SESSION 6: 27/02/2018

THE STRUCTURALIST PARADIGM

Many people associate Marx with the 20th century communist regimes. The relevance of
Marx is that he is a crucial political economist and he is fundamentally a theorist of
capitalism. We should consider him and his ideas as analysis of capitalist economy
functions and they are critical as he predicted its demise and replacement. There’s little
alternative in his work to capitalism, it doesn’t explain how communism would work.
His relevance is the capitalism is alive in he 21 century and also its crises and problems
(inequality, concentration and monopoly of power) many of the features of capitalism is
alive and there is a rich Marxian political economy. These paradigms should not be
considered as mutually exclusive, there are overlaps. One recent controversy is that
some scholars in the Marxian tradition have a different view of China. Radical left tend
to think of China as a counter hegemonic force that represents a 21 st century socialism.
From the 20th century onwards, they were ruled by the communist party, and it defines
itself as a socialist state where all segments of society are together in a classless state.
He counter argument is to what extent its economy is a prototype socialist economy,
scholars argue that although there is continuity, the political economy of China is much
more capitalistic, it is no longer a communist country and there is increasingly foreign
investment. The characterization of China is a big debate.

Overview

for Marxists, the basic unit of analysis the is the class. You have to look at class dynamics
and the Marxian theory is a theory of conflict in the sense that there are dominant and
subordinate classes that are subject to exploitation in the hands of the dominant classes.
The conflict according to Marx is between these two classes: entrepreneur and working
classes.

The central thinker is Karl Marx, was born in Germany, but he spent much of his life in
Britain. His monumental book is Das Kapital in 1867. Marxian ideas were translated into
practice with the revolution in Russia in 1917. What unites Marx Keynes and Polanyi is
that all three political economists are critical of capitalism, but the difference is that
Marx argues that capitalism will collapse. On the other hand, the Keynesian or Polanyian
tradition, they believe that capitalism can be reformed and regulated by the state.
Keynes talked about the welfare state and Polanyi about the counter action. The
common element of all three is that the unregulated markets are problematic and will
lead to crises but they differ on whether the system is sustainable or not.
Why is it called Historical Structuralism?
Marxian economy looks at the society as a structure, as a whole, it looks at the evolution
of political economy over time and how capitalist emerges and how it creates seeds of
its own destruction. One of the strands of the political economy is the holistic
approach: looking at the system rather than disaggregating into individual parts and
looking it as a whole and looking at how structures evolve over time. One of the
criticisms of Marxian tradition is that it’s too deterministic. We can see how in a stage
approach the society evolves. It disregards the role of agency and the actors. Some
scholars argue that a more nuanced approach would make a distinction between the
structural forces in a society and the actors and the role of individuals, leadership. They
argue that agency is pushed to the background. Once you include agency in your
analysis, it becomes less deterministic and less predetermined, less mechanical. There is
the criticism of over structuralism. Historical materialism is a dynamic process where

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how history and evolutionary change is explained over time. In a way, Marx is
considered to be in the family of classical economists, which is about thinking about how
markets emerge and there is an progressive view of capitalism compared to previous
patterns. The difference is that according to Smith and Ricordo, a free market can be a
self-sustaining system, but Marx argues that the capitalism is bound to collapse.

According to Marx, history evolves in stages and the advanced stage following feudalism
is capitalism. But then he believes that capitalism is unsustainable and will collapse.
There are three major laws in Marxian system which undermines capitalism:
 Over time, the rate of profit will fall. Technological change with capital
accumulation. Lenin’s theory of imperialism is built on this idea. One of the
motives for the rise of imperial expansion was because of the falling rate of
profit and the search for new markets and resources. Ultimately, this is a
problem, as profits fall, capitalists will invest in labor saving technologies and
this also has the problem of creating mass-unemployment with the introduction
of these labor saving technologies.
 The law of disproportionality. Keynes also pointed it out that there is a mismatch
between aggregate demand and aggregate supply. There was overproduction
and too little demand in advanced, industrialized countries. In Marxian analysis,
we see how a market economy creates these mismatches between demand and
supply which leads to periodic crises. So capitalism may be a progressive force
but it is a cyclical, crises prone system. one of the reasons that Marxian economy
is relevant today is because the crises are very much alive, the most striking case
being the Greek crisis. The law of disproportionality talked about the inherent
nature of capitalism that is prone to crises. Crises are costly, they create
unemployment, loss of output and have serious political and economic
consequences.
 The law of concentration. As capital accumulates over time, it creates a more
concentrated industrial structure. Smith and Ricardo argued for a perfectly
competitive markets with small firms. But Marx predicts a major 20 th century
pattern and that eventually capitalism will move from this to the emergence of
large firms, the perfect competition is not the dominant form, but rather
oligopoly of firms with significant concentration of market power. In a way
Marx predicted the rise of TNC and MNC with the inherent tendency towards
greater competition. The interesting fact about contemporary capitalism is that
it is not monopolist capitalism. What we see is oligopolistic capitalism where
there is a lot of competition but a number of firms with a huge market power.
This may be the greatest challenge to capitalism. They are increasingly
independent also have political leverage, as they bring capital, technology and
production to states so are attractive. This tendency of capitalism to create
massive concentration of power and wealth was predicted my Marx. This is
concerning for all political economy perspectives. They create powerful interest
groups with disproportionate political leverage. But Marx predicted a global
capitalist class, rather than just a conflict between the two classes and it is
increasingly hard to control these companies in a world where states are still the
basic elements.

The reason why the system is unsustainable is because it is an uneven system based on
class exploitation. The basic dynamic of Marxian framework is the idea of exploitation
by the dominant class. There is the problem of rising inequalities. One of the predictions
of Marx was reserve army of labor. It means mass unemployment, which will
eventually lead to a reaction on the part of the workers which will lead to the collapse of
capitalism. Marx predicted that the revolution would occur in advanced industrialized

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countries, namely Britain. His view is that capitalism creates enormous wealth, will lead
to contradictions and the revolution and transition to communist system. Ironically in
the 20th century, his ideas gained dominance in a relatively underdeveloped country;
Russia. This is inconsistent with the Marxian idea. China is the next to follow, which
followed in a different mode of Marxism. This is different from the original theory. He
predicted originally that the given the nature of …. This was a fundamental contradiction
that his ideas gained prominence in USSR and China. Marxian ideas have also influenced
social democratic parties in the west. But social democrats in the cold war context and
they differ from the Marxian idea that in a capitalist society, reform is possible through
class compromise. This suggests that there are dominant classes and a working class but
the interest of the latter will be accommodated not through revolution but through a
compromise: a large welfare state where the market economy functions but workers are
brought into the system. Social democratic left have been influenced by Marx but mostly
through Keynesian ideas. This kind of compromise became an alternative to the Soviet
style, and is visible in many western countries.

The Soviet Union was not the kind of system Marx had in mind. His idea of communism
is very different than Soviets where there is an over towering state. What he had in
mind, in his stages of development (feudalism, capitalism and socialism, communism),
communism is a much more decentralized form of society. Societies would be
organized on the bases of communities. His vision of communism is more decentralized
and humane version and nothing to do this this authoritarian model of planning seen in
20h century. There was nothing in Marx’s plan that planned the post-capitalist economy.
Marxian political economist today are concerned with capitalism to analyse and criticize
it rather than think about the alternatives. Marx’s idea about communities as the
ultimate form of society is a very utopian idea, where individuals have more power,
influence. Marxian theory is based on the idea on emancipation of the individual, seen
to be in parallel to liberals. His criticism to capitalism is that it is very unequal and the
overthrow of capitalism is a from of emancipation of individual and the transition into a
better society. The issue of the collapse of capitalism, is believed to be through a
revolution by many Marxists. Others believe that capitalism has its problems but class
analysis is also important and that Marx underestimates the potential of capitalism to
reform itself through compromise. The difference, despite of the problems of capitalism,
the alternatives are more problematic. In the Soviet system, there was also
concentration of power and authority and classes. Looking at China, it is a
predominantly capitalist economy and the single communist party is the basis of an
extremely authoritarian ruling.

SESSION 8: 06/03/2018

GREEN INTERNATIONAL POLITICAL ECONOMY

Mainstream GPE: Is Critique Necessary?

Linkages between these perspectives. In Turkey, there are important representatives of

these streaks, Green, Feminist etc. They are relevant in the Turkish context.

Structuralism, Marxism and Mercantilism are more dominant traditions although still
critical. From a critical perspective, mercantilists are the major target of the critical
political economy. Liberalism is more intersected with the critical thought. The critical
political economy perspectives are radical in their perspective but relatively benign in
the solutions they present. The central element of these perspectives is the concept of

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balance and balance development. For example, the Greens care about the balance
between the markets and nature. In the context of Feminist IPE, it’s a balance between
different genders. In Polanyi as well, we see the need to balance the market, there is a
tension between the forces in the market and the outer forces that are seeking to
regulate it, paying attention not only to the needs of the markets but also the needs of
the society. There is also the perspective of looking at these that there is usually a
globalization from above, whereas critical perspectives tend to look at globalization
from below, from those underprivileged. They want to push more human and socially
sensitive version of globalization.

Starting point in the context of GPE is that markets create wealth. They are useful in
terms of creating material benefits but one of the major problems of markets is that they
are increasingly negative on the nature and create inefficient environmental damage. As
a result, markets need to be regulated so that they create a favorable environmental
balance between the nature and the economy. Within Green economy, there are two
versions; the more liberal, which is closer to communitarian liberalism and a more
radical version. There are elements of overlap between these two version, but also some
differences. The starting point of all these different perspectives is, which is the central
element of green critique is that human relationships are important and major elements
of them are local. With the development of capitalism and increasingly large firms, they
create a world out of balance and the Greens think that a balanced life where people can
live in a more humane fashion. In a way the green critique is more than simple
environmental concerns (pollution, extreme climate change), they also point toward the
human dimension, communities are displaces, social relationships are undervalued.

Marxian critique stated that there were stages in development, his idea of communism
can be interpreted as a final stage of society in restoring relatively decentralized living.
His vision was more in line with the Green ideas. This interpretation is controversial but
his notion of communism, which wanted to restore the small communities which were
undermined by capitalism and the big states and big markets.

The liberal environmentalism is linked to the more extreme version of

communitarian liberalism where the basic idea is that environment is very crucial
especially in the current context with the global warming and the existentialist threat.
Liberal environmentalists put major emphasis on the environment as an existential
problem to be given priory during policy making. The basic idea is that major
environmental solutions require major shifts in policy. We need to create awareness and
create difficult policies. One of the major scholars is Nicholas Stern. There is a problem
of coordination while working on environmental protection and it tends to be
underprovided as a public good as it is shared by nation states. They want to push the
burden onto each other. So developing countries think that most of the environmental
disorders are created by advanced industrialized countries and should be dealt by them.
Even politicians from left argue that environment is not a central issue to a country like
Turkey. Industrialized countries have other problems like slow growth so there must be
much more burden shared by the rising powers to reach a real global solution. And in
fact the most striking issue has been the position of the US weakening its position in
environmental protection. The liberal environmentalists also argue that the reform is
possible, it is a reformist approach and it is possible through reform to achieve a
balance between market oriented development and protection of environment. Stern is
arguing that the radical communitarian liberalism is an adaptation of green
technologies. We need to radically change the direction of technology into the direction
of green friendly technologies, and we can accomplish this through regulatory action.
The combination of fiscal policies which involve taxes and subsidies will change the
balance of development. The growth will continue but it will be a green growth. The

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basic approach of liberal environmentalists is that on the national level, there is need for
radical fiscal policy and technological changes should be green. The main burden will
be on the firms to change their technologies. Reformist approach has a global
counterpart based on a global consensus among countries that if you don’t take action
and deal with the problem of providing this public good, everybody will suffer. At the
international level, a lot of cooperation is needed. So regulatory state in action is
needed at the national level, regulatory global governance in action in the
international level. The solution is to design national policies and the state becomes an
important actor in solving this problem.

These people recognize powerful interest groups, which could resist this kind of
regulation. Trump received support from energy lobbies and firms, which want to work
against these regulations. Many firms invest in conventional energy resources and
technologies and they are against regulation based on environment for it will affect their
businesses. From a PE perspective, this reformist approach is not simple in a world
where in advance industrialized countries, big firms will be affected; the consumers will
face higher prices of products. In developing countries there is even a bigger problem.
They are industrializing rapidly but their GDP per capita is low and whether these are
authoritarian states like China or democratic, they face the legitimacy issue which is
closely linked to the rapid economic growth. So adopting tight environmental
restrictions would mean slowed growth.

The pattern of China seems to be a dual strategy. It seems it is making investments on

Green technologies. It is also under pressure as US left the climate change agreement
and the global responsibilities fall heavily on China. China wears the pressure of this
global role plus its own environmental issues. But many analysts suggest that while
China is investing in green technologies, it is not totally abandoning traditional means of
production. They are thus applying dual strategies. You cannot criticize them for not
adopting green technologies, but still wanting to maintain economic growth through
conventional technologies. So the developing countries play an important role in the
environmental protection.

In the Turkish context, the economic development and industrialization and the need for
energy for these is a sensitive issue for Turkish policy makers, which means that
environmental issues are attracting attention but of secondary nature.

Advanced industrialized countries have faces a crisis in 2008, so their politicians find it
hard to justify putting environment at he top of the agenda. During elections, you have
to be able to justify your actions. In authoritarian states also, the regime legitimacy
depends on development level and economic growth. In advanced industrialized
countries there is problems with putting the environmental strategies as a priority. The
environmental concerns are more long terms but the societal problems and economic
growth is more prominent and recent. One of the main issues is if the environmental
agreements will be a rhetorical agreement or if the principles will be implemented in a
stringent manner. Ultimately, it is an optimistic view that markets and environment are
compatible. You can deal with the issue without abandoning the markets but my making
policy changes and reforms. Material conditions will not be abandoned but adjusted to
the advantage of new green technologies.

Radical environmentalism also thinks that there is an existential threat and they think
that sustainable development is crucial but they think that we cannot achieve this by
mild market favoring reforms. They argue that there has to be a fundamental shift in
our understanding of development. They think that nature should be prioritized and
there should be a shift in the living conditions. Even the more radical versions

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emphasize the return to the community. The fundamental rethinking of development,
putting nature and community first. But these ideas will not be compatible with the
current market and competition driven economy. One of the criticisms of the radical
environmental vision is that how do you persuade people for a shift? Most people would
not be willing to give up their current living status and consumption patterns. One of the
elements of actions suggested by them is the idea of social movements. It is a radical
critique of globalization from below. The globalization can’t be transformed simply by
change by through the civil society; NGOs, protest movements etc. Although they may
not change the behavior of states of TNC, they can create a challenge and a sense of
balance to the development process. They argue that there is a hierarchy problem and
the solution lies in the organized movement from below, putting pressure from the
weak actors on the state and the powerful firms and the rest of the society.

Two figures which have been important:

 Elinor Ostrom: Nobel prize for economist, essentially a political scientist.
 Peter Newell: student of Ostrom; they are in between the two approaches, more
radical, emphasizing reform but moving further than simple reform and moving
towards more fundamental change.
 Ö mer Madra in the Turkish context: closer to radical green IPE. Change in
lifestyles is needed, this is such a major problem that can’t be solved by reforms
in the market oriented system.
They are not necessarily anti-capitalists, not proposing a socialist planned economy to
deal with this issue. They are, however, very critical of capitalism because most of them
believe that the capitalist system is not compatible with dealing an existential
environmental issue.

Feminist Political Economy

Constructed, there is both a liberal version and a radical one. The liberal version puts
the emphasis on the problem of gender inequality. The major problem is the women’s
exclusion. The liberal feminists tend to put much more focus on the issue of gender
inequality as a central issue of the society. They argue that there are a number of
elements: women are not paid equally for the same work as men; they are not able to
participate in the labor force as much. In the Turkish case, the participation of men in
labor force is on par with the EU case, but women’s participation is around 20%. There
is a big gap, which also contributes to the broader pattern of inequality. Another critique
is that women’s work is undervalued, especially in the household. The work that women
do is sufficiently reflected in our GNP calculations. The conventional GNP measures are
gender biased; they do not reflect the role of women in contributing to the society. The
problem is not simply economic; there is also political and economic exclusion. Like the
liberal greens, the liberal version of this paradigm is optimistic that solutions can be
found through state interventionism. State can create positive forms of discrimination to
achieve gender equality. Reform without fundamental change in the market-based
economy can be enough for the solution of this problem. More contribution to the
markets, removing artificial gender discriminating practices are all possible through
regulatory state.

Key thinkers:

 Shirin M. Rai/Diane Elson

Liberal feminists also look at the market as a source of liberation, a way to solve gender
inequality.

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 SESSION 9: 08/03/2018

Key point about the liberal version is that they recognize the discrimination, and they
emphasize gender inequality as the problem to address. Compared to a standard
critical liberal where inequality is a broad issue, they focus on the gender inequality. The
liberal approach is a reformist approach, trying to work within the market-oriented
system, through education and institutions, encouraging positive discrimination. It is
regulating the market allowing more opportunities for women. Through the market, the
liberal view is that the problem can be solved, not at the expense of the market through
political an economic participation. It is a critique of markets, unregulated markets
working to the disadvantage of the women, the solution is to reform, restructure to
make it more favourable for women’s participation. Liberalism is also about political
participation, so the liberal feminist vision is also about active participation in the
political process.

The radical version of feminism is also very relevant. It is often difficult to distinguish it
because they are also saying that there are gender inequalities, major differences to be
addresses. They are critical of capitalism but not anti-markets. They are in favor of
regulation. Perhaps, the difference between the two visions is that the radical feminists
provides a broader critique, it constitutes a much deeper critique of modern societies.
The central concept of radical feminists is the notion of patriarchy. The notion of a male
dominated society, which is essential critique of radical feminists. It is a criticism of
hierarchy and domination in a hierarchically organized society. One of the contribution
of radical feminists is a critique of extreme forms of nationalism. They move beyond
the field of gender inequality, they also believe this cannot be simply achieved through
reforms within the existing system. There is a need for a radical transformation of
political culture and major challenge to the society that is hierarchically organized
society they are also against the extreme forms of realism. It is the kind of critique that
runs deeper than the liberal camp. If we put it on the spectrum, they are more critical to
the extreme form of realism, nationalism, militarism. The extreme vision of nationalism
is the symbol of male-dominant society. The radical feminist critique suggest that they
need to address this problem by creating a balance and this has to be done by changing
the political culture and environment. In terms of the political dynamics, it puts
pressures from below, social movements, in line with the idea that we can challenge the
nation states, put pressure on them through mobilization from below. In a way, there is
an intersection between the two section, they are both concerned with gender
inequality. The radical version has less radical policy implications. But both have
critique on the society. All of these suggest the need for mobilization from below, not
leaving it to the state. There is also an internationalist element here, it has to be
cosmopolitan. The mobilization should be local but the idea should be international. in
the case of radical feminism it is both a critique of capitalism but also about nationalism,
the extreme, hyperrealist versions.

Karl Polanyi

He is a Hungarian social theorist. He wrote it in the rise of liberal markets. And there
was a backlash in the early 30s with the protectionism. Then a reverse with the great
depression. He argues in his book that free market liberalism has positive outputs. Put it
also has devastating social and political consequences. His vision is that an unregulated
market is incompatible with a balanced society because it undermines the social bases.
His proposition is that unregulated free market has bad consequences, an argument
similar to Marx’s. But in Marx, there is ultimately a revolution. In Polanyi, the process is

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more complex and open-ended. The second proposition is that since free markets
creates these inequalities, the lack of balance in society, it will increasingly create forces
which we use in resistance. Most famous concept associated with Polanyi is the process
of the free market liberalism, increasing the proliferation of it, it provides a double
movement, where free markets driven by firms, supported by states try to expand the
boundaries of markets first at the national level then with the internalization, at the
international level. The movement provides a counter movement. There is always a
process of resistance and balancing to even out the counterbalance the movement of
markets. The expansion and the move to regulate them go hand in hand, there is a
dynamic interaction. This is the essential dynamic for Polanyi, there are powerful
sources that extend the marketed society but it leads to process in the opposite
direction, a counter movement. They are processes that lead to social protection.

Polanyi vs. Marx

Marx is also suggesting there is a movement that the capitalism creates in a shift away
from feudalism but it is a very uneven pattern which results in exploitation which
results in the collapse of the system. One of the major differences is that Polanyi’s trust
is much more in mixed economy. He is optimistic that in a market oriented system, there
could be a social welfare state. He is a reformist, he is a believer in regulated capitalism.
Polanyi’s perspective is closer to Keynes, who argues that the state needs to intervene to
regulate the market. The welfare state should intervene to undo the negative effects of
the capitalist system. But Polanyi’s vision is more open-ended, he is also close to a
social democratic system, but he argues that this is not automatic, there are other
possibilities. Marx advocates a post-capitalist world, (not necessarily a Soviet style), but
he did argue that the capitalism was unsustainable. Polanyi would suggest that market
economy has negative consequences but can be reformed from within through
regulatory measures.

Marx’s account of class struggle is more deterministic in a stage-by-stage breakdown.

Polanyi’s account of double movement is more open-ended. It is difficult to predict the
direction of the countermovement. It could be through social-democratic governments,
labor movements etc. But in Great Transformation he recognized that other possibilities
are open. One of the reactions to the liberal markets in the 30s was not from the left but
from the fascism. It recognized that the countermovement could take very reactionary
forms. There is a similarity between what Polanyi wrote; there is the first phase of
globalization, the rise of liberal market economy and the cycle of decline and collapse
with the great depression. In the period of 20s-30s, the main form of the
countermovement was extreme nationalistic movement resulting in the WW2. Now,
interestingly we are in the second phase of globalization. We have the neoliberal
globalization of late 20th century, which we can see as the movement to liberalized
markets to extend the boundaries of the markets, through TNCs and the institutions like
IMF. Then we can see the reactions to this, the 2008 global financial crisis, we see the
reactions to this neoliberal globalization and from an orthodox Marxian perspective, we
would have predicted a rise of the left. But instead we see in many countries is the rise
of right-wing populist parties. In Polanyian terms, it is possible for the expansion of the
market economy can create reaction mechanism, which are also very negative (such as
the rise of Trump). In the recent phase, we see a kind of replication of the pattern of the
global economy in the 20s-30s. of course there are differences, especially in the context
of the global cooperation. But there is strong geopolitical competition, very aggressive
forms of nationalism and the right-wing politics seem to be much more dominant than
movements from the left or the more progressive wings.

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In Polanyi, the market is desirable up to a point but markets are embedded in social and
political relationships. There is a balance between these relationships and the markets.
But beyond a certain point, the point where Polanyi describes as the shift from market
economy to market society, the consequences could be negative and there could be
reactions. It can also create very reactionary modes of counter movements, which
appeals to the concerns of people. The rise of nationalism in EU is also due to this,
especially the Eurozone financial crisis and rising unemployment, combined with the
migration. The right-wing parties are a powerful element of the counter movement,
they capture the anxieties and the problems of native workers, realizing that these
people are losing their jobs as paint the migrants as the immediate threat. The social
parties in Europe is in decline. All these elements are capitalizing on the immediate fears
and the losses of neoliberal organization. Social democratic parties face a dilemma.
Their constituents are made up of two groups: the blue collared workers, who are very
conservative and the multicultural groups. Polanyi’s framework is flexible enough to
include the very diverse forms of counter movements.

The Polanyian framework can be applied. What we are observing in the current
situation, we see complex interactions, which seem to emerge which are a mixture of the
movement itself. They are partly supporting neoliberal globalization. But their electoral
success is due to their support in the countermovement. The same framework can be
applied to the Turkey. The AKP can be seen as the countermovement as well. It supports
the neoliberalism and has done a number of neoliberal reforms. But its success lies in its
ability to redistribute resources to the large segments of the society. AKP is also a
complex mixture of this movement and counter movement in the Turkish context.
Disciples of Polanyi are not in favor of reactionary right-wing politics. Progressive
politics must be thought of as an increasingly local and transnational social movements
from below. The proper countermovement should be a global movement because the
movement is very much a global phenomenon. The problem, the markets, the firms are
transnational, so the reaction to them must also be transnational. The movements now
are relatively weak, isolated and localized. So there is a big asymmetry between the
movement and the counter movement from below. The implication for politics is how do
we organize societal reactions that are then linked to one another. There is the emphasis
of participation and citizenship and weakening forms of governance.

SESSION 10: 13/03/2018

TRADE, TECHNOLOGY ADN KNOWLEDGE STRUCTURE

Post-war international economic order, the liberal order of the post-war period, which
is represented by the general agreement of tariffs and trades.

The institution that replaced GATT is WTO in 1995. It has important successes and
limitations. One of the terms used to describe the post-war system is compromise of
embedded liberalism. Another term frequently used is the idea of Keynesian
consensus which is operative at the national and the international levels. It discusses
the emergence of a welfare state in advanced countries as a mechanism of maintaining a
liberal open international economy but sensitive to domestic considerations. The idea of
Keynesian consensus are also translated into the organizations of GATT and WTO.

General Agreement of Tariffs and Trades

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The key architects are US as the hegemon and the major EU powers, Japan is also
important as a newly established industrialized countries. It is essentially the capitalist
world of G7, which set up the rules of the game. Developing capitalist world, the third
world are also part of the system but they are passive recipients. They are not rule
makers, but benefiting from the system but not having much impact. The second world
is the no capitalist socialist world are outside the system, the market oriented liberal
order.

