What is International Political Economy

7/23/2019 What is International Political Economy

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INTERNATIONAL POLITICAL ECONOMY

What is international Political Economy?

Relationship between states: black box

IPE also studies the relationship between the States.

But most often we open up the box and we look at the State.o Neotiators: how the! do neotiations.

o Elites

Economic orani"ations: #$%& I'(& #orld Bank.

)fter ##II the term *embedded liberalism+ ,Ruie-

(ree trade promises two thins: peace and prosperit!. $his is economic liberalism.

CLASS I: What is International Political Economy.

$he interrelationship between the state& market and societ! in di/erent nations.

) s!nthesis of methods& insihts from economics& political sciences& sociolo!&

,histor! and philosoph!-. It is a broad 0eld.*an attempt to s!nthesi"e anal!tical elements of separate academic disciplines to

better explain complex& realworld problems that span ph!sical and intellectual

boundaries+ ,Balaam and 1illman 2345-. $his de0nition is too broad.#hat kinds of 6uestions are we askin in the 0eld of international political

econom!7$he complexit! of IPE. International relations: how much has the 0nancial crisis

detracted from the abilit! of states to pa! for defense. International Economics:

how has the crisis impacted forein in8estment& trade& and the 8alues of di/erent

currencies7 9omparati8e Politics: what is the capabilit! of domestic institutions to

respond to the needs of those ad8ersel! a/ected7. Sociolo!: what is the impact of

the crisis on consumption trends for di/erent roups& such as the wealth!& middleclass and labor.

e!ates on metho"olo#y

Note that !our source outline perspecti8es

$his reects the di8ersit!& as well as ma;or methodoloical debates in the 0eld.

Some arue that speciali"ation promotes a scholarl! blindness that comes from

rel!in on one method& one perspecti8e.%thers aim for parsimon! ,speciali"ation-.

$ey "imensions o% IPE

$he political dimensions: the use and distribution of power

$he economic dimensions: deals with how scarce economic resources are

distributed amon central actors.#ho are the central actors in IPE7: States. I%.

1omestic le8el: o8ernments& $ransnational corporations. 'N9


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(ocusin on the relationships between a 8ariet! of political& economic& and social

actors& as well as institutions.Emphasi"in di/erent 8alues& actors and solutions.

Basicall!& perspecti8es are *lenses+ that allow us to anal!"e and understand

e8ents.

IPE (ers(ecti&es

9entral 6uestion: #h! do we operate with di/erent perspecti8es

*o'r le&els o% analysis

$he lobal le8el of anal!sis: focuses factors such as chanes in technolo!&

commodit! prices& the climate.$he interstate le8el of anal!sis: emphasi"es the relati8e balance of political&

militar! and economic power between states.

$he State=Societal le8el of anal!sis: domestic con0urations: interests roups&

electoral pressures& and culture.

$he indi8idual le8el of anal!sis: state leaders: emphasi"es ps!cholo!&

preferences& political interests& and aspirations.

+lo!ali,ation

$he term *lobali"ation+ bean appearin in IPE literature in the mid4>?3


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)s alred! mentioned& we operate with di/erent perspecti8es in IPE. #e will focus

on:o $he mercantilist perspecti8eo $he economic liberal perspecti8eo $he structural='arxist perspecti8e.o

The Mercantilist Pers(ecti&e

'ercantilist economic policies are associated with statebuildin in the 4Cth

centur!& particularl! in Europe. Securit! and mone! is 8er! important. Dou need

resources that can be con8erted to militar! power.Europe was characteri"ed b! warfare: conse6uentl!& states souht to sustain

wealth and power in order to protect their borders.

istoricall!& classical mercantilist connoted e/orts b! states to maximi"e power

ence& it is closel! related to the Realist perspecti8e in IR.$he Enlish mercantilist literature enerall! encouraed state reulation of trade.

owe8er& as Irwin ,4>>?- explains& the oals of state reulation 8aries:o $he accumulation of resourceso $he promotion of national wealth and economic rowtho $he achie8ement of a fa8orable balance of tradeo $he maximi"ation of emplo!mento $he protection of home industr!o $he increase of state power

(rom our perspecti8e& its is important to stud! mercantilism because:o 'ercantilist doctrines constitute a ma;or epoch in economic thouhto 'ercantilism pro8ides the immediate backdrop for the emerence of free

trade arumentso 'ercantilist or protectionist policies are still pursued b! states.

