IPE Exam: Is Trade a Harmonic Positive Sum Game?
Contents
Introduction .......................................................................................................................................... 1
The space of IPE: Global division of labour and Preferential Trade Agreements ............................... 2
Economic nationalist perspective......................................................................................................... 4
Ecocentric approach ............................................................................................................................. 6
Concluding remarks ............................................................................................................................. 8
Bibliography......................................................................................................................................... 9
Introduction
The aim of this paper is to answer the question “How far would you agree that trade relations
are best understood in terms of harmony and positive sum games”. I will start out by reviewing the
space of IPE and briefly describe how trade liberalization and Preferential Trade Agreements have
formed the global division of labour in this space. I will assess whether this it is harmonic and gives
rise to a positive sum game. Taking an economic nationalist perspective, with point of departure in
List, I will, using empirical evidence of development theories, argue that trade is not characterized
by harmony but serves the interests of the hegemon and is a zero-sum game. To broaden the
discussion an ecocentric approach will be taken on and used to emphasize the negative impact of
trade on the environment, further questioning the liberal proclamation of harmony and positive sum
game. Throughout the argumentation liberal counterarguments from Ricardo and Keohane will be
brought forward to defend the statement that “Trade relations are best understood in terms of
harmony and positive sum games”, and the ecocentric approach will be questioned by the
technocentric approach.
It would have been interesting to take a gendered approach as well, however due to limited
time and space I will not engage in that debate. Sufficient to say is that trade liberalization often has
a gendered bias due to inequalities in access to land, information, economic resources and decision
making,(Randriamaro,2006, p.11) which similarly problematizes the harmony of trade relations.
My conclusion is that I do not agree with the statement very far, as it represents an unrealistic,
idealistic and narrow-minded view.
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IPE Exam: Is Trade a Harmonic Positive Sum Game?
The space of IPE: Global division of labour and Preferential Trade
Agreements
The statement that “Trade relations are best understood in terms of harmony and positive sum
games” provokes a review of the global division of labour. Globalization, increased trade
liberalization and the emergence of the global value chain from the 1970s and onwards have made it
possible for Multinational Companies to disperse the various steps of their production chain all over
the world, in order to achieve the most cost efficient production. This has significantly increased the
competition on wages and efficiency and had profound consequences for the labour-force in
developed as well as developing countries. The rise of China as a manufacturer of labour-intensive
goods serves as a good example. (O’Brien and Williams, 2010, p.264)
Chinese workers are not allowed to form independent trade unions, which is very often leading
to poor working conditions. However multinational companies, in search for profit, outsource their
manufacturing to China, meaning that workers in the developing countries are facing the fierce
competition from the unorganized Chinese workers. This causes downward pressure on labour
standards and wages in developing countries as well. This question the degree to which trade
relations are harmonic and leads to a positive sum game (O’Brien and Williams, 2010, p.269)
Preferential Trade Agreements (PTA’s) are playing a significant role in shaping the global
division of labour. These agreements are signed among different nations in order to ease and
increase trade with commodities and intermediate products between these nations. Many different
forms and degrees of cooperation and agreements exist, and I will not go into details here. My point
in highlighting PTA’s is that they severely challenge the idea of harmony in trade relations. As the
name indicates they are preferential and therefore not non-discriminatory, which is otherwise an
important part of free trade and liberalism. (Lecture 9, Rasmus Herring) The result is that some
countries are left out of the free trade, which is illustrated by the following map from WTO
Secretariat:
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IPE Exam: Is Trade a Harmonic Positive Sum Game?
From this map it is apparent that Africa and Russia is far less engaged in the free trade agreements
than Europe, India, China and the Americas. Furthermore PTA’s tend to decrease transparency, and
Jagdish Bhagwati fears that “We may soon expect the world trading system to be awash in
preferences that will have reproduced the chaos and mutually harmful ravaging of the world
trading system…” (Bhagwati, 2001). Bhagwati sees PTA’s as stumbling blocks to free trade,
however they can also be seen as building blocks, paving the way for further global cooperation on
trade in international organizations as WTO.
The results of the increase in PTA’s and of the deepening of the global division of labour have
been both positive and negative, questioning the claim of trade being a harmonic positive sum
game. The significant increases in productivity and the easing of access to new markets have lifted
millions of Chinese people out of poverty and increased the range of choices and lowered prices to
Western consumers. On the other hand the development is threatening the social stability as
inequality within and between countries and regions are increasing. In order for the trade relations
to be harmonic and the result to be a positive sum game states will have to develop redistributive
mechanisms (O’Brien and Williams, 2010, p. 271), however it would be unrealistic to think that all
states are able and/or willing to do this, which is seriously threatening the liberal claim that “trade
relations are best understood in terms of harmony and positive sum games”
I will now move on to question the validity of the statement in a more theoretical way by taking
an economic nationalist perspective.
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Economic nationalist perspective
Economic nationalism is rooted in mercantilism and has the state at the center of its analysis.
