Presentation on theme: "The politics and economics of international relations: An introduction to globalization Lars Niklasson, Deputy Professor Political Science, Linköping University."— Presentation transcript:
The politics and economics of international relations: An introduction to globalization Lars Niklasson, Deputy Professor Political Science, Linköping University
What are the major challenges in the global context (politics and economics)? What are the most desirable ends for global politics? My suggestions: Handling environmental problems Development of the global south: living conditions etc. Is it ok to have cars and refrigerators in India? Developing democracy and good governance in all countries (Further development of the global north, a win-win situation?) What instruments are available to reach these ends? Will the economy/society reach the goals? How are relations between countries regulated? Global economic integration (globalization): a threat or an opportunity? Trade, finance, labor standards, knowledge production Global politics (1): the regulation of the economy International organizations, governments, NGOs etc. Global politics (2): specific support for development Aid, global collaboration, security arrangements etc.
Three themes of the course 1. What is globalization? Perspectives, theories Explanations, old and new 2. What are the effects? Is it good or bad? Economic development, jobs, quality of life, modernization Environmental impact, equal opportunities Values: Cosmopolitanism, localness, virtues etc. 3. What are the causes? (What can be done?) Structural change: technology, the economy The role of regulation: Who decides? How?
What is globalization? Economic integration of the world Globalized firms, exporters, global value chains How can we understand it? Consequences: good or bad? Causes: what can be done? Who are the winners and losers? Local firms? Workers? The uneducated? The global south?
How can we evaluate globalization? Many policies are ends to means: Trade policy Financial systems What are the ultimate ends (values)? Economic development, reduction of poverty Environmental improvement Quality of life, equality, fairness, autonomy, freedom? Liberal, nationalist and critical perspectives Local traditions AND modern cosmopolitanism? Social science is mainly about ends to means What can states, markets and communities do? How can they work the best? What kind of regulation is needed?
Perspectives on globalization Optimists (economists) vs pessimists (sociologists) Economic theory predicts longterm gains for everyone (consequences) Sociologists see struggles for power behind the scenes (causes) Political scientists study the process of regulatory change (politics) Methods and assumptions vary
Optimists/Economists Economic theory predicts longterm gains for everyone Win-win situation, potential harmony of interests Consequences more important than causes? More specific: Highly mathematical theories Abstract and general, ”ceteris paribus”, assumes rationality Ignore short-term losers A smart roadmap or a utilitarian religion? A naive view of firms, markets and societies? What does it take to achieve the desired end?
The globalizers Martin Wolf (2004): Why Globalization Works Globalization ”has brought benefits to hundreds of millions of people and helped secure the biggest ever falls in the proportion of humanity in extreme poverty. The challenge remains to spread the opportunities of globalization more widely than ever before. For that we need better states and better policies.” (page ix)
Pessimists/Sociologists Sociologists see struggles for power behind the scenes Zero-sum, fundamental conflicts are unsolvable Causes more important than consequences? More specific: Qualitative theories Specific time and place, static, focus on values and struggles for power US firms and third world governments vs the poor peasants? (Hegemony) Focus on short-term winners and losers, ignore long-term gains (?) Markets are socially constructed: politics and power What is their alternative? A naive view of the state? What does it take to achieve the desired end?
The anti-globalizers The International Forum on Globalization: Alternatives to Economic Globalization, 2002: Against corporate globalization: ”big firms get too much power and ruin the resources of the planet” Local economies better than exports and integration Cultural and economic diversity is needed Local and national political power, democracy = similar to the progressive movement in the 1890s? = based on other values? Other economic theories?
What do they disagree about? Consequences of policy (eg. free trade) The long-term: gains for all or only for some? The south: better or worse? The environment: better or worse? = liberalism vs socialism on how markets and states work Causes of policy By the rich, for the rich? By liberals, against organized interests, to have a dynamic society? Research methods Abstract vs descriptive, quantitative vs qualitative
Can we find out who is right? Values are normative Only a personal choice? Where do they lead? Logical testing? Facts can be investigated empirically How were the policies selected? What were the motives? (process-tracing) Who decided? (different conceptions of democracy, global governance) How are the policies meant to work? (program theory) How do they work in practice? (implementation) What are the effects of the policies? (evaluation) General theories (economics) Case-studies of particular situations (political science, sociology)
Theoretical perspectives for evaluating and explaining regulation (policies) International Political Economy The politics of the economy (”political economy”) National and international, a broad agenda From International Relations States as actors Normative paradigms? Nationalism, liberalism, critical perspectives From Political science Causal explanations: domestic and international politics Interests, institutions, ideas (The bureaucratic politics of international organizations) Democracy as a norm: what kind is possible, feasible? (”Global governance”) (Implementation studies)
Why do we need theories? They interpret the facts, help us see patterns Causality: why did it happen? Evaluation: good or bad? We can treat theories as hypotheses and search for falsification We can understand the actors’ theories/ideas/motives Theories help us make predictions Theories can be used to mobilize support for action (=politics) But: theories may be infused with assumptions and values Is rationality a simplifying assumption or a norm? Is constructivism an eye-opener or hidden marxism?