The idea by the architects is to create an environment for multilateral decision-making

process and to create a fair international trade environment. In the 1930, a lot of
protectionism in the countries. The aim is to remove these limitations and make the
trade more open. Another major liberal principle is no discrimination, everybody
should have equal treatment. The third principle is the most favored nation principle.
It seems to suggest some discrimination but this principle is a technical term. One
mechanism that was created to tear down protectionism was the rounds of GATT
negotiations. This relates to the most favored nation principle is that the negotiation
principle of GATT is that the representatives of countries meet in these negotiation
rounds and negotiate. Major industrialized countries take initiatives and make decisions
and then these decisions are generalized to all the member countries, both developed
and developing. The most favored nation principle is a technical term that means that all
countries have to be involved in the decisions.

From 1947-73, we have enormous success. Major achievements in terms of reducing

protectionism and industrialized countries in that period represented the 80% of world
trade. The developing countries were called marginal elements of the system. the tariffs
were quite high, about 40% on imports, a lot of protections, by 1973, through stage by
stage rounds of negotiations, tariffs in industrialized countries are reduced about 5%.
During this period, with opening of the world trade, it leads to economic growth. This is
perhaps the most successful period. The only comparable economic growth rates are in
the period of 2001-2008. The world economy expands after 70s, 80, but not in a
comparable rate to this golden age of Bretton Woods.

Even in the golden age period, there are a number of limitations. These escape clauses
were; it would be possible to justify temporary protectionism for developing economy
on balance of payments or infant industry grounds. The infant industry argument was
taken in a limited way. Part of the reason for this was political, the emergence of Cold
War, allowing the countries to industrialize was an important aspect of this period.
Many countries including Turkey benefited from this. The possibility of protectionism
was a deviation of the GATT rules but there we see the importance of political economy.
Integration of the developing countries into the system. Another exception was the
formation of regional blocks under certain circumstances. This does not fit with the
spirit of GATT, it would mean discrimination against some countries and against
multilateralism. The major motive for this was, the major regional block that emerged in
the 50s is the EU. Originally was the European economic community. The European
integration process was one of the major system that the GATT system was trying to
take into account. The US also supported this process through the Marshall plan and a
strong, united Europe was an important element of the Cold War structure. So the EEC,
which emerged with 6 countries, was the first major example of a regional block in the
post-war period, which operated under GATT rules. They are major players of the GATT
system, but also EEC is a customs union, so there is a deviation from the principle of
total multilateralism, but a political reasoning lies behind this. This is followed by other
examples in the developing world, the Latin America, the Africa. But these early
experiments subsequently fade, then later on, a new wave of regionalist with NAFTA,

10
Asia Pacific and an enlargement of EU. The only successful example of the early regional
union is the EU. In 1993, European Union was born.

Two elements which are very important, agriculture stays outside the GATT system for a
long time. Until the final Uruguay round, the agriculture trade was not mentioned.
Until today, the agriculture trade continues to be a problem. Why is agriculture outside
the system of GATT trade organization, as well as textiles until the Uruguay round? This
links us to the principle of compromise of embedded liberalism  synthesis of
opening up the world economy and responding to domestic concerns. One of the earliest
policies of EEC is common agricultural policy. Even today, EU spends almost 40% of its
budget on agricultural subsidies. Many argue that this should be amended and more
should be spent on inequalities, research etc. rather than agricultural protectionism. In
the immediate post-war period the agriculture was very important for Germany ad
France. The French and German farmers were a very important interest group for the
EEC. One of the compromises is that domestic concerns of key actors have to be taken
into account. From a strict free trade perspective, it does not make sense, but there is a
political concern for the countries to comply with the demands back home and keep the
domestic relations stable. From a developing country perspective, this is heavily
criticized. They want to export agriculture but they are faced with great limitation.
Linking this argument to Turkey-EU relations, the Ankara Agreement allowed TR into
the customs union, but excluded the agriculture trade. Japan was also in line because
especially rise production was heavily protected so it was in favor of this agricultural
protectionism. So a compromise situation and the bending of the all principles of the
tree trade was created. But the key players believed this was the way to go because
without compromising for the domestic interests, the system could not be uphold.

Interesting debate on the limitations of the GATT system: the critiques argued that the
GATT system for not being liberal enough. But the proponents of GATT argued that this
compromise allowed the system to be upheld. Only through political and economic
stability could this be achieved. The political interests of member states should be taken
into consideration for the success of the system. the rise of the emerging powers like
Taiwan, South Korea, Turkey was associated with the opportunities provided in this
golden age environment. This is also a period of expansion of capital movement. The
Marshall Plan is a big example of this. The security concerns were very important in
choosing the countries but also the movement of capital was seen in this period. The
IMF and WB helped the process of sustaining this open international regime.

Rise of New Protectionism

What went wrong starting from 70s-80s?

The 70s and early 80s is a period where the liberal order had to be sustained in a world
of powerful countries. The major beneficiaries of the system were the hegemons, namely
Germany and Japan. Germany restoring its economic power, Japan industrializing.
During this period, US is growing but its growth is increasingly challenged by the
superior performance of the latecomers. Those from the behind were closing the gap. In
the 70s, the challenge came from Germany and Japan. One of the hits to the system came
from the OPEC countries. But 1973 the OPEC used its cartel among Arab countries and
others to push the price of oil so the phase of cheap energy ended. This created
pressures on the advanced industrialized countries, major supply shocks, rising
inflation and unemployment were experienced. The US in this period is losing its
commitment to the GATT system. It is torn between domestic interests and the
international one, which is to sustain the open liberal trade. The US is feeling that its
position is being undermined by what it considered to be freeriding countries. This is

11
important that in line with the hegemonic stability theory, the original dominance of the
hegemon seems to be undermined, in relative terms, its position is becoming weaker.
Currently, the US is facing a similar challenge today from the rise of China, against we
see the conflict between the commitment to the international order vs. national
objectives. There is also the problem of uneven growth between the members of the
system. The system is not doing as well as the 50s and 60s. The Bretton Woods system
collapses and the system is now less stable.

There is also a new pattern. What we observe in 70s, is the key sectors of industrialized
countries being negatively effected by import penetration, such as the car
manufacturing or consumers electronics, sports equipment, sectors of the economy
where US previously has dominance. Other countries started to penetrate into the US
markets, so undermining the US industrial structure. The result is that there are calls
from these sectors for protectionism on the US government. Calls for protectionism
were effective on the government. A major term talks about narrow distribution of
coalitions is very effective in explaining in sector specifics protectionism. These sectors
are geographically concentrated in certain regions. So they lobby the government to put
new restrictions on the imports. The losers are the consumers, they would benefit from
cheaper goods. one of the problems is that the GATT system finds it very difficult to
regulate this new protectionism, such as voluntary export restraint. This is the idea
that the trade officials from different countries can come together and agree on the
limitations on the imports. This is very much against the logic of GATT, it is not
transparent. With tariffs and quotas, they are visible, these new instruments are not
visible and very hard to monitor. During the 70s, there was a proliferation of these
unorthodox agreements. These new forms of protectionism mechanisms are
increasingly non-liberal. One of the big challenges in the Uruguay round is to how to deal
with these. It becomes a major challenge to the liberal principle. So why do the other
party agree to comply with this protectionism: there is a threat mechanism, if you do not
agree with these, there will be a bigger protectionist measures. Increasingly non-market
negotiations behind closed doors replace normal market instruments. These are not
generalized to the whole economy but are in key sectors where import penetration
takes place. This is defensive protectionism. This is often not a good measure to deal
with this kind of problem. Normally, what you have to do is move into other sectors of
industries and adjust your economic structure. But one of the logics behind the
defensive protectionism is the unemployment, so they form a coalition and provide a
very effective lobby on the government. But this type of protectionism often does not
work in long term. In short term, you are able to artificially sustain the economy but not
in long term.

Fortunately, new protectionism posed a threat on the GATT system but did not cause it
to collapse. There is still the GATT regime which is facing problems but the regime is
intact. In this kind of environment, there was loss of confidence in the multilateral
trading order. In this phase the Uruguay round is initiated, seen as a way to revitalize
the order. In 1986, the process starts with an ambitious agenda in the crucial turning
point in the history of post-war order. Many argue that if the Uruguay round had
collapsed, we would have gone back to the situation in the 1930 fortunately; it was a
success and revitalized the system. even after the end of the 1993, there were
disagreements between major actors of the system, which prevented a complete
agreement and there were fears for the collapse of the Uruguay round. The major
disagreement was; it was agriculture and the disagreement between EU and the
developing countries about the extent of the limitations. One of the decision rules of
trade negotiations is that you have to have an across the board agreement. All issues
have to be agreed upon for the round to be successful. WTO, which came into being with
Uruguay round tried to end these issues but after a while, we see a re-emergence of

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these trade rounds under the orbit of WTO because the nation states are unwilling to
delegate authority to the international organizations on important issues like trade.
Recently we see major conflicts and the stalemate in the negotiations. Most recently in
Doha round, we were unable to reach a consensus.

SESSION 11: 15/03/2018

Challenges to the GATT system in the 70s: Protectionism

Before then, there was huge growth, from 47 to 73. Developing countries are not
actively in the decision-making process. In the 70s, the GATT system is challenged with
the new rise of protectionism and there is weakening commitment to multilateralism.
There are two types of protectionism, one strategic and one defensive. The first one is
strategic based on infant industry. This is the selection of few industries and this is
especially important in the rise of Asian powers. Germany is another good example.
They are output oriented but they use selective protectionism in industries of the future.
This is very critical in the rise of Japan and South Korea. More recently China presented
this kind of strategy.

Other countries which try to use proactive/strategic protectionism, Brazil, Mexico,

Turkey under ISI, but it is not affective. Their concern is domestic market and use it as a
platform to move to internationally competitive countries. This is how big firms have
become internationally competitive firms. They take advantage of an open liberal
economy but also very interventionist, the state plays a very important role.

The kind of protectionism that doesn’t really work is the defensive protectionism. The
governments try to protect declining industries such as steel and coalmining. These are
no longer competitive especially in the US. To trying to protect steel doesn’t work, it may
save the industry temporarily, but in the long term, it doesn’t work or promote new
industries. It is costly especially on behalf of the government. This is the kind of
protectionism that emerged in 1970s. The question is that two processes are not
independent. It was the success of strategic protectionism in Asia which tried to
penetrate into the US markets. It negatively affected certain sectors in this market.
When defensive protectionism starts to generalize it is a dangerous process. Then you
have protectionist tendencies in the international system, multilateralism is undermined
and the world economy suffers. The most striking example of this was the trade wars of
30s. It was associated with the Great Depression. Everybody tried to protect their
industries from each other. The milder version of defensive protectionism rose in 70s
and it challenged the GATT system. In the Tokyo round, an attempt is made to phase this
proliferation of defensive protectionism. But Tokyo round is not able to check this
process and at the end of 70s the world economy is faced with the question of
multilateralism. The Uruguay round afterwards is faced with the dilemma whether
multilateralism will be activated or continue to decline. There was the fear that the
declining performance of the GATT system would lead to the collapse of the system.

In the current international context, there are elements of this as well. Trump
administration seems to be an example to defensive protectionism, trying to save
industries that are in decline and trying to save jobs that are already lost. In the 70s, the
competition between US and Germany, now the major threat to US economy seems to be
the rise of China. The two processes are heavily interrelated. The countries that
effectively use the strategic protectionism also create problems for countries that are
negatively affected and certain sectors are undermined by their success which later

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leads to the defensive protectionism. There is evidence that open markets are always
the best, but the biggest problem is to maintain these free markets. Today, Trump has
withdrawn from a major free trade agreement because national interests are
undermined by the commitment to liberalism and that some of the other countries are
deviating from the rules of the game. So how do we achieve multilateralism in a world of
unequal growth? It causes dislocation in key industrialized countries leading to
difficulties in managing free trade.

In the 70s, the problem of the GATT system was the weakening commitment of the US. It
was hegemonic power. But already we see a relative decline in the 1970s and US does
not have the same degree of commitment. The original Bretton Woods system collapses
with the withdrawal of US in 71. The biggest problem was the stagflation in 71-73 with
the OPEC oil crisis and the industrial countries experienced a problem that was foreign
to them. This is stagflation when you have a combination of low growth, stagnation and
high inflation. This was also the period of the Keynesian consensus; it could no longer
deal with this kind of problem. This is the era of stagflation, relatively slow growth and
in this environment it becomes harder to maintain the system. On top of this, we see
increasing import penetration leading to the new creeping protectionism. It became
increasingly hard for the GATT to check this new protectionism.

The GATT is more a negotiating forum for the regulation of the trade with limited
disciplinary power. After 1995, the institution is now a much stronger one. The only
time GATT comes in the picture in the Turkish period is in 1980s, tried to put pressure
to end export subsidies. Overall it doesn’t have this kind of mandate to create a degree
of discipline on the system. The system worked when the world economy was growing
and that created an environment for liberalizing trade. When growth started going
down in the 70s, the ability to maintain this system declined. There is the realization in
the major actors of the system, that if the system is not managed, there is always the
threat of going back to the 30s. Fortunately the 70s and 80s there is an institutional
context to manage this system and today, despite of the entire problem, there are
institutions of global trade WTO, G20. In the 30s, there was no such framework.

In the Uruguay round there are elements that make it interesting. One is the emergence
of new actors. For the first time developing countries with their growing role are
becoming more active players in the system. Many of the major emerging countries are
industrializing, expanding their economies. This appears in the realm of agriculture.
There is a coalition between the developing country agriculturers against the US, they
also push for the reduction of the protectionism of the textiles. After the Uruguay round
the key countries of the global south and the BRICS increasingly become very vocal in
recent debates. They also make the process of achieving consensus more difficult.
Because earlier, it was western dominated and easier environment to achieve
consensus, not it is more participatory but there are deeper disagreements about the
future of the trade.

Another major actor which is involved actively in shaping the rules of the game in
Uruguay are the TNCs. They did not attend the trade negotiations. But now TNCs are
powerful actors and especially from US and EU and increasingly from the third world
influence their governments through majorly lobbying. With this background in mind,
to save the trading system from collapse, the Uruguay round has a major agenda
(consensus on every issue is necessary and the round lasted 7 years, WTO emerged as
the success of the round which was formed in 1995) includes trade liberalization. The
aim is to recaptivate and maintain the momentum of liberalization. This has several
elements: the continued reduction of tariffs and quotas. The idea was to tackle the
new protectionism. For the first time, agriculture and textiles come into the realm of

14
GATT negotiations. Another element which was introduced was labor and
environmental standards of trade. It was introduced but not directly tackled in the
round. This is a very human idea, dealing with child labour, pollution. The key idea is
that there should be fair trade but it was postponed and continues to be a major
problem. This is the realm of trade liberalization.

The most striking issue was the investment protection, technology, and intellectual
property rights. For the first time, new rules of the game are introduced on protection
of property and innovation. There are two concepts here that are; TRIPS and TRIMS.
They refer to trade related intellectual property rights and trade related
investment measures. TNCs now through their governments want stronger protection
of their innovation and stronger intellectual rights. TRIPs refer to the new rules of the
game where patents are much more protected. The job of WTO is not only to oversee
and regulate but it became an international court for imposing these new rules. This has
important implications for rising powers. One of the arguments was that emerging
countries has easy access the technology the intellectual property rights were not
securely protected. In Uruguay round, property rights for intellectual property became
much more difficulty. The growth of new regionalism in 80s, 90s with regional
organization are also very related to this investment protection. NAFTA for example is a
regional version of WTO. The aim is to create free trade between the member countries
but most of its decisions are about the investment protection. TRIMS also reflect the
TNCs. In the post-war context many countries could implement direct control over the
TNCs. With TRIMS, the ability to control TNCs directly is much more limited. So TNCs
bargaining for power over developing countries expand because of the new rules. The
idea is not only to liberalize trade but also bear a more attractive environment for rising
international investors.

This raises interesting issues: who are the real winners and losers, what does it
represent from the perspective of developing countries? The final result is a 10 year
transition period for liberalization processes. In agriculture, one third of agricultural
subsidies are reduced but not phased out completely. Textiles protection again phased
out. The biggest success is the new institution of WTO. The expectation at the end of the
round that we would no longer have these long rounds of negotiations and that WTO
could be like IMF and WB where major trade issues could be settled and it could act like
a court to settle disputes. For about 10 years, WTO worked and there were no major
rounds of negotiations, after 10 years, we see a new pressure for multilateral
negotiations. We have now not GATT rounds but starting with Seattle in 2000 and
recently the Doha, we have rounds of negotiations under the WTO. Although a stronger
institutions, it has not resolved the log rounds of trade negotiations. Also the rules of
investment protection was accepted. The rules which protect TNCs which are
predominantly from global world, advanced industrialized countries.

The winners and losers

From the perspective of global political economy, this was a success in terms of
reversing protectionism and starting a new phase of international liberal trade
environment. For the developing countries, their elements of success and elements of
limitations is that the world economy is more open, they have more capacity to sell in
textiles and agriculture which is their comparative advantage. The limitations are the
ability to control foreign investments of TNCs and easy access to technology is more
limited. The proponents of Uruguay round argued that it meant that there would be
more transnational investments and the way to attract technology is not favour the
TNCs. The classical forms of protectionism like export subsidies, tariffs, infant industries
are largely phased out. If you want to achieve proactive protectionism, certain tools are

15
no longer available. The new rules of the game allows certain forms of subsidies in
certain areas for government, such as education or technology. They are possible under
human capital formation and research and development. This created a lot of debate
because many developing countries argued that this was at the advantage of advanced
industrialized countries, because they already have huge governmental budgets and
advanced research and development. One of the biggest debates was the position of the
LDCs. They would not be able to attract much foreign investment. The impact of TRIPS
would be negative because many of these poor countries substitutes medicine at a cheap
price. At the pre Uruguay context, they would alternate local cheap medicine. But now
the major drug companies are much better protected and as a result they can impose
much higher prices and substitutes of medicine would be violating intellectual rights
and patent rights. So one of the arguments was that especially the LDCs would suffer
from the new disciplines because of this very tight protection of intellectual protection
rights. They also don’t have the capacity to build innovation in their industrial,
educational, research and development in any way. One of the criticisms the Uruguay
round was that it was more advantageous for advanced industrialized countries. The
asymmetry between different kinds of developing countries would increase as a result.

The results of the Uruguay round and the WTO has created an environment for the past
20 years. There is increasingly a conflict between major countries of global north and
major countries of the global south. There seems to be two major issues, which are
unresolved. The first is agriculture and agricultural protectionism. It continues in spite
of some liberalization in the Uruguay round. Especially EU is under pressure to resolve
this. There are big agribusiness firms in EU or US, which favour agricultural
protectionism. Whereas the global south wants it to phase out. The difference is that the
global south wants more flexibility in the use of infant industry protectionism and in the
use of intellectual properties. They want a more flexible trade regime and a lenient
approach, which takes stage of development in the use of intellectual property into
account. When we look at BRICS, there are still elements of protectionism. The
conclusion is that the current international trading order was reactivated with the
Uruguay round and there was considerable success in reactivating multilateralism. But
the point reached is considerable disagreements.

SESSION 12: 20/03/2018

Translational Corporations

In positive theories of the TNCs, start to explain why major companies starting as
internally driven become transnational. In the 20 th century, we have a number of such
countries (general Motors, Volkswagen, Toyota). UNCTAD publishes a world investment
report and gives information about major corporations. Around 300 firms are becoming
dominant actors, provide a disproportionate amount of world trade, and much of the
trade is intrafirm trade meaning between different branches of TNCs.

One of the central features is the oligopolistic rivalry. Significant market concentration
with competition between two or three major firms. Few firms, heavily concentrated but
with great market competition. One of the features is the non price competition:
advertising, promotion, very significant in markets of the industrial structures. So the
global economy is not Adam Smith’s vision of small firms in perfect competition but a
great deal of competition between a few big firms for market share.

16
Why are the terms TNC and MNC synonymous and which one is preferable? TNC is a
better terms to describe these major firms because these firms are firms with a major
home base, there is a link between TNCs and their own nation state. The term
multinational is misleading because it suggests that the ownership is spread between
different nation states. This is typically not the case, in many of these firms, the home
base and nation state from which they originate is very critical and there is an
interaction between companies and their own nation states. The Japanese example of
Toyota; it is transnational but predominantly a Japanese company, and very often, the
technology is developed in the home base. Now as a new development, they delegate
this to other parts.

Are we reaching a stage that we are moving towards truly global corporations? The
companies are not now only transnational but global. They are supposed to be no longer
linked to their nation states. If they are global corporations they become increasingly
difficult to control and regulate. But through global organizations, they can be managed.
They are still not fully at a stage of global corporations, they are still tied to their nation
states, it continues to be important in the decisions of the TNCs.

A footnote, the relationship between TNCs and emerging powers is an interesting topic.
Evidence suggests that the numbers of companies emerging from emerging powers are
quite limited that have transnational operations. Even in spite of global shifts, the
dominance of the north can be seen; they count for about 90% of the major 100 TNCs. In
general emerging world is still at an infancy period in terms of the dominance of the
TNCs. This is expected to change radically. Emerging market transnationalism and their
characteristics is an interesting topic.

The two positive theories associated with Raymond Vernon and he developed the
product life cycle theory, how TNCs emerge become huge firm with transnational
operations. The second major actor is Dunning, he came up with a synthetic framework.
His model is push and pull model. His theory of why TNCs rise is composed of 3
elements:
 Push element: you need some specific advantages (a product, tech superiority,
innovation which is embodied in your product), for example Coca Cola. They have a
specific product, there are national subsidies but they can’t compete. The company
has firm specific advantages. To become a successful TNC, you need some specific
attributes that make the product attractive firstly in the home location. The firm can
then become competitive in very different environments of the global markets. Not
every firm has this capacity. First they start by exporting, but then they start to
control and benefit from investment in other locations.
 Internalization: critical element. The firm is making profits by these specific high
quality product. It wants to internalize the benefits of these by keeping the benefits of
this product to itself. It wants to keep high profitability in a very competitive market.
For the CEO of the company it is very important to keep the benefit to itself. The idea
is that you also have to innovate continuously to sustain the brand name. They are
differentiating, creating sub-branches, upgrading the firm’s specific advantages. TNC,
becomes a mechanism to maintain the benefits of the investments to itself, to make
sure that investment to innovation is kept within the firm and nıt duplicated by
outsider. Another term used is the appropriation is the same concept; you want to
capture the benefits of your investment. There is a paradox: they emerge in the
environment of competition, which is a driving force. But the term internalization
also suggests that the company wants to limit the competition and that its rivals are
undermined and that they keep most of the benefits. So this is the tool to internalize
the benefits of your original investment. This is very important in liberal political
economy, they suggest that TNCs are generating a competitive environment but

17
 counter to the liberal theory, TNCs themselves are not happy about the competition,
they want to limit and restrict it as much as possible. They come up with strategies to
bypass competitions as much as possible and escape regulation. TNCs start to push
their investments to low tax locations. They have the global reach to distribute their
production to places where tax rates are low and their benefits are maximized. The
aim of these firms is the global profits; its maximization is the major strategy.
 Pull element: now the firm is at a stage that they can invest in a number of different
countries. What kind of elements of different locations is attractive to these big firms?
The pull element is related to the location specific factors of the receiving country.
The company originates from a home base, wants to internalize the benefits and is
attracted from the different attributes of certain countries to do so. What makes
China so alluring for foreign investment? Turkey in the past years has received a
sizable foreign direct investment. These pull factors are (the pull is from the home
country, the push is from others) related to a package of benefits that the receiving
country can offer to transnational investors. A number of factors contribute to the
benefits of the receiving country: some of them are, availability of raw materials, low
cost inputs, low wages etc. low wages, low working hours, commitment of labor to
work, no unions. From a Marxian perspective, this is exploitation of labor. But low
labor cost is a very attractive element. The liberal argument would be that the firms
are obviously taking advantage of this but over time, per capita income will rise and
the wages rise eventually. However, the low labor costs is not the only element. The
low wages alone is not sufficient. Low labor cost has to be adjusted with quality.
Beyond inputs, the size of the market is very important. Many TNCs are interested
in trying to take advantage and control the economies of especially the merging
powers, with dynamic, growing markets and they want o make sure they want to get
the maximum benefit from this market by controlling the market. They want to be
close to the consumer to take maximum advantage of the market to know their
culture ad tastes. When you look at NAFTA, US corporations are interested in Mexico
because they want to take advantage of low labor costs, which they can export to US
or the rest of the world. Many firms are interested in large markets, big countries
with dynamic economic growth and their location specific factors that attract TNCs to
other countries. many firms are now shifting from China to India because labor costs
are lower, India is also a very big country big a vibrant market. The size of the market
with consumers is very important. Small countries are less favorably placed. They
can be exporters of products. For example Sweden, it doesn’t have the size of the
market that will attract investment. Size of the market is related to the development
of the state. It is very important for the developing country to have human and
physical infrastructure. There are only 15-20 emerging powers that are attractive to
investment. Because they have reached the level of development that is adequate for
the incoming investments. If you rely too much on foreign investment, you can create
a very unequal world. They are helping to develop many countries and this is
byproduct of their activities, not the main idea. Their main objective is to maximize
their benefits; as a consequence, these countries’ development level can increase.
Political and economic stability is also important. For investment, the macro
economic environment is important. Is the investment influenced by the regime
type? The outcome is that they don’t care too much about whether the country is
democratic or authoritarian. They are not sensitive to for example China’s
authoritarian regime. Overall, the stability seems to be the underlying element. The
preference is either for consolidated democracies or consolidated authoritarian
system (China). The importance is the predictability of operation and rules and
enforcement. Foreign direct investment means long-term commitment, opening new
factories, it is difficult to reverse that decision. They look at to stability as a very
important element and the countries that are less favorable are hybrid cases,
neither consolidated democracies or authoritarian regimes. Transnational investors

18
 are driven by market forces but they are not necessarily very liberal in their ideas.
Russia after the transition could not attract much investment because it had a very
unstable environment. But Russia in the 2000s could attract much more foreign
investment. In the Turkish context, in the 1990s, attracted mainly short term capital,
but this is not attractive to development as long-term capital. Short-term capital
brings capital into the countries but it is very volatile and very reversible and many
emerging countries experienced crises because of their overdependence to short
term capital. Another issue is the innovation. If the country provides significant
protection for intellectual property, this is a pull for the investors. In Turkey we
see this that WTO disciplines are better implemented. They want to make sure that
their investment in the country, their innovation is properly protected. An exception
is the case of China. It is considerably weak in these areas. So China is a strange case
where the intellectual property rights are weakly guaranteed. Although China is a
deviant case in the case of TRIPS, the other features are so attractive that this
disadvantage seems to be disregarded by many companies, but they are still trying to
push for more regulations in the area of intellectual property rights. For smaller
countries, their ability to implement TRIMPS is very important for attracting
investment. Another important aspect is the tax rates. Governments want to tax the
companies so that they can provide for their people, but TNCs want to use power to
minimize their tax rates. So there is a continuous bargaining. So they prefer places
where corporate tax rates are very low. This has been a problem in Turkey because
the Turkish policy makers were faced with a dilemma. They have to reduce the tax
rates but they fear that this would undermine microeconomic stability and lead to
inflation. TNCs play off countries against one another to drive tax rates to very low
levels. The response in a global political economy environment to the attempts for
the TNCs to drive the tax rates down, is that the nation states can’t deal with this
issue because they want to attract FDI. The solution should be a very global solution.
A possible solution would be a global tax authority which harmonized taxes and
make sure that the corporate taxed do not fall below a minimum. Finally,
environmental policies, relative relax ones, are attractive. TNCs take advantage in
locations where environmental protection policies are weakly implemented. This
creates a major dilemma, the critiques of TNCs say that they are undermining
environmental concerns in developing economies. From a human perspective, the
human rights are also important in this aspect. Policy makers’ defense is that in the
long-term, conditions will improve through the development ushered in by the FDI.

