumermaking a purchase • A common distinction is made between 'goods' that are tangible propertyand serviceswhich are non-physical • Commodities may be used as a synonymfor economic goods but often refer to marketable raw materialsand primary products

35. …. • Although in economic theory, all goods are considered tangiblein reality certain classes of goods, such as informationonly are in intangible forms • Among other goods an apple is a tangible object, while news belongs to an intangible class of goods • Can be perceived only by means of an instrument such as printbroadcast or computer

36. Service • In economicsa service is an intangible commodity • Service provision is often an economic activity where the buyer does not generally, except by exclusive contract, obtain exclusive ownershipof the thing purchased • The benefits of such a service, if priced, are held to be self-evident in the buyer's willingness to pay for it • Public services are those, that society-nation state, fiscal union, regional, as a whole pays for, through taxes and other means

37. …. • By composing and orchestrating the appropriate level of resources, skill, ingenuityand experience for effecting specific benefits for service consumers • Investment in expertise does require consistent service marketing and upgrading in the face of competition

38. …. • International trade is the exchange of capital, goods, and services across international borders or territories. • In most countries, such trade represents a significant share of GDP • International trade has been present throughout much of history-Silk Road and Amber Road • Its economic, social, and political importance has been on the rise in recent centuries

39. Impact • Factors influencing international • Industrialization • Advancement in technology • Transportation • Globalization • Multinational corporations • Outsourcing • Increasing international trade is crucial to the continuance of globalization • Without international trade, nations would be limited to the goods and services produced within their own borders

40. Financial Relations • Financial Relations is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance • To enable the most effective two-way communication between a company, the financial community, and other constituencies

41. International Monetary Regime • Regime- is a form of government, the set of rules, cultural or social norms, that regulate the operation of government and its interactions with society • Political use of the word regime is commonlyapplied to any government that is most of the time- • Not democratically elected, imposes strict and often arbitrary rules and laws on the people that are, because of the undemocratic nature of the government • Modern usage often gives the term a negative connotation,implying an authoritariangovernment or dictatorship

42. …. • Democracy is a form of governmentin which all eligible citizens participate equally—either directly or through elected representatives—in the proposal, development, and creation of laws • It encompasses social, economic and cultural conditions that enable the free and equal practice of political self-determination • Democratic regime- Robert A Dahl, Democracy and Its Critics (1989), tests them against the questions raised by its critics, and recasts the theory of democracy into a new and coherent whole

43. International Regime • International regimes often form in response to a need to coordinate behavior among countries around an issue • International political use of regime concerns international regulatory agencies which lie outside of the control of national governments • In the absence of an overarching regime- trade between countries would have to be governed by numerous bilateral agreements, which would become impossibly complex to administer worldwide

44. International Monetary Regime • International monetary regimes or systems are sets of internationally agreed rules, conventions and supporting institutions, that facilitate- • International trade • Cross border investment • Reallocation of capitalbetween nation states • Provide means of payment acceptable between buyers and sellers of different nationality, including deferred payment

45. …. • To operate successfully, they need to inspire confidence, to provide sufficient liquidity for fluctuating levels of trade and to provide means by which global imbalances can be corrected • The systems can grow organically as the collective result of numerous individual agreements between international economic factors spread over several decades • Alternatively, they can arise from a single architectural vision as happened at Bretton Woods in 1944

46. Use of system and ages • 400 BC in Indian subcontinent • Greek city-states 4th century • Until the 19th century the global monetary system was loosely linked with Europe, the Americas, India and China were separate economies, and monetary systems were regional • Bretton Woods Agreement-that established the post–WW II monetary order, with fixed exchange rates of currencies to the dollar, and convertibilityof the dollar into gold

47. …. • Two international institutions, the International Monetary Fundand the World Bankwere created • A key part of their function was to replace private finance as more reliable source of lending for investment projects in developing states • Nixon shock of 1971, ending convertibility, the US dollar has remained the de facto basis of the world monetary system • The Euro has gained use as a reserve currency and a unit of transactions

48. IMF • Members-188 • Nepal became member - September 6, 1961 • Working to- • Foster global monetary cooperation • Secure financial stability • Facilitate international trade • Promote high employment • Sustainable economic growth • Reduce poverty around the world

49. Surveillance • The IMF is mandated to oversee-the international monetary and financial systemand monitor the economic and financial policies • The Fund typically analyses the appropriateness of each member country’s economic and financial policies • For achieving – • Economic growth • Assesses the consequences of these policies for other countries and for the global economy

50. WB • Members 186 • Nepal became member in 1961 • Provides loansto developing countriesfor capital programs • Official goal is the reduction of poverty • All its decisions must be guided by a commitment to the promotion of foreign investmentand international tradeand to the facilitation of capitalinvestment