1. IPE I Classical Theories Shunji Cui Department of Political Science School of Public Affairs Zhejiang University Email: ssjcui@zju.edu.cn IPT, L11:

2. Introduction: What is IPE IPE Politics Power Economics Wealth Issues: War, Peace conflict, cooperation between states High Politics Issues: Wealth, poverty Who gets what in the Int. system Low Politics IPE = complex interplay b/t them

3. IPE: If economics is about the pursuit of wealth and politics about the pursuit of power, the two interact in complicated and puzzling ways. It is this complex interplay in the international context between politics and economics, between states and markets, which is the core of IPE. Eg:  The ‘free market’ ≠ freedom from politics.  In order let free market function well,  we need many political regulations and arrangements: such as contracts, consumer & producer protections, taxation, working conditions,,,,.

4. Why IPE? In the 1950s-60s: the politics and economics were separated and mutually neglected But from the beginning of 1970s: began to questioning the separation between eco & Pol. The main Reasons for this shift 1. The Bretton Woods system: show sings of crisis (1944-1971) – impact of political measures in the game 2. The oil crisis from 1973 – in times of crisis, it was clear that politics and economics hang together 3. Decolonization  a ‘New International Economic Order’ == political proposals designed to improve economic position of the 3rd World. 4. The end of the Cold War: reintegration of Eastern Europe and former Soviet Union into Western political organizations & economic interdependence == connection b/t pol & eco.

5. The Bretton Woods System The Bretton Woods system (1944-1971, today) Monetary management established the rules for commercial and financial relations among the US, Canada, W Europe, Australia and Japan. Setting up a system of rules, institutions, and procedures to regulate the international monetary system —— eg, IMF, The World Bank Why??? The shared experiences of two WWs —— The failure to deal with economic problems after WWI  led to the WWII ?; There were strong Economic Security concern

6. The Bretton Woods System Economic Security concern From the experience of the inter-war years, US planners developed a concept of economic security—that is, a liberal international economic system would enhance the possibilities of postwar peace. Cordell Hull (the US Secretary of State, 1933-44) believed that the fundamental causes of the two WWs lay in economic discrimination and trade warfare. Eg: the trade and exchange controls of Nazi Germany and the imperial preference system practiced by Britain,,,, causing problems. “Unhampered trade dovetailed with peace; high tariffs, trade barriers, and unfair economic competition, with war … if we could get a freer flow of trade…freer in the sense of fewer discriminations and obstructions…so that one country would not be deadly jealous of another and the living standards of all countries might rise, thereby eliminating the economic dissatisfaction that breeds war, we might have a reasonable chance of lasting peace.” (Cordell Hull, The Memoirs of Cordell Hull, 1948)

7. The Bretton Woods System Design: Lessons from the disastrous experience with floating rates in the 1930s, they concluded that major monetary fluctuations could stall the free flow of trade. A system of fixed exchange rates was established. The "reserve currency" == the US dollar —— meant other countries would peg their currencies to the US dollar Meanwhile, to bolster confidence in the dollar, US agreed separately to link the dollar to gold at the rate of $35 per ounce of gold. At this rate, foreign governments and central banks were able to exchange dollars for gold. Thus, a system of payments based on the dollar, in which all currencies were defined in relation to the dollar, itself convertible into gold, and above all, "as good as gold".

8. The Bretton Woods System The Nixon Shock and the end of the System? The US was in economic difficulties in 1960s-70s. growing public debt incurred by the Vietnam War (1961- 73) and Great Society programs. By 1970, the U.S. had seen its gold coverage deteriorate from 55% to 22% (2/3 in 1944). To halt the drain of US gold reserves the gold- convertibility of the American dollar had to be abandoned. That measure was taken by American President Nixon (on 15 August 1971, by issuing Executive Order 11615) Thus, political measures were taken that changed the rules of the game for the economic market place.

