Introduction to International Political Economy
I.
Conceptual and Analytical Issues
1. What is International Political Economy?
2. What are the issues?
a. Actor behavior: how do we explain and evaluate the actions of states?
i. Levels of analysis: international (structural) vs. domestic
ii. State (government) vs. society (markets)
b. System governance: formulation, implementation, and enforcement of rules;
promotion of cooperation; management of conflict
i. Governance without government; governance mechanism (regimes)
ii. Organizing principles: automaticity, supranationality, hegemony,
pluralism
c. Globalization: inter-national vs. globalized model of world economy
II.
Alternative Perspectives on Political Economy
1. Liberalism
a. Focus: individuals, households, enterprises
b. Nature of economic relations: harmonious; interests reconcilable
c. Relationship between economics and politics: economics drives politics
2. Realism (Statism, Economic Nationalism, Mercantilism)
a. Focus: states
b. Nature of economic relations: conflictual (zero-sum game)
c. Relationship between economics and politics: politics drives economics
3. Marxism (Structuralism, Historical Materialism)
a. Focus: classes, social forces
b. Nature of economic relations: conflictual (zero-sum game)
c. Relationship between economics and politics: economics drives politics
III.
Alternative Perspectives on Globalization
1. Definition. Globalization represents 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
domain of markets, globalization problematizes governance: who is in charge?
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. Marxism: triumph of markets; bad for poorer states and disadvantaged classes
IV.
International Economic History – Nineteenth Century
1. Three major 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
2. Political economy issues
a. Gold standard: What accounts for its stability and relatively smooth
operation?
b. Trade: What accounts for the free-trade movement in the 1860s-70s? What
accounts for the subsequent return to protectionism?
c. Core-periphery relations: What accounts for the “new imperialism?”
3. Key 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.
International Economic History – Interwar Period
1. Major developments
a. Breakdown during World War I
b. Attempted reconstruction during 1920s
c. Renewed breakdown (Great Depression) during 1930s
2. Political economy issue: what explains the failure of the attempted reconstruction?
a. Liberalism: markets failed because of wrong-headed government policies
b. Marxism: internal contradictions of capitalism
c. Realism: absence of effective governance (theory of hegemonic stability)
VI.
International Economic History – Postwar 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
d. Rise of Europe, Japan; East Asia; China
e. Globalization
f. Increasing instability after 1971-73
2. Political economy issues
a. What explains the origins of the postwar system?
b. What accounts for the relative success of the system before the 1970s?
c. What accounts for the increased instability after 1971-73?
d. What can be done to manage the system in the future?
VII.
International Trade
1. Basic issue: tension between desire for the material benefits of an open system and
pressure to promote/defend state and/or particularist interests; a trade-off between
economic and political objectives, between liberalization (interdependence) and
intervention (protectionism)
a. Advantages of free trade: efficiency, growth (stressed by Liberalism)
b. Disadvantages of free trade
i. Dependence (stressed by Realism)
ii. Losses to key constituencies (stressed by Liberalism and Marxism)
c. A collective action problem: how to manage the basic tension
2. Postwar experience: General Agreement on Trade and Tariffs (GATT)/World Trade
Organization (WTO)
i. Purposes: trade liberalization; dispute resolution
ii. Principles: non-discrimination, reciprocity; safeguards
3. Protectionism (actor behavior)
a. Instruments of trade policy
b. Arguments for protection
c. Practical motivations (state and particularist interests)
4. Managing the system (system governance)
a. Promotion of liberalization
b. Dispute resolution
c. Safeguards
d. Other current issues
VIII. Money and 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; a
trade-off between economic and political objectives, between liberalization and
intervention
2. Basic concepts
a. Balance of payments: deficits
b. Financing: reserves, borrowing, liquidity
c. Adjustment: the “Three D’s”; the “Unholy Trinity”
3. Postwar experience
a. International Monetary Fund (IMF), Bretton Woods System
i. Purposes: financing, governance
ii. Principles: “compromise of embedded liberalism”
b. Financing/liquidity: US dollar, SDRS, capital markets
c. Adjustment: breakdown of pegged exchange-rate system
d. Debt problems; financial crises
4. Managing the system
a. Exchange rates
b. International capital mobility
IX.