SESSION 13

REVIEW

27.03.2018 SESSION 14

27.03.2018

 normative aspects of TNC’s: welfare implications. Under 5 broad headings.

-FDI: as a capital flow of the balance of payments. Country is attracting capitals and
balance of payments impacts on FDI is every important. But the effects on TNC’s is more
then foreign capital entry into country.
- It has effects such as tech transfer, we are looking at this from a receiving country
perspective.
-3rd element. Linkage effects of TNC. How much does TNC’s contribute to the

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 development of local economy, local firms, local labor… the extent of the linkages.
Extreme version is enslaves development where TNC in mining creates an enclave
separate structure of development with very few linkages to the rest of the economy.
-4th: beyond capital flows and tech, TNC’s are not only sources of capital and tech but
they also a source of finance, marketing and organizational skills. Because of their
live sucks, these firms ahev the ability to borrow large quantities from the domestic
financial system so they can bring significant financa and borrowing to the econç
-5th: social pol and env impact. Especially Marxian and critical perspectives corned that
these firms are powerful econ and pol actors, but in terms of their broader social and pol
impacts are bad

 balance of payments effects: distinguish between short term effects (FDI by TNC), new
factories opened. But the main issue for assessing the impact and welfare consequences
is whether this capital flow will be on a sustained basis. Will the TNC continue to invest
in the country? To what extent is the capital flow, the investment, is export oriented?
One of the debates is if FDI doesn’t contribute sufficiently to the export, its balance of
payments effects will be weak. Major benefits of TNC’s: TN investors are also important
contributors to exports. when we look at regionalism, we will see how regional blocks
attract FDI. If FI brings sustained capital flow, contributes to exports, its long term
effects to balance of payments is positive. One of the dangers of foreign investment is it
can also create import dependence, if they are not sufficiently willing to use local
sources. Its positive effect will be reduced. Also if FI is not sufficently export oriented, it
will be a problem. Problem for many countries which implemented ISI, and foreign
investment basically comes to serve the domestic market, doesn’t serve to export and
reduces the balance of payment effects of TNc. Ex from tr: tr in 60-70 in ISI, tried to
attract FI and FI that came to tr was more domestic market oriented. TR’s ability to
attract significant FI is a relatively recent development, 2007 onwards. But balance of
payments effect is only one dimension, countries are also interested in long term FI to
attract capital flows, to make sure FI contribute to exports but this is part of a broader
package. It is one of the benefits. Most of the discussions focus on capital flow
dimension. This is one of the many benefits.

 Tech Transfer: very important. These countries are late industrialized countries they
want to receive tech which developed in advanced indust countries and TNC’s are a
major vehicle. The early debate on tech transfer was whether TNC’s brought the right
kind of tech to the developing world. Especially in the ISI period, many countries
received capital intensive tech, not labor intensive. Why is the problem? Because
developing countries have significant unemployment, they have labor surplus. The
argument is that to maximize employment by TNC’s, FI should have brought more labor
intensive tech by minimizing capital and maximizing the use of labor.
-Question: why do you think TNC’s brought capital intensive technology, rather than
labor intensive. What was the logic? The crucial ratio is the wage/ interest rate (labor
cost verses capital cost ratio). They develop tech in their home base, in their home base
where typically wages are high and interest is mostly low. They face in their home
econonomy, a high W/R ratio. Rational choice involves in min labor, max use of capital
and choose capital intensive techniques. Profit max tech, given the factor prices in their

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 home base, is favorable to capital intensive tech. what hap in dev country? If you have
development of labor unions, can also create pressure for high wages and if price of
capital is artificially repressed, if these count face low wages and high interest rate they
may adopt the tech they develop in the global north, make it perhaps more labor
intensive in the receiving country but if gov policies lead to a process where wages are
high and price of capital is repressed by gov policy, the problem is that these firms
already developing their country bring capital intensive tech and the effect is to create a
dualistic economy. Happened in tr 60-70. For ex labor unions were strong but they
represented a small section of the labor force. Dualistic structure: labor aristocracy
which benefits from FDI, but also unemployment. Brazil in 60-70 was another classic
case where TNC’s are actively involved in the dev process but create a very unequal
pattern of dev.
TNC’s create, bring tech but a distorted structure of tech which contributes to a
distorted pattern of development. Main arguments which criticize TNC in line with some
of the gov policies. Foe ex east Asian econ has the advantage that they were pursuing
labor intensive industi wages are low. In that env TNC’s coming to them wre much more
labor intensive and export oriented. TNC coming to brazil and tr was much more capital
intensive and import oriented. This dualistic pattern of dev, result in inequality. /
another issue: argument it what dev countries need is the ability to undertake research
and development. Creta tech and innov for future dev. The argument there is that TNC’s
undertake their research in their homebase. These are hierarchically organized institu
and subsidiaries are formed to bring tech but tech is more applied tech, not basic
research and dev capacity. They bring applied production technology, they don’t
contribute to the ability of recipient country to innovate, bring basic research and innov
which will contrib to their future growth. Most of the primary research is done at the
home base. Very much dependency theory type core periphery relationship here. The
core where tech is developed, and periphery are the receiving ones where they invest
and bring capital and try to control the market, but they don’t bring you basic research
and innov capacity. Recently some interesting changes: some of the more advanced
emerging countries (skorea) are now able to bargain on the terms of tech transfer
effectively, there is evidence that some of the tNC who invest those countries also
contribute to research and dev capacity. Very much related to their own national
capabilities. Basic distinctions between transnational and the global; is transnational is
still embedded very much In its home base. But it is changing. International rules of the
game are protecting them they may no longer need the protectin and support of their
own nations states. Debate about whether TNC’s bring you the proper benefit(ability to
create new tech). the real benefit is contributing to innovation capacity of the recipient
country.

 (sonraki slayt) is we ask from a policy maker perspective, maximizing the gains fo FI
from position of country like Tr, to max benefits the following principle very imp: (1)
countries which have been able to benefit are the one which have strong dom
economies, not on dependent on FI. And again reference to east Asian cases: look at
china, it is benef signif from long term Foreign capital but also evolving a strong econ
based on high saving and investment ratios. (2) to encourage joint branches. make sure

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 dom enter into alliances to extract the max benefits and the returns of FI are kept as
much as possible within national economy. China suggest that there is a very strong
bargaining env the terms of entering into national econ.(3) Max sharing of surplus
requires significant policy interventionism. You should encourage as much a possible
and FI will create signif benefits. We need to create the conditions. suppose you have the
benefits of TNC as a kind of surplus, hwo much of this surplus is kept by TN themselves
in terms of high profits and how much of it comes to ns? This division depends on the
bargaining capacity of the gov. if the gov can encourage joint ventures, effectively tax it
then a larger part of the surplus will go to the gov. but if the gov bargaining capacity is
weak, the TNC will try to get the max of the surplus for itself.

 Gov policy should also care about the local content of output, make sure TNC uses more
imputs from national econ, more human capital from our own econ. Obv this very much
depends on the quality of your investments of your educations system. Some of the east
Asian cases benefit from the fact that quality of labor is very high and attracts TNC to
apply local labor.
Greenfield investment is very critical: not the size of fi itself, how much fi comes to tr?
The size is imp but more than the size is the quality of fi brought into country. Crucial
concept is greenfield inv, how much of it comes in the form of opening new factories,
creating new jobs. Our own case: alternatives to gr inv? Other forms of fi which are less
beneficial in terms of their long term impact. Mergers and acquisitions: fi comes to your
country and buys an existing firm, then you can say the TNC can improve the perf of the
country. (privatization). There might be benefits, but much more attractive option is to
encourage FI that comes directly without privatization. If foreign capital comes with
mergers, its developmental impact will be more limited. Gr investment is very imp. The
crucial lesson is that the max benefit you can generate from FI depends on your
domestic capacity. Countries should not rely exclusively on FI. Main lesson is balanced
development. Balance between nat dev and reliance on FI and create the basis of your
innov capacity. You have to invest and increase your expenditures of research and dev.
WTO rules create certain restrictions on ability to control FDI but it is open to research.

 Ö zet: TNC’s can create significant benefits but it is not automatic, free market
environment is not the right environment, we need a significant interventionism, an
effective state capacity to bargain in their entry but the capacity of bargain depends on
the strength of your national economy.

 Ex. Compare for ex the case of china or skorea. They benefited much more from TN
investment. Other emerging countries for ex Mexico in terms of nafta. But Mexico’s
pattern of dev has been much more lopsided. Mexico’s development has been extremely
dependent on TN investment. Their ability to develop a balanced economy is limited.
That’s why they weren’t able to grow as much compared with Asian examples. Is it a
more unbalanced development where greater part of the surplus stays with the TNC’s
and Mexico’s capacity to develop is innov capacity has been more limited.

 If FI comes and buys a major share, that’s not a greenfield investment because that’s
acquisition of a company which already existed. Sts did to distinguish, the fi may come
and take over the tr company and create new investments and technologies, expand the

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 operations, it may be a mixture of merger and greenfield inv. But the pure gr inv is the
best when a company bring capital to open up a new factory and bring new tech, create
jobs. The opposite of merger is a pure takeover. Crucial because if you look at the world
inv report, suggestion is that fi has been rising in the past 20 yrs but a large part of it is
in the form of mergers and acquisitions. (major privatization waves).

 Issue from the perspective of NS: how recipient countries have max benefit from TNC’s.
increasingly what we observe is a world where these companies are very powerful and
dif to bargain with, they have the power to shift to different locations. Suppose you
raised the taxes, they can easily shift the factory. Problem of regulating these companies
beyond the nation state. Increasingly the power of TNC’s should be regulated at the
global level and the structure which ahs emerges with WTO and pro right rules, there is
asymmetry. The FI are much more protected and dif to regulate. But the question is is it
possible to develop a set of policies at the global level to regulate the activities of TNC’s.
in the 70’s Anktat was responsible about cause of conduct for TNC’S. the UN was trying
to play the role of a global institutions trying to introduce measures. But over time, the
buyers of global econ has been toward unbalanced regulation. Perhaps what we need is
out new institutions like World Investment Authority to regulate the TNC or world tax
authority to make sure TNC don’t play countries against each other. What TNC can do is
by their ability to shift activities, reduce the size of the surplus available to the country
by reducing the taxes. Is we have a truly global balancing institution, there could be coop
bw countries in terms of tax harmonization so it would fall below a certain level.

 TNC’s offer a bundle of benefits. (tech, capital, marketing skills, finance, org skills) one of
the debates is to what extent can states bargain with TNC’s by unbundling this package.
Example is the early case of japan. Japan is a classic case of how an effective a country
can use bargaining strategy to unbundle the package how? They obtained the tech from
foreign firms but not through investment. They kept TNC’s away from selected sectors
because they didn’t want to lose control. They bough tech through licensee agreements
also they have tries to do the marketing themselves. They set up large marketing
companies where the marketing was done by large Japanese firms so japan was able to
get max benefits and also unbundling. More recently TNC’S have learned the lesson.
They want to make max of their investment and very dif to apply Japanese strategy.

SESSION 15: 29/03/2018

NEW REGIONALISM

European regionalism is about the social market model of capitalism, it’s also under
challenge in the current context. The Asian regionalism is about strategic capitalism, it
seems to be on the rise and challenging the western dominant models. The more Anglo-
Saxon style free market capitalism is under challenge from this. Britain is in the process
of Brexit, so these regionalisms fits more into the North American context. Britain has
always been an outlier, but in terms of the typology was closer to NAFTA than the EU
model of social market capitalism. It is not surprising that Britain had problems with EU.

Types of Economic Integration

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The loosest type is a free trade area. It is a regional block where you have free trade,
no restrictions within the block but flexible attitude towards outsiders. Classic
example is the European free trade area. When European community was formed in
1957, it included 6 member countries. Those countries have free trade in the block and
common external tariffs, it was a customs union. Then the number of countries involved
and increased and the community enlarged. There is a parallel organization: EFTA,
countries like Sweden, Norway, Denmark, it is a looser structure of integration where
there is free trade but no common external tariff. There is flexibility of trade policy in
individual countries. A free trade area is not completely in accordance with the
multilateralism, because there is still discrimination, protection against outsiders. The
post-war system allowed for deviations from multilateralism, especially the major goal
was to encourage European integration. So European integration opened up the way for
regional blocks. Regional blocks in the late 20 th century became a key element for
globalization, where there are regional blocks competing with each other. Open, but
there are still restrictions, members are protected. There is a distinction between
member and non-member states. NAFTA is also an example of a free trade area. There is
free trade between US, Canada and Mexico and these countries have different
protectionist measures against outsiders. Outsiders face tariffs barriers and trade walls
and recently these tendencies increase in US. NAFTA is more than just a free trade area,
there is a lot of policy coordination, especially in the area of TRIPS and TRIMS. It
makes NAFTA more than a simple free trade union.

Customs union is more restrictive than a free trade area. Members face free trade
within the block but have to apply a common external tariff against the outsiders.
There was a debate when Turkey should join the EU. Turkey would have to apply the
trade policy of the EU which would restrict Turkey especially in our trade with the Asian
partners. Turkey is the only EU candidate which joined a customs union with the EU
before becoming a full member. In 1995 was an associate member of the EU, in 1999
became a candidate country. When we look at the Eastern European countries, ex:
Poland, it has a free trade agreement while in candidacy. After 2004, it becomes member
of a customs union, only after becoming a full member. Turkey is an exceptional case,
integrated in the customs union, without becoming a full member.

Economic Union: the EEC initially started as a customs union, but then became an
economic union. The first major policy of the EEC was agriculture, which moved it from
a customs union to an economic union. The name was changed in 1967 to European
Community, suggesting it was deeper than a customs union. In the 70s, there is the
development of social funds, which makes it a very different bloc. The new members
which are poorer were helped as well as the poorer regions. In 1974, we see the
implementation of redistributive founds, with the exception of Ireland, it becomes and
important recipient. Over time, the EU develops a number of policies, the most
advanced one is the single currency experiment, the Eurozone, which requires
coordination of fiscal and monetary policies. Beyond that, you can have a political union,
the aim of the architects of the EU. The idea was a united Europe, which will gradually
move from customs union to a political union. Europe is currently going through these
multiple crises. The European integration process is a different kind of regionalism than
other competing blocs. The European project is a much deeper one, in terms of ultimate
political cooperation and union. Political union category does not exist for other blocks
but does for EU.

In other regional blocs, there is also significant policy coordination but not on the scale
of EU. One major experiment, which comes close to EU is a south-south regional
project in Latin America, MERCOSUR. Brazil and Argentina are active members. They

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agree on policy coordination and there is a political objective coordination. There is a
lot of interdependence and interpenetration with the EU and Latin America. MERCOSUR
is beyond our major classifications of north-south regionalism, you also have examples
of south-south cooperation and this is good example. Turkey has been a part of the Black
Sea Economic Community. It is a south-south integration scheme that doesn’t involve
any high-income actors. The two key actors are Russia and Turkey. Many examples of
regional blocs are outside the three major blocs.

The EU is in many ways quite different than other major blocs. When we look at the
degree of institutionalization, EU is strongly institutionalized. There is strong
bureaucracy that takes place in implementation of economic policy. There is a strong
supranational organization. We don’t see a similar kind of institutionalization in
NAFTA or Asia Pacific. NAFTA is an intermediate case, there is the secretariat, the
degree of institutionalization is quite weak, and we don’t have the same kind of
bureaucracy, no capital of the union. The weakest is Asia-Pacific regionalism. There are
two organizations, APEC, the Asia Pacific Economic Council, where every year, heads of
state of member countries meet and discuss policy issues, it is a meeting forum. There is
no elaborate bureaucracy. It is like G-20, no elaborate association of bureaucracy. APEC
includes some of the major Asian economies, but ironically, also includes NAFTA
countries, because they have coasts to Pacific. It is primarily an Asian organization but
also includes Pacific countries. There is interconnectedness and interdependence
between APEC and NAFTA. EU tends to be more inward oriented and isolated in relation
to the other two. APEC is a kind of supranational block in the sense that it includes
countries beyond East Asia. Another experimentation ASEAN, it is a subregional group.
It is the deepest form of integration in trade policies in Asia-Pacific. Economically it is
very dynamic but policy wise, it is loosely integrated. This is interesting, in terms of
degree of institutionalization, East Asia seems to be weakly integrated.

Social rights are a very important point for EU. For communitarian liberals, supporters
of social markets, it is a very attractive model, it introduces regional redistributive
policies. Some of the biggest winners of the EU are the southern countries, benefiting
from EU’s redistributive policies. In contrast, NAFTA has weak reference to social rights.
The NAFTA rules of agreement, most of is about economic issues, some reference to
environmental and labor issues. In general, NAFTA is weak on environmental
protection, labor rights, it is more about trade and investment protection in a broadly
free market context. The prototype is neoliberal. EU’s emphasis on social rights also
reflects to the environmental sensitivity. The issue of social rights seems to be very
weak in Asia-Pacific. Regional redistribution schemes are totally absent in this context.
The prototype is the neoliberal regional integration. The paradox of Asia-Pacific
regionalism, is that the states are very intervening but regionally it is very open and
outward oriented. Nationally, it is strategic capitalism, regionally it is a very open rules
where WTO rules are tightly followed. Investment, the interplay of trade and investment
is very critical to this regional bloc.

The political objectives are very critical for EU. They want you have to be a democracy
before becoming a member state. Greece and Spain could only been members after the
collapse of their authoritative regimes. Beyond the emphasis on democracy, the EU also
tries to develops a broad project of political union. The Euro experiment, is more than a
simple economic project. It was a project that would lead to political unification. Single
currency is a key element of the nation state. The founding fathers of EU wanted a
federal Europe with single currency. One of the reasons why some countries opted out
of the EU was not only on the economic grounds, but because they though giving up
their currency would lead to undermining their sovereignty. Sweden and Denmark also
opted out of the Eurozone experiment, and continue to use their own currency; they see

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it as a symbol of their independence and sovereignty. Some states are against this
deeper integration. Germany and France and Italy are more pro-integration. The original
EFTA members did not want to join for a longer period. They are more problematic
members of the EU. Eurosceptic countries don’t want to be fully in this integration
process. Newer members are more willing to be fully integrated after their leaving of
Soviets. Compared to the golden age of Euro transformation, we see an economic crisis
in the region. A political crisis, democracy seems to be in major crisis. In the region,
where there is great emphasis on democracy and human rights, we see a great crisis.

EU does not seem to have the dynamism of other regions, in terms of their economic
performance. The best performance is the Asia-Pacific and the second best is the NAFTA.
Within the EU, there is a lot of variation. EU as a regional bloc does not represent the
whole economy. There are centers in EU that are very dynamic, Germany, the Nordic
countries, and even Poland seems to be very dynamic. But there is a deep north-south
divide in terms of economic performance and a deep east-west divide in terms of
commitment to democracy. The EU is crucial for the future of the global political
economy. Turkey’s relation with EU is very crucial, especially in terms of commitment to
social rights. The problem faced now is that the mot attractive regional bloc also appears
to be facing very serious challenges. Brexit has been a blow to the region. The future of
Euro is also under great challenge. Underlying the European integration process is a
transatlantic alliance; this relationship is also not under challenge. There is a big
discrepancy with EU and US in terms of their leadership positions.

Why does the Asia-Pacific resist a EU style institutionalization? Because of Japanese

imperialism. This is now replaced by the fear of rising China. They do not want to be
dominated by a rising hegemonic power. The same reflects for Germany. It provides the
dynamism of Europe. France is also very crucial, it provides the ideas and institutions.
There is also the fear that Germany might become too big and too dominant. After the
Asia financial crisis, Japan tried to create an Asian currency union. It created a backlash
because other countries did not want to join a Japanese initiative. This shows that
historical experiences can have repercussions for present day developments. National
policies are very important. Turkey started in exported oriented policies in 1980s.
Malaysia and Thailand have also embark ion export oriented regionalism in the early
1980s. These countries grew more rapidly than Turkey. An important part of the reason
is that they were able to attract foreign investment from Japan and Korea and they were
able to benefit from a more dynamic regionalism. Turkey is moderately successful, but it
is not able to attract the same kind of the foreign investments. Malaysia and Thailand are
also benefiting from rising TNCs of Japan and South Korea.

The superiority of EU to Asia is much more due to its commitment to democracy, human
rights and income redistribution. In Asia, we see a number of authoritative regimes in
the past and present. The record of democracy in the region is mixed. China and
Singapore are authoritative regimes. In terms of environmental issues, social rights, the
record of Asia-Pacific is weak. The deforestation, destruction of environment, we see in
this region. When we look at economic dynamism, we take a balanced approach, their
dynamism and economic development has very dire consequences. The EU is less
dynamic but has more sensitivity to social issues. Also there is a certain illiberal trend in
EU, the social issues and the commitment to democracy is more strong.

Old regionalism vs. New regionalism

Old refers to the immediate GATT period. New refers to late 20 th century pattern of
regionalism. In the context of immediate GATT regionalism, there is two types: the

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north-north and south-south. The primary actors are nation states. The primary driving
force is to extent the trade within the bloc. Trade creation is the predominant objective.

The new regionalism has a different pattern. It is a much more north-south regionalism.
It is grouping of more advanced countries with developing ones. One example: EEC is
north-north before 80s. After 80s, the European enlargement becomes north-south. The
Mediterranean countries became members, such as Greece, Spain, and Portugal. The
eastern enlargement included the post Communist countries. Predominantly this leads
to north-south regionalism. When we look at the NAFTA, it started as north-north.
Canada and the US were the initial states that were involved. With the inclusion of
Mexico, this became a more north-south. In Asia Pacific, Japan and South Korea and
Taiwan are northern and the ASEAN countries are more increasingly southern. The key
actors in the shaping the rules of the game are the TNCs. They shape the new
regionalism. States are still important, they negotiate these regional agreements. Under
the states, the TNCs are the ones who want these regional blocs to expand their trade.
US firms wanted Mexico to join because they want to export to them and use their cheap
labor.

The logic of new regionalism is not simple trade expansion. It is relocation of investment
and the activities of TNCs and they move on from their home base and move into the
regional space. These create the dynamics for the new regionalism. The old and new
regionalisms are not conflicting but complementary phenomena.