Three paradigms Economic nationalism Liberalism Critical perspectives
Table 1.2 Comparing the perspectives AspectEconomic nationalistLiberalCritical Historical origins15th century19th century Major figuresHamilton, List, StrangeSmith, Ricardo, KeohaneMarx, Lenin, Cox VariantsMercantilism, RealismFree trade, Interdepend.Marxism, feminism LevelState-centric, atomisticPluralist atomisticGlobal structure Human natureAggressiveCooperativeMalleable UnitsStatesFirms, states, NGOs etc.Class, gender, planet View of the stateUnitary actorDiverse interstsClass interest groups View of TNCsBeneficial/harmfulBeneficialExploitative Behavioural dynamicState as rational actorRational actor, failureDominance, exploitation Market relationsPotentially negativePositiveExploitative System structureAnarchy, conflictCooperative, interdep.Hierarchy, conflict Game metaphorZero sumPositive sumZero sum HegemonyDominant stateCooperationHegemony in state society International institutionsNot significantImportantServes wealthy interests
States versus markets: Neoliberals vs neomercantilists IssueNeoliberal paradigm Neomercantilist paradigm Trade policyTake away barriersUse barriers strategically Key valueCompetitionCompetitiveness Key mechanismComparative advantage Survival of the fittest Infant industries Innovation systems Economic paradigmSchumpeter, Ricardo etc. The single market Mercantilism: List Strategic trade theory Endogenous growth theory?
Causal explanations (”methods”) A. Deductive (IR) vs inductive (pol sci) Start from theory or build theory from data (cases) Statistics, case studies & comparisons Theories on a high level of abstraction or ”middle ground”
Causal explanations, cont’d B. Pol sci: Rational abstractions (RC) vs Understanding processes The logic of unintended outcomes (game theory) vs how did it happen? Assuming preferences vs explaining change of preferences
Causal explanation, cont’d C. Processes: The three I’s (Political science & Sociology) Interests (winners/losers): a too quick explanation. Rationalists Institutions (rules) shape the arena, explains variety. Liberals (?) Ideas explain variety and where interests come from. Constructivists Ideas: Liberalism, Nationalism and Critical perspectives!
Focus on politics What are the drivers for change? Structural change (technology, economy): Winners and losers (interests) Filtered through regulation (institutions) Paths or unintended consequences Interpretations, ideas (often from Economics) How we think about globalization Hegemonic power? (USA) Bureaucratic power by the international organizations? Who are the actors? Firms, industry associations, NGOs, regulators, politicians How are winning coalitions formed within and across governments? Facts, values & rhetoric; more friends than enemies Very complex processes behind the scenes
The role of ideas and their actors (from chapter 13) Ideas are mental images, worldviews, ideologies, norms, identities Constructivists in IR and Political Science: ideas influence behavior Reality is socially constructed = dominant interpretation ”Another world is possible” (World Social Forum) One step beyond rationalism: where do preferences come from? Epistemic communities: experts and policy sectors, ”iron triangles” Policy coordination and competition, coalition-building Several versions: Ideas represent interests (Gramsci, Cox), hegemony/dominance Look for interests in dominant ideas & the missing perspectives (poststructuralism) Ideas are promoted by actors to change policies Ideas become embedded in institutions: institutions are biased
Old and new globalization What explains change over time? Structural factors like environment and geography (Jared Diamond) Western dominance (”the global historical approach”) over the poor Western culture for success (”the cultural approach”) – the poor are bad ”The institutional approach”: people are the same, but the institutions differ Inventions in warfare, production, New technology Good governance: the rule of law, ownership Democracy, politics to balance the economy Investments in human capital Investments to catch-up The development of cooperation
The world economy 1400-1800 Many powerful regions around 1400: The Middle East, China, India, Africa, The Americas, Europe European trade and finance: Italy, Flanders, The Hanseatic League Trade, production, finance, shareholding Culture and education, the renaissance Political stability and rule of law Sovereign territorial states, state formation European domination: trade, wars, colonies Triangular trade Challenges: Poitiers 732, the Mongols 1241, the Turks at Vienna 1529 and 1683 What was the impact? South America (Spain) vs North America (England)
The world economy 1800-1945 The industrial revolution from ca 1750 Mechanized production, the factory system, a labor market Foreign supply and demand were necessary Why Britain? Why then? Scientific knowledge, liberal state, naval power Structural forces, government action or institutions and entrepreneurs? France, Germany, the US, Japan Smith: specialization (against the East India Company) Ricardo: comparative advantage (Box 4.4) Marx: exploitation Pax Britannica: similar to the present situation? The gold standard, capital flows, unilateral free trade 1846 The empire, balance of power 1815-1914, gradually UK vs Germany Imperialism inevitable? Interwar economic failure 1919-39 The League of Nations (Woodrow Wilson): utopian liberalism?
