International Political Economy
Spring 2010
Lecture Three
Zainab Shakir
Mercantilism Continued
Mercantilism And Realism: Complementary
Perspectives
Many ways incorporate some of the same assumptions , yet in
some ways they also differ
Mercantilism and Realism: Complementary
Perspectives
• Similarity One:
• Nation State is the Primary Actor in the International
System as it is regarded as the highest unit of sovereign
political authority
• Basic tenet of Realism– the international system of nation
states is in a a constant state of anarchy and potential
war—conflicting national interests—force states to
compete with each other for limited resources
• The capabilities of the state and the global distribution of
power determine how rival states deal with one another in
a self help system
Mercantilism And Realism:
Complementary Perspectives
• Similarity Two:
• State competition results in a zero-sum game: relative
gains for one state may be perceived as absolute losses for
other states
• Measures taken to enhance security of one state reduce
security for others because of the fixed amount of power
resources in the world
Mercantilism And Realism: Complementary
Perspectives
Differences:
One difference between realists and modern neo mercantilists
is the stress that realists put on military instruments and
similar state capabilities to achieve national security
Realists---military power and capabilities more important
than economic strength if a state is to defend itself from the
aggressive tendencies of other states.
Mercantilists and economic nationalist type mercantilists--stress not only that conflict is economically driven but also
that a viable economy is necessary if a state is to be able to
purchase weapons to secure itself.
Economic Nationalism
•
Mercantilist Ideas have evolved over time and adapted to changing
economic and political conditions
•
Important example of this is the development of economic nationalism as
a form of mercantilism in the late 18th and 19th centuries
•
Classic Mercantilism—focused on gaining power and wealth through
unequal foreign trade
•
Economic Nationalism– focus on internal development of the national economy
Rise of Economic Nationalism. Why??
1) Economic Nationalism as a reaction to Economic Liberalism which
had become very popular by the 1840s. Great Britain grew more rich
and powerful—other nations such as the US and German Principalities
grew concerned about their independence and adopted economic
nationalist policies as a way of protecting themselves from Britain’s
aggressive economic liberal policies.
2) Improvements in production and transport technology—political
boundaries of a state and economy began to coincide to a larger extent.
To be an independent political power, increasingly necessary to be a n
independent economic power too.
Economic Nationalism
BUT Unregulated markets seen as mercantilists to be Fearful Webs of
Dependency!
How could a nation be independent of Great Britain of it depended on it
for manufactured goods and as a market for its agricultural produce?
What to do? Mercantilists say that it is upto the STATE to turn market
linkages inward and develop the domestic economy as a strong and
independent engine for wealth and power.
Dominant Theme of Economic Nationalism:
Economic Interests of a nation should be put ahead of economic interests
of an individual and fostered through strong state action.
Economic nationalism
Most famous proponents of Economic Nationalism: Alexander
Hamilton and Friedrich List
Hamilton (1755-1804) felt that a strong manufacturing and
industrial base for the nation required an active state along with
trade protection for the country’s infant industries.
Favored subsidies to make US goods more competitive at home
and abroad and set off subsidies granted by foreign states.
Reluctantly favored the use of tariffs to limit imports.
Economic nationalism
19th Century German Political Economist: Friedrich List-even more vigorous proponent of economic nationalism.
Believed that state action was necessary to productive power
in the form of education, technology and industry.
According to List, “the power of producing… is infinitely
more important than wealth itself”
Offered many reasons for believing that manufacturing and
not agriculture was a more desirable basis for national wealth
and power. How??
Manufacturing
opportunities.
developed
greater
human
skills
and
Economic nationalism
• Links with Foreign Imperialism?
• Goal? To build domestic economic power to in order to gain security
and independence
• Improvements in technology, communication and transportation
changed the impact of these policies significantly.
• By the end of the 19th century—ability of a nation to produce
manufactured goods far exceeded far exceeded the ability of domestic
markets to absorb these items.
• Focus of economic nationalism—shifted from developing domestic
productive power to finding foreign markets for the goods that
productive power produced.
• Key to security—changed from not only strengthening the domestic
economy but also acquiring and extensive foreign economic empire
capable of supplying scarce resources to the home country and
purchasing the output of its industries.
• Therefore, economic nationalism helped generate foreign imperialism.
The Entrenchment of Neomercantilism
•Neomercantilism– a more subtle form of protection that
accounts for what are essentially mercantilist-defensiveoriented policies many individual nations feel compelled to
adopt a s result of domestic pressure to protect certain
industries from overseas competition and international
economic integration.
•Contrary to use of overt protectionist trade barriers such as
import tariffs, after WWII neomercantilist policies are more
craftily designed to appear less protectionist such as Non
Tariff Barriers.
•Examples of NTBs?
•Export Subsidies
•Import Quotas
•Voluntary Export Agreements
The Entrenchment of Neomercantilism
• Mercantilist import measures meant to overcome the
dislocating effects of trade protection on society in subtle
ways that were not offensive.
State supported efforts to create comparative advantages in
particular goods and services to undercut other states.
• State assistance to certain industries such as relief to
displaced
workers,
loans.
Regional
infrastructure
development programs and investment promotions.
• For most neomercantilists, the capacity of the nation state to
generate wealth is as important as its capacity to produce
military weapons.
The Entrenchment of Neomercantilism
• Finally, many neomercantilists argue that to accumulate
and maintain their wealth and power, states are tempted to
intervene and influence developments not only in their
domestic economies but also in the economies of other
nations.
•
In support of their own economies, many states try to
restructure the international economy in their favor by one
means or another.
•
One way to do this is to influence or even control the
political and economic rules of the game governed by the
WTO and IMF for instance in a way that efforts to open up
certain international markets mask protectionist motives to
support certain domestic producers.
Benign vs Malevolent Mercantilism
Malevolent Mercantilism: more hostile version of economic warfare and
expansionary economic policies associated with the practices of countries
such as Nazi Germany and Imperial Japan.
Measures adopted to increase their territorial base and/or economic and
political influence at the expense of other nations beyond what is regarded
as reasonable to protect themselves.
Benign Mercantilism: More defensive in nature
Attempts to protect the economy against untoward economic and political
forces.
Globalization and Neomercantilism
• Neomercantilists divided about globalization and its effects on national and
international security
• Some neos and realists support globalization to the extent that the openness associated
with globalization and its policies can help a nation in generating wealth and power.
• Conflict between Markets and Society. How??
• Globalization characterised by opening borders to the policies of neoliberal institutions
such as the IMF and World Bank.
• However, in an attempt to control the profits of local enterprises, diamond or gold
miners and oil producers, authoritarian regimes and officials in Indonesia, Sierra Leone,
Philippines, Cameroon and Russia, for example have helped foster high levels of
corruption, ethnic conflict and antidemocratic values and policies.
• Lack of state regulation on the international makes it easy for illegitimate sectors of the
economy to thrive in the trade of drugs, arms, alien smuggling, money laundering and
piracy of intellectual property.
Conclusion
For Mercantilists and Realists, the world is not ready for the
market to rule all