International political economy in an age of globalization Choi moon joung(IR) Oct 31. 2005

Introduction The post-war world-economy The rise of IPE in the study of international relations Traditional approaches to IPE New approaches to IPE The globalization debate in IPE International institutions in the globalizing world-economy Conclusion

Introduction International political economy(IPE) Interplay of economics and politics in world affairs Core questions: what drives and explains events in the world-economy? World markets and countries, local firms, and multinational corporations which trade and invest within them are all shaped by layers of rules, norms, laws, organizations and even habits. Political scientists call it ‘institutions’ IPE explains what creates and perpetuates institutions and what impact institutions have on the world economy

The post-war world-economy Bretton Woods system in 1944 Two aims no more Great Depression of the 1930s reconstruction of the war-torn economies of Europe Three institutions planned International Monetary Fund(IMF) International Bank for Reconstruction and Development(IBRD later called the World Bank) General Agreement on Tariffs and Trad(GATT) - trade liberalization

1947 US announced Marshall Plan gold standard was replaced by the dollar standard IMF, World Bank and GATT began to function in the 1950s: Western-bloc organization which heavily depend on the US

Weakness in the US economy US support change for the Bretton Woods system why? Weakness in the US economy costly military involvement in Vietnam more money on public education and urban redevelopment programmes without raising taxes prices rose-> competitiveness dropped-> confidence in the US dollar plummeted European allies benefited from economic integration Asia: success of export-led growth in Japan and in newly industrializing economies such as South Korea and Taiwan

in 1971 US changed the rules of the international monetary system no longer convert dollars to gold at $35 per ounce impose a 10 per cent surcharge on import duties the Breakdown of Bretton Woods system In 1773 the end of high growth and the first oil crisis -> stagflation(low growth and high inflation) IMF role collapsed -> Group of Seven(US, UK, Japan, Germany, France, Italy and Canada) in 1975

The post-war Trading system cooperation had steadily grown under GATT In 1970s,however, marked by lack of international economic cooperation among the industrialized countries with new protectionism new protectionism fuelled the anger of developing countries launched a campaign in the UN General Assembly for New International Economic Order(NIEO)

The 1980s a shift in US economic policy in 1979 US Federal Reserve raised interest rates to stem inflation Both borrowers and creditors realized that many of the loans could not be repaid Debt crisis IMF’s role in the world-economy became ensuring that indebted countries undertook structural adjustment in their economies

By the end of the cold war, the three institutions still existed but with different roles World Bank-development agency making loans to developing countries GATT- failed to stem new protectionism and to meet aspirations of developing countries, but created a new World Trade Organization(WTO) IMF- lost its original role after breakdown of Bretton Woods system but gained a new role with the debt crisis of the 1980s: offering financial and technical assistance to developing and transition economies

The rise of IPE in the study of international relations Until the 1970s, IPE was a neglected subject By the early 1970s, IR began to change: pay more attention to economic affairs why? decline in US economic preponderance challenge to traditional notions of power and security posed by the US failure in Vietnam economic challenges in the 1970s the OPEC oil price rise developing countries push for a NIEO the end of cold war and globalization

Traditional approaches to IPE The Liberal Tradition The world-economy has the potential to be a seamless global market place in which free trade and the free movement of capital shape the policies of governments and economic actors. Order would be achieved by the ‘invisible hands’ of competition in the global market place

The Mercantilist tradition The world-economy is an arena of competition among states seeking to maximize their wealth and independence Most powerful states define the rules and limits of the system Order is achieved only where there is a balance of power or hegemony

The Marxist tradition The world-economy is an arena of capitalist competition, not among states but a class struggle between the ‘oppressor and the oppressed’(capitalists and workers) Capitalism is the driving force in the world-economy Order is achieved only where they succeed in exacting the submission of all others The three traditional perspectives usefully highlight different actors, different processes, and different levels of analysis in the study of IPE