$he 0rst notable mercantilist publication appeared in 4F?4.o 3The "isco'rse o% Common)ealth o% this realm o% En#lan"4 B! Sir

Thomas Smith.o %n one hand& $. Smith reconi"ed that trade was indispensable. e also

acknowleded that domestic prices would increase as a result of trade

barriers.o %n the other hand& $. Smith beloned to a school who associated imports

with superuous consumption. ence& he ad8ocated hea8! taxes on luxur!

oods. It limits the imports because it disuades the foreiner to export to

that countr!. Second& prices increase and !ou will decide to o for the

national product. Dou di8ert consumption patterns.o )s most mercantilist after him& $. Smith ad8ocated the promotion of exports

to et *specie+. owe8er& he ob;ected to exportin oods that would ha8e to

be processed abroad and imported once aain.o 2 conclusions emered from Smith


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Raw materials should be processed at home. $he 8alueadded would

sta! in the home market

Note: the emerence of the nationstate as the primar! actor in internationa

relations set clear boundaries to trade polic!. $hat is& ri8alries between states a8e

rise to the 8iew that an increase in a countr!


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amilton was the Secretar! of treasur! ,4??4>4-. @.S 1eclaration of

Independence was written in 4C.

amilton stated thato Subsidies ha8e the most immediate e/ecto @nlike tari/s& subsidies are less likel! to produce scarcit!o Subsidies promote exports.

Neo-Mercantilism

$oda!& we use to term neomercantilism to account for a 8ariet! of instruments toprotect wealth and power.$he term *protectionism+ is enerall! used to describe the existence of trade

barriers.

The Economic Li!eral Pers(ecti&e

The core i"eas o% li!eralism "eri&e %rom A"am Smith8s the )ealth o%

nation 9;


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o Smith en8isioned a di/erent role for the o8ernment than mercantilist had

ad8ocated.o Gaisse" fair: let the market be: the in8isible hando owe8er& orthodox liberals outline important functions for the o8ernment:

Pro8idin internal and external securit!.Establishin essential public oods such as infrastructure.Pre8entin the spread of disease ,public health-

Establishin propert! rihts and enforce contracts: John Gocke ,4CK2435-.

o $his essentiall! means that the indi8idual and indi8idual rihts is at the

center of orthodox liberalism. Example: pri8ate propert! rihts.o 4?4F: 9orn Gaws: don


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o In his famous example& Ricardo discussed trade between Portual and

Enland. is model encompassed the followin assumptions:Both countries produced 2 t!pes of ood: cloth and wine

Gabor is the sole input of productionGabor producti8it! 8ar! between industries and countries.

o Ricardo di/ered from Smith in that he assumed about one countr! ,Portual-

had more producti8it!.

o $he lesson is that to identif! a countr!


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6ohn Mayar" $eyneso John 'a!nard He!nes ,4??K4>5C- was a British economist

%ften considered the *father+ of the heterodox schoolo He!nes was later important in terms of establishin the Bretton #oods

instituions.o e proposed bankin insurance& work insurance.o (or He!nes& the 6uestion re8ol8ed around how to *restart+ the domestic

econom!.

o He!nes proposed that the state take the lead 9onstructi8e state inter8ention. $he problem is when the rentseekers

search for the help of the o8ernment.o $his line of thinkin has become known as the heterodox school& which

dominated the domestic economies after ##II.o $he He!nesian 9ompromise

) the international le8el& we talk about the *He!nesian 9ompromise+: )

9ompromise that reconciles state and international interests He!nes pla!ed a ke! role in establishin a new international economic

order

$he Bretton #oods S!stem.

The International Le&el

o In 4>55& $he Bretton #oods Institutions were established in order to manae

the International economic s!stem $he I'(: stable international s!stem to create more trade

$he #orld Banko In 4>5& the Aeneral )reement on $ari/s and $rade ,A)$$- was established

$he purpose was to liberali"e trade. It lasted until 4>>F: it was a lea

framework. The En" o% a Era


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o $he period 4>5Flate 4>C33. $he European 9ountries are

constructed.Ination was on the rise on the @.S& but the dollar was tied to the old

standard.$he oil shocks of 4>K and 4>> sent the #estern economies into a

recession. 4>K was the 0rst oil shock.

@.S. had a old standard. $he! could not deal with ination at home. )oatin exchane rate is imposed. $he 8alue of the dollar was

determined b! the o/er and demand. The Ret'rn to Economic Li!eralism 93Neoli!eralism4K-. $he neoliberal mo8ement has the inuenced of a!ek. >aye=8s Roa" to Ser%"om 9@@2-. Polanyi8s the #reat trans%ormation 9@@>F4>>>: 2CQo 23332335: 5.FQ

In Areat Britain& the *birth+ of IPE as a 0eld has been accredited to Susan Strane.

