International Political Economy

Introduction International Political Economy (IPE) Interplay of economics and politics in world affairs States vs. Markets = Misleading Assumptions States cannot rule the global economy Systems of Institutions The rules, norms, laws, organization, and habits that for the system A defining feature of IR Globalization and international cooperation of states and institutions Modern IPE born from Cold War end Promoted many of IPE main institutions UN, IMF, WB, and WTO

Post-WWII World-Economy Bretton Woods Conference Discussed future of world economy following WWII Resolve two Serious Problems Prevent another Great Depression Stable Global Monetary System Open World Trading System Rebuilding War-Torn Europe Bretton Woods System Established Promote a New World Economic Order Created International Monetary Fund (IMF) Created International Bank for Reconstruction and Development (IBRD) Later became World Bank (WB) Created General Agreement on Trade and Tariffs (GATT) Replace by World Trade Organization (WTO) in 1995

International Monetary Fund Membership of 185 Countries Promoted International Monetary Cooperation Created a Stable Exchange Rate Regime All currencies based on US Dollar US Dollar would be back by Gold (Gold Standard) Provided stability for all currencies Provides emergency assistance to countries facing a temporary economic crisis Today provides assistance to developing nations Conditionality or Requires countries who barrow money to meet certain conditions = liberalization and privatization of economy Backlash from anti-globalization movement

Continue and World Bank Structural Adjustments Due to the US raising interest rates (protectionism) on developing nations loans, which caused the counties to defaulting Counties need to take immediate measures to receive new loans reduce inflation, cut social welfare, trade liberalization, deregulation, and privatization Major Backlash from anti-globalization movement World Bank - Originally IDRB Assists in the Development of Countries Original Purpose was Post-WWII Europe Worlds largest source of Development Funds $16 Billion in annual loans Requires Reforms in a barrowers country Ending Poverty, Promoting Human Rights, etc… Minor backlash from anti-globalization movement

General Agreement on Trade and Tariffs Forum for negotiation on trade liberalization Removal of restrictions, barriers or tariffs Free-Trade Solved trade conflicts Interim Agreement = Only established until permanent organization could be formed Operated for Four Decades Proved powerless to stop Economic Protectionism (tariffs to promote internal growth) of 1970’s Replaced by stronger World Trade Organization in 1995 Administering WTO Trade Agreements Forum for trade negotiations Handling trade disputes Monitoring national trade policies Supplying technical assistance to developing counties

IPE and the Cold War Containment Marshall Plan Prevent the spread of Communism to Western Europe and other nations Postponed development of Modern IPE Marshall Plan Massive Financial Aid to Europe Promoted IPE Institutions and Western Bloc Organizations Gold Standard Replaced by Dollar Standard Western Countries embraced Dollar Brent Woods System was promoted to develop capitalism globally

Continue Collapse of Brent Woods Economic troubles in the US due to cost of Vietnam and Great Society without raising taxes US announced in 1971 End of Gold Standard Allowed major currencies to “Float” through deregulation WWW.XE.COM Protectionism of US Economy Charge of 10% on imports to help grow internal industries Emerging Economies no longer dependent on US European Economic Community (EEC) Tigers of Asia (Japan, South Korea, Taiwan, and Eventually China) Global Stagflation Low growth (Stagnation) and high inflation Promoted countries to engage in Protectionism

Continue North-South Gap Gap in economic development in northern hemisphere (Industrialized Nations) and southern hemisphere (Developing Nations) Challenged by Developing Nations Promoted New International Economic Order Sought better representation in institutions Promoted Fair Trade Increase in Aide Protection of Economic Sovereignty Unsuccessful New Governments in the 1980’s promoted opposite Changed the Study of IPE Tries to answer “why are so many countries in the world under developed” and focus now on Interdependence

Continue Neo-Liberalism (Neo-Conservatism in US) of the 1980’s Challenge to Keynesian Economics of 30’s - 70’s John Maynard Keynes Governments should play an active and interventionist role in the economy to ensure both growth and equity. Neo-Liberalism encourages Limited or no government role Deregulation of laws and institutions Allow markets to regulate business Washington Consensus Term implies NL mainly a reflection of US interests

Continue End of the Cold War Problem World Trade Organization Integrating USSR, Soviet Bloc, and Soviet backed developing nations Burden fell to World Bank and IMF Conditionality created problems Coercion and Conformity World Trade Organization Created to alleviate problems of WB and IMF Voting power shifted from US and EU when other powerful economies refused to cooperate unless power adjusted

