International Political
Economy
• Two Basic Questions:
• What makes a nation wealthy?
• What is the proper role of
government in economic activity?
Three Paradigms
Right
liberalism
Left
nationalism
structuralism
dependency
Marxism
Right vs. left: amount of government intervention
Liberalism
• Adam Smith (1723-90; Scotland)
Free Trade
Government
intervention in
trade
Tariffs, Quotas
Non-Tariff
Barriers
Competition in a Free Market
The market for chalk in State A
Company A Chalk (State A) $100/box
Company B Chalk (State B) $90/box
What do you buy?
Government Intervention
Government of State A imposes 20% tariff
on all foreign chalk – aimed at Company B
Company A Chalk (State A) $100/box
Company B Chalk (State B) $108/box
Now what do you buy?
Two Worlds
Government Intervention
Free market
• Expensive chalk
• Same quality and
choices
• Chalk prices go
down
• Quality goes up
• Innovation
– Colored chalk
– Dustless chalk
– Sidewalk chalk
The Invisible Hand
Lamborghini Diablo
Dodge Aires K-Car
The Invisible Hand at Work
The Benefits of Competition
Multinational Corporations
Premises of Nationalism
• States compete
economically
• Nations with the most
advanced economies win
economic competition
Theorists of Nationalism
Friedrich List, Prussia, Alexander Hamilton,
1789-1846
USA, 1755-1804
Hamilton
“Report on the Subject of Manufactures”
1791
Industrial
power
=
National = Independence
power
List
Strong Economies
• Mature Industries
• High quality
• Low cost
Weak Economies
• Infant Industries
• Low quality
• High cost
Do you buy this?
Or this?
Economic Structuralism
• 1. Marxism
• 2. Dependency Theory
Marxism, Communism
• Karl Marx (1818-1883)
• Fredrick Engels
• The Communist Manifesto 1848
Communism in Power
Soviet Union 1917
–20 million deaths in 1950s
Lenin
Stalin
Communism in Power
People’s Republic of China 1949
–Estimates from 50-100 million
(1949-76)
–Mao Zedong