The world economy after 1945 The Cold War 1945-89 Western alliances, multilateralism, ”embedded liberalism” (Ruggie) Realists: competition brings stability (Carr) Liberals: self-restraint by the winners is the key to peace (Ikenberry) But: there are many actors within governments (Allison on the Cuban missile crisis) The Eastern block Decolonization in the south: French resistance South East Asia: NICs The Post Cold War Era 1990-2010 North: Varieties of capitalism South: BRICS & Least Developed Countries Technological change, economy etc. After Bretton Woods: Unilateralism? Minilateralism? Weaker international organizations?
Focus on regulation How is globalization regulated? Trade Finance Production Labor, gender Environment Development By whom? How does it change?
Multi-level regulation By whom? International organizations: WTO, IMF, UN Intergovernmental or supranational? North vs south? Sector vs sector? (epistemic communities) Regional organizations: EU, Nafta, Asean etc Specific treaties: Kyoto Transnational regulation, networks/epistemic communities, private actors Regulation implemented/transposed by states Actors: States? Politicians: domestic politics: winners vs losers? Institutions, discourses Bureaucrats: self-interested or idealists? discourses, fashions NGOs: who is organized?
Three possible scenarios for transnational governance: where do the ideas come from? Source: Djelic & Kleiner 2006 Experts (OECD) Statist (WTO) Community (ICN) Rule makers vs rule followers Separate Combined Product of governance process StandardsBinding rulesBeliefs Mode, logic of rule making Expert drivenPolitical negotiations Negotiations, Expert input Mode, logic of rule monitoring ”Expert awe”Coercion, constraints Socialization +/-Presupposes legitimacy EfficientEasy to start
The global governance architecture: are the policies coordinated? Yes/no! Specific regulation of each area (trade, environment etc) Fragmentation/Specialization, ”silos” Conflicting goals! Agreement impossible? Case: Clean tech (environmental protection + economic growth) Implies competing epistemic communities Who is invited? Only governments? NGOs? Are ministries competing or collaborating? Two-level games to win at home and abroad? Two dimensions: the sector and the level Implies that political factors are important in globalization
How are conflicting policies (”wicked problems”) implemented in various countries? Joint projects, if possible (such as clean tech) Separated (ignored?) Different organizations, negotiations, decisions by courts? Integrated, to be dealt with at a lower level Multipurpose organizations, mainstreaming Political: Local governments Civil servants: multipurpose agencies Synergies? Common values or ambitions? Decoupling or deliberation (by politicians, civil servants, the public?) Experimentalist governance? Focus on particular situations Key person to make the decision
What are the effects of international regulation? An empirical question! How are the new rules implemented? Are they implemented, resisted or taken advantage of? National governments pick and choose Are the new rules similar to the old ones? Varities of capitalism: LME vs CME
Pressures on national politicians A race to the bottom, convergence? Or room for many strategies? Still, a need to take action proactively Germany France
Economic development: the most valuable end of globalization? 1. What has happened? A big success? China and India vs the rest? Asia vs Africa? New labels: Third World, Global South, Emerging Markets What is development? How can we measure it? GNP vs Social objectives, Human Development Index, considers distribution 1947-81: Keynesianism, weak and/or corrupt elites, domestic barriers Redistribution, New International Economic Order, G77, (Cold War context) NICs: market and state? Exports and protection? Global value chains Japanese influence, authoritarian states 1982-2009: Debt crisis, ”Washington Consensus”: structural adjustment, NGOs Governance, democracy, sustainability, poverty reduction, debt relief, the rise of China and India MDG 2015, greater emphasis on domestic enabling conditions, coordination Present interpretation: Internal and external causes are linked
