1. Lecture #10
Perspectives on International Political Economy: Mercantilism, Liberalism, & Marxism

3. Introduction to International Political Economy (IPE)

4. Introduction – Conceptual and Analytical Issues
1. What is International Political Economy?
2. What are the issues?
A. Actor behavior
B. System governance
C. Globalization

5. I. Introduction (cont’d)
A. Actor Behavior. How do we explain and evaluate the actions of states?
1. Levels of analysis: international (structural, systemic) vs. domestic
2. State (government, public sector) vs. society (markets, private sector)

6. I. Introduction (cont’d)
B. System Governance. Formulation, implementation, and enforcement of rules; promotion of cooperation; management of conflict
1. Governance without government; governance mechanisms (regimes)
2. Organizing principles: automaticity, supranationality, hegemony, pluralism (negotiation, cooperation)

7. I. Introduction (cont’d)
C. Globalization. Inter-national vs. globalized model of world economy

8. Introduction
Countries and non-state actors have historically pursued several different approaches to the international political economy:
Mercantilism (Realism)
Capitalism (Liberalism)
Marxism

11. Mercantilism

12. Analytical Perspectives on IPE -Realism
A. Focus: states
B. Nature of economic relations: conflictual (zero-sum game)
C. Relationship between economics and politics: politics drives economics

13. What is Mercantilism? Theory of economic organization
Way to organize a nation’s economy
Goal: make Mother Country wealthy
Today? Capitalism, Communism

14. Mercantilism
Dominant approach until 1800s
Goal is to maximize state wealth (originally gold and silver)

16. Basic Ideas of Mercantilism
Establish colonies
Control/regulate trade
Export raw materials & resources from colony to Mother Country
Export finished products from MC to colony
Favorable Trade Balance for MC

18. Wealth cannot be created, only acquired
Mercantilism
Wealth cannot be created, only acquired
Through conquest and theft (imperialism)
Through exporting more than you import and protecting domestic industries
Economics is a zero-sum game
One country’s gain is another’s loss
Emphasis on relative gains

19. Basic Ideas of Mercantilism
Navigation Acts (1650s and 1660s)
Attempts by Britain to control trade
Salutary Neglect
Britain’s “hands off” approach helped colonies
Until 1760s

20. Mercantilism: Positive Effects
Guaranteed markets
Protection from competition
Especially helpful when colonies young to limit risk
Raised prices for smugglers 

21. Mercantilism: Negative Effects
Limited opportunities to trade
Industrial development restricted
Certain UK industries protected
A bigger problem toward end of colonial period
Colonies wealthier
Colonial economies more diverse

22. Mercantilism: Negative Effects
Economics seen as “Zero Sum Game”
England $↑, Colonies $↓
Colonies have trade deficit
Colonies lack species/money
Certain Industries in England protected

23. Economic Liberalism/Capitalism

24. Analytical Perspectives on IPE - Liberalism
A. Focus: individuals, households, enterprises
B. Nature of economic relations: harmonious; interests reconcilable
C. Relationship between economics and politics: economics drives politics

25. Economic Liberalism (Capitalism)
Became popular in 1800s
Economics is a positive-sum game
It is possible to expand the pie, not just fight over how it will be divided
Emphasis on absolute gains

26. IR and Capitalism: Laissez-Faire figures
Adam Smith : CAPITALISM/Laissez-faire
Wealth of Nations, 1776
“the individual, pursuing his SELF-INTEREST, will bring on general benefits to society”
NEED for free markets (no government intervention)

27. IR and Capitalism: Laissez-Faire figures
Thomas Malthus: predicted that the population would outpace the world’s food supply
People should limit kids
Wrote: An Essay on the Principle of Population
No gov’t help for the poor

28. IR and Capitalism: Laissez-Faire figures
David Ricardo: “iron law of wages”
Limit kids b/c people have more kids when $ is strong;
increase in labor later means a decrease in $$ and….
Unemployment increases
“No gov’t help for the poor”
IRON LAW OF WAGES

29. Capitalism (Adam Smith, David Ricardo)
The economy is seen as a complex natural organism
Human labour is a key source of wealth
Seeking balance between self-interest and cooperation
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. “ (The Wealth of Nations”)
Division of labour
Key role of the market as an integrating force
Harmony of interests between classes is possible
Key role of the state in maintaining a market economy

30. CAPITALISM
1. Private Ownership
2. Profit Motive
3. Market Economy

31. CAPITALISM
1. Private Ownership: Capital belongs to individuals who are FREE to do what they wish with it.
For this reason, capitalism is also called the “free-enterprise” system

