International Political Economy

• Two Basic Questions:

• What makes a nation wealthy?

• What is the proper role of government in economic activity?

Three Paradigms

Right Left

liberalism nationalism structuralism

dependency Marxism

Right vs. left: amount of government intervention

Liberalism

• Adam Smith (1723-90; Scotland)

Free Trade

Government

intervention in trade

Tariffs, QuotasNon-Tariff Barriers

Competition in a Free Market

The market for chalk in State A

Company A Chalk (State A) $100/box

Company B Chalk (State B) $90/box

What do you buy?

Government InterventionGovernment of State A imposes 20% tariff

on all foreign chalk – aimed at Company B

Company A Chalk (State A) $100/box

Company B Chalk (State B) $108/box

Now what do you buy?

Two WorldsGovernment Intervention

• Expensive chalk

• Same quality and choices

Free market

• Chalk prices go down

• Quality goes up

• Innovation– Colored chalk– Dustless chalk– Sidewalk chalk

The Invisible Hand

Lamborghini Diablo Dodge Aires K-Car

The Invisible Hand at Work

The Benefits of Competition

Multinational Corporations

Premises of Nationalism

• States compete economically

• Nations with the most advanced economies win economic competition

Theorists of Nationalism

Friedrich List, Prussia, 1789-1846

Alexander Hamilton, USA, 1755-1804

Hamilton

“Report on the Subject of Manufactures” 1791

Industrial = National = Independence

power power

ListStrong Economies• Mature Industries

• High quality

• Low cost

Do you buy this?

Weak Economies• Infant Industries

• Low quality

• High cost

Or this?

Economic Structuralism

• 1. Marxism

• 2. Dependency Theory

Marxism, Communism

• Karl Marx (1818-1883)

• Fredrick Engels

• The Communist Manifesto 1848

Communism in Power

Soviet Union 1917 –20 million deaths in 1950s

Lenin Stalin

Communism in Power

People’s Republic of China 1949–Estimates from 50-100 million

(1949-76)

–Mao Zedong