$he 0eld adapted a 8er! di/erent approach to stud!in.

Mana#in# the +lo!al Economy

International Coo(eration a%ter WWII

$he Bretton woods 9onference resulted in a lobal economic instiution.

$he main ob;ecti8es at Bretton #oods:o $o manae the international econom!o $o rebuild wartorn economies.o $o a8oid the disastrous e8ents of the interwar period.

International institutions pro8ide a forum for dialoue for countries. $he

assumption is that we can cooperate ,#ilson after ##I-.$he Post #II architecture consisted in:

o $he International 'onetar! (und ,I'(-: promote short terms loans and

monitor the old standard ,$he I'( coordinated-.o $he #orld Bank: bank of reconstruction aimin at the time to Europe.o $he eneral )reement on $ari/s and $rade ,A)$$-& 4>5. Its not part of the

B# institutions.$he #orld $rade %rani"ation 4>>F.

$he international institutional framework was based on liberal economic principles:

ence& one of the primar! functions of the framework was o reduce uncertaint!

and unpredictabilit! of international trade relations. Aoal: Stabilit!.o $he coordinatin abilit! of the I'( with the oldstandard helped to reduce

uncertaint!.o $he A)$$: states can basicall! neotiate and there is a framework.

$oda! the lobal trade reime is based on components:o $radeo National reulationso International areements.

)s discussed& man! economists attribute economic rowth in the post##II period

to this architecture. owe8er& that doesn


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o ence these are ma;or factor explainin Britainthcentur!. $hat is to sa!& Brintain4K& the @S had become the larest industrial power.

>e#emonic sta!ility Theory: The inter)ar Perio" -D

$he weakenin of British heemon! resulted in a decline in world trade. Ex: we

obser8e that other European states abandoned their free trade policies around

##I. $his resulted in an international tradin s!stem characteri"ed b! hih

barriers. #e obser8ed a relati8el! *close+ lobal econom!. #hat about the @.S.7 #e recall that after ##I& the @S emered as the larest

industrial power and creditor nation. $his meant that power had shifted from

Britain to the @S. Remember that Aerman! was de8astated as a result of ##I. $he

ersailles $reat! and the #ar Auilt 9lause. )fter ##I& howe8er& the @S did not assume an acti8e role in international relations.

eemonic stabilit! scholars ha8e attributed the collapse of trade in the interwar

period to the absence of leadership. Instead of assumin leadership& the @.S. imposed substantial trade barriers after

##I. )t the same time& the @S used hih barriers to accomplish 2 domestic oals:

o $o protect infant industries.


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o $o enerate re8enue for the federal o8ernment.

In 4>4K& the @S attempted to liberali"e trade with the n"er)oo"-Simmons

Tarisunder the leadership of the 1emocratic Part!. $his resulted in lower tari/s.

owe8er& when the republicans ained control of the 9onress durin ##I& trade

liberali"ation was re8ersed. )s a result& the Republican 9onress passed the *or"ney-McC'm!er Act in

4>22. $his created customs duties. It also a8e discretionar! powers to the

president allowin him to raise or lower a i8en tari/ b! F3Q. In 4>2>& the @.S. stock market crashed. )s a result& we see the @.S. intensif!in

e/orts to protect domestic producers.o Example: The Smooth->a)ley Act,4>K3-: increased tari/s to their hihest

le8els in the 23thcentur!. Europe retaliated with imports restrictions.o $he Smooth awle! )ct was used to protect )merican farmers. $he

expansion of non European ariculture had lead to o8erproduction. In turn&

farmers faced lower prices and started lobb!in the o8ernment for

protection from forein competition. )s a result erbert oo8er2?

presidential campain sei"ed the opportunit! to *har8est+ farm 8otes.o owe8er& once the industrialists learned that the farmers were protected b!

tari/s& the! started lobb!in the o8ernment. In turn politicians were

captured b! interest roups and tari/s rose across the border. Reconi"e the

rentseekin o8ernment7 Dou i8e mone!& in order to et political support. Ne8ertheless& there were some e/orts to open the @.S. econom! in 4>K5. Example:

$he @S 9onress passed the Reci(rocal Tra"e A#reements Act in D@

9RTAA-. )merican polic!makers expressed that domestic reco8er! depended in

part upon re8i8ed international trade.o #ith the R$))& Roose8elt asked 9onress for authorit! to neotiate

reciprocal tari/ reduction areements with other countries.o ence the R$)) deleated tari/settin polic! to the president.o $he R$)) resulted in 4> bilateral areements & !et tari/ le8els remained

relati8el! hih. International trade liberali"ation did not follow.