The rise and ”stall” of the Washington Consensus (from chapter 13) 1940-1970: embedded liberalism = state and firms 1980-1997: the state as problem, the market as solution Why? The crisis of Keynesianism + an epistemic community = Thatcher, Reagan Neoliberalism = the implementation of neoclassical economics Market fundamentalism, neglect of inequality and poverty? Effects? Questionable effect: The NICs: success due to the market (or developmental states)? Failures: Asian crisis 1997: premature liberalization? US crisis: Enron No effect: Mexico, Argentina, Africa: structural adaptation but crisis or little growth Was it implemented? Internal disagreements: shock therapy or gradual change A variety of implementation: the whole package vs pick and choose Resistance prevented full implementation Renewed focus on good governance: rule of law (=state!) How to get it?
What has happened, cont’d Lesson learned? Asia (NICs, China, India) vs Africa: institutional factors? Integration in the global economy, value chains Market and Developmental states Good governance: authoritarian states US support during the Cold War Washington consensus too simple? Disliked but successful? Aid is difficult Taking over vs supporting self-sustaining processes Where to begin? Good governance? Economic integration?
Disagreement about causes and cures Why are some contries poor? Exploitation: colonialism Bad starting position (resources, cheap labor) Bad policies for catch-up? Bad governance: colonialism? Bad support (aid) The exceptions: the NICs, China, BRIC, (Ireland) Protectionism vs openness The developmental state Washington consensus
Economic development, cont’d 2. Are the policies good or bad? Liberals: Policies have been bad, markets are key, modernization stages, the success of the NICs: exportoriented industrialization (EOI) Nationalists: Developmental policies are needed (NICs), governance is key, import substitution (ISI), Latin America, NICs too? Confucianism? Critics: Aim to control the third world, external exploitation, dependency, falling value of exports (terms of trade), vulnerable to external shocks 3. Why have policies changed? Interests: North vs South? China. A variety of interests. Abdelal 2007: French socialists + EU drive the liberal agenda & regulation by international organizations Institutions: The World Bank, UNCTAD, WTO, G77/G20, NGOs WB: US-dominated, secrecy, bureaucratic politics? Ideas: Modernization vs dependency, NIEO vs Washington Consensus 4. Where will it lead? Exploitation or development? Good governance? Will Africa change?
The post-2015 UN development agenda (Thematic think piece, 2013) Aid for trade External demand can raise incomes and living standards Support productive capacity and trade-related bottlenecks Climate change adaptation Coherence in policy formulation is being sought between the international rules and policies underpinning human rights standards, the trading system and environmental protection efforts Rio+20: The Future We Want Green economy, technology transfers to LDCs, exemptions from TRIPS = using the market to drive change
Four deeper investigations: write a paper on one, attend at least two Glenn, John: Globalization. North-South perspectives, Routledge, 2007 Rudra, Nita: Globalization and the Race to the bottom in developing countries. Who really gets hurt? Cambridge, 2008 Walter, Andrew & Sen, Gautam: Analyzing the Global Political Economy, Princeton, 2009 Williams, David: International development and global politics, Routledge, 2012
The regulation of the environment: an end in itself and a restriction on other aims 1. What has happened? Global problems need global solutions? ”The tragedy of the commons”, but what are fair rules for all? Can they have cars and refrigerators in India? Environmental problems are cause and effect of other problems Human-centered environmentalism vs ecologism (light-dark green) Sustainability means many things: growth as problem or solution? What should be sustained? Resources, production, living standards in the north and south? Brundtland Commission: environmental, social and economic sustainability A restriction and influence on other policies: ”intergenerational equity” Overconsumption and irresponsible production: North or South? China! Ecological shadows Aid projects: environmental assessments, participatory development Trade as problem or solution? Race to the bottom?
