Unit Three: Thinking Liberally - Diversity and Hegemony in IPE Dr. Russell Williams

Outline: 1.  Introduction – basics of Liberal Political Economy 2.  “Normative” Liberal Approaches 3.  “Analytical” Liberal Approaches 4.  Conclusions 5.  Further Reading

Required Reading:   Cohn, Ch. 4.

Class Discussion Reading:   Eric Helleiner, “Economic Liberalism and Its Critics:

The Past as Prologue?,” Review of International Political Economy, 10-4 (November 2003), pp. 685-696.

1) Introduction – Basics of Liberal Political Economy:

  Most popular approach in IPE   Ideological basis for:

  Most international institutions   Most states’ international economic policies   The “Washington Consensus”

  Supported by:   Leading states   MNCs   Most academics

  However, is it a single school of thought?   Diverse and complex = may encompass too wide a body of

thought to be a single school   Often defined by its opposition to realism

  Residual and “discursive”

  The “Liberal Paradigm”:

1) Methodological Individualism 2) Political pluralism 3) Markets preferred to states

  E.g. Purpose of cooperation = achieve most efficient use of world’s resources

4) Optimistic about potential for international cooperation   E.g. Focus on “absolute gains”, not “relative gains”

  Absolute benefits of cooperation seen as large

5) International politics “separable” from international economics (?)

  Two kinds of liberal approaches:   Normative   Analytical

2) “Normative” Liberal Approaches: a) Classical Liberalism or “Orthodox Liberalism”:

(Locke, Smith, Ricardo and early economics)

  Free markets more efficient   E.g. Smith’s “invisible hand” - Linked production

more efficiently to consumption through “voluntary exchange”

Three key principles:

1) Accumulation of profit leads to overall economic growth   States’ job = create conditions for profit

2) Labor theory of value:   Price of goods directly proportional to the value of labor

in production

3) “Comparative advantage” – “invisible hand” of free trade

  Different then normal “Absolute Advantage” and specialization

  If each country produced what they were most efficient at, Regardless of whether they were the most efficient producer over-all, total production would be higher

=“Absolute gains”

Without trade: Wine Cloth

Portugal (18)/2=9 (12)/4=3

England (15)/5=3 (15)/5=3

Total = 12 Wine 6 Cloth

With trade & specialization: Wine Cloth

Portugal (30)/2=15 (0)/4=0

England (0)/5=0 (30)/5=6

Total = 15 Wine (+3) 6 Cloth

 Total output higher = absolute gains

2) Labor theory of value:   Price of goods directly proportional to the value of labor

in production

3) “Comparative advantage” – “invisible hand” of free trade

  Different then normal “Absolute Advantage” and specialization

  If each country produced what they were most efficient at, Regardless of whether they were the most efficient producer over-all, total production would be higher

=“Absolute gains”

  Powerful proof of benefits of free trade

2) “Normative” Liberal Approaches: b) Marginalism and Neo-classical economics:

  Liberal economics develops as a “science”

  Marginalism: Value of goods determined by price . . . Not labour

= Neoclassical Economics: Combined arguments supportive of free market, with a mathematically/scientifically inclined school of economics.   Assumed:

1) Markets were perfectly competitive 2) Markets moved towards equilibrium

  Theoretically suggested little role for the state in managing the economy

2) “Normative” Liberal Approaches: b) Marginalism and Neo-classical economics:

  Liberal economics develops as a “science”

  Marginalism: Value of goods determined by price . . . Not labour

= Neoclassical Economics: Combined arguments supportive of free market, with a mathematically/scientifically inclined school of economics.   Assumed:

1) Markets were perfectly competitive 2) Markets moved towards equilibrium

  Theoretically suggested little role for the state in managing the economy

  E.g. A natural and efficient division of labour will develop = Only “irrational” governments would ignore the benefits of

specialization

c) Embedded Liberalism and Keynesianism:   a.k.a. “Interventionist” liberalism

 Saw benefits of free markets, but argued markets had to be “embedded” in social and political realities

 Sources:   State desire for “autonomy”   Growing popularity of Keynesian economics

c) Embedded Liberalism and Keynesianism:   a.k.a. “Interventionist” liberalism

 Saw benefits of free markets, but argued markets had to be “embedded” in social and political realities

 Sources:   State desire for “autonomy”   Growing popularity of Keynesian economics

  “Keynesianism”: Argued there was a need for macroeconomic state intervention in the economy   States should manipulate monetary and fiscal policies to:

1) Increase demand during recession 2) Decrease demand during “overheated” economic growth

“Keynesianism” . . . .