9. IPE: Three Approaches There is a complex relationship b/t Pol and eco, b/t states and markets, that IR has to be able to grasp. == That relationship is the subject of IPE. How to understand the connection?? Three approaches: 1. Mercantilism 2. Economic Liberalism 3. Marxism

10. 1. Mercantilism Emerged in 16-17c: during the period of establishing modern state system Goal: Attempted to use economic activities to serve the primary goal of building strong state Views: Economics is a tool of politics, a basis for political power. == a defining feature of mercantilist thinking.

11. What is ‘Raison d’Etat’? (Michel Foucault) Raison d’Etat, Ragion di Stato, Ratio Status, State Rationality: ‘…a very complex phenomenon of the transformation of Western reason, … a certain way of thinking, reasoning, calculating. This is what is called politics at the time.’ ‘… a different way of thinking, a different way of thinking power, the kingdom, the fact of ruling and governing…’ ‘… this governmental reason delineated the state as both its principle and its objective, as both its foundation and its aim. The state would be … the principle of intelligibility and strategic schema…’ ‘… a principle of intelligibility of reality, for this political thought was seeking the rationality of an art of government … a way of thinking the specific nature, connections, and relations of certain already given elements and institutions…’ ‘All these things [for instance: taxes, armies, diplomacy] began to be thought of as elements of the state’

12. Raison d’Etat and the Balance of Europe At Westphalia, according to Foucault, peace was reached by trying to achieve a Balance of Power between the main competing States Raison d’Etat “… is a perfect knowledge of the means by which states are formed, preserved, strengthened and expanded” (Giovanni Botero of Venice) ‘… the idea that states are situated alongside other states in a space of competition …’ ‘… a state may become impoverished by becoming rich, it may become exhausted by its excess of power..’ What was first and above all rejected, set aside and replaced was a vision of Europe which is ‘temporally orientated towards a final unity’, the vision, both secular and religious, of the Holy Roman Empire. (All quotes from: Michel Foucault Security, Territory, Population, Lecture 11)

13. Raison d’etat and raison de système The realist idea of raison d’etat —— Now means to pursuit of the national interest. * A state interest, especially when invoked as politically  superior to moral or even legal considerations ； The English School concept of raison de système ——the belief that it pays to make the system work. For example, the great power management that aims to keep order and preserve the system, even through the BOP.

14. Mercantilism and Neorealism Mercantilists: see the international economy as an arena of conflict between opposing national interests, rather than an area of cooperation and mutual gain. Economic competition between states == zero-sum game == where one state’s gain is another state’s loss.  states have to be worried about relative economic gain, because the material wealth accumulated by one state == serve as a basis for military political power  which can be used against other states. == resemble with neorealism in the Neo-neo debates on states cooperation

15. Economic rivalry: different forms (Gilpin 1987) 1. Defensive or 'benign' mercantilism: states look after their national economic interests because that is an important ingredient in their national security Implications: such policies no big negative effects on other states 2. Aggressive or 'malevolent' mercantilism. Here states attempt to exploit the international economy through expansionary policies – the imperialism of the European colonial powers in Asia and Africa.

16. Mercantilism and Liberalism 1 ) Mercantilists see: economic strength and military-political power   as complementary; not competing goals,   in a positive feedback loop.  The pursuit of economic strength supports the development of the state’s military political power  Military political power enhances and strengthens the state’s economic power. Eg, civilian powers – unimaginable!

17. Mercantilism and Liberalism 2) Liberals: separation between politics and economic The pursuit of economic prosperity through free trade and opening economic exchange v. (or either) the pursuit of power by the means military force & territorial expansion (can choose)  Implications: States can choose the road of eco development & trade == to become ‘trading states’, like Germany & Japan after WWII. Or they can choose the road of military force and territorial expansion == and thus base their prominence on military power (imperialism).

18. Mercantilism: Assessments Mercantilists reject the liberal view More national wealth & more military-political power  are complimentary stratagems – that serve the same fundamental goal: a stronger, more powerful state. Normally, wealth and power can be pursued simultaneously, in support of each other. But ultimately, politics must have primacy over economics == the economy should be subordinated to the primary goal of increasing state power.

