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’s economic 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.