New approaches to IPE What is ‘rational choice’ or neo-utilitarianism? focus on the incentive structure faced by those making decision assumption-actors’ interests and preferences are known or fixed and actors can make strategic choices as to how best to promote their interests means that for the actor or group concerned, this was the optimal choice given the specific incentives and institutional constraints and opportunities that existed at the time Two different applications of rational choice: political economy and institutionalism

Political economy: the application of rational choice to groups within the state world-economy- characterized by competition among vested interests within different kinds of states core actors- interest groups formed within the domestic economies of the states key driving force- rational choice at the level of groups within the domestic economy responding to changes in the international economy order- not concerned with theorizing about the conditions necessary for international order

Institutionalism: the application of rational choice to states world-economy- see an arena of inter-state cooperation core actor-governments and the institutions to which they delegate power key driving forces- rational choice at the level of the state motivated by the potential gains from cooperation order- existence of international institutions which permit cooperation to continue

Social Constructivism assumption- policies within the world-economy are affected by historical and sociological factors The neo-Gramscian approach: a radical variant World-economy- overarching structure of knowledge, ideas, and institutions which reflects the interests of dominant actors and within which competition takes place Key driving force- capitalist competition which is constrained by the need of the powerful to gain the consent of the less powerful. Order- dominance by one state is insufficient condition. Hegemony requires control over the structures of knowledge and ideas as well

The globalization debate in IPE Four aspects of Globalization Internationalization increase in economic transactions across borders The technological revolution effect of new electronic communication permits firms and other actors to operate globally with much less regard for location, distance, and borders Deterritorialization diminution of influence of territorial places, distances and boundaries over the way people collectively identify themselves or seek political recognition not only expansion of global civil society but also terrorist networks Liberalization government policies reduce the role of the state in the economy

Is globalization diminishing the role of the sate in the world economy? The globalists governments and states are losing their capacity to control economic interactions why? quantity and rapidity of flows make it more difficult for governments to regulate trade, investment or capital The sceptics the role of states is not eroding; still have a very important and substantial why? in the new knowledge-intensive economy, factors such as market proximity, good infrastructure and availability of skilled labour are crucial

The impact of globalization on different kinds of states The Asian financial crisis in 1997 highlights that states have different capacities to respond to globalization strong states shape the rules and institutions which have made a global economy possible- ruler makers control the nature and speed of their integration into the world-economy weak states little or no influence in the creation and enforcement of rules in the system- ruler takers exercised little control over their own integration into the world-economy common to all states search for greater stability and predictablilty

International institutions in the globalizing world-economy Institutionalist or neo-liberal institutionalist conditions for mutual gains impact of institutions on IR expand the possible gains to be made from cooperation implications for globalization institutions can manage globalization to ensure a transition to a more ‘liberal’ economy institutionalists argue that international institutions will play an important and positive role in ensuring that globalization results in widely spread benefits in the world-economy

Realist(or ‘neo-realist’) conditions only where relative position vis-a-vis other states is not adversely affected impact on IR facilitate the coordination of policies and actions but only in so far as this does not alter the balance of power among states implications for globalizaiton institutions will ‘manage’ globalization in the interests of dominant and powerful states Realists reject the institutionalist argument on the grounds that it does not account for the unwillingness of states ever to sacrifice power relative to other states

Constructivist conditions impact on IR implications for globalization institutions arise as a reflection of the identities and interests of states and groups which are themselves forged through interaction impact on IR reinforce particular patterns of interaction, and reflect new ones implications for globalization changing pattern of interaction and discourse will be reflected in institutional responses to globalization Constructivists pay more attention to how governments, states and other actors construct their preferences, highlighting the role that state identities, dominant beliefs and ongoing debates and contestation play in this process

Conclusion Globalization increases the challenges faced by all actors in the world-economy; increase global interdependence, interconnectedness and capacity of some states to influence others. Thus it requires more concerted global response with international institutions playing more vital role in IR Given the Asian financial crisis, it is true that more effective and strong international institutions are needed. However, the crisis also revealed the problems and flaws of existing international institutions and the bias of interests which they reflect. Therefore, we also need an effort to strike an balance of voice between strong states and weak states in the world-economy policy choice

Thank you Choi Moon Joung(IR)