19. Mercantilism: Assessments But the content of the concrete policies recommended to serve that goal has changed over time == different means to the end (strong & powerful state)  16c Spain: supply for the gold & silver  Netherland: overseas trading empire  Britain: industrialization  Hamilton (US): promoting domestic industry  Lis (Germany): power of production  In Recent year: the ‘developmental’ state model, emphasizing a strong and commanding role for the state in promoting eco dev. Eg J, state singled out strategic industries,,,,.

20. 2. Economic Liberalism Liberal economics has been called ‘a doctrine and a set of principles for organizing and managing economic growth, and individual welfare’. It is based on the notion that if left to itself the market economy will operate spontaneously according to its own mechanisms or 'laws'.

21. David Ricardo David Ricardo argued that free trade,  i.e. commercial activities that are carried on independently of national borders, will bring benefits to all participants because free trade makes specialization possible and specialization increases efficiency and thus productivity. Eg, today’s interdependence theory

22. Paul Samuelson summarized the argument as follows: 'Whether or not one of two regions is absolutely more efficient in the production of every good than is the other, if each specializes in the product in which it has a comparative advantage (greatest relative efficiency), trade will be mutually profitable to both regions' (Samuelson 1967: 651) == (positive sum game)

23. Economic liberals thus reject the mercantilist view that the state is the central actor and focus when it comes to economic affairs. The central actor  is the individual as a consumer and a producer. The marketplace -- is the open arena where individuals come together to exchange goods and services. Individuals are rational in pursuing their own economic interests, and when they apply that rationality in the marketplace, all participants gain == positive sum game.

24. According to Keynes: the market economy is a great benefit to man, but it also entails potential evils of ‘risk, uncertainty and ignorance’. That situation could be remedied through improved political management of the market. Keynes thus argued in favor of a market which was ‘wisely managed’ by the state (Keynes 1963: 321). John Maynard Keynes, 1883 － 1946

25. Economic liberals argue: The market economy is an autonomous sphere of society which operates according to its own economic laws. Economic exchange is a positive-sum game and the market will tend to maximize benefits for the rational, self-seeking individuals, the households, and the companies that participate in market exchange. The economy is a sphere of cooperation for mutual benefit among states; as well as among individuals.

26. 3. Marxism For Marxists, the capitalist economy is based on two antagonistic social classes: 1. The bourgeoisie, owns the means of production; 2. The proletariat, owns only its labor power which it must sell to the bourgeoisie. But labor puts in more work than it gets back in pay; there is a surplus value appropriated by the bourgeoisie. That is capitalist profit and it is derived from labor exploitation.

27. For Marx, capitalism means progress in two ways: 1. First, capitalism destroys previous relations of production, 2. Second, and most important for Marx, capitalism paves the way for a socialist revolution.

28. Economic production is the basis for all other-human activities, including politics. The economic basis consists: 1. of the forces of production == i.e. the technical level of economic activity, 2. of the relations of production == i.e. the system of or social ownership which determines the actual control over the productive forces.

29. Marxism: Main Views on IPE 1. States are not autonomous; they are driven by ruling class interests and capitalist states are primarily driven by the interests of their respective bourgeoisies == (rather than state’s interests, it is class interests) 2. As an economic system, capitalism is expansive: there is a never-ending search for new markets and more profit. The process of capitalist expansion must always be unequal or uneven, between countries, industries, and firms. Such disparities and conflicts will always develop under capitalist conditions, argued Lenin. That is the ‘law of uneven development.’

30. Marxism and Realism Both views agree on the perennial competition and conflict between states. Realists explain this by pointing to the existence of independent states in a condition of anarchy. Marxists reject that view as abstract and unhistorical. It is abstract because there is no concrete specification of the social forces that actually sustain the conflict between states. Marxists argue that conflict between states varies substantially across history. Conflict between capitalist states--and ultimately between capitalist ruling classes-- is of course connected to the capitalist historical era.

31. Thank You !!!