SESSION 16: 03/04/2018

NEW REGIONALISM

Benefits of N/S Regionalism from the Perspective of the Southern Partner

The term global north means advanced industrialized countries southern has a specific
meaning. They are rising emerging powers of the global south, like Mexico, Poland,
Turkey. It means the elite group of countries, which have reached a certain level of
industrialization, which are attractive from the northern countries’ perspectives. They
are attractive to TNCs. The pull factors are viable for these countries. This kind of N/S
regionalism has also exclusionary features. There are 15-20 emerging powers, but
numbers of other developing countries that don’t have these features are excluded from
this process. Late 20th century globalization is a very strong force for economic
development but an uneven process. States are very critical here, but they are not the
only actors. TNCs from major industrialized countries form the core of this process. In
the process of NAFTA it is US, in the Asia-Pacific, it is predominantly Japan. China is now
obviously challenging Japan. Over time, one of the reasons that N/S regionalism is in
crisis is because the southern powers are rising and are more assertive, they don’t want
to be just periphery countries, they want to be more independent.

The question is, why do the southern members want to join these kinds of regional
integration schemes? We see the following pattern. The integration scheme is an anchor
for the southern partner to attract foreign investment. Stable macro economic
environment is guaranteed and these factors pull investors. Turkey started pulling in
foreign investment in 2004-2007 period when it was a full candidate for the EU. The
same goes for Mexico. Integration also means the possibility of consolidating and
implementing major economic reforms. The late 22th century is the main era for main
neoliberal reforms. Ability to tie yourself to such an agreement provides an anchor for

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the policy makers to implement neoliberal policies. Reform, which faces resistance in
many countries can be overcome by external anchors and regional integration makes
that possible. The possibility of bailout is also attractive. Those that are part of a
regional block have the possibility to be bailed out of these crises. One example is that in
1994, Mexico experienced a deep crisis and NAFTA membership provided the possibility
of a major loan from the IMF. Argentina in 2001 is not part of a N/S process and it did
not receive such a bailout. This also creates a virtual cycle of benefits, reforms create a
better environment for investment and which in turn creates expansion of trade.
Politically also there are spinoffs in terms of liberalization and democratization. This is
strongest in EU where membership of the EU from the candidacy onwards requires
countries to take on democratic reforms. In the other regional, the political dynamic is
weaker, but indirectly, it is likely to be influenced from democratic regional partners.
This dynamic seems to be weaker in Asia and intermediate in NAFTA. Also the dynamic
of N/S regionalism picks momentum in the mid 80s, the time of the Uruguay Round. But
there isn’t the same enthusiasm to multilateralism as the early years of GATT and during
this period US takes the lead with regional agreements in 1983 signs an agreement with
Canada. In the earlier years, the US strongly endorsed multilateralism, but from the late
80s onwards, we see an increasing number of regional blocks. The regionalism and the
multilateralism go together. Many actors see regionalism as a way to implement the
WTO rules more strongly. The N/s regionalism is not only about trade but also about
investment so transnational investors are also key elements. These are the reasons that
southern members want to join. Northern members want to join because they want to
expand their trade and increase their economic benefits.

Some of the possible weaknesses of new regionalism are as follows. One of this is
inequality, the process of integration may create economic dynamism but can also
create unequal patterns of growth visible in both partners. This is weaker in EU because
it has inbuilt redistributive mechanisms. But even in the European case, this is a
question mark, how much it works. Especially the inequalities within the member
countries themselves. The possibility of social and political fragmentation is another
aspect. In the southern countries, there is a pattern of fragmentation which suggests that
the process is very uneven. Another criticism is that you effectively lose sovereignly of
key economic policies when in a regional block. Mexico for example could not
implement infant industry protectionism and was dependent on import. China perhaps
is an exception and some of the other BRICS, they could use their large market size to
bargain about these but smaller countries have had less possibility to bargain. In the
case of Turkey the customs union has created benefits but also put restrictions on the
ability to have independent relations with non-EU countries and economic relations.
Now there is a debate about the need to revise the customs agreement. Once you are
integrated, you are locked into some kinds of policies, there is a lop-sided dependent
economic growth and reduces your ability to pursue independent policy. Brazil is not
part of such a N/S agreement; it is a major player in MERCOSUR and a game maker. One
important difference between Mexico and Brazil is that Brazil is more independent and
could further its economy further and is a major player is some key global industries, it
has managed to develop an internationally competitive markets. Other critical political
economists look at the social and environmental costs of this kind of integration. EUU is
different that it pays a lot of attention to social and environmental policies. But NAFTA
and Asia-Pacific have much less emphasis on social and environmental disciplines. The
southern countries implement these disciplines in a relaxed way because they want to
attract foreign investment. This has been an issue in NAFTA, labor conditions are so
weak, environmental polices are not properly implemented so the firms move there are
this block and these firms have unfair advantage. The critiques of EU also say that the
two other regions are much more dynamic in trade expansion and foreign investment
but EU is more ties to the social and environmental standards. The law is not the issue,

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the laws are quite well developed but not properly implemented, and the incentives to
implement are weak. The policy makers realize that proper implementation would drive
foreign investors away. The current conjuncture is a very interesting period. The crises
of these regionalisms can lead to a new developmental stage. The southern partners
may have more space to negotiate their positions with the crises the regional blocks are
going through. The weakening commitment in the center may create important
opportunities in the peripheral southern countries (ex: US-Mexico). This kind of N/S
regionalisms, there are differences in different blocks but as the common features affect
all three regions. To what extent will these features lead to convergence or divergence
under strong pressures coming from globalization?

The rise of BRICS has also contributed to challenging the conventional pattern of these 3
major regional blocks. The emerging powers in the southern member of regional
agreements have been affected by the shift of economic power to China and the BRICS.
The strategies of the emerging powers are influenced by the rise of BRICS. The fourth
block of emerging powers is also affecting the conventional organization of the global
political economy. Many of the southern countries want to be a part of the BRICS and
some already are of G-20. This discussion is critical to Turkey because it is an in-
between case. It is still historically ties to the western block but its position is also
changing in the global economy.

European Regionalism

The international political economy of the EU is very interesting. It has been a

contestation ground of different IPE paradigms. It has been a major debating point for
all of the paradigms.

Liberal Perspective

Within the liberal perspective, there are two distinct approaches, communitarian and
neoliberal. There is a jot debate between neoliberals and interventionist liberals about
the future of EU in a world of competing regionalism. One of the traditional debates o EU
is the inward orientation of EU. One of the criticism is that it is more protectionist that
than other blocks. One of the traditional criticisms has been common agricultural policy.
Huge subsidies to agriculture create unnecessary trade barriers. But it still constitutes
40-45 of the EU budget. Very strong pressures have been applied to phase this out but it
still continues to be a very important elements. It is symbolic, because it has been one of
the first points of the EU. Also the agribusinesses are pushing their countries for
continues protectionism. Liberals argue that EU should be less protectionist in order to
compete with the two other regional blocks.

EU has been able to ensure a huge welfare state and this has been part of the debate.
Significant redistribution is also important and the post-war Keynesian consensus was
based on this, which brought prosperity and an equal pattern of development. But in the
late 20th century, the welfare state in Europe is under pressure and the Keynesian
consensus is being undermined. The big debate is that EU is not alone in the world, to
that extent the EU can keep up this model in a world of very strong capital mobility?
Communitarian and neoliberals differ with their diagnosis and the future of the welfare
state. The communitarians argue that the welfare state is under pressure, there are
difficulties to maintain high taxes to finance to compensate growing government
spending and they recognize that the welfare state needs to be reformed, but it does not
mean dismantlement. Germany and Sweden have reformed their welfare states, but it is
still as strong and sizeable. So communitarian liberals argue that the welfare state can
be transformed but it will continue to maintain its relevance and will continue to be one

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of the most attractive features of European integration. Countries in Europe can balance
an open competitive economy and welfare state mostly, except for some, such as Greece.
Liberals argue that you need to create a competitive market oriented economy and also
balance between it and the welfare state. Communitarian liberal idea recognizes the
importance of the markets for the success of EU but market and redistribution can be
balanced, and it can also provide advantages, social and political stability, cohesion etc.
markets orientation and redistribution can make these economies successful in the
global markets. But if you go too much in one direction, like too much emphasis on
markets, it may result in severe inequalities, political and economic problems and may
create reactions or too much redistribution, you may lose your competitive markets.

In contrast, neoliberals think that the European welfare state is not sustainable. In a
world of dynamic economies, the welfare state overtime will be dismantled and EU will
become increasingly neoliberal. They argue that if EU is going to restructure itself, it has
to eliminate these welfare provisions, become more market oriented in order to become
more competitive region wise. Neoliberals are traditionally very critical of the welfare
state. Also the welfare state has to be considered at the regional level.

One of the most attractive features of the European project is the regional redistributive
policies. Countries of lower levels of per capita income benefit from these as well as
candidate countries. Regional redistributive funds started in 1974 with the inclusion of
Ireland, first truly southern member of the EU. Its success story is very inspiring. It has
benefited from these regional funds which allowed it to build significant human and
physical infrastructure and it pulls in a lot of foreign investment. In the 80s, the
southern enlargement caused the newcomer southern countries with massive benefits,
such as Greece, Spain and Portugal. So redistributive policies in EU are identified as a
major tool for success. Eastern European countries also benefited hugely in the 90s
when they received funds as candidate countries even more in the 2000s. Turkey in the
2000s also received funds as a candidate but southern members benefit even more.
There are also regional funds for alleviating differences between differences.
Proponents of Europe argue that this kind ıf regional welfare state is absent in North
America of Asia-Pacific. National welfare states are also relatively weak in these regions.
There was some attempts in the Obama period but now there are backlashed.
Communitarian liberals also put emphasis on gender issues, social and environmental
dimensions. They are also very important components of the European integration.
There is an ongoing debate that those more optimistic ones are the communitarians.
Representation of this can be seen in center-left. Some of these ideas are also embedded
in mainstream center-right parties. CDU under Merkel would accept many of the
communitarian liberal ideas about the continuation of the welfare state. One of the
reasons why social democratic parties are declining in Europe now is because of their
success in consolidating their ideas that the center-right parties have also taken them in.

There is also an interesting debate about the Eurozone crisis. The diagnosis of the
communitarian liberals is that it was due to EU increasingly being integrated with the
global neoliberalism. Importance of the state in the financial regulation would be
emphasized. The austerity measures would not be supported or tight fiscal or monetary
disciplines. Communitarian liberals are also very sensitive some of the problems of
political change in Europe in the recent period. It is currently going through a period of
multiple crises: economy, identity and security triangle. The economic crisis is
prominent, the economy has been on the decline since 2008 and only now we start to
see some healing. There are also major divides in EU in terms of north and south in
terms of economic advancement and east and west in terms of commitment of
democracy. So there is the threat of fragmentation and the European project has to be

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revived. One of the crises other than economy today is multiculturalism. Migration is
necessary for economic expansion, which in turn leads to crises of identity. The identity
and security challenges are interlinked through refugees. One of the recent elements of
the relationship between EU and Turkey has been about the management of the refugee
issue. Another problem with identity is that there is increasingly the challenge
increasingly illiberal policies in peripheral states and the rise of extreme right parties in
core states. a major challenge exists towards EU’s democratic institutions. Poland and
Hungary are two examples of countries that pose a threat to the embedded liberalism
and democracy of EU.

So far the dependency theory has stated that the core transforms the periphery.
However, in the EU case, the core has been the major player. But maybe the EU is
reaching its limits of its transformative powers and in the future, it is possibility of
reverse transformation with greater transformative power to periphery countries.

SESSION 17: 05/04/2018

Types of economic integration

Free trade area: free trade within the bloc, European free trade area, EEC 6 member countries:
Germany, Italy etc. a customs union then number of countries increased, 6 founding member
state free trade within the bloc and common external tariff? EFTA, free trade but no common
external tariff.

NAFTA example of a free trade arena, US Canada and Mexico. protectionism is not very high
but outsiders have tariffs, attempt to increase these protectionist tendencies, NAFTA more
than a free trade area, policy cooperation too,

Customs union more restrictive than free trade arena, have to apply common external tariff
against outsiders. 1995 turkey in customs union. Customs union still under debate whether
turkey benefits? Debate about reforming the customs union to a fairer arrangement from
Turkish perspective, turkey is the only country which joins custom before becoming a full
member, associate and candidate country. Poland is a candidate country from 1993 becomes a
full member in 2004, between these years it has free trade, flexibility in the use of tariff, only
after membership of the European community 2004 Poland becoming a customs union, turkey
is an exceptional case, w/o becoming full member.

Economic union: first policy area of where European economic community implemented, at
supranational regional. Common agricultural policy. A system of agricultural subsidies.
Something deeper than customs union, deeper objectives. 1970s development of social
redistribution, regional redistribute schemes. Helping poorer regions, implementation of
redistributing funds. Ireland recipient of that fund. Major beneficiaries of this funds. EU
number of policies; most advanced one is Euro zone, single currency experiment. Significant
degree of coordination. Ultimate objective of eu union, federal and united Europe which is
gradual integration to an economic union and political union. Fourth category the political
union. Major regional experiment which comes close to European integration, south south
project; MERCOSUR closest we have to the EU, both economic and political objectives. Lot
of interdependence. Although Mercosur beyond our north south, we have a combination of
south south regional agreement. Black Sea.. which turkey is a member since 1992.

EU is quite different, eu is a strongly institutionalized bloc, delegation of powers to

supranational EU institutions. We don’t see it in NAFTA or AP, NAFTA is an intermediate,
degree of institutionalization is weak, AP has 2 organizations, 2 very strange formed, one is

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APEC where every year heads of state of member countries, discussing policy issues, a
meeting forum, its like g20 rotating presidency, APEC also includes nafta countries. APEC
asian organizations but including members from america. ASEAN sub regional bloc,
Malaysia, Thailand etc. in Asia pacific. East Asia appears to be weakly integrated. Biggest
winners of EU redistribution policies, turkey. Social rights: nafta most of it about
implementation of triffids, some reference to environmental things, in general nafta is weak
on environmental protection and labor rights, its more about trade and investment protection,
prototype neoliberal integration. EU's emphasis on environmental issues, we see much more
attention from eu compare to nafta. AP prototype neoliberal regional integration, lack of
social rights. Nationally its strategic capitalism, WTO rules are tightly followed. Political
context EU is different putting emphasis on democracy, you have to be a democracy to
become a full member of a EU, Spain Portugal and greece, they applied after 74, democracy a
criteria for membership over time the quality is also an important feature, EU developing
broad project of political union, euro experiment as both political and economical unification
at some point, key element of a nation state,

NAFTA REGIONALISM
1983 the us Canada free trade agreement.
Northern and southern partners view\ US Canada northern and Mexico southern part.
Nafta in big spotlight because us is weakening is commitment under trump. Mexican
elections where Mexican politicians revising the rules of the game under the NAFTA
agreement.
Nafta is essentially a free trade agreement. It implies very strict rules about investment
protection and property rights its like a regional version of WTO. Uruguay round: trade
liberalization and…. NAFTA strong regional version of WTO. Free trade as much as possible
but also strong rules on property rights and investment protection. Major actors are American
corporate capital which would like to use regional space. Mexico: low work cost, less
environmental protection vs. taking advantage of favorable investment conditions. 500
hundred pages of NAFTA most of it about trade and much of it is about investment
protection. Extreme version of WTO in a regional space. Very little in social rights,
redistribution than EU. Its an economically driven agreement. No conditionality’s like EU,
becoming a democracy criteria, f.e. Mexico single party soft authoritarian when its accepted
to NAFTA.

US AND NAFTA
This will increase competitiveness of America, firms moving across the borders, also take
advantage of large Mexican market, 120 million population. Its a big country integrated into
NAFTA this allows space for state expansion and competitiveness of major American firms.
Firms taking advantage of Mexican favorable environment. All the trims, intellectual property
rights implemented. Regional dynamism will affect them and all of them will benefit.
weakening of labor unions of US, their bargaining power decreased. From the firms
perspective the investors the benefit is that you are now in a beneficial position in bargaining
with labor. Benefits are so huge that everybody will benefit and those who lose their jobs will
be able to find new jobs in new sectors so overtime nafta will benefit everybody in a
neoliberal perspective. Marxian perspective argues that, it will emerge huge income
distribution problems, uneven distribution. Although employment expanding, in compare to
Europe, Reich we need to look at the quality of employment, nafta created dual labor market.
Also a lower segment of labor market and find jobs in McDonald's, with poor working
conditions, many of the jobs created by nafta is poor quality jobs. variation on the quality of
jobs which is created under NAFTA. Neoliberal argue that its a good arrangement for
expansion of trade and opportunities, nafta has been more dynamic than EU, growth rate is

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high. Even after global financial crisis, recovery of US and nafta in compare to EU.
communitarianism says that weak regional, no reference to welfare state, its all about trade
and investment limited emphasis on environmental issues. No major penalties for violating
the environmental issues. Small and med sized businesses also benefited but they are more
critical of NAFTA. Trump effectively highlighted the problem of migration and concerns of
white Americans who lost their jobs his major claim is to improve their position by revising
the NAFTA agreement, basic idea is to return American capital back to US. His idea of a wall
between US and Mexico challenging and revising the rules of nafta. The costs have been
highlighted by democrats, republican favoring neoliberal view.

MEXICO AND NAFTA

A country where level of per capita income is much lower, middle income. Mexico uses the
nafta process to reactivate the economy, key figure in 1980s Carlos Salinas. Salinas favors the
nafta process, implementing large scale neoliberal reforms. Nafta used to anchor those
policies. Salinas if we can implement nafta we can attract huge amounts of foreign
investment. There was not much concern about, over a 25 year period Mexico has become
more democratic. Although no democratic conditionality attached it became more democratic.
Indeed Mexico under the impact of nafta recovered from stagnation similar to turkey in the
early 2000s. Its not a hyper growth like asian miracle story but its a robust and moderate
growth significant investment coming to Mexico. Mexico receives a 50 billion package of
IMF Mexico recovered quite smoothly. Wages has been stagnant, employees has expanding
but no significant increase in real wages. Costs and benefits: benefits point the growth and
FDI, costs, weak labor and cannot implementing protectionist policies.

CANADA AND NAFTA

Not as important as US, Canadian debate? Britain outliner in a EU, Brexit is not surprising,
Britain is closer to model of US, Britain leaving EU and becoming a member of NAFTA.
Canada welfare state and closer to the prototype of European model of social market. Erosion
of welfare state, negatively effected by NAFTA, Canadian firms can move across to Mexico
and ability to tax them decreased. Canadian welfare state has been under pressure due to
nafta, so compare to us Canada welfare state much more developed but now its under
pressure. Pros and cons: besides there are important ongoing national debates. Will nafta be
dismantled under trump? You have to take into account corporate capital favored the NAFTA
agreement, interest so strong its unlikely to be dismantled but it can be revised. In Mexican
case we will also see renegotiate the rules of nafta to create more developmental space for
Mexico.

Many people spectacle about democratization impact about the which are purely economic
based organizations led to indirectly political change. Democratization can come without the
explicit conditionality like EU. MEXICO is a good example of political liberalization.
Transformation of Mexico in the direction of democracy. Continuous rule of presidency but
with checks and balances, its a consolidated democracy.

ASIAN REGIONALISM

Successful economic models, post developmental state models. Market is very important,
outward oriented development but state interventionism to promote them. National models of
capitalism in east Asia. East Asian regionalism contains dynamic economics, it is also open
and flexible, the least institutionalized one. Regional integration seems to be limited. 2 major
institutions: APEC, 21 members such as India, also US, Mexico and Canada, Australia. Heads
of summit meet annually. intergovernmental organization, opposed to EU, weakly
institutionalized. economically driven, broadly open economic space where WTO rules

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applied. They favor open and dynamic region, concerned about economics and security. No
political objective and union, no common agenda, pure economics. Even different than nafta
it references to income distribution. Most dynamic regions of world. pendulum is increasingly
swinging to that side. strong interdependence between america and them, degree of
interaction between nafta and east Asia much more striking. Japan challenged by china. Us
has been very active in region. US major planner in Asia pacific regionalism. Another
institution: ASEAN its a subregional entity in south east Asia, with stronger cooperation.
Indonesia, Singapore, Thailand, Malaysia, Vietnam, ASEAN trade driven organization,
regimes are diverse, authoritarian and hybrid and semi democratic states etc. no objective for
democratic ASEA. The most democratic are Malaysia and Indonesia, they are hybrid regimes:
illiberal democracy. Mixture of authoritarian and semi democratic states, which benefits from
investment and interaction. Asia is very diverse. Japan throughout the post war period
established as democracy. Japan with its constitution and checks

Japans strategy: serves as the role model, that followed by south Korea Taiwan etc. Japanese
promotion of Asia regionalism, idea of a flying geese: Japan would lead and it will create a
dynamic region which will all benefit. Its like the hegemonic stability theory. Flying geese
paradigm challenged, china is rising from early 80s onwards, china growing at a phenomenal
rate. Japan has a much more high per capita income but relatively stagnant. China is catching
up? Now japans dominance is not strong as post w period. Also a security threat. Unstable
region because hegemonic power disturbed. US implanted land reforms in those countries,
regional integration promoted by Japan and direct involve of US, mid 1980s accelerates the
process of regional integration: ? Undervalued yen, encourages exports but imports kept
low, resistance to foreign product because of foreign products. 1985 yen appreciates, has a
major impact in late 80s in accelerating the process of regional integration. As a result of
competitiveness of Japan after appreciation of yen, TCOs relocate the production in Thailand
Malaysia to take advantage of lower wages and lower production costs, like US in Mexico.
Japanese firms relocated to these south Asian countries, 1980s Malaysia had an export drive
due to this. South Korea also has its transnational firms, followed the process of Japan.

FINANCIAL CRISIS
Sources of capital flows in capital countries
Why do we see major debt crisis in general and especially in the context of
emerging markets
Latin American crisis, starts in Mexico and generalizes in whole region
Series of emerging market crisis in 90s
Turkey 78-79 like latin American crisis. A broad problem not unique to turkey.
Asian financial crisis of 1997.
Imf and its critics, whether today imf is a new imf?
Global financial crisis of 2007-2008 and the euro zone crisis, now Europe in a
process of recovery after a long period of stagnation,

HISTORICAL PERSPECTIVE MAJOR SOURCES OF CAPITAL TO DEVELOPING

COUNTRIES
We see the dominant form of capital is official flows and aid such as Marshall aid,
for reconstruction of Europe in the context of fear of soviet union? Also Greece
turkey and southern members of nato are important recipients of Marshall aid,
turkey benefited in menders era, major impetus for economic growth, east asian
tigers also benefited from the Americas aid. Latin America not a major recipient.
Brazil became a magnet for private capital flows, like foreign investment. Later
on east Asia and south east Asia also become centers to TCOs. North south
regionalism driven by TCOs. 1970s rise of Transnational bank lending, opec

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crises, predominantly American banks recycled petrol dollars to emerging
economies, turkey couldn’t attract FDI but important recipient of transnational
bank lending with Brazil and south Korea. 1980s latin American debt crisis a
period of stagnation in capital flows, recovery of FDI and in 1990s & beyond
financial globalization, short term long term flows, massive increase in capital
available this creates opportunities and risk in emerging economies they become
more vulnerable to crisis. Turkey effected by this process turkey recipient of
short term inflows, in 2000s in became long term recipient in 2000s. Many
emerging markets are able to attract large scale investment, china major
recipient of investment, as a result financial globalization contributing to the
growth of major emerging countries. Intense process of financial glob of late
80s 90s 2000s its an uneven process, its predominantly upper hand countries
which are the magnets for capital flows. The low middle income ones left out
from this process, sub sharan Africa, south Asia marginalized from the process.
Process effects top 20. Rise of global south with financial globalization it means
the top elite ones of the south not the whole developing world.
WHY DO WE SEE CRISIS WHILE CAPITAL FLOWS CREATING OPPORTUNITIES?
Crisis are costly, your growth stops, you need austerity program from IMF,
unemployed etc. last example Greece, still not recovered. Crisis are costly, but
positive side, avenues for change. Reforming the economy in a costly way. Best
way to reform: voluntarily and domestically without experiencing any major
crisis. 1997 Asia experienced dramatic crisis. Asia seemed like more immune to
crisis but it recovered and no major crisis since 1997. Broad reasons for crisis:
are typically countries with weak ability to earn foreign exchange. weak export
performances. Earning foreign exchange and finance the BOP it means they are
immune to crisis. Chronic current account deficits also a problem. Imports
increasing much more rapidly than export creating current account deficit.
Another reason is heavy borrowing and poorly utilized borrowing then you are
In trouble. Unbalanced economic growth at some point you will experience a
crisis. So borrowing can finance economic growth but invest the borrowed ones
in productive and export oriented industries, in that kind of economy no
problem of crisis. Another classic case of debt crisis is lack of fiscal and monetary
discipline. Danger signals in turkey a significant current account deficit, big gap
between export and import, high economic growth but lopsided predominantly
by construction and consumption. Recently weakening of fiscal financial
discipline, inflation moving into double digit numbers we have to be very careful.
Very high corporate debt, inability to control exchange rate is adding to turkeys
corporate debt. We are in e fragile 5 emerging economies, vulnerable to future
crisis. LATIN AMERICAN CRISIS: pre financial globalization period, the role of
IMF? Origins of latin american debt crisis, turkey a kind of crisis similar to
Mexico and Latina america. For turkey it was able to recover, Mexico for 10 yrs is
stagnated, trying to repay its debt to IMF etc. Mexico negatively effected. Mexico
was able to recover in early 90s. In 70s opec crisis recycles funds to
transtnaional banks like city bank, locating in europe, escaping from regulation is
US. They received the petrol dollars and channeled to rapidly growing semi
industrialized economies which wants to finance their economic growth. Turkey
is in the top 6 receiving that money. How is this money used in Brazil and mexico
and turkey? To sustain the domestic oriented market, maintain high economic
growth increase imports. Maintining import substation strategy based on heavy

