What is International Political Economy?
READING ASSIGNMENT:
Oatley Chapter 1
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Plan
• PART 1: How do we study IPE?
• PART 2: Paradigms
• PART 3: Interests & Institutions
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PART 1:
How do we study IPE?
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Organization of the course/textbook
1. International trade system
2. Multinational corporations (foreign investment)
3. International monetary system
4. Economic development
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I.P.E.
• International Political Economy (IPE) considers the flows
of such production, distribution, and consumption across
national borders, recognizing that not just national
governments play a role, but foreign governments and
international institutions must also be taken into account.
• Political economy considers the role that the state plays
in such production, distribution, and consumption.
• Economics is the study of the production, distribution,
and consumption of scarce resources.
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Political economy
• Society chooses between
– Centralized mechanisms of allocation
– Decentralized mechanisms of allocation
– (states vs. markets)
• Decisions about which mechanisms we choose to allocate
resources generate
– More or less income
– Winners & Losers
• “Welfare consequences”: effects on overall societal wellbeing
– impossible to truly measure – we usually really mean overall level of
income
– GDP/capita
– Measured in PPP terms?
• “Distributional consequences”: who gets what (winners & losers)
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International flows
• Goods (trade)
• Capital (monetary system)
• People (immigration)
• Pollutants (the environment)
• Violence (terrorism)
• Health
• Information
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How do we study the IPE?
• Broad theoretical approaches
• Paradigms
• Ways of thinking about the IPE that apply
to various different situations
• Positive rather than prescriptive
(question?)
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PART 2: Paradigms
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How do we study the IPE?
• Mercantalist school
• Liberal school
• Marxist school
• Interests & Institutions
• Which approach to use and why?
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Mercantilism
• National power comes from economic strength
• Exports strengthen state power, imports
weaken state power
• Some exports are more valuable than others
– Manufactured goods are preferred to primary products
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China… How is it shaped?
http://vreelander.blogspot.
com/2010/12/rise-ofrooster.html
Rise of the Rooster
• Is China’s XR policy designed to take over the world?
– (Mercantalist view)
• Or designed to protect the politically/economically
important export sector?
– (Interests & Institutions view)
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Liberalism
• Countries gain from trade
• Comparative advantage
• Export what can be produced relatively cheaply
at home
• Import what would be produced at relatively
high costs at home
• The role of the state should be limited to a
restricted set of “market failures”***
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Traditional market failures
• Monopolies
– failure of perfect competition
• Public Goods
– efficient price is 0, since these goods are nonrivalrous
• Externalities
– consumption by one individual affects the
utility of another individual
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Aside: more serious market failures
• Economics of information
• Asymmetric information
–  moral hazard
–  adverse selection
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Marxism
•
The key feature of the IPE
–
1.
Private ownership of capital (means of production) and wage labor
Natural tendency towards concentration of capital
–
2.
competition efficiency small wealthy elite
Falling rate of profit
–
3.
diminishing rate of return from capital  lower wages
Imbalance
–
between ability to produce (efficient capital) and ability to purchase
(falling wages)
•
Growing inequality eventually leads to revolution
•
Role of the state is to protect capital (agent of capitalist
class)
•
Focus is thus on corporations
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Structural dependence of the state on capital
Przeworski & Wallerstein
• You can get dependence of the state on capital without
capitalists controlling the state
• Labor may control the state
– cares about present & future stream of income
• The state sets an income tax to redistribute income from
capital to labor
• But income tax lowers investment of capital
• Reduces economic growth / future stream of income
•  little difference between left and right governments
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Aside on strategic thinking:
Capital vs. Labor
Which tax regime should capital choose?
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Income tax vs. consumption tax
• Consumption taxes are investment neutral
• Suppose tax regimes are sticky and tax rates are flexible
• And suppose with emerging democracy, the capitalist
class must choose between an income tax or
consumption tax regime
• Which should they choose?
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What if capitalists can
invest/consume abroad?
• Structural dependence of the state on
capital INCREASES
• So multinational corporations are
important in the IPE, but not necessarily
because they control the state, as
Marxism argues
• Universal suffrage does NOT lead to mass
expropriation of the rich by the poor
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Traditional schools in one table…
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Traditional schools of thought
Mercantilism
Liberalism
Marxism
Most important The state
actor
Individuals
Capitalist class
Role of the
state
Intervene to
allocate
resources
Property rights
Protect/sustain
the capitalist
system
Image of the
IPE
Conflict –
between states
over trade
Harmony
Exploitation of
labor
Proper
objective
Enhance
national power
Enhance
Promote equal
aggregate social income
welfare
distribution
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One more paradigm:
Interests & Institutions
How the interaction between societal
interests & political institutions determines
government policy
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PART 3:
Interests & Institutions
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Interests
•
Material (income-related)
•
Shaped by:
1. Skill level (factor of production)
2. Industry (sector)
HIGH SKILL
WORKER
LOW SKILL
WORKER
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Ideas
• How does policy translate into outcome?
• We care about outcomes
– policies are just a means to an end
• So, beliefs matter
– What is the causal relationship between policy & outcome?
• In the short-run, what may matter is not if an idea is
empirically valid but whether people believe it
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Institutions!
• Domestic institutions:
– Democracy vs. dictatorship (elections)
– Parliamentary vs. Presidential
– Multi-party vs. two-party vs. one-party vs. no party
– Federal vs. unitary
• International institutions
– WTO, IMF, World Bank, United Nations, regional
institutions/arrangements
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What is the definition of an
institution?
• A set of rules
that govern the behavior of a given set of
actors in a given context.
• An equilibrium?
• Must be self-enforcing
(the definition of an equilibrium)
Constitutions are not contracts… who enforces them?
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Political institutions
• Shape the incentives of political leaders
• Under democracy, leaders survive by
winning votes
• Under dictatorship, leaders survive by
satisfying elite constituents:
– military, big business, foreign interests
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Democracy vs. Dictatorship
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Hazard Rate over Time for
Democracies (Solid Line) & Dictatorships (Dotted Line) – Time in years
Hazard Rate
0.625
0.5
0.375
0.25
5
10
15
20
T ime (years)
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Interests & Institutions school of thought
Interests & Institutions
Most important actor
Winners & losers
Role of the state
Survive in office
Image of the IPE
Mix of conflict and cooperation
over distributional issues to
maximize individual income
Proper objective
Politically constrained efficiency
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Schools of thought all together:
Mercantilism
Liberalism
Marxism
Interests &
Institutions
Most
important
actor
The state
Individuals
Capitalist
class
Winners &
losers
Role of the
state
Intervene to
allocate
resources
Property
rights
Protect/sustain
Survive in
office
Image of the
IPE
Conflict –
between
states over
trade
Harmony
Exploitation of Mix of conflict
labor
& cooperation
Proper
objective
Enhance
national
power
Enhance
aggregate
social welfare
Promote
equal income
distribution
the capitalist
system
Politically
constrained
efficiency
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Summary
• Schools of thought: Mercantalist school, Liberal school,
Marxist school, Interests & Institutions
– Example question?
• Ideas, interests, & institutions
• Factors vs. sectors
• Survival rate of leaders under democracy & dictatorship
– Institutions shape leader-incentives
• FINAL THOUGHT: Globalization is not new… but it’s
now faster and now different in the context of democratic
institutions
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Thank you
WE ARE GLOBAL GEORGETOWN!
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