Chapter 12 National Economic Competition

1. Chapter 12 National Economic Competition Ps 130 World Politics Michael R. Baysdell Saginaw Valley State University

2. Theories of International Political Economy • Economic nationalism • Economic internationalism • Economic structuralism

3. Economic Nationalism: Economic Statecraft or Mercantilism • Realist approach • Alexander Hamilton • IPE is a zero-sum game • Emphasis on political goals • Practices or Strategies • Imperialism/neoimperialism (mercantilist theory) • Economic incentives and disincentives • Protectionism and domestic economic support

4. Economic Internationalism • Liberal approach • Free economic interchange, laissez-faire, capitalism • Non-zero-sum game • Practices • Early capitalist theory (Adam Smith, The Wealth of Nations) • “Mixed Economy” approach—modify the worst abuses of capitalism • National competition, but cooperation is increasing • Limited role of politics in economics • Keynesian economics • Use IGOs and national governments to regulate international economic interchange and ensure the spread of capitalism and free trade • IMF, GATT, and other organizations to promote trade and ease inequities

5. Economic Structuralism • Marxism, neoimperialism, neocolonialism • Karl Marx, “The Communist Manifesto” (1848): Bourgeoisie exploits proletariat. • Dependency theory: Colonialism hampered the long-term development of LDCs • World systems theory: Western dominated capitalist system pits CORE against PERIPHERY. Structure determines politics and structure is based on the “haves” (EDCs) exploiting the “have-nots” (LDCs)

6. The World Economy:Globalization and Interdependence • Trade • International investment • Monetary relations

7. Trade • General pattern of expanding trade • Merchandise trade • Primary goods • Manufactured goods • Services trade • Includes services from insurance to education

8. Factors Promoting Expanded Trade • Productive technology (supply) • Resource requirements (demand) • Materialism (demand) • Improved transportation (supply and demand) • Free trade philosophy

9. International Investment • Foreign direct investment (FDI) • Stake in foreign companies or real estate, with the aim of gaining controlling interest • Foreign portfolio investment • Does not involve control of companies

10. International Investment and Multinational Corporations (MNCs) • Private enterprises • Subsidiaries operating in more than one state • Ownership of plants and/or resource extraction in other countries • Most based in North • Immense wealth gives influence (United Fruit, Royal Dutch Shell

11. Monetary Relations • Globalization of money • Four main banking centers: Germany, Japan, United Kingdom, United States • Globalization of financial services • North-South patterns of money and banking • International regulation of money dominated by North • Exchange rates—there are advantages and disadvantages to weak currency (good for exports, but consumers lose with more expensive imports) • Balance of payments ultimately affected by interest rates • Higher U.S. interest rates=stronger dollar=more imports

12. The World Economy: Diverse Circumstances • All economic theories recognize that the world is divided into two spheres: • North America and Europe (North) • Africa, Asia, and Central and South America (South) • But, there are exceptions–divisions are based more on economic and political factors than on geographic location

13. Problems with Classifications • Not a clear dichotomy • Newly industrializing countries (NICs) • Countries in transition (CITs) • Inaccurate statistics–difficulty of measuring and reporting • Questionable relevance of data (GNP vs. GNP-PPP) • “Poor” is a relative term— “Poor” in EDCs much better off than “poor” in LDCs.

14. North-South Economic Patterns • Trade differences • Dominated by North • LDCs dependent on EDCs for export earnings • LDCs rely on primary products • Investment differences

15. North-South Societal Differences • Disparities • LLDCs (least developed countries) • Lower life expectancy • Lower literacy rate • Poor health • Less access to food, water, and sanitation services • Declining conditions in some LLDCs • Vicious circle of extreme poverty and deprivation

16. Evaluating the North-South Gap • Mixed data on development • Uneven patterns of development • Disparity among countries • Disparity within countries • Negative by-products of development • Explosive population growth • Rapid urbanization

17. National Economic Power • Financial position • Involves net trade, deficit spending, foreign debts, and so on • Natural resources • Possession or lack of energy, mineral, or other natural resources influences levels of self-sufficiency, trade, or dependency • Industrial output • Industry is highly concentrated in a few countries • Agricultural output • Power of food production (self-sufficiency)