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intel borrowing, not a sustainable process, so major increases in budget deficits.
Mexico ran out of intel reserves and 1982 a big debt crisis, IMF essentially
passive in 70s became very critical actor and implements major austerity
programs, similar to turkey ozal reforms in 1980, turkey was more fortunate geo
security structure of cold war context turkey received much more, Mexico
receives less funding the burden of austerity program falls on people with major
tax increases government cuts etc.current greek case: 2 broad perspective on LA
debt crisis and how to deal with it 1) first world view: major representatives
dornbush and Sachs : mismanagement, excessive expenditure, the cause of
illness, debtor countries must adjust themselves, domestic citizens and domestic
policy makers should adjust themselves. 2) third world outsiders view a
heterodox and critical approach inadequate regulation of commercial banks,
overland to obtain high profit to these emerging market countries, a systemic
inability to control transnational banking, lack of control ability of IMF on
transnational banks. Policy implication there should be equitable burden of
adjustment, these countries should have space to recover from the crisis and in
general institutions like iMF should be more proactive in terms of regulating
systematic problems. Reform of the system needed to regulate over-lending.
Problem is not simply domestic. In terms of global political economy; the
dominant perspective the 1st world view in Mexican case IMF BECAME A VERY
CRITICAL actor. Most of burden to domestic. IMF is close to heterodox
perspective, but when criticism comes from world bank, IMF changed it policies.
Imf not playing a systemic regulating role. New imf still imf doesn’t see its role as
a systemic regulator of financial system. Major crisis in pre financial
globalization period, capital account is still controlled in 70s brazil turkey etc.
much of the funding comes to the state, state distribute these resources, state as
a medium linking transnational banks to the rest of the economy. WC reforms in
80s a massive move to financial liberalization and capital account liberalization.
1990s huge flow of capital flows both short and long term, with tech
developments and finance allowed very speedy transactions to one country to
another, due to tech and communication in a much more liberal environment, its
a massive injection of capital but generates risks, frequency of crisis in emerging
markets increased. 3 crisis in turkey in that period, a major emerging market
crisis. So every year we have major economic crisis, one of the features of 90s in
contagion. Like domino effect. Asian financial crisis effect turkey, capital flows
reversed to core countries and all emerging markets are negatively effected,
world becomes interdependent, crisis has spread effects in very different part of
the world. Period of liberal financial and BOP system. Imf comes under severe
criticism in 90s ifs principle responsibility is to act as regulator for emerging
markets, very frequency of crisis puts imf on spotlight, WC comes under severe
criticism with emerging market crisis. Asian financial crisis puts imf on spotlight,
creates a major identity crisis, nobody expected a crisis. They have low inflation.
Even these robust economies experience crisis. South kore f.e. a heavy borrower
from transnational banks but it used for export pronged development and had a
significant growth. Nobody expected s kore, with high saving ratio and almost 0
inflation, with financial liberalization under the pressure of imf big corporations
borrowed heavily and not able to repay them which causes the crisis not lack of
fiscal discipline. Imf criticism: failure to predict crisis. Not due to over
consumption or high inflation 2nd criticism imf delivers standard medicine

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applied to Mexico turkey, cut down budget deficit, reduce consumption, raise tax,
severe criticism from twin institution of imf: WB Joseph stiglitz. he was very
critical as the key figure of WB. Imf is very much affected by this kind of crisis,
imf for the first time experienced a deep identity crisis, rethinking its policies.
We see a change in imf policies and emergence of PWC paradigm.PWC signals a
change in imf approach, putting much more emphasis on regulatory institutions,
institutions like powerful bank supervision authority are part of the new policy
package of imf, not simple free market but strong regulatory institutions to
compliment outward oriented strategies with PWC. Direction is reversed, asian
financial crisis the biggest one, created a imf crisis within itself and it led to a
new approach which put much more emphasis on regulation and institution the
emphasis on domestic institutions and regulation. Imf is still bot open to the idea
of regulating the system as a whole. Idea of regulation of the whole system, a tax
on financial flows, short term capital flows should be taxed to prevent massive
expansion in short term capital, a mechanism to regulate short term capital, IMF
rejected the idea, short term capital flows are desirable but you should regulate
your own system not with a tax. Imf changed its policies, but bias of imf continue
to be domestic reforms. Imf is embedded, western dominated institution, not
simply the decision of imf executive. New era of financial globalization with semi
periphery emerging markets crisis put imf under spotlight, imf starts to push for
significant regulatory reforms, it increased the robustness of emerging markers
such as turkey: with PWC turkeys banking system is much more robust and it
avoid crisis 15 16 years since 2001. 2001-8 period is a period of absence of
borrowers, even thoughts of ‘do we need imf’ no customers, then with the global
financial crisis a new life for imf and it becomes important again, after 2008 it
had many customers and recovered from its identity crisis.
IMF CRITICISIMS
Asymmetry, IMF responding to them. But asian financial crisis is the climax,
leading to a policy and paradigm shift to WC to PWC. WC meaning free market,
commitment to free market, PWC emphasis on institutions regulation and
income distribution of policies. IMF has conditionality, lending is subsidized but
under certain conditions, you have to apply strict program for expenditure
reducing policies, IMF programs has some conditions, expenditure cuts in GE,
tax increases etc. cuts in GE painful for governments. Medicine by the doctor is
very harsh, conditions are very stringent. Funding is often limited relative to the
tight conditions. Traditional imf not into the income distribution consequences,
this is my mandate to bring BOP to equilibrium in shortest term as possible then
economy will recover over time. IMF as a short term stabilization, WB as the
medium and long term lending. WB not on the spotlight as much as IMF. IMF -
WB work together turkeys 1980 implementation of cross conditionality IMF
concerned with short term WB medium restructuring. Conditions brought by
IMF and WB. Twin Washington institutions promoting WC, IMF often the
institution which is more on the spotlight. The fact that IMF acts like a typical
banker, interest of lenders and borrowers, lenders are more favored by IMF the
burden of adjustment falls on borrowing countries, LA debt crisis, major burden
of adjustment fall on borrower countries like Mexico, it was a painful process.
Resources at IMF are limited, if you are a poor country your quota is limited,
ability to borrow depends on your level of development, once IMF program is
accepted this provides a green light for borrowing from other banks. Another

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asymmetry, its a weak institution in the absence of crisis and top institution in
periods of crisis, we need different kind of institutions, preventing the illness the
crisis in the first place rather than intervening in the middle of a crisis. IMF
intervening in national economies, in sovereign nation states. In an ideal world
we need an institution which can advice and regulate before countries enter into
a crisis situation. IMF is too interventionist in periods of crisis; IMF officials
would say that we are not imposing, the countries signs agreement and approach
to us. 2001 turkey, with Kemal dervis it was a national program supported by
national donors? Country need the resources made available by WB and IMF.
Critics of IMF: not being interventionist enough in periods of stability.
HOW DOES IMF RESPONDS
1970s the period where the collapse of BW system, IMF under pressure, major
debates is to make IMF more powerful. Developing countries very critical for
IMF, but in 70s they wanted more powerful IMF, its paradoxical. We need a
global central bank. Extended fund facility lengthening the duration of standby
agreements rather than imposing 1 year standby agreement. Decision making
process of WB, IMF dominated by western countries: G7, US. This might be
changing with the changing dynamics and BRICS becoming more important in
decision process. broad pattern is that close to radical criticisms, more close to
outside criticisms. IMF sees itself as a technocratic institution. Essentially a
conservative institution. WB is broader institution. 1990s with WC reforms large
number of crisis in emerging markets, it was a watchdog for these markets.
Premature financial and capital account liberalization. failing to predict the asian
financial crisis. Susan schadler; IMF economist an article about east Asia would
never experience a financial crisis with tight monetary discipline and export
oriented, immune to IMF programs. 3 years later biggest emerging market crisis
started with Thailand and spreads to Korea, this created an identity crisis. IMF
after east Asia delivers the standard medicine of GE cut, monetary reduction,
tight policies. sKOREA no consumption problem; wrong medicine implemented
which lead to a stagnation and it couldn’t recover for 3 years. Criticism of IMF,
mishandling of asian financial crisis. AC related to over borrowing, no inflation,
no budget deficit, high saving ratio. Also standard medicine implied to turkey but
it fit to turkey but it didn’t fit to AC. We need to put much more emphasis on
intuitions and regulatory authorities, we need to compliment liberalization
policies by regulatory majors. 199.. IMF was new IMF which faced with turkey. A
major crisis with ironically led to a crisis of IMF itself. Emphasis on institutions
to compliment market oriented reforms. 2001 more emphasis on social policies
and assistance, concerned with income distributional issues. Early 2000s IMF
changes but faced with new crisis in the period from 2001 to 2008 world
economy growing very rapidly, golden age period of post war capitalism. The
problem is emerging markets recovered, advanced ones are robust, IMF could
find customers, no patients who needs the doctor. IMF is no longer needed in
2000s *article var bul* IMF could lend only to few African countries. Double
identity crisis AC, led to ash if and early 2000s no need for IMF again existential
crisis. A new crisis much deeper crisis restored the IMF as an important
institution. Post 2008 period is a different IMF, new IMF influenced by rise of
china Brazil India Mexico and turkey. Turkey was a recipient, now a creditor to
IMF and payed all its debt, its not a western dominated institution now.
REFORM: imf puting much more emphasis on inequality under Lagard *bunu da

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bul, now flexible conditionality rather than applying same medicine, same
program regardless of national structures, a move towards more flexibility, we
need to take into account domestic issues\ countries level of development. Is this
a reflection of growing challenge of BRICS, flexibility in norms and different
areas. Corruption is a serious problem in many countries, IMF should concerned
with it, contributes the worsening of income distribution, undermined the
productivity. IMF has always resistant to any attempts to control on short term
capital controls globally, IMF resisted this, in a liberal word economy capital
control should be free. More recently, excepting the short term capital controls
may work, now they are more open to heterodox institution like that. Global
shifts, new challenges effecting the policies of institutions like IMF. IMF no longer
the monopoly as the financial institution and challenged by brics, a competition
is a favorable process in terms of changing existing institutions. New set of
institutions challenging the dominance of existing institutions. Another
asymmetry of IMF is it a political or a technocratic institution. Its self image is
that it is a technocratic institution and above politics, our job is to help the
process of recovery in fundamental crisis. IMF is a political institution also. IMF
is embedded in the political structure of post war US hegemony. IMF lending has
reflected the geo strategic priorities of US.

SESSION 18: 17/04/2018

NAFTA: REGIONALISM IN NORTH AMERICA

What is the original date of NAFTA? The critical day is 1983. The US-Canada free trade
agreement. the timing is the rise of new protectionist tendencies before the Uruguay
round with problems about the multilateralism. US is weakening its commitment to a
multilateral order. Previously in the golden age, US strongly favored multilateralism. But
this shift in the 70s and 80s, US is more concerned with national objectives. This paves
the way for a broader regional integration project with Mexico in 92.

Signing of NAFTA: 1992/93

US and Canada are northern partners and Mexico is a southern one. NAFTA today is in a
big crisis because US is now weakening its commitment under Trump and now we are
approaching Mexican elections, where Mexican politicians are thinking critically of
NAFTA. The crisis of the EU is similar to the one in NAFTA.

What is NAFTA?

It is an free trade agreement between US-Canada and Mexico but it implies also very
strong rules about intellectual property rights and investment protection. NAFTA is a
regional version of WTO. Uruguay round is concluded about the same time as the
signing of NAFTA, and it carries much of its principles. The rules and disciplines of WTO
are strongly reflected in NAFTA. The major actors involved in the process are the
American corporate interest which would like to use the regional space to restructure
the investment and Mexico provides an attractive sight for American corporations, the
inclusion of a southern partner has many benefits for these countries. they want to take

39
advantage of the favorable investment conditions. The rules of NAFTA also dictate that
these investments are heavily protected. Much of NAFTA is about investment protection,
intellectual rights and innovation. NAFTA is an extreme version of WTO. There is very
little in NAFTA about social issues, it is a very different agreement than EU. Indirectly,
there is the expectation that Mexico’s inclusion will lead to democratization but there
are no conditionalities. When Mexico joined NAFTA, it is a soft- single party
authoritarian regime. There are no strings attached that Mexico should democratize.
There are no political objectives, it is a loose economically driven agreement. The
expectation was also that the large market would lead to expansion of trade. This is an
open regionalism, meant to benefit all the states. Compared to the EU, which is import
oriented, NAFTA is more inward oriented. They want to use the regional space for global
competitiveness. Regional space is a platform to embark on global strategies for
expanding exports globally.

American Debate

There are Mexican and American debates on NAFTA. The proponents of NAFTA argue
that this will increase competitiveness of American economy because firms are now able
to move across the border to invest and take advantage of the large Mexican market.
This allows space for trade expansion as well as increase the competitiveness of major
American firms. NAFTA rules dictate that these firms can take advantage of the
conditions in Mexico but their intellectual investment rights will be protected. There are
opportunities for specialization. Americans argue that Mexico will benefit from more
trade and capital flows, consolidation of reform. The standard neoliberal argument is
that this will be beneficial for all states involved. From the perspective of major firms,
one of the benefit sis the weakening of labor unions in Us. The capital is more mobile,
can be invested in freer environment. From the perspective of the firms, the benefits are
that that are now in a better position to bargain for labor. One of the major protestors of
NAFTA is the labor unions and environmental groups. The worker groups in US are
undermined; the firms escape the bargaining power of the unions. The neoliberal
argument is that benefits are so huge and the regional integration is so dynamic that
everyone that have lost their jobs will be able to find new jobs in new sectors and over
time the NAFTA will benefit everybody.

The costs are highlighted by everybody. Critics argue that NAFTA is likely to generate
huge income distribution consequence. Trump was a right-wing populist reaction to
some of the affects of NAFTA of the traditional workers. NAFTA has been dynamic in
economic terms but the incomes have been very unequal. Others argue that although the
unemployment has been expanding, it has been lower compared to EU. Robert Reich has
argued that we should not only look at the unemployment rate, which is lower than
many EU countries, we need to look at the quality of unemployment. NAFTA has created
dual labor market. There are upper segments of worker, that are very skilled, but there
is also a lower segment, people are employed but in low-end and low pay jobs with poor
working conditions. Reich argues that many of the jobs that have been created by
NAFTA are lower segment jobs. Those in semi-skilled, or unskilled workers are the
employed ones. All in all, we should not only look at the unemployment rate but also the
quality of it. The debate is that the neoliberals argue that this is a good arrangement for
expansion of trade and investment. They argue that NAFTA has been more dynamic than
others, like EU for example. Even after the global financial crisis, recovery of NAFTA and
US than the recovery of the EU overall. On the other side, the communitarian liberals
argue that this is a weak regional agreement; there is no reference to welfare state or
redistributive policies. It is all about economic, not about human issues. Environmental
and labor issues are briefly mentioned but they are not penalized if not followed
through. One of the strongest opponents of NAFTA comes from Rob Sparrow, from the

40
perspective of a small businessmen. He has argued that their advantages have been
eroded. They have been eroded by the large TNC. The small businesses and the
environmentalists have been most critical of NAFTA. More recently, there is a paradox:
these income inequality problems have come to the surface in the latest elections.
Trump has been able to capitalize on the negative effects of NAFTA. He has effectively
highlighted the concerned of traditional Americans, such as migration. His major claim is
to revise their status. The basic idea is to return the American capital back the mainland
and plays on the fears about Mexican migration. The costs have been predominantly
have been highlighted by democrats, by political economist. The republicans have
traditionally been closer to favoring the NAFTA and the neoliberal order. Now with the
rise of Trump, he has changed his position to gain an electoral base. the paradox is that
the income distribution that is the consequence of NAFTA is at the moment capitalized
by the Republicans.

Mexican Debate

This is a country where the level of per capita income is much lower. In the 80s, Mexico
experiences major import substitution crisis and enters a period of stagnation. But
Mexico uses the NAFTA process to reactive the economy and to undertake major
reforms. The major figure is Carlos Salinas, the president at the time. He favors the
NAFTA because it gives him the ability to implement major neoliberal reforms. These
reforms are met with huge national backlash. NAFTA plays an important role: an anchor
to implement reforms that would otherwise be refused. It also attracts huge amount of
investment that will in the long term benefit the development of Mexico. Over a 20 year
period, Mexico has become more democratic although NAFTA has no political objectives
or democracy conditionality. Mexico today, under NAFTA is more democratic. There are
problems about the quality of democracy but it has been dramatically been transformed
in terms of its regime, there has been a shift from authoritarian to democracy.

Mexico, under the impact of NAFTA recovers from stagnation and achieves significant
growth. It is not a hyper growth, but it is moderate with significant inflows of foreign
capital flowing into Mexico. As soon as it becomes a member of NAFTA, it experiences a
financial crisis and it is bailed out and recovers quite swiftly. Mexico in 1982, when it
was outside NAFTA, it did not receive a similar amount of bailout. This is one of the
benefits of the regional integration. Similarly Argentina in 2001, did not receive a similar
level of help.

So how can this agreement be criticized? One of the figures associated with the criticism
is Jamie Ros. These are a group of heterodox political economists who are very critical of
NAFTA. Mainstream policy makers favor NAFTA but critical voices say there are major
problems. They argue that there are major costs of unequal patterns of income
distribution. NAFTA has aggravated this income inequality. Part of the reason is the
NAFTA has been perpetuating labor and environmental standards. They are quite
lenient on these standards to attract investment. The EU perspective pays more
attention to these. This element is weak in NAFTA. Research suggests that the
environmental laws in Mexico are well developed but they are not properly
implemented because Mexicans want foreign investment as a basis for rapid
industrialization. So the current crisis in Mexico means that these issues can now come
to the surface in renegotiations. This is also related to the dependent style of
development. You benefit from foreign investment but your ability to implement free
foreign policy is impossible, your ability to protect national firms and infant industries
becomes very limited. What Mexico achieves is a very dependent pattern of
development. It is not able to develop key globally competitive firms. This is the
difference between Brazil and Mexico for example. Mexico has no major brand or TNC or

41
firm that is globally competitive. The criticism is that development takes place but in a
lopsided fashion that is heavily dependent. In response to the criticism, they argue that
20% of the Mexican exports are high technology. Still the argument is that development
is heavily conditioned on foreign investment. So the question now under Trump is
whether it will allow for a renegotiation space. Today those critical of NAFTA today are
not only the left but also people all around the political spectrum. They want to use the
opportunity of Trump to negotiate NAFTA to fit their national interests more. Their aim
is to create a developmental space for Mexico to develop, to gain from the crisis of
Trump. The proponents of NAFTA believe that there has been growth in Mexico but the
critiques argue that the growth has been quite shallow and inefficient. It has also been
documented that many of the new jobs created have not lead to the increasing of wages.
The benefit is that employment is expanding but this is not translated into the similar
increase in wages. Those who favor the benefits point to growth, foreign investment,
those highlight the costs point to the income inequality, labor and environmental
problems and the inability to protect infant industries.

Canadian Debate

Canada is an interesting case, in North America, it is the closest to a EU social market

model of development. In the regional context, we see outliers. Canada is a country with
a relatively large welfare state, and there has been a very critical debate in Canada about
the NAFTA. One of the concerns has been the erosion of welfare state. Critiques have
argued that the welfare state in Canada has been negatively affected. The reduced ability
to tax firms because of the moving capital has lead to this. Under NAFTA rules, with
strong impotence fro capital mobility, the welfare state has been under pressure. In
addition to the broader debate on the pros and cons of NAFTA style regionalism, there
are important ongoing national debates concerning the benefits and the future of the
NAFTA agreement.

Will NAFTA be dismantled under Trump?

The interest to continue with NAFTA is so strong and embedded that it is unlikely to be
dismantled. But probably it will be revised to be more protectionist. Whether this will
achieve the objective to achieve more jobs is highly questionable. Revising the rules will
not solve American problems, but there will be some revision of rules, though not
fundamental restructuring. In the Mexican case, with the national backlash, it is likely
that there will be more space for Mexico to develop. The emerging powers want to be
more assertive and independent, and Mexico is no exception. The new revision might
allow Mexico to be more assertive. So the current crises, they take the avenue for a more
BRIC like rise for Mexico, no more a subordinate role to the core countries.

the democratization impact of NAFTA has been critical. But the experience of Mexico
suggests that with trade and close interaction with democratic partners, has indirectly
lead to the process of political change. The lesson to be learned is that democratization
may come about without explicit EU like conditionality. Mexico is a good example to
political liberalization under economic regionalism. There are still problems such as
drug cartels, major questions about the quality of democracy but compared to the
1990s, it has democratized incredibly. Another interesting parallel with Turkey was that
Mexico was also dominated by a single party, PRI. Then we have the rise of PAN in
Mexico, equivalent of AKP. Compared to AKP, the one difference is that in 2012, there
was a change of government. It is a presidential system with a change of government
now.

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 SESSION 19: 19/04/2018

ASIAN REGIONALISM

The political economies of East Asia, Japan, South Korea, Taiwan, all these countries
represent strategic capitalism compared to the free market Anglo-Saxon model. This is a
different kind of capitalism. The states are independent but they follow this strategic
capitalism. They are export oriented, output oriented models, some even call this model
neomercantalism. There is quite a lot of state intervention; industrial policy
interventionism is a very important feature of the national capitalism models of East
Asia. Asian regionalism is also open and flexible with limited institutionalism and policy
orientation. It is the most flexible and least institutionalized model of regional
development. Countries are quite similar and follow similar strategies but regional
integration is very limited. In fact, there are two major institutions in Asia. The first one
is APEC, Asia Pacific Economic Cooperation. It has 21 members, also North American
countries are members and Australia are members. This is a very loose structure; the
heads of states meet annually. It is a very intergovernmental organization. It is the exact
opposite of EU, where there are major institutions. G-20 is also quite similar, every year
it is held in different countries and it is an intergovernmental organization. It is
primarily an economically driven organization. The idea is no create an open trade
space where it can expand. The paradox is that the states are interventionist but region-
wise, they favor a very open and dynamic system that is favorable to trade. They are also
concerned with security, so that the political and economic stability is ensured. Other
than this, they do not have common policy implications. This is very different than
NAFTA and especially the EU. In Asia-Pacific, there is no mention of income
redistribution or labor and environmental standards. This is the most dynamic region of
the world, they are obviously benefiting from their interaction with one another, it
consists some of the highest growing states. The fact that 21 members also include the
NA countries suggests that there is strong interdependence between NA and AP. EU in
comparative terms is more isolated. The degree of interaction and interpenetration of
NAFTA and East Asian countries is higher. And historically US has also been an
important actor as the hegemon in the affairs of the East Asian countries. Japan has been
the hegemon in the region but now its position is being challenged by the rise of China.
The US and Japan have historically been very important actors in the region.

Together with APEC, there is the institution of ASEAN. It is a subregional entity in the
region where there is stronger cooperation between some of the dynamic East-Asian
states. Including Singapore, Thailand, Malaysia, Vietnam, some of the fastest growing
countries in the world. These states have formed a regional sub-block where there is
greater degree of cooperation. This is part of APEC, but the degree of interaction of
economic policies is deeper than the loose integration scheme of APEC. And recently
ASEAN has been talking about integrating Australia into this block. It is still a
predominantly trade driven organization, there are no explicit political agendas. The
regimes are also very diverse within it. But there is no objective of creating a democratic
ASEAN. They are concerned about economic dynamism and security to ensure the
economic stability. The regimes in the block are a mixture of authoritarian and
semiautoritarian regimes.

43
One of the interesting feature of Asian regionalism is that it is very diverse in terms of
democratic record. But people are also very optimistic about the future of the
democracy in the region. Japan has been a very authoritarian during the WW2, but now
it has evolved into a consolidated democratic regime. It is a role model for other states.
South Korea and Taiwan are major success stories, they were originally very
authoritarian but since 1980s have been transformed into significant consolidated
liberal democracies. At the same time, we have very authoritarian regimes like China
and Singapore and hybrid regimes like Indonesia and Malaysia. Economically more
dynamic than NA or EU but politically has more problems, including social problems like
environmental challenges. Although India is part of APEC, it is quite marginal to the
ASEAN type regionalism. It is much more concentrated into its own region and is also a
member of the BRICS and a more peripheral member to the APEC.