The regulation of the environment, cont’d 2. Is it good or bad? Liberals: Common interests, market solutions such as clean tech, the Kuznets curve, socialist exploitation, regulations open for government failure Environmental economics: market failure, incentives or regulation World Bank: Poverty as a root cause Regulation by the market: eco-labels Environmental standards: fair competition or unfair limitation on comparative advantage Nationalists: Cooperation difficult, market failure, environmental standards improve competitiveness Critics: Power, inequalities, capitalist exploitation Ecologists: nature in focus, limited resources. Economics irrelevant. A need to add process standards to product standards in the WTO (eco-labels?)
The regulation of the environment, cont’d 3. Why has it happened? Interests: Environmentalism due to affluence, disasters & end of cold war Victims & NGOs Institutions: International negotiations on climate change: US vs China, India UN conferences Stockholm 1972, Rio 1992, Johannesburg 2002, Rio 2012 UN Framework Convention on Climate Change, Kyoto Protocol (COP) IPCC Stern Review 2006: The economics of climate change vs sceptics Green parties & activists normalized, co-opted, mainstreamed Domestic regulation, IOs mainstreamed, firms are proactive Ideas: Scientists and authors form epistemic communities (with ministries, NGOs, researchers): light and dark green 4. Where will it lead? Win-win solutions or conflicts?
Globalization is about a new logic of production: transnational production 1. What has happened? A new industrial revolution? The logic of production has changed (= a structural factor) From integrated firms to networks: global value chains Post-fordist production, break-up/networking, outsourcing, collaboration Changes in technology, transport, management, trust, consumer demand To be near markets and inputs (cheap and skilled labor, technology, resources) Nearness, skills, infrastructure rather than low cost (East Asia vs Africa!) ”Foreign Direct Investment” to get control over resources in other countries (vs portfolio investment) Market-conforming regulation: open, more uniform Fair competition, no subsidies, no protection?
Transnational production, cont’d 2. Is it good or bad? Liberals: Long-run benefits, opportunities for all TNCs bring resources, capabilities, taxes, productivity, dynamism, spillovers to local firms, better values. The success of East Asia Nationalists: Support national champions, control TNCs. Loss of autonomy Critics: Exploitation of labor and environment (TNC + third world gov’ts) Transfers in the interest of the firm, avoid paying taxes, foreign rules, political influence New International Economic Order 70s An empirical question. Net effects depend on policy. Gov’t control, technological upgrading? Protect infant industries? Gov’t weak bargaining position Attractiveness vs national interest. Changing attitudes A need for more regulation?
Transnational production, cont’d 3. Why has it happened? Structural factors: Better transport, new technology, global finance, demand Interests: exporters Exploit technological comparative advantage (Vernon) or foreign ownership (Dunning) Oligopolistic business structure (Hymer) Bigger sales & markets to invest in R&D Institutions: USA + EU + WTO? US Policy to support investments in non-communist countries Policies: cold war, liberalization, Export Processing Zones Lack of strong owners for American firms, weak unions, weak state? Ideas: liberalism vs collectivism? 4. Where will it lead? The competition state: focus on competitiveness Depends on what the BRICs want?
The regulation of trade 1. What has happened? Trade and FDI explosion due to TNCs Protectionism after WWI, freer trade after WWII Reduction of tariffs and other barriers (NTB, non-tariff barriers) ”Embedded liberalism” (Ruggie) Multilateralism: (ITO), GATT and WTO, UNCTAD GATT principles: Non-discrimination, reciprocity, transparency But 1974-2005 Multifibre Agreement Later focus on barriers beyond borders = competition policy No agreements except Bali. Dispute Settlement Mechanism is operative Regionalism: EU, Nafta etc (building blocs or stumbling blocks?) Bilateralism: FTAs such as TTIP Unilateralism: EU open for ”Everything but arms” from LDCs
The regulation of trade, cont’d 2. Is it good or bad? Liberals: Growth for all, especially Asia Nationalists: Strategic protectionism to protect or to force others Critics: Exploitation, erosion of old life styles, labor, environment, social policy Key issues Comparative advantages, win-win? (Ricardo) Labor productivity and factor endowments, origins irrelevant Specialization and dynamic effects for growth, spread of technology Cheap inputs from abroad and a push to increase productivity Puzzling intra-industry trade and intra-firm trade Employment-creating vs employment-displacing effects Health standards (NTB) used to discriminate against imports Is modernization good or bad? Effects on the environment?