18. North-North Economic Competition • Changes in North’s economic climate • Slowed growth rate • More competition from NICs of the South and between regional trading blocks of nations • Shifts in labor force • Development of high technology and e-commerce means fewer workers and increases in productivity • Exporting the service sector of economies • Downsizing and outsourcing

19. North-North Economic Competition • Changes in North’s political climate • Shifting post–Cold War alliances • Concern over safety of Chinese products and enormous trade deficits with China places strains on China's political relations with US and EU • Differences between US and EU nations over Iraq and Middle East policy and development of LDCs threaten to spill over into disputes over bilateral economic and trade issues

20. North-South Economic Competition • Increased tension • LDCs are now asserting with mounting intensity their claim that they have a right to a much greater share of the world’seconomic wealth • North has generally rejected LDC demands for economic concessions • Some LDCs have become major exporters of manufactured goods and, to a lesser degree, services that directly compete with the EDCs’ products and services, thus undermining EDC dominance in those economic areas • LDCs compete for resources ($2200 Tata car will be a problem, price of pork and beef last 5 years) • Widespread piracy of North’s intellectual property by South

21. The South’s Reform Agenda • New International Economic Order (NIEO) • Trade reforms • Monetary reforms • Institutional reforms • Economic modernization • Greater labor migration • Elimination of economic coercion • Economic aid • Debt relief and cancellation • Control of human and natural resources • North’s response: limited, barriers to development are internal, not our fault

22. Applied Economic Nationalism • Using economic means to achieve economic ends • Trade and investment barriers • Quotas, tariffs, domestic content regulations, labor laws, and health and safety regulations • Trade and investment supports • Agricultural & industrial subsidies, price supports, and loans to domestic producers

23. Trade and Investment Barriers • Tariffs • Nontariff barriers • Quotas • Pricing limits • Health and safety standards (S. Korea “Mad Cow”) • Administrative requirements • Japanese culture (segregating foreign products) • Monetary barriers • Investment barriers

24. Trade and Investment Supports • Ways in which governments intervene in free trade to gain an unfair advantage in the international marketplace: • Providing domestic subsidies • Encouraging dumping products onto foreign markets • Forming cartels • All violate international trade agreements

25. Using Economic Means to Achieve Noneconomic Political Ends • National security restrictions • Economic incentives • Economic sanctions

26. History of Sanctions • Date back to the city-states of Athens and the use of trade embargoes • Use of economic instruments to promote policy is ancient • Increased use of sanctions in 20th century • Used by both international organizations and individual countries

27. Effectiveness of Economic Sanctions • Limited success rate, but they remain a regularly used tool • When do they accomplish their goals? • Goal is modest • Target is politically unstable and weak • Sender and target are friendly and trade with each other • Imposed quickly and decisively • Sender avoids high cost to itself • Effectively enforced with minimal evasion or cheating

28. Drawbacks of Sanctions • There may be unintended victims • Country imposing sanctions can be hurt • They may be used by EDCs to maintain dominance over LDCs • They can harm relations with countries not supporting sanctions • They can harm those whom they seek to assist

29. The Future of Economic Nationalist Policy • Capitalism has triumphed over other competing economic models, particularly Marxism and socialism • Greater economic interdependence • Yet, powerful arguments against and forces opposed to globalization still exist

30. In Conclusion… Economic nationalism still remains the dominant approach to global economic affairs even though the trend toward international economic liberalization has grown in importance.

31. Chapter Objectives After reading this chapter, students should be able to: • 1. Explain why politics and economics are intertwined as­pects of international relations. • 2. Analyze international political economy (IPE). • 3. Discuss the economic nationalist doctrine. • 4. Discuss the economic internationalist approaches to IPE. • 5. Discuss the economic structuralist approaches to IPE. • 6. Discuss how trade, international investment, and monetary relations affect the world economy. • 7. Analyze the economic patterns of the North and the South. • 8. Analyze global economic competition in terms of the North/South divide. •  9. Understand how economic means can be used to achieve both economic and noneconomic ends. •  10. Analyze the future of economic nationalist policy.