>e#emonic Sta!ility Theory: .S Lea"ershi( a%ter WWII

#e obser8e speci0c chanes in @.S. polic! chanes after ##II with the

establishment of the existin international architecture.o )ccordin to heemonic stabilit! theor!& the @.S. leadership was central for

world trade to reco8er after ##II.

) heemon is the preponderant power: it has lare share of the power in theinternational s!stem. )fter ##II& $he @S a8e 2 factors:

o %rani"e the international 0nancial s!stemo Suppl! securit! to the international s!stem.

$he loical proression of the arument& is that in absence of a heemon&

cooperation will be dicult.


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The +eneral A#reement on Taris an" Tra"e5 @

$he initial ob;ecti8e of the trade neotaitions that took place after ##II was to

establish an actual orani"ation.o $he 9onress of the @nited States thouht it was too tiht.o $he! ha8e to expose their markets to international competition.

In fact& the International $rade %rani"ation ,I$%- was concluded and sined in

4>5?. $he I$% would ha8e completed the *triad of functional orani"ations+ to promote

international economic relations. So& what happened to the I$%7

o $he @.S 9onress failed to ratif! it and without @.S in8ol8emenet the I$%

would ha8e been irrele8ant.o Recall that: b! the 4>F3& the @.S. account for nearlt 4Q of world trade. It

shares was about one and a half times that share of the @.H.o B! 4>C3& @.S trade was 23Q of o8erall world trade. %8er twice as lare as

@H. In place of the I$%& countries relied on the A)$$ which had been established in

4>5. $he A)$$ was a contract embod!in trade rules that were neotiated durin the

multilateral tari/ neotiations in 4>5. States were *contractin parties+. Some describe that A)$$ rules as temporar! mechanisms put in place to ensure

that countries lowered tari/s as areed.

Articles

$he A)$$ contains KF articles.

$he most important rule is that of *nondiscrimination+.o

)rticles i and iii )rticle i is known as the *most fa8ored nation principle+. ,exam-.

The M*Nprinciples re6uire that an! ad8antaesuch as lower tari/ ranted to a

countractin will be accorded to all other contractin parties. 1urin neotiations&

this principle attacked pre8ailin practices of bilateral tari/ preferenceso It was a ma;or issue for the @.S.o In essence& )rticle I ensured that a countr! could not discriminate externall!

between countries. Non "iscrimination. )rticle iii which deals with *national treatment+ oblied

contractin parties to treat forein products no less fa8orabl! than domestic

products. $axes and other re6uirements. ence& )rticle iii ensured that a countr! could not discriminate aainst imported

products once it had cleared custom. $he second important A)$$ rule was the prohibition in )rticle xi aainst

*6uantiti8e+ and other *nontari/ restrictions+ to trade.o $he A)$$ rules souht to deleitimi"e the use of protectionist measures

other than tari/s. 9onse6uentl!& )rticle xi is often rearded as a ke! constraint on o8ernments.


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) third A)$$ rule deals with the methodolo! adopted b! the A)$$ for reducin

trade restrictions. $he reciprocit! concept is the most interestin aspect of this

methodolo!. In simple terms this means that e8er! countr! is treated e6uall!. $he reciprocit! principle was the *uidin beacon+ of the A)$$ in its earl! da!s.

owe8er& it came under scrutin! when de8elopin countries started to ;oin.o (rom their perspecti8e& it is 6uestionable whether the e6ual treatment of

*une6ual partners+ could be considered *reciprocal+.o ence& industriali"ed countries ranted numerous concessions to de8elopin

countries once the! entered into the A)$$.

The main %'nctions o% the +ATT are:

(acilitatin neotations

Settin transparent rules and standards

Establishin norms

)dministratin trade areements

Pro8idin dispute settlement mechanismo $he A)$$ was substantiall! weaker as an orani"ation than the #$% toda! it

lacked a dispute resolution mechanism.$he A)$$=#$% orani"es their neotiations in *barainin rounds+.

o Each round has aimed to reduce speci0c barriers to trade.

$o date& ? rounds ha8e been concluded and the >thround is still onoin ,the 1ohaRound-.