Key issues, cont’d What is ok to protect and support? (Mercantilists, nationalists) Infant industries, technology, agriculture, culture Unequal exchange? Unfair start, freezing status quo, concentration of power Are critics captured by organized losers? (= the trade policy perspective) Is the south weak in the WTO? Doha development round 2001-06 failed Against new issues, insist on implementation of old agreements The like-minded group, G20, G90, Cotton-4, The Cairns group Textiles move to China? Patents/TRIPS/IPR makes medicine expensive TRIMS/Investment protection: a necessary limit on governments? Special and differential treatment not enough? Legitimacy? A democratic deficit? Intergovernmental! Transparency, accountability, participation
The regulation of trade, cont’d 3. Why has it happened? Hegemony? Stability and economic interdependence US policies to support non-communist countries MNCs & Asia (cheap labor, stable societies) = interests The development of GATT and breakdown of WTO = institutions Increasingly difficult to reach agreement The breakdown of Keynesianism, triumph of Monetarism = ideas Driven by EU/France (Abelal 2007) Bureaucratic politics of the WTO and EU? What is the role of NGOs? (interests vs ideas) 4. Where will it lead? Are policies implemented? Increased conflicts?
The regulation of labor 1. What has happened? From national to global division of labor Gender, race and ethnic patterns vary over time From mass production/Taylorism/Fordism/mass consumption… Deskilled, replacable. Today: Call centers …to flexible work organization/Diversified Quality Production/Post-fordism Greater variety of skills, the role of teams, Lean production From human capital to structural capital Follow scripts/standardized procedures/software Greater competition. Losers and winners (”project nomads”?) Deindustrialization, greater ”flexibility”, migration
What has happened, cont’d The rise of China and India: wealth and cheap products, social tensions Production moved from other Asian countries, few Chinese brands, suppression of unions Blue-collar jobs in China, white-collar jobs in India. To be Bangalored = outsourced Workers’ rights: how to regulate firms? Home state extraterritorial rules Multilateral rules: WTO/ILO (unnecessary, profit reduction or protectionism?) Codes of conduct, campaigns, select cases, Global Compact 2000 ILO created because of labor unrest 1919 US labor organizations have become critical of hegemony, used to be supporters Peasants’ alliances The Peoples’ Global Action against Free Trade and the WTO (PGA)
The regulation of labor, cont’d 2. Is it good or bad? Liberals: specialization (and trade) drives growth (Smith), better to be poor in a rich country, Increased wealth will lead to higher standards Nationalists: States must protect strategic sectors, various strategies/niches Critics: Countries (and women) are depedent/locked-in, begins with European exploitation and protection. 3. Why has it happened? Interests: US business vs labor & right-wing populism, NGOs, governments Institutions: WTO is limited, ILO is weak Ideas: ”Globaliztion demands lower standards” 4. Where will it lead? Who will put pressure on governments?
The regulation of gender, socially constructed roles of man/woman 1. What has happened? IR and IPE are blind to gender, but gender helps understanding the economy: Economic assumptions overlook important differences Unpaid work in the home should be made visible Different rates of participation in the workforce. Insecure work, lower pay Feminization of poverty: single mothers, larger burden for supporting family Globalization of reproductive work: prostitution, domestic services, brides Women work in EPZs: smaller hands, more compliant Is it better than rural work and the local culture?
The regulation of gender, cont’d 2. Is it good or bad? Liberals: Trade creates jobs for women in manufacturing. Discrimination is a barrier to growth Nationalists: The state should focus on wealth creation Critics: Gender is a key axis of power in society, discrimination 3. Why has it happened? Interests: Feminism as a movement. (Equality of the sexes vs women) Institutions: UN conferences, normative commitment and institutionalization, International organizations: mainstreamed Ideas: Feminism vs equality of the sexes 4. Where will it lead? To change: measure all costs (unpaid reproductive work), equal pay, child care
The regulation of knowledge production (part of chapter 13) 1. What has happened? The knowledge economy: the importance of R&D Science and technology as drivers for innovations Universities important sources for ideas and skilled labor: collaboration with firms Patents encourage diffusion of technology and protects inventor and investor Should medicine for HIV/AIDS be patented? WTO-TRIPS allows some copies Knowledge-based services have the highest value Information technology has many consequences New organization of work: individual work and the break-up of firms New solutions in areas like medicine New markets for leisure products The digital divide: across generations? Half-truths, bad history and wishful thinking?
