Week 3

The Study of IPE

PSCI 3620
 The Study of IPE
• The study of IPE depends on the understanding of
neoclassical economics
• But they ask questions of different natures and levels
– Economics- efficiency and mutual benefits of economic
exchange
– IPE- broader range of issues
– Econ- market is self-regulated mechanism separate from politics
– IPE- national power, values and autonomy are central
– Econ- role of institutions is insignificant (market is central)
– IPE- international institutions and regimes are central
• the study of international political economy presumes
that states, multinational corporations, and other
powerful actors attempt to use their power to influence
the nature of international regimes
 Distribution of Wealth and Economic Activities
• Econ- concerns about absolute gains by individuals
• IPE- relative gains and their size states make in economic
exchange with other states
• Governments are concerned about
– the terms of trade, the distribution
– of economic returns from foreign investment,
– the relative rates of economic growth among national
economies.
• Hume’s mercantilist contemporaries argued
– a nation should seek a trade and payments surplus
– it was only relative gains that really mattered.
• David Ricardo (1772–1823): the law of comparative
advantage
– every nation could gain in absolute terms from free trade and
from an international division of labor based on territorial
specialization.
• Joseph Grieco’s
– states are more concerned about relative than absolute gains
and that this creates difficulties in attaining international
cooperation
• States are particularly interested in the distribution of those
gains affecting domestic welfare, national wealth, and military
power
Twenty-first century,
concern is focused on the distribution of industrial power, especially
in those high-tech industries vitally important to the relative power
position of individual states.
 National Autonomy
• Persistent clash between
– the increasing interdependence of the international economy
and
– the desire of individual states to maintain their economic
independence and political autonomy.
– states want the benefits of free trade, foreign investment, and
the like,
– they also desire to protect their political autonomy, cultural
values, and social structures
– economic and technical interdependence of national societies
– Compartmentalization of the world political system into
sovereign independent states
– Logic of market and logic of state
International Economy and International Politics
• Many argue- International economy has positive impact
on international politics
– Economic interdependence is dependence that moderates state
behaviours
– Economic ties among states almost always involve power
relations
• Individual states have a powerful incentive
– either to decrease their own dependence on other
states through such policies as trade protection and
industrial policies
– or to increase the dependence of other states upon
them through such policies as foreign aid and trade
concessions
 The Politics of International Regimes
• International regimes
– “sets of implicit or explicit principles, norms, rules,
and decision-making procedures around which actors’
expectations converge in a given area of international
relations,”
• Robert Keohane
– international regimes are a necessary feature of the world
economy and are required to facilitate efficient operation of the
international economy.
– reduction of uncertainty, minimization of transaction costs, and
prevention of market failures
– international regimes are necessary to preserve and
stabilize the international economy
 Emergence of Regime Theory
• Keohane-
– Theory of hegemonic stability
– Due to decline of US economy in 1970s, it imposed rules
for its favor
• Susan Strange
– Designed to legitimize US continuing domination
– Predatory American economic policies
• Post WWII
– US leadership in promoting international cooperation
– Ideological concerns
 Content of Regime Theory
• the precise rules and decision-making techniques
embodied in a particular regime
• technological, economic, and political factors
– fixed exchange rates
– international liquidity
– balance of payments problems
– U.S. dollar as a reserve and transaction currency
• Problem of compliance
– States are not willing to follow imposed rules
– There is no world government to impose
– Iteratire (repeated) game to solve the problem
 Governance of the Global Economy
• How international regimes can be effective?
• How compliance can be ensured?
– Strong internaitonal leadership
– Effective international governance structure
• Means
– Leader facilitates cooperation
– Prevents defection from the rules through
• Bribes
• Sanctions
• Threats
• Force
• American experience
– US lead in post WWII
– Cooperation and support by the allies
– Domestic support- ‘embedded liberalism’
• Govt intervention in economics but follow international rules
• Theoretical basis
– Charles Kindelberger- The World in Depression, 1929-
39 (1973)
• Severity due to lack of leadership
• Tasks:
– capital flow to poor countries,
– some order in foreign exchange rate
– Coordination of macroecon policies among leading economies
– Maintaining open markets
– Lender of the last resort
• Stephen Krasner, Robert Gilpin
– Hegemon appears to protect and promote its own
interests- political, economic, military
– Hegemon manages to establish a liberal world
economy
– There can be no liberal int’al economy unless
there is a leader
– Certain public goods are provided by the leader
– Examples
• GB till WWI: nondiscrimination, free capital movement,
gold standard (Bank of England)
• USA after WWII: discrimination, capital control,
monetary regime (Fed Reserve)