Japan’s Asia Strategy

Japan is the regional hegemon in the East Asian context and also serves as the role
model. The original idea of Japanese leadership and promotion of Asian regionalism was
associated with the Flying Geese Paradigm. A group of birds flying like a family and the
group have a leader and the rest are followers and they follow in a hierarchical fashion.
The Japanese conception of Asian regionalism was that Japan would lead in investment,
trade etc. to create a dynamic space but the leader would always be in front of the rest of
the states. The flying geese pattern suggests that the Japan will always be the leader and
the others would follow but they would all fly and so benefit from this regionalism.
Japan would play the role of a driving force but at the same time make sure that the
leadership is never undermined. This is very similar to the Hegemonic Stability Theory.
The original conception, which also worked very well in 70s and 80s, Japan played a
leadership role and played a key part in the development of regional integration through
trade and investment linkages. It is a conception of regional development that
everybody benefits but the hierarchy and the ranking of the countries do not change.
But this paradigm is challenged by the rise of China in a phenomenal rate. Japan has a
much higher per capita income, and technologically more advanced but it more stagnant
for a while, it is not growing as rapidly ad the flying geese paradigm is under challenge.
The Japanese recognize that their dominance is not as strong as earlier and they also
perceive the rise of China as a potential security threat. Increasingly this region may
increasingly become unstable as the hegemonic status might change. In the post war
period, this regionalism develops under Japanese leadership, US also plays an important
role in the geosecurity context. There are major aid flows coming from US. It is
instrumental in major land reforms in these countries that have major political
consequences. So the integration is also promoted by the US in the region. in the mid
1980, the process of integration in East-Asia is accelerated. The date is around the time
of a major event. The monetary sphere of Bretton Woods is interacting with the trade
areas. During this time, Japan has big surpluses, which concerns the US. Japanese
protectionism is quite low, but still Japanese people choose not to buy from outside, they
also use Yen, which is undervalued. This encourages exports but Japanese imports are
kept low partly because of resistance to foreign products for nationalistic reasons. In
1985, there was an agreement that appreciation of Yen against the dollar, which means
dollar is devalued against Yen. Why is the adjustment of the Japanese exchange rate then
creates an environment for accelerated regionalism? As a result of this the
competitiveness of the Japanese firms and exports, the wages are increasing rapidly, so
the cost of production becomes very expensive, depreciation means that the Japanese
exports are now overpriced. So the Japanese TNC not move their production to other
South Asian states, to take care of lower costs. They relocate their production to
relatively low cost and cheap countries. The process started by Japan are followed by
South Korea and Taiwan, they also relocate their production as over time the wages rise

44
and the firms become increasingly transnational so they invest in other states in the
region. Surprisingly, China capitalized on its low wages. It has been a major recipient of
investment. It originally succeeded by its very low wages in the labor market.
Interesting dynamic is that the wages are rising in China as well so the Chinese firms are
rapidly relocating to Africa mainly. This may very likely be a constraint in the future rise
of China.

The governments’ role is that they tend to be very supportive. From a realist
perspective, the decision of relocating their production has diplomatic and political
reasons that underlie. In Japan also, the government it quite favorable. The basic idea is
that if the region is growing rapidly, then Japan will benefit from this process, in terms
of investment and trade. One of the problems related to the paradigm is that this output
oriented investment means that the near hegemons in the regions are growing more
rapidly because they attract more investment. This may be the reason for stagnation, the
investment is flowing out. This regional integration creates a dynamic region
increasingly undermines the position of the leader.

There are some paradoxes in the Asian regionalism. One is that national economies of
this region are very similar. One of the interesting features is the extreme commitment
to fiscal and economic policies, because they know that in order to be successful the
inflation. There is huge emphasis on technology and human capital but not in other
dimensions of welfare. Why are these states, which are so alike resisting a process of
deeper institutionalized integration? The historical reason is that, in the interwar
period, many of these countries were colonies of Japan. Japanese imperialism was two
faced, it was brutal and harsh. But at the same time, helped these countries to develop
their original institutions of industrial policy and economy. In terms of institution
building, the colonies developed immensely. As a result of this experience, there is a
deep distrust of Japan, they do not want to be in a political union where Japan is in a
leadership position. This is limiting the prospects of economic union. They favor a loose
agreement in economic interaction but they do not want to be under the umbrella of
Japanese order. In a similar dynamic can be seen in EU. The Germany is a driving force
but there is also always the fear of overdomination. In East-Asian context, there is a
similar dynamic. There was an attempt to move into more explicit institutionalized
version after the first crisis of the region is 1997. For such a long period, there was no
crises, IMF had largely not appeared in the region. In 1997, Asia enters into a great
regional crisis, starting with South Korea and Taiwan. After the Asian crisis, the region
encounters the IMF for the first time, which turns out to create strong resistance. After
this incident, there was an attempt to create Asian Monetary Fund, based on the regional
version of IMF with explicit policy cooperation and institutionalism. This was proposed
by Japan and was rejected by others, which suggests the deep roots of resistance. All
these countries follow individually very similar policy. After the crisis, all countries
wanted to make sure they have huge export surpluses, to make sure that the exports are
always much higher than imports. They do not want another encounter with IMF but
they also do not want a political cooperation. The cost of this strategy is that the deficit
countries are more prone to crises and also they save a lot and reduce the consumption,
which slows down economy.

The role of the US is that it did not want a regional integration in the region. It would
prefer a looser integration policy where it can maintain control. In East-Asia, it is not
only Japan but the US is also very much an insider. What will happen in the future is
interesting. Increasingly, the equilibrium is under challenge. Now the equilibrium is
disturbed by the rise of China. Increasingly a number of countries in the region are
disturbed by the rise of China, mainly in terms of regional security. So the political
dynamics change in the region. Recently there has been talk about increasing sub-block

45
alliances. The position of US very important, because it acts as a check to the power of
China. In the region, US is likely to team up with others, mainly Japan, South Korea and
Australia. The future political landscape of the region is going to be quite interesting
with the new alliance building prospects. The politics of the region is interesting, it
contains a variety of different regimes. We see some very strong examples of
democracies and strong authoritarian examples. So is there an Asian pattern of
transformation where economic development reaches a certain level and there are
forced that undermine the authoritarian regime, which has been experienced in Japan.
In addition to this South Korea and Taiwan are also examples. So the transformation of
China is a question, will it follow this Asian pattern? There are other interesting cases,
for example Indonesia. It is not starting from a low level and growing very rapidly. It has
been transformed into a much more open political system. Malaysia with a hybrid
regime is also prone to change. So as a pattern in the region, we see strong authoritarian
regimes transformation into democracies through economic development. So we are
optimistic about the future of other authoritarian states in the region.

How liberal is the Japanese type democracy? They are liberal but there is high level of
concentration of decision-making and power, there is a single party for almost 40 years.
But it is a successful democracy with checks and balances. Sweden also has the same
characteristics of Japan. They are not perfect democracies but they have been able to
develop political cultures to accommodate this liberal democracy transformation. The
nature of Confucianism is biased against hierarchy. So the traditional argument is that
this created authoritarianism. But recent experience shows that is open to change.

SESSION 20: 24/04/2018

THE RISE OF BRICS

BRICS is a fourth pillar to the globalization. It doesn’t fit into our conventional pattern of
regionalism because it is represented in different regions. The major BRICS were
originally 4 countries; Brazil, a hegemonic power in the Latin America, Russia, major
Eurasian power, India, a key country in South Asia and China. More recently, South
Africa has been included in the BRICS. Its inclusion was through two factors; this is a
global phenomenon and it was a major represented in South Africa and also the BRICS
themselves are interested in Africa and the opportunities it presents. Africa is
represented now in the BRICS.

Out of these 5 countries, which country was actually integrated in the conventional
north south regional agreements, in other words integration process? The answer is
China. It was part of the Asia-Pacific regional integration and Japan was the hegemon,
South Korea and Taiwan, the near hegemons. China is now obviously on the rise and
challenging the hegemon and the near hegemons. In other cases, Brazil is part of
MERCOSUR, but it is a south-south regional scheme. India was never really a part of the
AP regionalism. Russia is a major regional power, but not part of a north-south regional
block. But the rise of BRIC as a phenomenon is also influencing the southern partners of
the north-south regional agreements. Some examples are Turkey, Mexico. These
countries are now more assertive and independent in their relationships. One of the
possibilities in the future is a BRICS enlargement. In the future, the number of BRICS
may expand. In fact, the new development bank of BRICS was associated with the idea of
a future enlargement of rising powers. These countries are an example of the global
south, challenging the hegemony of core members.

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The Invention of BRICS
The acronym BRICs was invented in 2001. His argument as a liberal financial economist
was that these countries create the future source of economic growth, their
demographic profile is important, young people with increasing consumption. And he
saw an opportunity for economic growth involving a significant shift in global economic
power. When the term was put forward, there was little cooperation between these
countries but over time, the BRICS became a significant institutionalized block. And this
process accelerated after the 2008 financial crisis. And after 2008, G-20 becomes a
phenomenon and the BRICS are major drivers of this global governance and decision-
making process.

In Russia, one of the major summits took place. And in 2012, in the fifth summit, SA was
included in the group. Brazil is also facing a corruption case against Lula Silva. One of the
major changes in the group is the phenomenal rise of China, it is now a much more
dominant actors and within the BRICS, China and India are more likely to play more
important roles. The other countries are also large but not compared to China and India.

BRICS and Human Development

BRICS are very large economies, increasing their share of global production. But in
terms of their development level, they are still low. Every year, there is a UN human
development report and they publish an index about human development. And the
human development level of these countries are still very low compared to the advanced
industrialized countries of EU or US. In terms of the relationship to democracy, there is
heterogeneity in terms of regime types. China and Russia are authoritarian regimes. The
first being a single party authoritarianism and in Russia, competitive authoritarianism.
Brazil, South Africa and India are democracies. In India, the democracy is stable for a
long time. In South Africa, there was a long period of apartheid regime and then moved
on to a more democratic regime. Brazil also experienced military interventions and a
period of military rule. These countries still face similar challenges. They face the
middle income trap, their per capita income is still very low. In all of these cases, there
is massive income inequalities. Income inequality appears to be big problem for
democratic as well as authoritarian regimes. The two countries which stand out are
Brazil and South Africa in terms of income inequalities. BRICS have been growing
rapidly but they have a long way to go to converge the living standards of advanced
countries. So it still makes sense to talk about the global north and south. When we talk
about the global south, it doesn’t include all the developing countries. BRICS and the
near BRICS are the representatives, they are in the top group of emerging powers. They
want to play a leadership role in WTO, IMF and other institutions and represent the
developing world as a whole.

The coherence and unity of BRICS is challenged by the regime types. The other is
performance. China and India have been outperforming the others. All the BRICS are
slowing down in the recent period with the exception of India. China and India are
growing at comparable rates. Brazil has been slowing down but is starting to recover.
Russia and SA are growing relatively stagnant. There is quite a difference between the
growth performance of these countries. Turkey is also growing quite rapidly. But the
question about Turkey is whether it will be able to sustain it. Among the BRICS, Turkey
paints a favorable picture.

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Contending Approaches to BRICS

Economic liberalism: they consider it an economic opportunity in terms of growing and

expanding economy. As these countries grow, they will develop their own TNCs. Their
own firms will become transnational. Pure liberals see BRICS as a positive, benign
phenomenon. Emphasis is more on opportunities and gains on trade and investment.
according to the liberal modernization perspective, in the long term, democratic norms
will prevail in much of these countries. The emphasis would be first on developing the
markets and eventually, democracy may emerge as the regime in these countries.

The liberal institutionalisms, tend to be more mixed in their approach. They see both
opportunities and conflicts. The opportunities are the same as the free market liberals,
they create dynamic trade and investment. But there are conflicts which communitarian
liberals would highlight. The first is the clash of norms. Within BRICS, this is the problem
between democratic and authoritarian BRICS. But furthermore, the future of the liberal
order is challenged by the clash of norms between these regime types. They see
organizations like G-20 as an improvement. Previously, the global governance was
dominated by G-7 but now it is more participatory. They are challenging the dominance
of the west, which is more participative in the decision-making structure. They would
argue that G-20 is an improvement in the international financial architecture,
environmentalism, terrorism etc. but they would also argue that the governance of the
liberal order would become harder with the participation of more assertive power.
China is ironically trying to claim the leadership role of the liberal order.
Communitarians are concerned that the future of the liberal order is in the hands of non-
liberal, non-democratic states. For liberal institutionalisms, the rise of BRICS creates
both opportunities and conflicts. There is the strengthening of the institutions like G-20.
More and overlapping institutions are positive elements for the future of governance. If
there are clash of norms, the best way to solve this is to bring them together under the
umbrella of institutions. One of the advantages of the post 2008 environment compared
to the Great Depression, is the significant amount of cooperation cultivated by the
institutions. They argue that for example in IMF, more participation should be given to
rising powers. In WTO, there is also a significant involvement of the global southern
powers. Overlapping institutions are seen as a positive picture. The more institutions
there are, the more cooperation there will be and therefore a well-functioning liberal
order. One of the heated proponents of this view is Ikonberry. In the longer term, with
the rise of BRICS and China, the liberal system will accommodate these countries and
the liberal order will be sustained.

Some commentators are more pessimistic concerning the future of liberal democracy as
a system. there is an ongoing debate about how the rise of BRICS can be turned into a
positive phenomenon and which institutions should be supported and created to
accommodate the BRICs.

Realist perspective: they always argue that these are developing states, coming from
behind but they are powerful states. They argue that these states can generate
significant geopolitical conflicts in a post hegemonic global order. The rise of BRICS will
undermine the US dominated hegemonic system and in this post hegemonic world, they
will create a very conflictual environment. For realists, the possibility of sustaining the
liberal order may be more difficult when compared o the liberals. They would pay
attention to the current trade war between US and China. US is increasing protectionist
measures and China is reacting. They are not saying that cooperation is impossible but
more difficult to achieve. Compared to the liberals, BRICS also represent opportunities
but they also represent major threats and conflicts. Realists point towards security
challenges by the rise of BRICS, especially in China and Russia. In terms of military

48
expenditures, these states are rapidly enhancing their war-making abilities. China has
been presenting itself more as a soft power country but increasingly we see an
interaction and cooperation between Russia and China, which may potentially be very
dangerous. Come commentators even mention a new cold war due to the Syrian crisis
between US and Russia or China. Realists, see a much more conflictual and dangerous
world arising from the rise of BRICS, especially China in the recent period. They
highlight that these are powerful states with conflicting interests that are difficult to
reconcile and the hegemon is losing its interest in managing the system. the optimism of
liberals is reversed I the case of realists.

Marxian perspective: Marxian perspective always focuses of class so, they argue that
we should look at BRICS not as unitary states but at their class structures. This
perpetuates very significant instances of inequality. A primary example is the corruption
and inequality crises in Brazil. Communitarians would argue that this is a crisis in the
democratic regime and if Brazil can overcome this, with the help of its autonomous
judicial system, Brazilian crisis can be resolved and the democracy can be strengthened.
But there is a powerful group of Marxian political economists, they argue that the
current Brazilian crisis is an example of a class war. The Brazilian oligarchs are resisting
major reforms and redistribution strategies and the current crisis of Brazil is a class
war. They argue that the judiciary is not independent but very much under the influence
of dominant classes. The emphasis of Marxian is much more on class and the
relationship between the dominant classes in these countries and the dominant classes
in the rest. The Brazilian oligarchs are linked to transnational capital so in a way, the
social democracy party in Brazil is circled by the transnational power which limit its
actions. Marxian dependency perspective is very relevant because the rise of BRICS has
involved some significant element of delinking. None of these countries have integrated
in the free markets through simple participation. They have all used developmental
strategies, they have deviated from the neoliberal rules of the game and this can be
consistent with the dependency theory. They have delinked from the global north
through selective integration. They are also creating new forms of dependence in their
own regions. They are breaking patterns of dependence in the global political economy.
In the regional space, for example, Brazil is a major regional hegemon and many of the
smaller countries are dependent on it, the same goes for China and Russia. These states
create new forms of dependency patterns.

BRICS now become an important contestation arena for these different paradigms. They
interpret the rise of BRICS and their challenge to the liberal order. The central point is
that the rise of BRICS now challenges the dominant form of globalization in the 20 th
century: the north-south regionalism. North was the dominant, the rule maker and the
south was the peripheral and rule takers. Now the rise of BRICS is challenging this. This
crisis can be seen in NAFTA and the EU as well. The tension between US and Mexico and
the Eastern Europe and the western also reflect this. The future of EU is a contestation
group between core Europe and two major BRICS: China and Russia. Russia seems to be
more proactive in Eastern Europe and Balkans and China is also becoming proactive in
Europe. Turkey also finds itself in the center of this global shift. Near BRICS are also
trying to form their own organizations. These include Mexico, South Korea Australia and
etc. it is a group of emerging, established and newly established middle powers.

SESSION 21: 26/04/2018

International Monetary System

49
Bretton Woods

In 1944, the post-war liberal order emerged. The counterpart of GATT is the Bretton
Woods system. John Maynard Keynes was at the center, being the architect of the
system. This was a product of the Americans, with the supplement of Britain. Major
industrialized countries are also involved in designing and implementing the system. a
well functioning monetary system is essential for a well-functioning liberal order.

Requirements of an Effective International Monetary System

We need to solve 3 basic problems. There must be international liquidity, money to

finance the international liberal order. The way to solve this is the dollar, American
currency becomes the basis for this. But to make sure that confidence is maintained in
dollar, dollar is fixed to gold. US does not have the option to devaluate dollar. Liquidity is
provided by dollars and confidence by a gold-dollar system. The key element is
adjustment. It is a problem for some countries have current account deficits. The
problem of adjustment in deficit and surplus countries. the problem with deficit
countries is that (exports < imports), this gap can be financed by injection of capital
flows but if this becomes continuous and money does not come, then a crisis occurs.
Especially for deficit countries, this means that you run out of reserves, the country is
bankrupt, the role of adjustment in this process is how to recover this country and
ensure stability. Adjustment is achieved through a major Bretton Woods institution,
IMF. Its role is stability and short-term adjustment. The WB empowered to lend medium
and long term development projects. WB is not directly concerned with crises, IMF is.
Out of the two, the IMF has been much more in the spotlight. Often, they act together in
the recent period, for example in the 1980, the major Ö zal reforms, these two
collaborated. This required short term and short-term measures. In the basic mission of
IMF in the system is to act as a lender of last resort and help the country to recover from
the crisis. So whenever a country finds itself in a crisis, it approaches the IMF and asks
for a stand-by agreement and they implement a standard IMF program. Turkey and
Chile are some of the first countries to encounter the IMF in the 80s.

Why has IMF received so much attention, than other institutions?

The reason is that IMF comes into the picture in the height of the crisis and its
interventions are often dramatic, harsh austerity programs, raising taxes etc. to stabilize
the economy. These often have political consequences. Governments usually don’t like
IMF programs because it undermines their short-term popularity. The adjustment is
costly in political terms especially in democracies.

Adjustment in an ideal system should be evenly balanced between deficit and surplus
countries. Surplus countries are those where exports are higher than the imports. Japan
and Germany and South Korea and China are examples. These countries have plenty of
reserves. The problem of possible crisis is a crisis of countries of chronic trade deficits.
Chronic deficit countries are prone to future crises whereas chronic surplus countries
are largely protected. Chronic deficit countries are over consuming and surplus
countries under consuming. In an ideal IMF, it would also impose disciplines on surplus
countries. But typically, IMF’s powers are asymmetrical. It does not have the mandate to
enter an agreement with surplus countries. It comes into the picture in periods of
disequilibrium, unsustainable trade deficit situations.

Three issues are effectively solved by Bretton Woods. In the period from 1941-71, we
have the golden age, parallel to the golden age of GATT. Trade is expanding, world
economy is growing rapidly, crises are very common in such a period. In the early

50
stages, US helped the process of development in many countries. This is the golden age
of Keynesian consensus. Dollars are financing the rapid economic growth, there is
confidence in the position of dollars and the US.

The standard IMF stabilization program has two pillars, one is the component of
expenditure reducing policies. The idea is that the country is in this position because
there is overconsumption. So the expenditures have to be cut down. The second element
is expenditure switching policies, in other words, devaluation. This means that the
exports become more competitive. Expenditure switching helps a country to increase its
exports and reduce its imports and bring the trade into balance. Essentially, IMF is
concerned with the consumption and the mismatch between the exports and imports of
a country. The Bretton Woods system is a fixed exchange rates system. During the
normal period, the exchange rates are fixed. It is possible to change this only under the
conditions of a stand-by agreement with the IMF. In return, you have to implement a
conditional program, one of the popular terms for IMF is conditionality. So IMF
provides funds, but it is conditional. You have to implement certain policies, which
involves a mix of expenditure switching policies and expenditure reducing policies. It
cuts much of the government expenditure, raises taxes, cuts downs on money supply to
the private sector. Devaluation is a changing the exchange rate to stimulate your
exports. So a combination of these policies helps a country to go back to trade
equilibrium. IMF money also gives green light for additional private lending.

The recent Greek crisis has been very costly. IMF was heavily involved. What makes the
program in Greece different from a typical IMF program? Because of the early entry of
Greece into the Eurozone project, it doesn’t have the devaluation option. It cannot use its
exchange rate as a weapon and would not have suffered as much. In the Greek case, all
the burden of adjustment falls on expenditure reducing policies, a hug austerity
program is implemented and financing from the EU was received. But there have been
big cuts in government expenditure and subsidies; this has caused massive
unemployment and resistance. This has had dramatic consequences. One of the debates
is the constraint on the exchange rate and the critiques of IMF argue that there should
have been much more international assistance, whereas most of the burden fell of Greek
public. Others argue that Greece needed to make these sharp adjustments to reform its
overextended welfare state to be able to sustain the system. A strong debate on the IMF
policies was centered on the Greek case, but this case is an anomaly. Devaluation is not
normally available under BW but it is made available by the IMF under the conditions of
a stand-by agreement. The only country who does not have the opportunity of
devaluation is the US.

Collapse of Bretton Woods

The system based on these principles appeared to be working very well in the 50s-60s,
even deficit countries are experiencing rapid economic growth. What is the problem that
we have the collapse of the BW system in 1971, if the system had been functioning so
well?
Nixon withdraws the American commitment and the fixed relationship between dollar
and gold in 1971. The parallel between increasing pressure on US hegemony and the
rise of new protectionism. The demise of BW is ties to this. Certain features of the BW
system continues in the post-BW system. But the actual system ends with Nixon’s
decision.

The BW system was based on a compromise between the US and near hegemons. The
compromise was fragile in the monetary area because one of the problems was that the
near-hegemons, Germany and Japan had chronic surpluses and US had chronic deficits,

51
because it had to pump dollars into the system continuously. Why do countries like
Germany and Japan have these chronic surpluses, which effectively means that these
countries are spending less than their income, they can expand their trade and increase
consumption, but they are not. One of the reasons is that they are concerned about long-
term export performance because they see the long-term exports as a key element. They
want to grow rapidly and want to keep export performance. They take advantage of the
system but maintain chronic surpluses. Their exports are increasingly penetrating into
the US markets. So there is growing resentment on part of the US policy makers. They
believe the surplus countries should adjust as well.

What would an unlikely IMF program for Japan and Germany in this period look like?

It would involve expenditure expanding policies, increased government expenditure;

increase money supply to stimulate consumption and investment. A similar program
exists today for China, who is resisting. An IMF program also would revalue the
Deutsche Mark or Yen, relative to the dollar. This would make exports more expensive
and eliminate the chronic surplus. But of course surplus countries resist these
interventions. China today, is maintaining an undervalued Yuan as a mercantilist policy.

US deficit was increased in the 60s. One of the reasons which raised concerns in the
near-hegemons was the increasing involvement of US in the Vietnam War which lead to
fiscal deficits, rising inflation and Germany and Japan were concerned about the
transitionary inflation from dollar to their economies. Germans and the Japanese are
concerned about the irresponsible expenditure policies of US. A fundamental problem is
that US faced a challenge between the national objectives and maintaining the system. In
50s ad 60s, this was not a problem, because US was very strong but now the US faces a
major dilemma. And this dilemma leads to the collapse of the BW system. Nixon breaks
the relationship between dollar and gold and allows US to devalue dollar for the first
time. The concept of closing the golden door means that the US breaks its commitment
to the dollar-gold system. In a way, it is like Trump’s America, shifting positions and
challenging near hegemons.

A famous Yale economist Triffin had already forecasted the demise of the BW system. He
drew attention to the dilemma between liquidity vs. confidence. With larger and larger
US deficit, the confidence in the dollar would decrease, as the liquidity of dollars was
increasing. The intervention of US into Vietnam caused the other countries to loose
confidence in the dollar. The confidence problem was aggravated towards the 60s, with
huge deficits. Triffin predicted the development of the fundamental problem of the BW,
which would eventually lead to its collapse. He wrote this study in 63. Another factor
which undermined the BW system is the development of Eurocurrency market. The BW
was based on tight capital controls. But these were increasingly undermined by the
growth of the EU and we see the beginning of financial globalization. The rise of capital
flows, banks trying to escape capital controls etc. So one of the underlying issues was the
growth of EU currency and the beginnings of internationalization of the capital flows
which wanted to escape the controlled capital rule.

Post-Bretton Wood ‘Non-System’

Many countries continue to maintain their commitment to the BW. Most of them
continue with for example fixed exchange rates. The post BW system moved away from
fixed exchange rate system to some degree of exchange rate flexibility. This is
considered a hybrid system, because there are different practices. But full-scale
commitment to fixed exchange rates disappears. There are some attempts to create
monetary regionalism. This is a parallel between the monetary system and the GATT

52
system. This is different from a trade area as the most extensive experiment has been
the Eurozone. This was an attempt to create a regional BW system. So monetary
regionalism is predominantly EU phenomenon. IMF and the WB continued to be
important actors in the post BW era. The basic institutional pillars of the system
survived the Nixon decision. Another element of continuity is that dollar continued to be
a major medium of the international trade. But dollar now no longer has the monopoly
as the international currency, we see alternatives after the collapse of BW. Dollars
continues to be dominant but not the monopole currency. In the 70s, there was an
interesting experiment of trying to genuinely create an international currency
controlled by the IMS, which was named special drawing rights. IMF money would
replace dollar as an international generated currency. The idea was that a stronger IMF
would be created and many developing countries pushed for this, which would lead to
development assistance. But this revolutionary idea of IMF as an international central
bank was strongly resisted by the major actors. The idea of SDRs was abandoned and a
multicurrency world would replace the dollar-dominated system. IMF and WB are
essentially western institutions, with the dominance of EU and US, and western political
figures controlling and leading these institutions.