Regionalism
1. Basic issue: between the national and the global levels of analysis comes regionalism
(economic arrangements between two or more countries), which can seriously complicate
the issue of system governance
2. Trade regionalism (regional trade agreements – RTAs)
a. Types: preferential trade agreement; free-trade area, customs union, common
market, economic union
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; rapid proliferation
d. Why the renewed interest in RTAs?
i. Liberalism: a second-best route to trade liberalization
ii. Marxism: an attempt of capitalism to sustain itself
iii Realism: defensive posturing
e. Significance for system governance: building blocks or stumbling blocks?
3. Monetary regionalism
a. Types: exchange-rate union or common currency (horizontal regionalization);
currency board or “dollarization” (vertical regionalization)
b. Advantages and disadvantages
c. Recent experience
i. Precedent of the euro
ii. Rise of currency competition (changing geography of money)
iii. Currency regime choices today
d. Significance for system governance
X.
Economic Development
1. The developing world (Third World, “South”): highly differentiated; difficult to
generalize
2. Postwar rules: based on the principle of non-discrimination; trade was to function as
an “engine of growth” as it had in the nineteenth century
3. Postwar experience has been mixed at best: some success stories, many
disappointments.
4. Why has trade failed to function as an engine of growth for so many countries?
a. Liberalism: markets failures -- weak demand (except energy); weak linkages
into the domestic economy; weak adaptive capacity (“capacity to transform”)
b. Marxism: natural result of capitalist exploitation
c. Realism: result of power politics
i. Role of great powers in writing the rules
ii. Efforts by developing countries to use collective action to strengthen
their bargaining position (non-aligned movement; UNCTAD; OPEC;
“New International Economic Order”)
iii. Outcomes: partial success -- GATT: GSP, Part IV. WTO: fuller
participation in agenda setting. IMF: increased access (special facilities,
etc.)
5. Options for development strategies
a. Export promotion
i. Traditional exports; cartels
ii. Non-traditional exports: manufacturing; services
b. Import substitution
iii. Infant industry protection (Import substitution Industrialization – ISI)
c. Regionalism
XI.
The Environment
1. Basic problem: the environment is a collective good, shared by all and owned by
none (the “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: these are not always mutually consistent; hence there is a
collective action problem – a system governance issue
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
XII.
Energy
1. Importance: oil is the single most widely traded product (by value) in the world;
encapsulates all three themes of actor behavior, system governance, globalization
2. The first regime: the Seven Sisters
a. A regime run by private companies – a classic cartel, successful because it
met three key conditions: controlled the largest part of supply; no close
substitutes; agreed on the sharing of benefits
b. Remained in place until late 1960s
3. The second regime: Organization of Petroleum Exporting Countries (OPEC)
a. Formed in 1959; gradual shift of power from Seven Sisters; dramatic
emergence in 1973
b. Ups and down of OPEC power since 1973
4. What accounts for these variations over time? Back to the three key conditions
needed for a successful cartel
a. Control of supply
b. No close substitutes
c. Agreement on distribution of benefits (a collective action problem)
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
i. Exploration
ii. Technology
iii. Alternative forms of energy (carbon-based, renewable)
XIII. Multinational Corporations
1. Definition: an enterprise with production facilities in two or more countries.
2. Perspectives on the MNC
a. Liberalism: positive – the market in action
b. Marxism: negative – an agent of capitalist exploitation
c. Realism: negative – alters the balance of power between states and markets
3. History
a. Until mid-20th century, mostly in the extractive sector
b. Real growth began in 1950s for 2 reasons
i. European Common Market (trade diversion)
ii. Decolonization (ISI raised barriers to imports)
c. Changing sources and destination of foreign direct investment (FDI)
i. Increasing share of FDI comes from developing world
ii. Most FDI goes to Europe and North America, not developing nations
4. Perspective of home country
i. Advantages: profits, preservation of market share
ii. Disadvantages: avoidance of taxation and regulation
6. Perspective of host country
i. Advantages: capital, technology, management expertise, market access
ii. Disadvantage: loss of control
7. Shifting and uncertain balance of power between states and markets
a. The obsolescent bargain
b. Production chains
XIV. Prospects for the Future
1. The postwar period has seen major structural changes
a. Changes in the distribution of power between states
b. Changes in the distribution of power between states and markets
(globalization)
c. Changes in the global security environment
2. Future scenarios
a. World economic government (supranationality)
b. Renewed hegemony (US? Europe? Japan? China?)
c. Cooperative regimes (pluralism)
d. Governance by MNCs (“Rollerball” scenario)
e. Collapse and economic warfare
f. A “mosaic” (all of the above)