Traditional Approaches to IPE The Liberal Tradition Free Market and exchanges currencies Voluntary exchange and markets that are efficient and morally desirable Allows countries to benefit from their advantages (natural, resources, endowments, and specializations) Little or no regulation of markets or currencies by governments Order in markets will be self-regulatory The Mercantilist Tradition Realist Perspective = Power of States World economy is an arena of competition among states seeking to maximize relative strength and power

Continue Marxian Tradition For survival, states must maximize wealth in independence Trade protectionism is emphasized Governments must use protective measures (invest in strategic industries, subsidies, trade tariffs, etc…) to ensure the strengths of the domestic and international economy of the state IS controlled by hegemony, who sets the norms and institutions to benefit itself Marxian Tradition World-Economy is an arena of competition, and capitalism is the driving force Class struggle between oppressed (workers) and oppressors (Capitalist) Capitalist seek profits at expensive of workers Unequal exchange between Periphery (developing) and Core (developed) nations Wealth flows from poor to rich countries

New Approaches to IPE Rational Choice Neo-Utilitarian Approach John Stuart Mill’s book “Utilitarianism” Weighing the pros and cons, actors will choose the most advantageous choice Preferences are known/fixed and actors will make best choice to promote their interest Two Approaches to Rational Choice Political Economy Approach Focus on Interest Groups and how they impact the IPE Societies are pluralist and governments follow the actions of groups promoting specific interest Governments make their IPE choices by the actions of specific interest groups within the economy Coalitions of interest groups influence governments and institutions for their personal gain

Continue Social Constructivism Institutionalism Approach Focuses on the interaction of states and how they impact the IPE States create institutions in order to maximize utility within the constraints of world markets and world politics Social Constructivism Policies in the world-economy are affected by historical and sociological factors Actors formulate preferences and behaviors based on beliefs, roles, traditions, ideologies, and patterns of influences There is no set/fixed preferences in IR or IPE Preferences reflect actors ideas, culture, and knowledge Choice will often reflect the hegemony Institutions promote hegemony Coercion or consent prevails Legitimacy is promoted and desired

Globalization and the IPE Globalization is strongly debated in IPE Studies Four Aspects of Globalization in IPE Internationalization Increase economic interactions and interdependence across borders Technological Revolution Impact on new communication technologies Deterritorialization Extent distances, borders, and places influence the way people identify themselves and act Liberalization Reduction in government role in the economy which allows the new IPE to exist Debate exist between how each impacts the world

Continue Is globalization diminishing the role of the state in the world economy The Globalists Response = Yes As interdependence occurs Multinational trade, production, investment, and finances move in and out of countries more easily Governments lose their capacity to regulate economy Footloose Modern Businesses Companies will leave if no econ liberalization The Sceptics Response = NO Footloose Modern Business model is false Globalist have no evidence to back up claims Knowledge-Intensive Economy Skilled or semi-skilled workforce, good infrastructure, and proximity to markets dictate choice

Institutions and the IPE Globalization increases interdependence Both good and bad Asian Financial Crisis Meltdown of South East Asia Economies that lead to sever economic impact in other countries Demonstrates how a crisis in one country can easily spill into other countries Led to a call for stronger international economic institutions, more cooperation, monitoring, and regulation Institutions States create institutions to achieve better gains through cooperation and coordination States agree to be bound by certain norms, rules, and decisions States don’t always follow

Continue Institutionalist = Institutions reflect liberalization Institutions emerge primarily as solutions to universal problems or market failures Will regulate gaps and failures of open system Focus on absolute gains Over all the benefits of everyone involved Realist = Promote states power and wealth Hegemony is liberal-democracy Institutions reflect will of hegemony to ensure survival and power gain of hegemony Focus on relative gains The benefits of the individual states Cooperation is constrained by power struggles Institutions will be abandoned if no positive gain for state Institutions only accommodate the needs of weaker states when needs don’t interfere with powerful states

Continue Social Constructivists Reject the definable/fixed rational choice of realist and institutionalists Realist wrong because institutions don’t always reflect power politics Institutionalists wrong because institutions don’t always reflect the need of markets, trade, etc… Interest are impacted by identity Which is created by social structure of interactions, normative ideas, and beliefs Institutions change when identity of states change Social movements with a state impact IPE Human Rights Moments Environmental Movements Etc.. All impact modern IPE because they change identity of states Puts pressure on political leaders to change institutions