The regulation of knowledge production, cont’d 2. Is it good or bad? Liberals: Entrepreneurs drive change, productivity and competitiveness Nationalists: Subsidies needed for competitiveness Critics: Privatization, deregulation, de-unionization, flexible labor markets. Job-less growth. Digital divide. 3. Why has it happened? Interests: Big firms need input from the universities, which need funding Institutions: Mission-oriented research councils, tax-deductions Ideas: Knowledge is a key to competitiveness and a public good 4. Where will it lead? Support for new vs old firms (”lock-in”)
The regulation of finance: the monetary system & financial markets 1. What has happened in the monetary system? Bretton Woods 1944: a need for stability and openness. Keynes IMF (balance of payments) and IBRD/World Bank (investments for rebuilding) US funds to buy American goods: the Marshall Plan, military spending, FDI Organizations owned by the member states: voting rights etc. Mundell & Fleming dilemma (1960): You can only have two of three Capital flows/fixed exchange rates/autonomy Currencies fixed to the dollar, fixed to gold. Adjustments for productivity Outflow of dollars, more dollars than gold (Triffin dilemma). Japanese and European currencies undervalued: 1971 floating dollar. Led to inflation, higher interest rates, more FDI in the US + More domestic spending 80s 1985 G5 Plaza accord to reduce the value of the dollar, 1987 G7 Louvre
What has happened, cont’d A change of paradigm in the 80s Monetarism, the Washington consensus, deregulation of finance European integration: the single market, the Euro EMS (ECU, ERM) to avoid stronger DM & inflation in other countries 1992: Floating currencies in the UK and Sweden EMU 1992, Euro 2002, ECB, SGP 1997. OCA? No instrument for adjustment? Devaluation, transfer payments, labor mobility Dollarization in other countries. Should the Chinese currency float? The Euro crisis 2009: due to cheaper credit for the PIIGS Greek debt underreported: 15% rather than 6% of GDP Solutions: European bonds or reduced budget deficits?
What has happened, cont’d USA and China: a risky relationship The US spends on imported Chinese goods (Walmart etc.) China invests in US bonds, the US can have low interest rates & large debt American overspending: war in Iraq, tax cuts, housing boom China dependent on exports for employment The Chinese currency is undervalued Benefits Chinese firms and American consumers Difficult for American firms to sell to Chinese customers More consumption, less investments in the US Difficult for the US to repay loans Chinese firms are rich; China needs to invest in pensions, the environment etc
What has happened, cont’d What has happened in the financial system? deregulation, innovation, crises ”Eurocurrency market” = other currencies New technologies, increasing capital flows Deregulation from 1974: open to foreigners and other sectors New instruments such as derivatives: reduced risks or increased betting? Sovereign wealth funds by governments Hedge funds: betting? Pension funds, institutional investors
What has happened, cont’d Third world debt: reinvested profits from oil, to industrialize or buy oil 1979: US higher interest rates to avoid inflation, reduced demand, led to recession Third world: Higher interest rates and more difficult to sell. Mexico 1982: Reduced demand for oil, unable to pay loans for industrialization IMF Structural Adjustment Programs: liberalization, ”Washington Consensus” NAFTA 1993 locked Mexico into liberal policies Crises mid 90s Mexico, Thailand: A problem with the countries or the system? 1999 Financial Stability Forum, G20 The crisis in 2008: started in the US: bad regulation, shadow banks ”Ninja loans”, risks passed on to others, hidden risks Subsidies to the banks, ”lender of last resort” = moral hazard Stronger role for G20 and IMF. The dollar questioned as reserve currency
Financial deregulation and the crisis 2008 (from chapter 13) Deregulation 1998-2008 Why crisis? Too little regulation or badly executed? Too rationalistic mathematical trading models? Bad economics? Why deregulation and more risk-taking by the banks? Galbraith: fading memory of 1929 Deregulation is a powerful idea The financial community is a political actor for personal gain Capture: over the long-term and at key events Bad governments or bad markets?