The Frst tra"e ro'n"s. 4>5: Aene8a0. 4>5>: )nnec! ,(rance-D. 4>F4: $or6ua! ,Enland-

@. 4>FC: Aene8a2. 4>C3C: 1illon Round;. 4>C5 4>C: Henned! Round. 4>K>: $ok!o Round.

Tra"e Ro'n"s

e&elo(in# iss'eso 4>?C4>>K: @ruua! Roundo 2334: 1oha Round ,the 0rst #$% round-

$he 0rst rounds were mainl! about the leal framework of the A)$$ and tari/s.

owe8er& we obser8e chanes in the @ruua! Round ,4>?C>K-: reects the

increasin in8ol8ement of de8elopin countries.$he @ruua! Round is also sini0cant because it established the #orld $rade%rani"ation.

$rade liberali"ation for economic rowth.

$enne"y Ro'n" 9;D-;ar" c'rrency

'one! issued b! lare countries with reliable and stable political economies.

) hard currenc! can be directl! exchaned with other hard currencies. $hat is& hardcurrencies are easil!acce(te" %or international (ayments.

So%t C'rrency

$he term is used to denote currencies that are not widel! accepted on theinternational market. $hatis5 its &al'e may !e too 'ncertain.

Im(ortant terms #hen currenc! becomes more 8aluable relati8e to other currencies ,appreciate-.

$he decisions of national o8ernment to oat or to 0x currencies interact to createand international monetar! order

International monetar! reimes: facilitate international exchane and cooperation.Reduce 8olatilit! in the tradin s!stem.

9an there be world without world o8ernment7o )n international monetar! order pro8ides predictabilit! in currenc! 8alues

across borders. In basic terms it is an arranement that is widel! accepted too8ern relations. ,N% SE @E PE1%-

$here are 2 principles features of an international monetar! s!stem:o $o clarif! wether currenc! 8alues are expected to be 0xed or oatin ,or

mixed-o $o establish a common base of benchmark to which currencies can be

compared. ence& a successful international monetar! reime depends on interactions amon

the o8ernments of the world


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standardo National paper currenc! standard: oatin exchane rates. 9urrenc! is

backed onl! b! the commitments of its issuin o8ernments to support it.o

istoricall!& the international monetar! order has taken K forms:o 4?3s4>45: the classical old standard tied currencies toether.o Post ##II 4>K: the Bretton woods monetar! s!stem: the modi0ed old

standardo 4>Ktoda!: oatin exchane

$he 9lassical old standardo ) 0xed exchane rate s!stem& which linked the 8alues of currencies to the

price of old. $his s!stem was put in place in order to create and maintainstabilit! in international commerce.

o $he problem was that the old standard was relati8el! inexible. )lso.National o8ernments a8e up some autonom! at home. $hat is&o8ernments were not able to freel! use monetar! polic! to ad;ust theeconom!.

$imeline

4?34>45: the classical old standard: the main actor is AB. Same currenc! fortrade: stabilit!

o #hat is critical here is that it creates stabilit!. )ll states can increase theirtrade& !ou don


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increase instabilit! b! creatin the same currenc!. Neoliberal re8olution

o 'araret $hatcher and Ronald Reaan.

T>E +LOBAL GALE C>NA+E

$he Alobali"ation of production

*Alobal production oor+ ,ikenson-: pro8idin !ou with the economic arumentfor creatin lobal suppl! chane. )ccordin& to Ikenson& it makes not sense toha8e political barriers& no capital control.

Ikenson lea8es out the distributional conse6uences. $he! lea8e out the peoplethat loose from it. $he losers from lobali"ation.

4. Perspecti8e from the *home countr!+

2. (rom the perspecti8e of the *host countr!+.

#hen the! open up N)($)& a lot of in8estment ow to 'exico& $hemanufacturer sector in @S) has been a/ected. $he home countr! can looseenterprises

(rom the perspecti8e of the *host countr!+: waes o up& reater emplo!ment&

learnin the knowhow ,trainin and technolo!-. 9ons: man! local businessesloose& $he in8estment are nor rein8ested in the countr!& the! take out theirpro0t& host countries ma! become dependent of the in8estmenet& 'N9


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Trade hegemony story wu

What flexibility and rigidity means

Outline the hypothesis to address the

Outline the hypothesis of hegemonic stability theory to assess the monetary system.

Hegemonic exam: and provide an alternative (its a domestic politic stuff

What is International Political Economy

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