32. CAPITALISM
2. Profit Motive: based on the economic laws of supply and demand, when enough people want something, producers make it because they want a PROFIT

33. CAPITALISM
3. Market Economy: a money value can be placed on everything in the marketplace: land, goods, time, and labor.
Buyers and sellers are free to exchange goods and services at prices determined by…..”SUPPLY and DEMAND”

34. Economic Liberalism (Capitalism)
Assumes a harmony of interests (Adam Smith): pursuit of self-interest will make everyone better off
Example: Those who produce the highest quality products at the lowest prices not only make consumers’ lives easier/more enjoyable but reap the highest profits

35. Economic Liberalism (Capitalism)
“Laissez-faire” approach
Comparative advantage (Ricardo)
Countries should focus on producing those goods & services they can produce most cheaply/efficiently and trade for the rest
An absolute advantage is held by any country that can produce a given product more efficiently than any other country in the world

36. Effects of Capitalism “Profit” for owners of production/business
Industrial vs agricultural economies
Market competition = price of “things” goes down……(because)
Increased supply of “things”/goods
Focus on PERSONAL RESPONSIBILITY

37. Criticisms of Capitalism
Uneven distribution of WEALTH
Poor people live in SQUALOR: slums, bad sanitation, etc.
Working conditions are miserable, etc, etc. see negative effects of Industrialization

38. Marxism/Communism

39. Analytical Perspectives on IPE - Marxism
A. Focus: classes, social forces
B. Nature of economic relations: conflictual (zero-sum game)
Relationship between economics and politics: economics drives politics

40. Marxism
Prominent perspective in the 20th century (particularly after the Bolshevik Revolution in 1917), but popularity has declined since fall of communism in FSU/Eastern Europe and apparent success of market model among “Asian tigers,” etc.

41. COMMUNISM: extreme form of socialism in which “all people” own the means of production as the state “withers away” and produces a classless society

42. Karl Marx’s Theory of Communism
Idea: that History is shaped by ECONOMIC FORCES (the way goods are produced and distributed)
CLASS STRUGGLE has always existed between the “haves” and the “have nots”
In industrial times the “haves” are the bourgeoisie/middle class capitalists; the “have nots” are the wage earning laborers

43. Marx’s Communist Ideas…continued
The social class that holds the economic power also controls the government for its own advantage… (class wealth = class power)
Middle class shrinks (small businesses are ruined by capitalist giants)
Working class GROWS as masses of poor labor at the mercy of a small, rich elite class

44. How Communism is Supposed to Happen:
Poverty and desperation drive MASSES of workers (proletariat) to:
seize control of the government and the means of production
destroy the capitalist system
wage a VIOLENT REVOLUTION
establish a “dictatorship of the proletariat”

45. After the “dictatorship of the proletariat” occurs…..
All property and the means of production are owned by “the people”
All goods and services are “shared equally”
A “classless society” emerges
the “state withers away”

46. Marxist Theory
Market economies are social arrangements created by specific historical forces
Private property is a social construct, not something created by nature
Workers produce surplus value
Owners of capital (capitalists) take all or most of it
Accumulation of capital in the hands of capitalists
Power is rooted in ownership and control of capital Impoverishment of workers
Division of society into classes based on their roles in the economy and the state
Struggle between classes for power – for control of the economy and the state
Capitalism will inevitably collapse due to its inherent contradictions

47. Marxism
Key actors include social classes, MNCs, and transnational elites (states are tools of these elites and cogs in the capitalist system—not independent entities)
Assumes capitalism contains seeds of its own destruction

48. Marxism
Material economic conditions determine outcomes (reductionism?)
World system is stratified: core vs. periphery, dependency theory

49. Marxism
Both empirical and normative: describes the capitalist world system, then critiques it
Imperialism as highest stage of capitalism (Lenin) and cause of war among capitalist powers

50. “Communist Paradise?”

51. Effects of Marxist Thought
Formation of socialist political parties
Advocate and support revolutions
Push for work reforms
Fight against “capitalism”
Communists take over Russia
Communism used by revolutionaries
Dictatorships of Communist Party leaders
No communist paradise established anywhere

52. Effects of Marxist Thought
“Red Scare” = hysteria over perceived threat of communism/ civil liberties revoked
US foreign policy based on fighting spread of communism after World War II
“COLD WAR” with USSR and allies
Proxy wars fought on both sides

53. The “perceived threat of Communism”…a visual

54. As of 2010, there are five one-party Communist nations: 1
As of 2010, there are five one-party Communist nations: People's Republic of China 2. Republic of Cuba 3. Democratic People's Republic of Korea (North Korea) 4. Lao People's Democratic Republic (Laos) 5. Socialist Republic of Vietnam