 Keynes’s ideas often called:   “Counter-cyclical demand management”   “Macroeconomic stabilization”

 Justified the growth of social/welfare policies and was basis of Post War “class compromise”

 Key point: Post War economic cooperation designed to make Keynesian policies possible   Reduce domestic radicalism   Reduce international conflict   Ensure states would continue to support free trade

 Result – Liberal free trade was “embedded”

d) “Neoliberalism”:  Return to the neo-classical economics and a rejection of

Keynesianism

 Beliefs: 1) Individual freedom goal of society 2) Self regulating market still most efficient 3) Where market failures occur, state unlikely to improve on

the situation 4) Profits the basis of economic growth 5) Size of the state should be reduced = Increase the

scope of the market in allocating resources in society Neo-Liberals see the state as playing only a “residual”

or “supplementary” role: E.g. National Defense

3) Analytical Liberal Approaches: Much liberal analyses in IR focused on:

 Problem of interstate cooperation  Challenge of Realism

Major “groups” of liberal arguments: 1) “Institutionalist” approaches: Focus on problems of

interstate cooperation and international institutions 2) “Interdependence” approaches: More clearly “liberal”-

focus on domestic politics, interests, and institutions   E.g. More interest in non state actors

  Both have evolved as explanations for why there is more economic cooperation then realists assume

a) Liberal Institutionalism:   E.g. Robert Keohane = “Neo-liberal institutionalism”

  Attempted to “subsume” “neo-realism” - argued: 1) States motivated by:

 Anarchy and distribution of power  Pursuit of wealth – E.g. absolute gains from

economic interdependence and free trade 2) Economic cooperation (liberalism) impeded by fear of

“cheating”  E.g. “Prisoner’s Dilemma”

• United State’s preference = DC>CC>DD>CD • Canada’s preference = CD>CC>DD>DC

• Realism: If both states are rational, fear of cheating and “relative gains” leads to: Equilibrium at (D,D)

Key Point: Both states worse off then they could be . . . Not “Pareto-Optimal”

  Neoliberal Institutionalists argue (C,C) is often equilibrium  Why?

1) “Iteration” - repeated interaction increase likelihood of cooperation

2) Institutions – reduce fear of cheating Surveillance & transparency Dispute resolution

a) Liberal Institutionalism:   E.g. Robert Keohane = “Neo-liberal institutionalism”

  Attempted to “subsume” “neo-realism” - argued: 1) States motivated by:

 Anarchy and distribution of power  Pursuit of wealth – E.g. absolute gains from

economic interdependence and free trade 2) Economic cooperation (liberalism) impeded by fear of

“cheating”  E.g. “Prisoner’s Dilemma”: Category of game

used to explain possibilities of cooperation . . . .   International institutions can increase possibility of

pareto optimal outcomes

b) “Regime Theory”:   Key liberal response to HST – explains endurance of

international cooperation in absence of a hegemon

  “Regime”: Institutional relationships that deals with specific issue areas in international politics

  E.g. The trade regime

 Create regularity in actors’ behavior and expectations  Made up of formal institutions, decision making

procedures, rules, principles and norms . . . .

3) Analytical Liberal Approaches: Other liberal theories are less institutional – see IR in more

pluralistic terms – states are not unitary actors . . . .

a) “Interdependence Theory” (Keohane and Nye)   Increased economic integration alters “calculations” of states -

creates costs for non-cooperation   States not free to pursue unilateral policies because of complex

web of relationships

  Interdependence can be hierarchical :   Interdependence Asymmetric interdependence

Dependence

  Suggests:   Power politics not separate from economics . . . .   Interdependence, once achieved, creates domestic pressure to

keep cooperating   Domestic politics “matters” . . . .   “Globalization” changes nature of global politics

b) Republican Liberalism:   Emphasis on domestic politics   Domestic political institutions make cooperation more or

less likely   E.g. Democracy makes it harder for “rent seeking” elites to lead

states into irrational policies

  Examples:   Theory of Democratic Peace   Democracies more likely to support free trade (Moresescik)

  By ignoring those different domestic institutional contexts, realists cannot explain why democracies get along better then non-democracies

c) Commercial Liberalism:

  Economic interdependence alters individual preferences, which via domestic politics changes “state preferences”   State directly transmits the desires of citizens/firms

  Issues are “intermestic” – no clear distinction between domestic and international politics

  Suggests:   Non-state actors likely to be important   Economic Globalization supports “Neoliberalism”, not “neorealism”

Interdependence:

More international trade and

investment -Advent of MNCs

Domestic Politics

More domestic actors with

international economic interests

State Preferences:

Support for free trade and global

economic liberalism

Further Reading:   Robert O. Keohane and Lisa L. Martin, “The

Promise of Institutionalist Theory,” International Security, 20-1 (Summer 1995), pp. 39-51.

  Robert O. Keohane and Joseph S. Nye, Power and Interdependence, (Scott, Foresman, 2nd ed., 1989), chapter 1 (pp. 3-22) and chapter 2 (pp. 23-37).

Either is a good example of two major varieties of liberal thinking . . . .

4) Conclusions

Strengths of Liberal Approaches:

  Incorporation of domestic politics . . .   Levels of analysis division of international/domestic

politics unrealistic

  Empirical . . .   Can explain persistence of economic cooperation

  Globalization . . .   Liberal approaches dealing directly with the meaning

of globalization for modern IPE and domestic politics

4) Conclusions

Problems?

  Too many considerations! Not parsimonious

  Lack of focus on “distributional consequences” of international politics   Is liberalism idealistic in this regard?

  Perspective is very ideological   Global capitalism and free markets are inherently

good

For Next Time:  Unit Four: Historical Materialism (a.k.a

“Marxism”) and IPE (October 6 & 8)  Essay Proposal due in class, October 8!!!!!!  Required Reading:

 Cohn, Ch. 5.  Class Discussion Reading:

 Robert W. Cox, “Civil Society at the Turn of the Millennium: Prospects for an Alternative World Order,” Review of International Studies, 25 (1999), pp. 3-28.