INTRODUCTION TO INTERNATIONAL POLITICAL ECONOMY Political Science 186 Global Studies 123

I. Introduction – Conceptual and Analytical Issues 1. What is International Political Economy? 2. What are the issues? A. Actor behavior B. System governance C. Globalization

I. Introduction (cont’d) A. Actor Behavior. How do we explain and evaluate the actions of states? 1. Levels of analysis: international (structural, systemic) vs. domestic 2. State (government, public sector) vs. society (markets, private sector)

I. Introduction (cont’d) B. System Governance. Formulation, implementation, and enforcement of rules; promotion of cooperation; management of conflict 1. Governance without government; governance mechanisms (regimes) 2. Organizing principles: automaticity, supranationality, hegemony, pluralism (negotiation, cooperation)

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

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

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

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

II. Analytical Perspectives on IPE - Marxism A. Focus: classes, social forces B. Nature of economic relations: conflictual (zero-sum game) Relationship between economics and politics: economics drives politics

III. Alternative Perspectives on Globalization 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 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?

III. Globalization (cont’d) 4. Perspectives on causes and consequences A. Liberalism: triumph of markets; good for economic welfare B. Realism: product of state policy; bad for power of states C. Marxism: triumph of markets; bad for poorer states and disadvantaged classes

IV. International Economic History – Nineteenth Century 1. Three major developments 2. Political economy issues 3. Key lessons

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

IV. Nineteenth Century - political economy issues 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? C. Core-periphery relations: What accounts for the “new imperialism?”

IV. Nineteenth Century - key lessons 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

V. International economic history – interwar period 1. Major developments A. Breakdown during World War I B. Attempted reconstruction during 1920s C. Renewed breakdown (Great Depression) during 1930s

V. Interwar period (cont’d) 2. Political economy issue: What explains the failure of the attempted reconstruction? A. Liberalism: markets failed because of wrong-headed government policies B. Marxism: internal contradictions of capitalism C. Realism: absence of effective governance (theory of hegemonic stability)

VI. International economic history – postwar period 1. Major developments 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) C. Unprecedented economic growth D. Rise of Europe, Japan; East Asia; China E. Globalization F. Increased instability after 1971-73

VI. Postwar period (cont’d) 2. Political economy issues A. What explains the origins of the postwar system? B. What accounts for the relative success of the system before the 1970s? C. What accounts for the increased instability after 1971-73? D. What can be done to manage the system in the future?

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

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

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

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

VIII. Money and Finance (cont’d) 3. Postwar experience a. IMF, Bretton Woods system b. Financing/liquidity: US dollar, SDRS, capital markets c. Adjustment: breakdown of pegged exchange-rate system d. Debt problems; financial crises 4. Managing the system a. Exchange rates b. International capital mobility

IX. Regionalism 1. Basic issue: between the national and global levels, regionalism can complicate the issue of system governance 2. Trade Regionalism (regional trade agreements) 3. Monetary regionalism (monetary unions, etc.)

IX. Regionalism – Trade (RTAs) a. Types of RTAs b. Advantages and disadvantages i. For individual countries ii. For overall system (trade creation, trade diversion) c. Postwar experience i. First wave: 1950s-60s ii. Second wave since 1980s d. Why the renewed interest in RTAs? e. Significance for system governance

IX. Regionalism - Money a. Types of monetary regionalism: horizontal, vertical b. Advantages and disadvantages c. Recent experience i. Precedent of the euro ii. Rise of currency competition iii. Currency regime choices today d. Significance for system governance

X. Economic Development 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” 3. Postwar experience: mixed – some success stories, many disappointments

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

X. Development (cont’d) 5. Options for development strategies a. Export promotion i. Traditional exports Problems: inelastic demand, protectionism 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 b. Import substitution (import substitution industrialization – ISI) c. Regionalism

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

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

XII. Energy 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 3. Second regime: OPEC a. Dramatic emergence in 1973 b. Ups and downs of OPEC power since 1973

XII. Energy (cont’d) 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) a. Low absorbers vs. high absorbers b. Special role of Saudi Arabia 6. Prospects a. Demand side (conservation) b. Supply side: exploration, technology, alternative forms of energy

XIII. Multinational Corporations 1. Definition 2. Perspectives on the MNC 3. History a. Until 20th century, mostly extractive (farming, mining, etc.) b. Real growth began in 1950s, for 2 reasons i. European Common Market (trade diversion) ii. Decolonization (ISI development strategies) c. Changing sources and destination of foreign direct investment (FDI) i. Increasing share of FDI from developing world ii. Most FDI goes to Europe and North America, not LDCs

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

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