Table 1.1 Interpretations of the Asian financial crisis LiberalNationalistCritical CausesState capitalism, Lack of transparency Overrapid liberalization Lack of regulation Power of financial interests, systemic flaws Key issie(s)Corruption, lack of liberal practices Clash of Anglo-American vs Asian values Human suffering due to financial collapse LessonsIncrease transparency and good practice in developing countries Limit financial speculation through state policies Reform international financial system, defend national system
The regulation of finance, cont’d 2. Is it good or bad? Liberals: Long-run growth, fiscal discipline reduces excess spending, makes it more difficult for governments to avoid fundamental problems Nationalists: Loss of autonomy/democracy Critics: Need to slow down (Tobin tax), Instability, inequality, costs shifted to taxpayers/the public 3. Why has it happened? Hegemony? The role of the US (Bretton Woods, Washington Consensus) Bureaucratic politics at IMF? Interests: Investors, US, EU Institutions: unable to handle crises Ideas: Monetarism, political integration 4. Where will it lead? Regulation increases moral hazard?
The regulation of security (hegemony): more important than the economy? 1. What has happened? US economic policy to further foreign policy goals at some times (high politics) From Cold War bipolarity and military-industrial complex, to new perspectives From states to individuals, from military to social issues, states are problems Epistemic communities! Humanitarian intervention and intervention in domestic conflict, R2P Failed states, local warlords funded by valuable resources such as ”conflict minerals” for computers etc. Global terrorism: marginalized fanatics with economic needs? (”human security”) Clash of civilizations? War on terror: impacts? Economic statecraft: Aid (carrots, conditionality) and sanctions (sticks) Impact is dependent on the context and the clarity of the motives. Humanitarian effects. Economic sanctions: Is it best to isolate or to boost interdependence? Transnational crime: Latin America, Europe Pandemics, viruses such as HIV/AIDS: WHO
The regulation of security, cont’d 2. Is it good or bad? Liberals: Militarists & pacifists, economic interdependence and trade make peace Nationalists: Industrial strength important for military strength. Defence procurement Critics: Economic interests and power politics. Structural violence. 3. Why has it happened? Interests: The military-industrial complex? Economy? Fanatics? Institutions: NATO weak? WHO? Difficult to fund developmental aid? Ideas: Traditional security vs human security 4. Where will it lead? Rebuilding of Iraq, Afghanistan?
The regulation of global governance, the system of world order 1. What has happened? The whithering of states? Still the only legitimate representative of the people? NGOs, International organizations From welfare to competition state, from national to international economy Attractiveness to TNCs The ”national security state” From US hegemony to the BRICS Major rules and organizations only change after wars. The post-WWII order Governance/regimes: Multi-level, multi-actor States create international organizations, which force states to comply (WTO, IMF) or influence them (ILO, OECD). WTO vs ILO (States in a Prisoners’ Dilemma) Structural power: by whom? TNCs, business organizations? NGOs, Global civil society? ”Uncivil groups”, ”the covert world”. A variety of interests in each category! Transnational networks too! (”private authority”) The UN Global compact 2000
The regulation of global governance, cont’d 2. Is it good or bad? Liberals: Some global regulation is needed to protect the rule of law Nationalists: Intergovernmental arrangements are acceptable Critics: Global democracy is desirable but not feasible 3. Why has it happened? Interests: Firms and politicians take initiatives, NGOs Institutions: Intergovernmental organizations only change by consensus Ideas: Democracy can only be national vs must be global
The regulation of global governance, cont’d 4. Where will it lead? Challenges: Development and growth: Material and social investments needed. Power and resources to the poor. Environmental impact? Lack of coordination. The role of financial crises Equality and justice (fairness or redistribution?): Better or worse with globalization? (Asia vs Africa?) Winners and losers: right-wing populism The fair trade movement: resource prices and labor standards ”Make poverty history”: against northern protectionism etc. Democracy and regulation: Are the IMF and other IOs undermining national democracy? (Why national debts?) Should IOs be reorganized? More open to stakeholders? Coleman & Porter (2000): Six criteria to judge the degree of democracy surrounding a regime/organization: transparency, openness to direct participation, quality of discourse, representation, effectiveness and fairness Is supranational democray better than intergovernmental? Is overlapping regulation good or bad? Lack of accountability vs pressures on governments
Conclusions What have we learned? The three paradigms help us understand positions Conflict or win-win situation? Development + environment + the north? Where will it lead? Structural change will continue International and domestic politics Interests: winners vs losers? A variety of background characteristics Ideas: liberals, nationalists and critics Institutions: structures the conflict! Epistemic communities build coalitions based on a story/interpretation