INTRODUCTION

INTRODUCTION TO
TO
INTERNATIONAL
INTERNATIONAL
POLITICAL
POLITICAL ECONOMY
ECONOMY
Political Science 186
Global Studies 123
I.I. Introduction
Introduction –– Conceptual
Conceptual and
and
Analytical
Analytical Issues
Issues
• 1. What is International Political Economy?
• 2. What are the issues?
• A. Actor behavior
• B. System governance
• C. Globalization
I.I. Introduction
Introduction (cont’d)
(cont’d)

• A. Actor Behavior. How do we explain and evaluate the actions of

states?

• 1. Levels of analysis: international (structural, systemic) vs. domestic

• 2. State (government, public sector) vs. society (markets, private sector)
I.I. Introduction
Introduction (cont’d)
(cont’d)

• B. System Governance. Formulation,

implementation, and enforcement of rules;
promotion of cooperation; management of conflict

• 1. Governance without government; governance

mechanisms (regimes)
• 2. Organizing principles: automaticity, supranationality,
hegemony, pluralism (negotiation, cooperation)
I.I. Introduction
Introduction (cont’d)
(cont’d)

• C. Globalization. Inter-national vs. globalized model of world

economy
II.
II. Analytical
Analytical Perspectives
Perspectives on
on
Political
Political Economy
Economy
• 1. Liberalism
• 2. Realism (statism, economic nationalism, mercantilism)
• 3. Structuralism (Marxism, historical materialism)
II.
II. Analytical
Analytical Perspectives
Perspectives on
on IPE
IPE --
Liberalism
Liberalism
• A. Focus: individuals, households, enterprises
• B. Nature of economic relations: harmonious; interests reconcilable
• C. Relationship between economics and politics: economics drives
politics
II.
II. Analytical
Analytical Perspectives
Perspectives on
on IPE
IPE --
Realism
Realism
• A. Focus: states
• B. Nature of economic relations: conflictual (zero-sum game)
• C. Relationship between economics and politics: politics drives
economics
II.
II. Analytical
Analytical Perspectives
Perspectives on
on IPE
IPE --
Structuralism
Structuralism
• A. Focus: classes, social forces
• B. Nature of economic relations: conflictual (zero-sum game)
• Relationship between economics and politics: economics drives
politics
III.
III. Alternative
Alternative Perspectives
Perspectives on
on
Globalization
Globalization
• 1. Definition: a broadening, deepening, and
acceleration of interconnectedness of states and
markets; networks of connections at
intercontinental distances
• 2. Alternative views: from “hyperglobalists” to
skeptics
• 3. Why do we care? By creating a dissonance
between the jurisdiction of states and the domains
of markets, globalization problematizes
governance: who is in charge?
III.
III. Globalization
Globalization (cont’d)
(cont’d)

• 4. Perspectives on causes and consequences

• A. Liberalism: triumph of markets; good for economic welfare
• B. Realism: product of state policy; bad for power of states
• C. Structuralism: triumph of markets; bad for poorer states and
disadvantaged classes
IV.
IV. International
International Economic
Economic History
History
–– Nineteenth
Nineteenth Century
Century
• 1. Three major developments
• 2. Political economy issues
• 3. Key lessons
IV.
IV. Nineteenth
Nineteenth Century
Century -- three
three major
major
developments
developments
A. Monetary system: classical gold standard
B. Trading system: movement toward free trade in 1860s-70s, then
back toward protectionism
C. Core-periphery relations: rise of “new imperialism” after 1870s
IV.
IV. Nineteenth
Nineteenth Century
Century -- political
political
economy
economy issues
issues
• A. Gold standard: What accounted for its stability and relatively
smooth operation?
• B. Trade: What accounted for the free trade movement in the
1860s-70s? What accounted for the subsequent return to
protectionism?
• C. Core-periphery relations: What accounted for the “new
imperialism?”
IV.
IV. Nineteenth
Nineteenth Century
Century -- key
key lessons
lessons
• A. No single (mono-causal) explanations; need to sift the evidence.
• B. No single rule for all regimes; different governance mechanisms
can exist side by side
V.
V. International
International economic
economic history
history ––
interwar
interwar period
period
• 1. Major developments
• A. Breakdown during World War I
• B. Attempted reconstruction during 1920s
• C. Renewed breakdown (Great Depression) during 1930s
V.
V. Interwar
Interwar period
period (cont’d)
(cont’d)

