Ch 11. International Political Economy

Q: What is International Political Economy(IPE)? A: interplay of economics and politics in world affairs Wait! Usually, we assume that IPE is market vs. states… BUT, it is actually, NOT!!

IPE from 1940s to current days 1944, Bretton Woods system created. -1. Had to protect the global market from possible depression in the future -2. Had to rebuild the war-torn economies of Europe 3 major institutions to rebuild postwar economy

IPE from 1940s to current days However, Bretton Woods were postponed by the rise of containment policy by Soviet bloc, and Marshall plan by United States in Western bloc IMF, World bank, GATT could be in effect since 1950s European allies were benefiting from the growing and deepening economic integration in Europe while the values of US goods and services dropped in global market compared to the goods from allied countries Supported by Bretton Woods system, most European countries could diverge from US position These resulted major shift in rules of international monetary system by United States in 1971

IPE from 1940s to current days In 1970s, rise of Europe, Asia led United States to change economic policy in 1971 -1. Imposing tariff on imported goods -2. No more conversion dollars to gold at $35 per ounce by US gov’t ->These measures by US broke the Bretton Woods system which was actually encouraged by US Furthermore.. - 1st Oil crisis occurred in 1973 led global economy into stagflation Weakened IMF framework Rise of G7 Changed from cooperation to protectionism.. -1. Multifiber Arrangement of 1974 ↔ New International Economic Order (NIEO) Stagflation 설명 G7 누가 있는지 Multifiber arrangement 에 대해 설명 NIEO 설명

IPE from 1940s to current days NIEO turned out to be failed for several reasons Although UNGA(United Nations General Assembly) is the institution for all countries including developing countries, it is not the institution that implements policies only for developing countries Industrialized countries weren’t helpful at all. In 1980s, US Federal Reserve raised interest rates - These caused debt crisis from developing countries -How IMF managed on this issue? -1. Enforce indebted countries to exercise structural adjustment Neo-liberalism - These include reduce inflation, gov’t expenditure, gov’t role in domestic economy (trade liberalization, privatization, deregulation)

IPE from 1940s to current days Shifted to summit diplomacy Ex. G20 summit World Bank tried to improve its relation with both governments and NGOs. GATT is changed due to the creation of WTO in 1995 -Difference from previous version? -WTO focuses not only on traditional trade issues, but also on intellectual property rights, investment measures, and food safety standards

Various approaches on IPE Liberal tradition Mercantilist tradition Marxian traditions Free market Free trade essential Less role to gov’t Maximum wealth interdependence Protectionism Again, class struggle Core Periphery

Various approaches on IPE Depending on different tastes and preferences by all actors, the concept of rational choice (or neo-utilitarian) added into IPE Rational choice focuses on incentive structure faced by those making decisions Political economy with rational choice Institutionalism with rational choice Social constructivism Explains how particular groups in the economy emerge and what their goals and policy preferences are Provide framework for understanding the coalitions into which these groups enter and their interactions with other institutions States create international institutions and delegate power to them in order to maximize utility within the constraints of world markets and world politics Comes down to the need to resolve collective action problems Focuses on beliefs, roles, traditions, ideologies, and patterns of influence that shape preferences, behavior, and outcomes Dominant powers will promulgate institutions, ideologies, and ideas, all of which help to persuade other actors that their best interests converge with those of the dominant power

Globalization debate in IPE Globalization in 4 processes in the world economy Internationalization Technological revolution Deterritorialization Liberalization Still, there is on-going debate on globalization - Conflict on internationalization - Conflict on liberalization - Conflict on deterritorialization

International institutions in IPE As the world has been faced with several economic recessions before, the role of institutions in global economy increased than before Institutionalists Realists Constructivists States will create institutions in order to better achieve gains through policy coordination and cooperation Institutions will smooth over many gaps and failures in the operation of markets, and serve to ensure that states make genuinely rational and optimizing decisions to cooperate Argue that international institutions will always reflect the interests of dominant states in the system They would take care of relative gain rather than absolute gain For them, cooperation and institutions are heavily constrained by underlying calculations about power Rejects both views from institutionalists and realists Certain state’s interests are affected by its identity as a state, and that both its interests and identity are influenced by a social structure of interactions, normative ideas, and beliefs.

Questions How do you think about the role of globalization in global economy? Do you think it strengthened global economy or rather diminished global economy? Do you agree with the statement that the institutions played a crucial role in international political economy? How do you see the image of the global economy in next 5 years? Which kind of trade would the most countries prefer in next 5 years? Multi-lateral trade or bilateral trade? Free- trade or protective trade?