SESSION 22: 03/05/2018

International Monetary System

There is asymmetry between chronic deficit and surplus countries. This existed between
Japan and US earlier but today, this asymmetry is between China and US. Japan and
Germany were the winners of the Golden Age of BW and both were export-oriented
countries with current account surpluses. Currently Turkey is in a situation of rapid
growth there is sizable current account deficit. When we look at the balance of
payments, there are two building blocks: the current account, has two components,
that are, a visible part, namely, the export-import balance. Typically, the major cases
of success, we see the pattern that they are successful export-oriented countries, their
exports are greater than their imports, the trade balance is a distinguishing feature. Very
often, these countries also use the exchange rate, they keep their currencies
undervalued to use as a weapon and this causes frictions, as this means this increases
somebody else’s deficit. These are neomercantalist measures of China and Asian Tigers
mainly. Current account also has an invisible component. This includes for example
tourism and migrants’ remittances. The Turkish workers in Germany is an example.
Countries can make up for their import-export balance through their invisible accounts.
Of course it is also possible to have the invisible balance in deficit. As an example, the
trade deficit between Russia and Turkey is somewhat decreased through the tourism
and they reduce the extent of the balance of payments problem. Capital account
becomes increasingly important in the post-war period. Capital account became
increasingly important and the capital flows become a very important element of the
late 20th century neoliberal globalization. Within capital account, there are two
dimensions, short-term flow, foreign residents bringing money and placing it in banks or
buying shares. Short-term capital flows start to become important in the 60s and
become hugely important for emerging markets. The second component is the long-
term flows. Most analyst would argue that the long-term flows are more important for
development. Turkey started to attract significant capital in the 2000s. Short-term flows
can cover the balance of payment, if we have a large current account deficit, we can
finance it though STFs. But this is dangerous as they are volatile and overdependence
can lead to crisis. Both current account flows are can cover the balance of payment

53
deficits but the lesson here is that we should not be over dependent on short-term
capital flows. Short term flows can cover the deficit but they can also easily leave the
country and leave the country in current account deficit and capital account deficit at
the same time. If there are also no reserves in the country, the country leads to crisis.
deficit countries can manage their balance of payments by surpluses on the capital
account and availability of international reserves. The problem is if current account
deficit becomes too big then we find ourselves in an unsustainable situation and an
inevitable encounter with the IMF.

Countries which experience crises are typically countries that are overly spending.
Chronic deficit countries are countries that have overconsumption relative to their
income and they ultimately run out of reserves. In contrast, countries, which are in
surplus, are typically countries that are saving a lot, not consuming much to their
relative income. Their income is larger than their expenditures. The possibility of them
experiencing a crisis are very low. The puzzle is why are these surplus countries
behaving this way. They are also adding to the problems of deficit countries. These
countries are running on chronic surpluses. Part of the reason is that they are successful
export-oriented economies, but they also try to make sure that they limit imports and
they make sure that their imports are always less then their exports. This is why they
are called neomercantalist. Another reason is that they are very sensitive to inflation.
Their export performance would be undermined by the rising inflation. They have a long
term goal of export success and this is based on near-zero inflation to avoid loss of
competitiveness and grow rapidly in the long term. For Germany in the post-war period,
this was viable. But Germany in the 20s suffered from hyper inflation which was costly
and the political consequences have been very dramatic. In the post-war economy, the
German economy is very integrated in the global liberal order and Germany wants to
keep the inflation and the critical institution is the Central Bank. There is a similar logic
in Japan. Inflation control in the short-term to control monetary and fiscal policies.
China today is under pressure to change their policies, to revalue their currency, to
spend more but they are resisting it because they have the long term strategy of export
success. These surplus countries are contributing to others’ problems. Typically what
happens is big adjustment on the deficit countries and IMF enters the pictures when
there is a crisis. IMF is never visible in the case of surplus countries, it has no power to
intervene in the type of policies these countries pursue. These countries are able to
avoid crisis and IMF has no mandate to intervene in normal periods of stability. IMF can
advise these countries to change their policies but can’t intervene. IMF is a very
powerful institution for countries which have chronic deficits, not so much with chronic
surplus countries. One of the post-war debates was that maybe there should be a more
powerful institution that has a mandate on all kinds of countries. This hasn’t happened
and IMF’s power continues to be asymmetrical.

This discussion is also relevant to the collapse of BW. The near-hegemons contributed to
frictions and US in 71 under Nixon chose American national strategies rather than the
upkeep of the system. The US experienced a dilemma between national objectives and
commitment to the liberal order. US in 71 withdrew its commitment to the BW and the
main pillar of the system, which is the fixed ratio of dollar-gold, and devalued its
currency. The post- BW is considered a hybrid system, certain features survived, some
did not. BW functioned very well, it was one of the contributors to the Cold War system
and Golden Age of capitalism. The collapse of BW contributed to the weakening of the
international economy. Similar to the increasing protectionism in the 70s and the
weakening of GATT. There is only one comparable period to the golden age, the period
between 2001-2008 which ended with the global financial crisis.

Post-Bretton Woods ‘Non-System’

54
The feature of the hybrid system that emerged after 1971:
 Dollar is no longer the monopoly of the international currency. We have a
multiple currency system, replacing dollars and existing side by side with it.
Dollar continues to be important but no longer the monopole. After 71, we have
competitive currencies: Yen and Deutsche Mark. Later on with the Eurozone
principle, it becomes the principle alternative currency. One of the objectives of
the experiment was to make it the main international currency. More recently
with the rise of China, Yuan is emerging as a very important rival in international
payments. There is a big debate at the moment, can it become a financial
hegemon. It appears that the Chinese are very effectively internationalizing the
Yuan and in Africa and Latin America. China is internationalizing Yuan as a very
serious alternative, using Yuan as the currency in bilateral agreements. After the
collapse of BW, we transitioned into a multiple currency world and the
dominance of the US dollars ends, but dollar continues to be the predominant
form of international payment up to the present day. the emerging countries are
increasingly more on the map and they became increasingly more influential in
the IMF. The developing countries argued that the allocation of SDR should be
died to development aid. The idea was that the BW dead and we should replace
it with a true international currency. This is the period where the G-77 emerges
and puts pressure on the UN. The voice of developing countries are heard in the
70s and one of their demands is international money with an aid component.
They had in mind a different kind of IMF, acting as a true international bank.
However the western powers were the dominant ones in WB, IMF and UN and
this kind of very dominant. This proposal is vetoed by major advanced
industrialized countries. so we move into a phase of multiple currencies.

 Move towards floating or flexible exchange rates. The BW system was tight fixed
exchange rate system that allowed only change of exchange rates in the periods
of crisis under the permission of IMF. After 71, we see countries moving into a
more flexible system. Turkey continued with the BW as if it existed but after 80,
Turkey moves into the flexible exchange rate system. Many analysts are critical
because we see extreme volatility and this creates uncertainty and this
contributes to the slowing down of economic growth. Especially in an
environment of rising of short term capital movements. The origins of short
term capital flows later on affect the emerging countries as well. Proponents of
floating ER suggest that this gives more independence to countries to pursue
their agendas. There are experiments in monetary regionalism. In the
monetary area, we see a partial replication of the political pattern, which allows
monetary regionalism. This starts with the EU Eurozone project. Monetary
regionalism is an attempt to recreate BW in a limited region. it is not replicated
in NA or Asia. In Asia there was some brief attempt under Japan’s leadership,
however it is rejected. Asian countries do not want the kind of tight regional
integration seen in the EU. And EU continues to be the exception. Even in EU, big
question marks are raised about the future of the Eurozone because of the global
financial crisis. Today, there are debates about how to reform the Eurozone. This
is the only major example of monetary regionalism where they tired to recreate
the essence of BW in a limited space.

 IMF continues to be a major element of the post BW non-system. it still has the
mandate to intervene in periods of crisis. Certain reforms of the IMF in the 70s
occurred. But acted predominantly in the 90s has an emerging market regulator.
Some use the term ‘emergent market watch-dog’, overseeing and trying to

55
 stabilize them. IMF’s role as a global central bank as a regulator of the system as
a whole has been quite limited. It has limited power of the G-7 actors but its
effect becomes very dramatic on emerging and global south countries.

What happened to the role of IMF in the aftermath of the 2008 global financial crisis?

It doesn’t fundamentally change. IMF recovers its role with the 2008 crisis. but its
impact continues to be on the more periphery. The critical institution for global
monetary cooperation becomes the G-20, which includes G-7 and emerging markets.
IMF works side by side with G-20. The critical actor is the G-20 rather than the IMF. It is
a heavily criticized institution because with financial globalization we see an increase in
the number of crises. Within the space of less then a decade, Turkey alone experienced 3
crises and the IMF comes under the spotlight for not being able to prevent the crises
observed predominantly of the emerging markets.

Plaza Accord (1985)

The G-5 countries achieved a significant intergovernmental monetary cooperation in

1995. There was a major decision to correct the misalignment of the exchange rates of
dollar and yen. The major decision was to devalue the US dollar vis-à-vis Yen. There is
agreement between major industrialized countries that the exchange rates should be
corrected. From this point onwards up to 2008, there is little direct cooperation
between these countries about financial issues. Predominantly IMF is the key actors,
primarily concerning the emerging and developing markets. One of the important
implications of the Plaza Accord was to accelerate the Asian regionalism. Now US
devaluation means the revaluation of Yen and Japanese exports are now more expensive
and now the Japanese TNCs would invest oversees. As a major unintended consequence,
there was increasing regionalism in East Asia. Japanese TNCs increasingly
internationalize the productions; South Korea and Taiwan follow in Japan’s footsteps.
Asian regionalism happened naturally as a defense mechanism against the devaluation
of dollars. Asian regionalism had started before but after 85, the momentum accelerates
dramatically.

08/05/2018

08.05.2018

Financial Crises:

 Sourcs of capital flows for developin co8ntrisin the post war period. Then discuss in broad terms
why do we see major debt crises in general but especially in the context of emerging markets.
Then latin American debt crisis was very imp in the 80’s in terms of showing the debate on the
role of imf. It starts it mexico in 82, then generalizes to the whole region, it is a national as well as
a regional crisis. Then we have series of emerging crisis in 90’s. tr 78-79 crisis is similar to latin
American crisis, tr experience is very relevant in 90’s tr experiences a series of crisis, but tr is not
unique this is a broad problem. 90’s again the Asian financial crisis. It leads to major idedntity
problems. I also want to consider whether we have a new imf today, in 2018 imf is a different imf,
focusing on dif issues. Related to our section on brics. Whether the rising powers of brics is
impacting the imf and changing the course of imf policies. And finally global financial crisis of
2008, the very center of the system starting with the us then we have Eurozone crisis,

56
 dramatically effected Europe. Now Europe is in a process of recovery after a long period of
stagnation.

 Principal sources of capital flows: major sources of capital to the emerging world. In the post
45 period of emerging American hegemony, we see originally the dominant form of capital is aid.
Marital plan, is directed predominantly to Europe to reconstruction in the rising cold war context,
accelerates the momentum of American involvement. But also Greece, tr, southern members of
nato, are important recipients of machal aid. tr benefits hugely in the menderes era from martial
aid. East Asian tigers, also benefit (japan, skorea,Taiwan) American aid. Latin America is not a
major recipient because in the post war geo security structure, they are more marginal.
Especially brazil, mexico, becomes magnet for private capital flows, TNC, foreign investment. FDI
becomes very imp in Europe bu then latin America becomes and imp center. The rise of TNc in
the developing world started in the 50-60’s and originally latin America is very important in that
context. Later of south east asia also became important. 70’s is a period where we see rise of
TNational bank landing. Period of opec crisis. Opec producers received a major benefit with
increasing oil prices. They recycle petrol dolars to major TNational banks and those banks
predominantly American banks located in Europe, recycle thes petrol dolars to major emerging
economies. During 70’s Tr was an important recipient of Tnational bank landing, together with
brazil, mexico, skorea. 80’s: latin ameircan debt crisis hits bank landing. A period of stagnation in
capital flows but then the 80s we see recovery of FDI and in the 90’s and beyond  financial
globalization, where e see major growth in all froms of private capital flows both short and long
term. And massive increase in the amont of capital available, this create sopportiunies for the
emerging coutnries but also risks that they become more vulnerable. Tr in te 90’s effected by this
process and mainly recipient short term capital flows. In the 2000’s tr becomes imp recipient of
long term foreign capital, FDI becomes important for tr. Many eemrign markets ,n the 90-20’s at
varying degrees at their ability to attract large investment. // thia insne process of neoliberal
glbalizaiton of 80-90-20is am uneven process. Not the whole of the develoing world is able to
attarck these capital flows. It is predominantly upper hand countries. The least developed
coutnries or low middle income countries are left out of this process, they are lef behind.(Africa,
sout asia) are marginalized int his process of major capital flows. Now very recently we see
increase in econ growth in Africa, but for much of this periof this period largely affects the top 20
or so, out of 150 develoing countries. When we talk about the rise of global south, it means the
elite of the global south not the whole developing world.

 Underlying causes of debt crisis: why do we see crisis, capital flows create many opportunities.
Crisis are costly because suddenly you grow stops, u have to implement austerity programs with
imf which has important consequences like unemployment. Short term consequences are
devastating. Greek crisis shows u the dramatic effects of crisis. (unemployment, income distrib
has declined) . also crises has positive side: avenues for change for transformation for policy
reforms. Countries which are not able to reform their econ, can have the oppo to reform after
crisis. Obv the best way to reform your econ, is manage to do this without experiencing an econ
crisis. In 97, asia experiences dramatic regional crisis. Crisis are typically in latin america, Africa,
parts of asia, middle east, east asa seems to be more immune to crisis but that changes in 97. But
since then asia has recovered.

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 Broad reasons for crises are quite simple. Countries which exp crisis are countries with weka
export performances. Wekak ability to earn foreign exchange. Solely export oriented countries,
tend to have large current account surpluses. Favorable balance of payment structures and seem
to be immune from crises (Germany, japan). Skorea. China.) emphasize export country isen
predominantly which are able to avoid fcrisis. They earn foreign exchenge, sustain balance of
payments. Crisses are feature of countries with weak export performances. Their payents for
foreigners is much more what they reviece from foreigners. Expoerts may increase but not
sufficiently and improrts increase much rapidly than exports. WEAK EXPORTS.

 Another reason is borrowoing from international financial markets. If that bowworing is poorlty
utilize. To sustain high consumption, or unproductive forms of investment then u are in trouble,
become dif to sustain this unbalanced econ growth. At some point u will experience a crisis. But
buwworimg can finance econ growth when provided with investment in productive and export
oriented industries. U can diversity your ecports, increase your productivity, in that kind of econ
the problem of crisis is largeyly avoided.

 Another classic case of debt crisis is lack of fiscal and monetary discipline. Countries which fail to
implement fiscal and monetary policies, whit fiscal deficit, expansionry monetary policy, high
inflation are likely to experience debt crisis at some point… // these issues are very much
relevant in the current context. In the recent phase of tr economy we see some of the problems
im noting here. Looking at the current figures in tr, there are some danger signals. There is sifnif
current account deifciit, big gap between exports and imports. Signif problem of high econ
growth but it is lopsided. Econ growth Driven predominantly by consumption and construction
sector rather than manufacturing. Recently we see a weakening of fiscal fiannc,apl discliplin in tr.
Inflation is moving. Int erms of our discussions of debt crşsşsi we have to be very careful. One of
the problems currently is very high corporate debt in dollars, so the inability to control the
exchange rate is adding to tr’s corporate debt. We are going to a period where over the past 15
yrs tr has been very successful but now some question marks?? Tr is doing well in terms of econ
growth but we seem to be in the fragile 5 emerging econ where tr’s econ structure appears to be
vulnerable to crisis.

 Origins of latin amerian debt crisis: took place in the pre financial globalization period. Good
debating point about the role of the IMF. When u look at the origins of the crisis, (also relevant to
tr because tr 78-9 also experienced crisis of IS model, that similar to mexico crisis. But tr able to
recover swifly with international assistance. But mexico remained stagnated for many years.very
negatively affected by the crisis of 82 and only through the nafta process mezico was able to
recover in the 90’s). problem is in the 70’s the opec crisis recycles funds to transnational banks
anad these are predominantly American based banks, whicj relocate their operations in Europe
and turned into euro banks because they wanted torescape regulaitons from us. That take the
oppo ro recive the funds of arab coutnries and these patrol dollars ar channel to rapidly growing,
semi indust economies which want these funds. There is a process of massive landing by thebse
banks to important large domestic market based econ. Tr is in the top 6 of these cluntries which
recivece these money.

 How is this money used esp in brazil and mexico? Used predominantly to sustain domestic
market oriented econ growth. Rather than increasing exports, they increased gov expenditures.
Maintain artificially high econ growth but not emphasize exports. This is not a sustainable

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 process. These countries experienced MAJOR INCREASES IN THEIR BUDGET DEFICITS, LARGE
TRADE DEFICITS, AND EVENTUALLY they are able to maintain econ growth but it is
UNSUSTAINABLE and in 82 a big crisis. Then IMF becomes very critical actor, steps in and
implements major austerity program. (tr is more fortunate because in the cold war context tr is
able to recive more funding. Mexico is more peripheral in the context of cold war and recived less
funding. As a result, the burden of the major imf program falls on the domestic population.) in 82
a serious crisis and dramatic austerity program.

 This creates an interesting debate, similarity between the debate in the current greek case. There
are 2 broad perspectives on the origins of latin American debt crisis.
1) first world view/dominant establishment approach: crisis is domestic. The
mismanagement, lack of concern with export, excessive expenditures… if this is the cause of the
illness then the post implication is clear. They have to adjust themselves, receive financial
assistance but the primary barer, response in terms of sharing the burden of adjustment should
be domestıc policy making, domestic citizens. Similar perspective on the greek case, this time
actors were different (eu central bank, merkel). Emphasized the domestic origins of the crisis and
predominant adjustment should come from domestic sphere.
2) third world view: more heterodox, critical approach to Latin American crisis. Problem is
systemic, inadequate regulation of commercial bank landing. They emphasize loan pushing, these
commercial banks overland I unregulated fashion to these emerging world countries. Part of the
problem is domestic but part of the problem is systemic. IMF was unable to control transnational
landing. Problem is not simply domestic but German banks have been over landing, so Greece
was able to finance its lopsided econ growth. The policy ,implication is that there should be
equitable burden sharing. There should be adjustment of course, but these countries should have
space to recover from the crisis, and in general instit like IMF should be more proactive in terms
of regulating systemic problems (activities of transnational banks). 80’s Mexican gov are
responsible but so are the transnational banks. It tends to emphasize systemic reform of the
system so the over landing practices are regulated. In the 90’s, similar kind of argument is made
to regulate global speculative financial flows. The argument is many countries find themselves in
crisis because of unregulated short term capital flows. International regulation of these flows are
necessary so the problem is not simply domestic.

 Given the power structure of global pol econ and link of imf to dominant econ establishment. the
dominant perspective is the first world view. Most of the adjustment burden falls of the domestic
citizens very little attempt to penalize transnational banks. IMF is quite close to criticism from
outside. But when criticism comes from the dominant establishments, (WB for ex), IMF was able
to change its polciies. The ability of IMF ro respond is very much conditioned to the extent to
which reform initiative comes from dominant establishments or peripheral criticisms. Imf very
much acting in line with dominant approach. This over time continues. Even though we have a
new imf in certain ways, still it doesn’t see its role as a systemic regulator.

 This is the major crisis of developing countries in the pre financial glob period. 90’s, now with
Washington consensus reforms, massive moves towards financial liberalization. Tr in 89 opens
up its capital account fully. In 90’s we see huge flow of capital both short and long term. Tech
developments allow capital flow from one country to another, due to improvement in
communication, financial technologies(a more liberal financial env). Allows massive injection of

59
capital but generates risks. 90’s is a period where frequency of crisis in emerging markets
increases. 3 consecutive crisis happened in 90’s. every year we have major econ crisis and one of
the features of 90’s, is it is contaging. Crisis in one part of the world affects another part of the
world. (asia and tr for ex. Asia is not a major trading partner? What ahp is that Asian fin crisis,
capital flows are reversed towards the center and all emerging markets are negatively effected.
So the world becomes increasingly more interdependent, crisis in one part of the system has
spread effects on very dif parts of the world.) no wonder that imf comes severe criticism, because
its principal responsibility is act regulator for emerging markets. Logic of Washington consensus,
comes under severe criticism with experience of major econ crisis in many emerging markets and
in fact the Asian financial crisis of 97 puts imf on the spotlight. Asian fin crisis creates a major
identity crisis on the part of imf. Because nobody expected a crisis in asia. But in a world of
financial glob, even these apparently robust economies experience crisis. For ex skorea, able to
grow in the 80’s. a heavy borrower from TN banks but able to use these for export oriented
development. ( bu arayı meelisten al)
IMF is very much affected by this kind of criticism. It comes from within the system. (WB). IMF
experienced a deep identity crisis and we see a change in IMF’s policies. A post Washington
consensus paradigm: signals a change in IMF’s approach, now puts much more emphasis on
regulatory institutions. (melistenn)

10/05/2018

10.05.2018

 Imf and its asymmetries: (imf: traditional criticisms) imf has been on the spotlight since
1970’s. I collected the criticism udner the heading of imf and its assymetries, which
spotlight the tard criticism of imf and imf has been respodign to these ciritisms. But the
major critisims comes with the Asian financial crisis. Asian fin crisis is the climax of
emerging market crisis in 90’s and it really generates and identity crisis on the part of imf,
leading to a policy ahift from washşngton consensus to post Washington consensus(wc
meaning: free market, strong commitment to neolib principles/ post wc: much more
emphasis on regulation, insitit).

 One asymmetry: imf has conditionality. U caanot get the money, subsidize landing free.
Landing is subsizided but under certain conditions. IMF CONDITIONALUTY, have to apply a
strict program of expentirue reducing polcieis. Imf programs have certain conditions and
especially expenditure recuding part: cuts in gov expenditure, tax increases, reduction of
money supply… esp the part on cuts in gov expenditures, often poorer segments of the
society… painful for elected gov to implement. the medicine of imf is very harsch. This is
criticizied, the conditions are very stringent. Another criticism: the traditionaly imf doent
pay much attention to slow down of econ growth and also to income distibutional
consequences. Imf says this is my mandate, it is to bring the balance of payment into
equilibrium in the short term and help the recovery of the econ over time. There is division
of labor between imf being short term, wb converned with medium and long term landing.
WB is not on the spotlight as much as the imf because it predominantly interested in the
long term landing polciies. But imf is involved in the painful recovery process after crisis.

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 In many context imf and wb work together. For ex tr 80’s, we see impelentation of cross
conditionality: imf isconcerned with short term recovery of tr, wb long term. CROSS
CONDITIONALITY, conditions both by imf and wb for short term stablizitaion and medium
term econ reform. Another assysmetry cocnerns the facts that imf acts like a banker.
Asymmetry between interest of landers and borrowers. Landers a favored, big tnational
banks are favored by the imf. The burden of adjustment falls to countries. (ex. Latin
American crisis). Imf is criticized by the fact that although the prorams are very stringent,
resources of imf is very limited. If u are a very poo country your quota is very limited. Low
middle income countries have limited capacity to borrow. Quotas are dependent on the
level of development. Another asymmetry: imf seems to be a very weak instit in the
absence of crisis. For ex in the period leading up to latin American debt crisis, imf did not
directly intervne. Once crisis takes place them imf become very powerful. Weak instit in
normal times, powerful instit in crisis. Raises the broader issue that perhaps we need a dif
kind of instit. preventing the crisis not in the middle of the crisis but at the beginning. //
but if imf had the power to intervene in normal times, it would be an attack to sovereignty.

 Critcisism: imf doesn’t intervene enough in periods of normal times. But too interventionist
in the period of crisis. Imf says we are not imposing our programs, the countries approach
to us. They try to make sure that the program is implemented. / issue of sove is very
important.

 How does imf respond to critisim: 70’s, collapse of Bretton woods system and imf is under
pressure and there are certain responses. Major debated during this period is to make imf
more powerful with the creation of spec,al drawing rights. Developing countries are very
criticial of imf for being too strong and interv, but in the 70s they want a more powerful imf
to rpduce international money, special drawing rights and link this to development aid.
They propose a dif instit in 70’s, like a global central bank and link that to evelppment
levels of coutnries. This is rejected on the part of major indust countries, they have
disproportionate woting powers in the ifm and wb, this kind of radical reform rejected. In
place we have incremental reforms which is lengthening the duration of standby
agreements. Ex tr In 80 recieved money for 3 yr. (rather than 1 yr). important because it
gave more time for adjustment. But these are relatively marginal incremental reforms.
Radical ones are rejected. Careful about imf and wbi, the decision making structure of them
is dominated by western countries. WTO, is a much more democratic instit. but imf and wb
are dominated by us&Europe& g7. President of the wb is always an American political
appointee, exec director of imf is always European. But now this might be changing with
the rise of brics. We see a new patterns where brics are becoming more important in the
decision making process. The borad patters in that imf is quite close to radical criticism,
sensitive to them. In 70’s it responds some of them, new facilities are introduced. Imf is a
technocratic institution, essentially a conservative instit. wb is somewhat different, always
interested in the broader problems of development.