• 2. Political economy issue: What explains the failure of the

attempted reconstruction?
• A. Liberalism: markets failed because of wrong-headed government policies
• B. Structuralism: internal contradictions of capitalism
• C. Realism: absence of effective governance (theory of hegemonic stability)
VI.
VI. International
International economic
economic history
history ––
postwar
postwar period
period
• 1. Major developments
• A. Creation of new international institutions: IMF, World
Bank, GATT
• B. Cold War, leading to two separate blocs (East-West)
and the rest (Third World)
• C. Unprecedented economic growth (early years)
• D. Globalization
• E. Rise of Europe, Japan; East Asia; China and BRICs
• F. From G-7 to G-20
• G. Increasing instability
VI.
VI. Postwar
Postwar period
period (cont’d)
(cont’d)

• 2. Political economy issues

• A. What explains the origins of the postwar system?
• B. What accounted for the relative success of the system in its early years?
• C. What accounts for the increased instability in more recent years?
The World Economy Today

• 1. Major developments
• A. Globalization and Regionalism
• B. Shifting balance of power among states
• C. Key challenges: trade, finance, development, environment, energy
• 2. Political economy issues
• A. Can key challenges be managed?
• B. Where will leadership come from?
VII.
VII. International
International Trade
Trade

1. Basic issue: a tension between desire for material benefits of an

open system and pressure to promote/defend state and/or
particularist interests
a. Advantages of free trade: efficiency, growth
b. Disadvantages of free trade: dependence, losses to key constituencies
c. Collective action problem: how to manage the basic tension
VII.
VII. International
International Trade
Trade (cont’d)
(cont’d)

• 2. Postwar experience: GATT/WTO

• a. Purposes: liberalization, dispute resolution
• b. Principles: non-discrimination, reciprocity, safeguards

• 3. Protectionism (actor behavior)

• a. Instruments of trade policy
• b. Arguments for protection
• c. Practical motivations
VII.
VII. International
International Trade
Trade (cont’d)
(cont’d)
• 4. Managing the system (system governance)
• a. Promotion of liberalization
• b. Dispute resolution
• c. Safeguards
• d. Other current issues
VII. International Trade (cont’d)
• 5. From multilateralism to regionalism
• a. Types of regional trade agreements (RTAs, PTAs)
• b. Advantages and disadvantages
• i. For individual countries
• ii. For overall system (trade creation, trade diversion)
• c. Postwar experience
• i. First wave: 1950s-60s
• ii. Second wave since 1980s
• d. Why the renewed interest in RTAs?
• e. Significance for system governance
VIII.
VIII. Money
Money and
and Finance
Finance
• 1. Basic issue: as with trade, a tension between
desire for the material benefits of an open system
and pressure to promote/defend state and/or
particularist interests
• 2. Basic concepts
• a. Balance of payments; deficits
• b. Financing: reserves, borrowing, liquidity
• c. Adjustment: the “Three D’s,” “Unholy Trinity”
Balance of payments deficits

• In case of deficit, two basic choices

• Finance: (1) run down assets or (2) build up liabilities (borrow)
• Adjust: (1) reduce external spending or (2) increase external revenues
• How to adjust: the “Three D’s”
• Deflation: (1) tighter fiscal policy (decrease gov’t spending, raise taxes) or
monetary policy (higher interest rates)
• Devaluation (depreciation): lower exchange rate
• Direct controls: (1) trade controls (tariffs or NTBs) or (2) capital controls
• Is there another D? Answer: D’em others…
• Summary: the Unholy Trinity
The Unholy Trinity
VIII.
VIII. Money
Money and
and Finance
Finance (cont’d)
(cont’d)
• 3. Postwar experience
• a. IMF, Bretton Woods system
• b. Financing: US dollar, SDRS, capital markets
• c. Adjustment: breakdown of pegged exchange-rate
system – currency wars?
• d. Debt problems; financial crises

• 4. Managing the system

• a. Exchange rates
• b. International capital markets
• c. International currencies
• d. Who’s in charge?
IX.
IX. Economic
Economic Development
Development

