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? 1. What is International Political Economy? 2. What are the issues? 2. What are the issues? A. Actor behavior A. Actor behavior B. System governance B. System governance C. Globalization C. Globalization

3. I. Introduction (cont’d) A. Actor Behavior. How do we explain and evaluate the actions of states? A. Actor Behavior. How do we explain and evaluate the actions of states? 1. Levels of analysis: international (structural, systemic) vs. domestic 1. Levels of analysis: international (structural, systemic) vs. domestic 2. State (government, public sector) vs. society (markets, private sector) 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 B. System Governance. Formulation, implementation, and enforcement of rules; promotion of cooperation; management of conflict 1. Governance without government; governance mechanisms (regimes) 1. Governance without government; governance mechanisms (regimes) 2. Organizing principles: automaticity, supranationality, hegemony, pluralism (negotiation, cooperation) 2. Organizing principles: automaticity, supranationality, hegemony, pluralism (negotiation, cooperation)

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

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

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

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

9. II. Analytical Perspectives on IPE - Structuralism A. Focus: classes, social forces A. Focus: classes, social forces B. Nature of economic relations: conflictual (zero-sum game) B. Nature of economic relations: conflictual (zero-sum game) Relationship between economics and politics: economics drives politics 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 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 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? 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 4. Perspectives on causes and consequences A. Liberalism: triumph of markets; good for economic welfare A. Liberalism: triumph of markets; good for economic welfare B. Realism: product of state policy; bad for power of states B. Realism: product of state policy; bad for power of states C. Structuralism: triumph of markets; bad for poorer states and disadvantaged classes C. Structuralism: triumph of markets; bad for poorer states and disadvantaged classes

12. IV. International Economic History – Nineteenth Century 1. Three major developments 1. Three major developments 2. Political economy issues 2. Political economy issues 3. Key lessons 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 accounts for its stability and relatively smooth operation? A. Gold standard: What accounts for its stability and relatively smooth operation? B. Trade: What accounts for the free trade movement in the 1860s-70s? What accounts for the subsequent return to protectionism? B. Trade: What accounts for the free trade movement in the 1860s-70s? What accounts for the subsequent return to protectionism? C. Core-periphery relations: What accounts for the “new imperialism?” C. Core-periphery relations: What accounts for the “new imperialism?”

15. IV. Nineteenth Century - key lessons A. No single (mono-causal) explanations; need to sift the evidence. 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 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 1. Major developments A. Breakdown during World War I A. Breakdown during World War I B. Attempted reconstruction during 1920s B. Attempted reconstruction during 1920s C. Renewed breakdown (Great Depression) during 1930s 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? 2. Political economy issue: What explains the failure of the attempted reconstruction? A. Liberalism: markets failed because of wrong-headed government policies A. Liberalism: markets failed because of wrong-headed government policies B. Structuralism: internal contradictions of capitalism B. Structuralism: internal contradictions of capitalism C. Realism: absence of effective governance (theory of hegemonic stability) C. Realism: absence of effective governance (theory of hegemonic stability)

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

19. VI. Postwar period (cont’d) 2. Political economy issues 2. Political economy issues A. What explains the origins of the postwar system? A. What explains the origins of the postwar system? B. What accounts for the relative success of the system in its early years? B. What accounts for the relative success of the system in its early years? C. What accounts for the increased instability, slower growth in more recent years? C. What accounts for the increased instability, slower growth in more recent years? D. What can be done to manage the system in the future? D. What can be done to manage the system in the future?

20. 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

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

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

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

24. 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 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 2. Basic concepts a. Balance of payments; deficits a. Balance of payments; deficits b. Financing: reserves, borrowing, liquidity b. Financing: reserves, borrowing, liquidity c. Adjustment: the “Three D’s,” “Unholy Trinity” c. Adjustment: the “Three D’s,” “Unholy Trinity”

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

26. IX. Economic Development 1. The developing world: differentiated, difficult to generalize 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” 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 3. Postwar experience: mixed – some success stories, many disappointments

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

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

29. 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 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 2. Economic functions of the environment a. A consumption good a. A consumption good b. A supplier of resources b. A supplier of resources c. A receptacle of wastes c. A receptacle of wastes d. The problem: not always mutually consistent, hence a collective action problem – a system governance issue d. The problem: not always mutually consistent, hence a collective action problem – a system governance issue

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

31. XI. Energy 1. Importance: the world’s single most widely traded product 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 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 3. Second regime: OPEC 3. Second regime: OPEC a. Dramatic emergence in 1973 a. Dramatic emergence in 1973 b. Ups and downs of OPEC power since 1973 b. Ups and downs of OPEC power since 1973

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

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

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

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