 Real crisis of imf comes in the 90’s because this is the period of crisis in emerging markets.
Principal role of imf was watchdog for emerging markets. And crisis of emerging amrkets
highlight the limitation of wc reforms. During 90’s imf is criticized with emerging crisis but
this becomes esp dramatic with Asian financial crisis because imf is cricitized for failing to

61
 predict the emergence of criss. In 94, SUSAN SCHADLER, imf scholar, says east asia will
never experience a financial crisis because they have conservative econ polcieis, thigh
budgetary discipline, export oriented vsvs. But 2-3 yrs later the biggest emerging market
crisis happened in east asia. This creates a real identity crisis. And second problem is imf
and east asia after the crisis, delivered standard medicine of gov expenditure cuts, tax
increases, monetary reduction. Thight, concersative policies. But imagine skorea,
consumption is not the problem. There is misdiagnoses of crisis and wrong medicine is
implemented. Korea experienced stagnation. Asian crisis was heavily related to
overborrowing by the corporate sector. Not directly related to budget deficit, inflation.

 Imf from 99 onwards says we need to put much more emphasis on instit: regulation of
banking sector. Imf put more emphasis on regulatory authorities. Now free markets are not
enough we need to complement it with strong institutional, regulatory measures. Major
crisis lead ironically to a crisis of imf itself. New imf is now putting much more emphasis on
instit to compliment market oriented reforms. After 2001, more emphasis on social
polciies, social assistance within budgetary limits. The new imf is much more regulatory
instit plus concerned with social and income distrib issue. Ironically in the early 2000’s, the
imf changes but faces a new crisis in the period from 2001-2008. This is a period where the
world econ is growing very rapidly, the problem was emerging markets have recovered.
Advamced indust countries appears to be robust. Imf wasn’t able to find customers. If no
patients who needs the doctos, imf faces existential crisis. It is no longer needed. A double
identity crisis: aisan crisis leads to paradigm shift, early 2000’s they are not needed
anymore leads to los of self confidence.

 2007-08 global financial crisis, originated from the core of the system. Much deeper crisis
than 90’s. imf’s goal is restored. A new crisis, much deepers crisis has now restored imf has
an important instit. I want to argue that imf’s role is restored but the principal decision
making instit is g20 and intergovernmental org. but imf is again an imp instit. what we see
in post 2008 period is a different imf. Which perhaps reflects the growing weight and
influence of emerging powers. (china, brazil india). They are all now very influential. For a
logn time tr was a recipient but now we paid our money. Imf is no longer a typical western
dominated institution.

 New elements of the imf: limits of that change? One new element: more emphasis of issue
of inequality. Another dimension of the new imf is flexible conditionality, rather than
emphasis on uniformity, applying same program to everyone. We need to take specific
conditions into account, more flexible on depending on level. FLEXIBLE USE OF
CONTIONALITY. More recently they issued about corruption, saying they are In concern
and want to deal with corruption. Again a new element of imf. On the issue of capital
controls, imf is always vigorously resisted to any attempt to control short term capital
flows. One of the critiques of imf is short term capital controls a risky and should be
regulated. Imf has always resisted this, says in a liberal world econ capital control should
be free. It should be done at the national level. More recently we see, imf excepts the
possibility that the short term capital control may work.

 A debate: IMF IS POLITAL OR TECHNOCRATIC? Self image of imf is, we are a technocratic
instit, we are above politics. Our job is to enter in the period of crisis and help recovery.

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This is partly true, it has high quality personnel, have major research departments. But at
the same time,we have to take into account that these are very strong pol instit not purely
technocratic. Involved in the mids of major crisis, and in many cases there is breakdown of
regimes and imf is involved in this process. Also imf is very much embedded in the pol
structure of post war us hegemony. Imf landing has reflected the geostrategic priorities of
US. tr is much more important geostrategically, and tr was able to generate much more
resources compared to argentine, which is more distant geographically. In 80’s, tr
implemented a major program and imf and wb, under the pressure of us, was quite
favorable to tr.
Global financial crisis: salı gü nü anlatıcak

15/05/2018

THE GLOBAL POLITICAL ECONOMY OF GLOBAL GOVERNANCE

There are number of interesting differences between the crises of 90s and the 2000s;
the crises of 90s are mainly domestic crises. They have contingent effects anyways with
systemic repercussions. The crisis of 2008 is a global crisis, its systemic influences are
much more deeper. The spread of the crisis and its impact is more extensive. The
responses are very different. In the 90s, the predominant response if stabilization under
the hospices of IMF then we see the emergence of post Washington Consensus, mainly in
the national level, implementing social and regulatory institutional reforms. In the
aftermath of the global financial crisis we have Keynesian response, government
expenditures increase. We have global policy coordination under the G-20. In a way, we
can compare this with the Great Depression; there was no international response or
institutions. The effect of GD was devastating. One of the virtues of the current period is
that we have an element of coordinated response, which slows down the impact of the
crisis. One interesting difference is that the crises in the 90s generate national response
while the global financial crisis created a national response.

Another interesting difference is that the crises of the 90s was followed by a great
economic surge. There was economic growth which helped with the recovery process of
developing countries. The aftermath of 2008 was weak economic growth and relative
stagnation.

Three Phases of Financial Globalization and Crises

These phases include the 90s, 2000s and the current decade. The following pattern
emerges, the 90s, the core is dominated by the US (NAFTA is strong) , EU (at the peak of
expanding) is strong and the crises are in the semi-periphery. 90s is a period where
Washington consensus reforms are under criticism because of financial crises and IMF
and WB are under the spotlight. During this period, the crises of the semi-periphery
created an identity crisis in the IMF. What we see is that the crises contribute to a
paradigm shift. The dominant paradigm was optimism about free markets, liberalization
and the Washington Consensus. But then the series of crises, WC is challenged and in the
2000 we see the post WC, that says that liberalization has to be supplemented by
regulations, strong institutions are needed, we need to thing about the income
redistribution. 2000 is a period of post WC. This becomes the dominant paradigm in the
2000s. with the global financial crisis, the periphery is now strong, the emerging
markets markets are in better shape, they have much more robust banking system. in
the early phase of the decade, the core is also growing but with the 2008 crisis, the core

63
is in deep trouble. The crisis is causing major problems in the center of the system. how
does this affect the post crisis phase. We see the transfer of post WC to the core. This
paradigm is now transferred to the core, there is now much more emphasis on financial
discipline in advanced industrial countries. They we regulated in the past through
prevential regulations: meaning the regulation of normal banking activities was
strong. The main problem was the activities of the investment banks and derivatives.
Investment banks grew very rapidly and they weren’t regulated adequately. This was at
the heart of the crisis. after the crisis, there is much more emphasis on the regulation in
the advanced sector activities. We see the regulation of investment banks as a major
element in US and EU. In 2010, in US, we have the Frank-Dods acts, which is a huge step
for this aim. The logic of post WC is now transferred to the advanced industrialized
countries, especially through the regulation of the advanced financial elements.

Turkey in 2008, unlike 2001, is affected by the global financial crisis but does not
experience a typical one. Partly because its banking system is much more robust. Turkey
does not experience a similar banking failure. Also part of the reason is the structure of
the financial system. it doesn’t have these kinds of risk taking advanced financial
structures. More standard banking operations are also regulated in the US and EU, but
with the mergence of the investment banks and financial derivatives contributed to
global liquidity but also created enormous risks. After the crisis there is now much more
emphasis on tight regulations.

The 2010 is a complex decade that the crises of 2008 created a now more complex
environment. When we look at the 90s, the core is strong, the emerging world is fragile
with frequent crises. In the late 2000, the core is weak and emerging world is strong,
better regulated and the increasing rise of the BRICS and near BRIC economies. The
2010s the core starts to recover after a while but relatively stagnant. One of the patterns
is recovery with fragmentation (fragmented recovery). US recovers more smoothly than
EU but within the US, the crises generated huge inequalities and the high income groups
is where the recovery is condensed in. EU has stronger welfare state but even there we
see growing inequalities. Within EU we see unequal recovery and fragmentation.
Northern EU and Germany recover more smoothly and southern EU is slower. This is
the pattern of fragmentation which also became the future of 2010s.

emerging world seems to be in a stronger position but still uneven performance. We see
still increasing differentiation and fragmentation both within BRICS and the near BRICS.
In the 2010 we see increasingly differentiated pattern, China and India are growing but
others are experiencing crises and slow growth. In the near BRICS we see fragile growth.
This is a risky growth. 2010 is a period where the recovery overall is slow and BRICS
and near BRICS are doing better than the core but there is increasing fragmentations.
The main feature of the 2010s is that there is no dominant paradigm. The current
decade is more confused, we have hybrid norms. We see a continuity in post WC in
many countries, pushed by traditional WC institutions but they re increasingly
challenged by the rise of BRICS and the rise of Beijing Consensus. We see a clash
between these two. There is no dominant paradigm which marks this new post crisis
decade. This is why this period is termed with uncertainty.

The nature of crisis during this period also seems to change. in the 90s we have
emerging market crisis associated with sort term capital flows, in the 2000s, the crisis
was a major crisis in the center, bank failures, in the 2010s, we don’t seem to have the
conventional crisis which lead to the collapse of economies, there are examples in the
EU periphery but the nature of crisis seems to change. The term to use is ‘quasi crisis’.
many states are struggling but seem to manage without going to the IMF. South Africa
for example, is experiencing slow growth, corruption crises but they seem to be

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managing without IMF. Brazil as well has been quite stagnant with political crises but
seem to be managing. Russia is another example. Many countries in the world seem to
be experiencing slow growth but can make do. This seems to be the new pattern in this
decade. One of the reasons for this is that in a multipolar world, countries have other
avenues for help and recovery, rather than turning to western institutions.

Nevertheless, we should not rule out the possibility that we may reenter a phase of
emerging market crisis. The IMF reported a fragile recovery with the possibility of
reemergence of crises in the developing world. There are discussions about the fragile
5, which typically include Turkey, South Africa even India. The post 2008 decade has
been marked by the absence of the conventional crises, we see a period of uneven
growth and unconventional crises, where countries can continue without major
collapses or encounters with the IMF but this does not rule out the possibility of more
conventional crises seen in 90s. There are signs that the world economy for the first
time since 2008 is growing but in a very uneven way and contains many risks. Short
term capital flows, which have been at the center of 90s crises is still an element of risk.
There are still highly volatile, speculative short term flows.

The Political Economy of Globalization During the 2010s: The Benign Face of Global
Governance

There are some positive features of the post 2008 crisis system. the benign face of global
governance. One of the important achievements is the broadening of the global
governance. The crisis was predominantly regulated by the G-7 bloc. After 2008 we see
emerging powers participating in global governance and G-20 becomes an important
institution for coordinating economic issues. We see a more pluralistic form of global
governance, we see new institutions that contribute to the participate global
governance. The BRICS insinuations, coalitions of middle powers etc. We have new
forms of finance that challenge existing western powers and the dominant WC
instructions. The common element of the BRICS and the emerging market is the more
democratic and participatory system created. The periphery countries gradually became
more important actors and after 2008 the global south becomes a very important, vocal
actor.

Another important positive feature is the benign face of Beijing Consensus. They provide
new forms of finance. If China had not been growing as rapidly, the repercussions of the
global financial crisis would have been much more severe. The new ideas, the flexible
understandings of conditionality, the flexible protectionist measures allowed more
space for the emerging countries. new institutions, competition from BRIC development
bank, Asian bank provides opportunities and development space and represent s the
positive side of global governance. Some of the organizations here under the hospices of
China and BRICS have more participatory decision making structures. This is
paradoxical as the western dominated institutions are less democratic. The structure of
governance of BRICS look like the rotating presidency system in EU, to provide more
participation for smaller countries. More inclusive forms of governance are observed in
these institutions, which seem to be less pronounced in western dominated institutions.
They are also subjected to change in this new environment. BRICS and near BRICS are
participating in their decision-making process. In a democratization view, this is a
positive element in this period. IMF has more understanding of flexible protectionism
and conditionality and sensitivity to inequality is due to this.

The progress of key issues such as environment and climate change, many people
expected stalemates, but we seem to have reached a cooperation. But we seem to have
agreement between BRICS and major industrialized countries on environment. The key

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position here is the US under Trump but other major actors seem to continue with their
commitment to cooperation. In the period after 2008, we should not underestimate
some of the important achievements. This is the benign institutionalism perspective,
with the idea that more participation of emerging counties allows the possibility of
cooperation. The absence of common norms does not present a major problem. The
competition between Beijing and Washington Consensus creates a multilateral
cooperation. The conflict between these norms may help the system in creating a more
flexible understanding of the multilateral international order.

*A puzzle that an authoritarian state like China is advocating for a more participatory
institutions through the BRICS development bank and the Beijing Consensus.

There are many positive aspects of the global governance structures after the 2008
crisis. Crises are costly but they are also opportunities for transformation and the global
financial crisis facilitated a shift to a more pluralistic world where states have more
participatory power compared to a US or western dominated governance structure.

The Dark Side of Global Governance During the 2010s: Possibilities of Stalemate and Key
Challenges Ahead

To balance the picture, there are also negative sides.

 How representative is G-20?

One of the debates is ‘how representative is G-20?’, it still does not feature periphery
countries. To what extent do the BRICS represent the interests of some of the poorest
states in the world. If representation is the key, some critiques argue that we should
empower the UN. A truly representative organization should not be G-20, an elite club of
countries of the global north and south, but a truly representative global institution like
the UN.

 G-20 vs. G-2?

Another problem with G-20 is if it actually is a G-2? This is in the sense that we have two
dominant actors, EU and US and others are the followers. Critiques question how much
role BRICS or near-BRICS have in the system. Are these other actors marginal in the
decision making process? There are many scholars who take this view about the
dominance of two or three actors at the expense of the others. G-20 is very good for
domestic popularity. But how much voice do individual countries have relative to big
countries is an important consideration. Another question is how this is going to change
in the future now with the rapid growth of China and what will the position of other
countries be.

 Clash of norms as a constraint on effective global governance: Washington

norms vs. Beijing norms:
Another point is that this is a period of intense competition and there are major conflicts
of interests. Realists increasingly argue that there can be no cooperation in a post
hegemonic world. We already see examples of these, difficulties in coordinating the
trading system, regional crises like the Syrian crises, trade wars etc. another element
which is emphasized is that the clash of norms has been a constraint of effective
government. WTO experience this clash of norms where BRICS push for more flexible
implementation of intellectual property rights, and more flexible protectionism and
advanced countries push for the norms of the WC. WTO is now in a stalemate between
the global north and south. Agricultural trade rules and subsidies continue to be a point
of friction still. WTO seems to be in decline after 20 years of its creation. Clash of norms

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 can create stalemates, crises in major areas of global governance, about the issue of
liberalization of the global trade.

 Global governance as ‘network governance’:

Another point in the literature is of Andrew Cooper, and he has argues that we are now
moving into a phase of loose network governance. He argues that we experience a
weakening effect in the global organizations. What seem to be growing are network
organizations like G-20, intergovernmental, with no headquarters. A similar
organization is the Asian regionalism, namely APEC. The criticism there is that are we
moving into a world that is increasingly dominated by a powerful set of individuals with
network governance? Cooper also includes the private sector, major entrepreneurs, they
provide aid but increasingly we see the private charities. A typical example is the Davos
Meetings, where major issues of the future, such as technology and environment are
discussed within a small group of powerful elite from the developing and the developed
world. The global capitalist elite essentially dictating major issues about global
governance. Cooper finds this quite worrying. This means that strong institutions, which
are needed, are increasingly sidelined. WTO for example is increasingly dysfunctional.
IMF has been important after 2008 crisis but the major issues about the coordinated
response to crisis was not generated by them but by the G-20. The dominant locus of
decision making are loose intergovernmental network organizations. This discussion
also includes the business leaders and the TNC. The decision-making is concentrated in
the hands of leading leaders and the CEOs.

17/05/2018

 The age of uncertainty: ineqaulity and futre of liberal democ, under increasing challenge in
the 10th yr of global crisis. (syllabusta 2 tane article varmış). Problem of inequality, a problem
for oth advanced countries and both developing world. BRANCO MILANOVIC, an econ at the
world bank. Writeen an important book on inequality. One of the main finding of the book
related to the globalization in the 2nd half of 20th century has been quite effective in terms of
achieving econ growth and as a result of glob, international(inter state) ineq has been
narrowed. As a result of glob, the gap between advanced indust countries and developing
countries have narrowed. Glob has also been very effective in terms of pulling many people
out of poverty. Glob has this bening face of pulling developing countries out of countries and
out of extreme forms of starvation. Still huge povety in the develoing world but at least glob
has been effective in raising the living standards of many. In terms of interstate ineq, that
seems to be more positive fature. But the problem is when u look at ndividual states (intra
states) ineq, (ex. ineq within us) is on the increase and this causes problems of dislocation,
backlash and resistance. Dif to manage societies, in the context of rising intra state, intra
national ineq. Liberal democ requires a certain degree of social cohesion, balance between
dif segments of society. In rising ineq, dif to manage this balance. Ineq also creates problems
for liberal democracy. Domestic pol of major countries are moving in a more illiberal,
authoritarian direction. Also becomes more dif to sustain a liberal, cosmopolitan
international order. There is also a relation between internal and external policies. Liberal
international order presupposes existence of lib democratic regimes. What we see after
financial crisis is very core of the system is experiencing problems and dislocations.

 It was assumed that democ will cont to expand to new regions of the world. But that
optimism seems to have faded with the latest arab spring and we see a phase of reversal, an

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 illebral wave. In that context 2 issues we consider: developments in the core of the system
and the rise of authoritarian capitalism in the emerging world. (ex of china and Russia).
European periphery appears to be the region which has been more effected by the
contestation between the wekaingn liberal core and rising authoriatian state capitalist mode
like in china.

 Global north: both Europe and us, has been heavily effected by glob fin crisis. We see
austerity politics, strong fiscal and monetary discipline and in us there was a period where
us under obaa experimented with social welfare state but now that process seems to b in a
reversal period. The process of slow growth after the crisis and esp uneven recovery. Growth
has been revoring more rapisy but in a very uneven fashion. Us has been recovering more
rapidly than Europe but the major part of the recovery goes to the top groups. Wealth ineq is
both e problem in advanced and develoing countries. This creates backlashes and what we
see is the far right are better able to translate the anxieties to votes, of people who are left
behind. Right wing populist parties have been beenfiting this process and able to capture the
anxieties much better by referring to immigration, nationalist feelings, islamaphobia. They
have been able to build on anxieties of people, which are predominantly economic. Trump
was able to capitalize on the issue of white collar workers and able to build an electoral
coalition where large segments of the societies are now voting for republicans because
trumps has been able to translate these fears much more effectively. There have been major
tax reductipns, dismantling of health system so there are very strong pressure to deregulate
some of the controls. BUT: Trump style right wing populist backlashes may come to power,
focus of losers but in the end some of the policies they implement may contribute further to
income ineq. They may end up with further inequalities. Trumps case is a good example of
how liberal democ values are increasingly undermined in the core country of lib
international order.

Eruope is in better shape, western Europe appears to be more resilient to democratic

values. But a deep problem in central and eastern Europe where we see dramatic rise in
illiberal politics. East west divide seems to be a very deep problem in Europe. After 10 yrs
growth is recovering in eruope, and perhaps the north south divide will be easier to handle.
This divide is more economic. / northern Europe is more resilient in liberal values. but the
west east divide is more cultural. Deep dif in poltiial cultre, calues and increaisnfgly the east
wets divide leads to a contestation between the western core countries(fr, germ) and eastern
eruopean illeberla politics(Poland, hungry). But the problems now is not simply east west, in
a glob world there are other actors: INFLUECNE OF THE RISE OF AUTHORITARIAN BRICS.
Russia and china become increasingly active, intervening in eastern Europe, Russia in terms
of politics and china in terms of economics. A major issue for the future of lib international
order because the clash of norms in democratic values, as china and Russia become
important, they represent alternative models of capitalis. State dominated/led mode of
capitalism. Where capitalism can be successful without a democratic form of gov. challenge
of authoritarian capitalism is a very seirous challenge.

 GLOBAL SOUTH: global south, developing world, probably the best ex in the recent period.
Latin America, wehre there has been both consolidation of liberal democracies and together
there seems to be signif redistributive policies, expansion of social welfare. Pol and social

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 inclusion seems to be taking place. Brazil/argentina is a good example. In the foreign policy
realm, these countries are more benign im their policies. The stronger the democracy at
home, the higher the tendency pursing benign diplomacy. (a Strong interplay). Brazil
presented itself as a benign regional power, based on diplomacy and econ development.
Globaly brazil was a middle power, the golden age period of brazil was a period where
democ was consolidated. BUT: I still think the latin American experience need to be singled
out in terms of successful experience of democ consololdstion. 2018, we see many latin
American conuntries, there are signif pol and econ challenges. What appear to be very
positive region 10 yrs ago, now there are problems. Brazil econ growth slowed down and
corruption is a problem. In brazil it is interesting that there is now a presidential candidate
which is similar to trump. This doesn’t mean they move in a very illiberal part but they may
find it dif to sustain and may experience democratic backsliding.

 Other parts of emerign world: what we see is our versions of hybrid regimes(between
democratic and authoritarian regimes) or fully authoritarian regimes. In those context, these
countries are exp more rapid econ growth. After the glob financial crisis, many of these crisis
cont their econ growth wheras growth is weak in the cre of the system. Growth allows these
counties to achieve social inclusion. Expansion of social systems. We see in many countries,
(tr is a good example in akp era). This also creates a regime legitimacy with significant
expansions of social assistance.

 TRILATERAL DILEMMA: growth/social inclusion/pol inclusion. Countries find it dif to

achieve all 3 elemts at the same time. In much of the emergin worldi there seems to be more
rapid econ growth and growth is positive factor. High growth allows pol parties to mobilize
signif supports. But this pattern of growth and increasing social assistance, has also been
associated with increasing of democratic backsliding, strengthening of authoritarian
tendencies. One of the interesting challenges for the future is rising inewaulity is also a
problem for the emerging world. So china has been growing, reducing poverty, large
segments are benefiting but ineq in china has been growing very rapidly. Regime legitimacy
is also a problem for authoritarian regimes. Will chin be able to sustain this authoritarian
regime in the face of rising ineq and a slow down in long term growth?

 2 other dimensions:
1) issue of technology. Important tech changes are currently taking place in the context of 4 th
indust revolution, increasing use of robots. This is very imp and discussed, because if we are
going to experience new phase of tech progress this can create oppo for econ growth but the
dangers is that it may contribute to further dualisation. Increasing gap between high skilled
workers who were able to benefit vs marginalized, unskilled people. Already ineq is a serious
problem, even if growth furthers with new tech, what will be the implication of lopsided
growthmay undermine social cohesion. How to benefit from tech advances but at the same
time create env for signif redistribution.
2) env considerations: not enough to simply reactivate growth. There are also constrains by
the fact that these polcieis have to be applied with env policies. How to create growth which
is also env friendly? There are existentialist threats. Simply pushing for econ growth doesn’t
make sense, u have to tae into account env issues.

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 Democratical trends are also very critical esp democracy has been helping emerging market
economies with their young populations. But In advamced indust countries, democratic
trends are a constraint. In eurpe a major problem is the aging population. Reactivation of
econ grotwh in Europe requires more open polices to migration from outside. Needs to deal
with its aging population by trying to absorb more labor from outside. But then this creates
another problem of the multiculturalism challenge. Crises of democracy in Europe also
reflect the crisis of multiculturalism and the decline of social democ partirs is closely
associated with this process. (SDP). If u look at the electoral base of social democrats, there
are traditional blue collar, unskilled workers. And another groups is the more cosmopolitan,
middle class who are more liberal. And what hap is it becomes bery dif to maintain this
coalition esp in the phase of migration. Because middle class is more positive to migration
but trad workers are fearing to lose their jobs so negative towards migration, see it as a
threat to their jobs and their lifestyles. So extreme right in Germany capitalized in these
fears. / in Sweden, home of social democracy, even here extreme right is emerging. / the
democratic structure is a major challenge for the future of lib democracy in Europe because
democ challenge suggest that Europe needs to be more open to outside world but there is an
inner resistance to migration and multiculturalism. And resistance is most dramatic in
eastern Europe.

 In terms of the future of global governance, the global financial crisis has been critical in
terms of accelerating the global shifts and making the transition to a post hegemonic world.
This has created oppo for developments, and also caused backlashes especially problems şn
the core of the system which noe creates huge challenged for the sustain of liberal order.
Especially us under trump is withdrawing from its world leadership. There are also positive
signs for the future of lib international order, one of them is now after 10 yrs of crisis, there
appears to be quite strong recovery for us and Europe. Econ growth in the center of the
system is very crucial but not enough. There also has to be redistributive policies.

 Where should change come from? Perhaps the role of society should be important. How
social actors can play important role, challenge the dominance of powerful actors? How
society, ngo’s, social movements, glob from below can be and effective instrument for
counter balancing the movement which is taking place from the very powerful actors like
states and TNC’s.

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