• 1. The developing world: differentiated, difficult to generalize

• 2. Postwar rules: based on principle of non-discrimination; trade was
to function as an “engine of growth”
• 3. Postwar experience: mixed – some success stories, many
disappointments
IX.
IX. Development
Development (cont’d)
(cont’d)
• 4. Why has trade failed as an engine of growth for
so many?
• a. Liberalism: market failures -- weak demand, weak
linkages, weak adaptive capacity
• b. Structuralism: natural result of capitalist exploitation
• c. Realism: result of power politics
• i. Role of great powers in writing the rules
• ii. Attempts at collective action by LDCs
• iii. Outcomes: partial success
IX.
IX. Development
Development (cont’d)
(cont’d)
• 5. Options for development strategies
• a. Export promotion
• i. Traditional exports
• Problems: inelastic demand, protectionism
• Cartels? Three conditions necessary for success: control largest part of supply; no close
substitutes; agreement on the sharing of benefits
• ii. Non-traditional exports: manufacturing, services
• b. Import substitution (“import substitution industrialization” – ISI)
• c. Regionalism
X.
X. The
The Environment
Environment

• 1. Basic problem: the environment is a collective

good, shared by all and owned by none (“tragedy of
the commons”); core issue is “externalities,” which
can cross borders
• 2. Economic functions of the environment
• a. A consumption good
• b. A supplier of resources
• c. A receptacle of wastes
• d. The problem: not always mutually consistent, hence a
collective action problem – a system governance issue
X.
X. Environment
Environment (cont’d)
(cont’d)
• 3. Practical dimensions
• a. Pollution (air, water, etc.)
• b. Deforestation
• c. Endangered species
• 4. Possible solutions – approaches to governance
• a. Laissez faire
• b. National regulation
• c. Formal regimes
• d. Market approaches
• e. Paris Climate Accord (2015)
XI.
XI. Energy
Energy
• 1. Importance: the world’s single most widely
traded product
• 2. First regime: the Seven Sisters – a classic
cartel, successful because it met all three key
conditions necessary for success: control of
supply; no close substitutes; agreement on
sharing of benefits. In place until late 1960s
• 3. Second regime: OPEC
• a. Dramatic emergence in 1973
• b. Ups and downs of OPEC power since 1973
XI.
XI. Energy
Energy (cont’d)
(cont’d)
• 4. Reasons for variations of OPEC power over time
– back to the three key conditions for a successful
cartel
• 5. OPEC’s biggest challenge: agreement on benefits
(limiting free riding)
• a. Low absorbers vs. high absorbers
• b. Special role of Saudi Arabia
• 6. Prospects
• a. Demand side (conservation)
• b. Supply side: exploration, alternative forms of energy,
technology
XII.
XII. Multinational
Multinational Corporations
Corporations

• 1. Definition
• 2. Perspectives on the MNC
• 3. History
• a. Until 20th century, mostly extractive (farming, mining, etc.)
• b. Real growth began in 1950s, for 2 reasons
• i. European Common Market (trade diversion)
• ii. Decolonization (ISI development strategies)
• c. Changing sources and destination of foreign direct investment (FDI)
• i. Increasing share of FDI from developing world
• ii. Increasing share of FDI going to developing world
XII. MNCs (cont’d)

• 4. Perspective of home country

• i. Advantages: profits, market share
• ii. Disadvantages: avoidance of taxes, regulation
• 5. Perspective of host country
• i. Advantages: capital, technology, management
expertise, market access
• ii. Disadvantage: loss of control
• 6. Shifting and uncertain balance of power
between states and markets
• i. The obsolescent bargain
• ii. Multinational production, supply chains
XIII.
XIII. Prospects
Prospects for
for the
the Future
Future
• 1. Postwar period has seen major structural changes
• a. Distribution of power between states
• b. Distribution of power between states and markets
• c. Global security environment
• 2. Future scenarios
• a. Automaticity?
• b. World economic government (supranationality)?
• c. Renewed hegemony (US? Europe? Japan? China?)?
• d. Cooperative regimes (automaticity + pluralism)?
• e. Governance by MNCs?
• f. Collapse and economic warfare?
• g. Most probable: a “mosaic” (all of the above)