True to the mercantilist roots, Friedrich List during Pax Britannia argued that Germany should not
engage in free trade but instead industrialize behind protectionist tariff walls. As all mercantilists he
was convinced that trade was a zero-sum game from which only the strongest and most competitive
state would gain. The belief in a fixed amount of wealth in the world encompassed that the
competitive British firms would outcompete the German firms and thus Germany would be turned
into a satellite of the British hegemon. (O’Brien and Williams, 2010, p. 19) He argued that it was in
Germany’s best interest to protect its industry as “the power of producing wealth is…infinitely more
important than wealth itself.”(Lecture 2, Duncan Wigan) He claims that the attempt from the
hegemon to make other states believe that free trade is in their own best interest is a very clever
strategy, by which the hegemon “kicks away the ladder by which he has climbed up, in order to
deprive others of the means of climbing up after him” (List, 1966(1885), p. 368)
This idea of the world system certainly does not reflect harmony, and contradicts on the strongest
Ricardo’s liberal idea of a positive sum game, which states that, due to more efficient allocation of
resources the pie grows bigger, meaning that the amount of wealth increases and we experience a
win-win situation when each country specializes in their comparative advantages. (Lecture 5,
Rasmus Herring)
This belief in free trade and comparative advantages as a universal tool to create wealth has
however also proven to be problematic in recent times. The spread of neoliberal ideas through the
Washington Consensus structural adjustment programs in the 1980 had disastrous consequences in
Latin America and Sub-Saharan Africa. One reason is that many developing countries have
comparative advantages in agriculture and resource extraction. Prices on these commodities are
unstable and the developed countries continue to protect their own agricultural sectors, making it
difficult to use primary commodities as fundament for economic development. Furthermore the
developments have been highly uneven across regions and countries, undermining the legitimacy of
the Washington Consensus. (Lecture 12, Duncan Wigan)
Another piece of empirical evidence against the liberal free trade proclamation is the rapid
industrialization of several East Asian economies. These economies followed the same strategy as
outlined by List, protecting their national industries until they were competitive on a global scale.
This strategy has been termed the infant industry strategy, and is an important part of the
developmental state perspective, which is in sharp contradiction to the neoliberal advices of free
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trade and minimal state intervention. However the liberal counterargument to this is that the East
Asian states pursued an export oriented industrialization strategy and opened up to foreign direct
investments, and that this was the reason behind their rapid development. Yet, that would not have
been a successful strategy if they had not pursued import substitution industrialization and infant
industry protection in the first place! (O’Brian and Williams, 2010, p.319-320)
From the paragraph above I will argue that the Washington Consensus can be seen as an
attempt from the US hegemon to kick away the ladder of development, by convincing the
developing countries that free trade is in their own best interest, as that is in US’s best interest. This
in itself undermines the proclamation of harmony in free trade relations, and it is strongly supported
by examining the voting procedures in the international organizations shaping the global trade,
WTO, IMF and the World Bank. In WTO decisions are taken by consensus, but the bargaining
power is based on the relative market size (WTO, 2011). In IMF and the World Bank USA holds
respectively 16,8 % and 15,9 % of the votes and decisions are taken by supermajority of 85%,
(IMF, 2011 and World Bank Corporate Secretariat, 2011). This turns these international
organizations into ideology spreading tools of the hegemon that it can use in a strategic fashion to
serve its own interests.
The liberal counterargument to this conclusion is presented by Robert Keohane, who argues
that a hegemon no longer is necessary to preserve the liberal international order, due to the complex
interdependence between states. He claims that the hegemon cannot enforce rules without some
consent and that hegemony and cooperation are dependent upon each other. (Lecture 2, Duncan
Wigan) This is backed up by constructivist thoughts from John Ruggie about embedded liberalism
in the international institutions. (Ruggie, 1982) However one must not forget how these institutions
came into being and in what context they were shaped. The hegemon could very likely have
convinced several states that it was in their best interest to cooperate. To me the arguments from
Keohane and Ruggie just emphasize exactly how successful the liberal US hegemon have been in
shaping the post-1945 world order.
Concluding this paragraph I will argue that the liberal claim that “Trade relations are best
understood in terms of harmony and positive sum games” has clearly been falsified by the use of
economic nationalist arguments. Referring to List no such thing as positive sum games exist and the
hegemon is only trying to convince developing countries that free trade is in their own best interest
because that’s in the hegemons best interest. This is supported by empirical evidence concerning
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development theories. The lack of harmony in trade relations has already been pinpointed by List,
however it is further supported by examining the voting procedures in the international
organizations influencing the global trade. Liberal and constructivist arguments against this claim,
just end up supporting it by highlighting how omnipresent and embedded liberal ideas are in the
world order today.
The omnipresence of liberalism in the world order also constitutes a threat to the environment,
an issue I will include in the discussion by taking on an ecocentric approach.
Ecocentric approach
An ecocentric approach is radical and challenges the conventional goals and models of the
world order. The liberal statement that “Trade relations are best understood in terms of harmony
and positive sum games” represents the conventional liberal idea of trade, which is advocated and
spread throughout the world through the liberal international organizations. The ecocentric
perspective sees the environmental crisis as a social crisis as much as a natural crisis, and advocates
a behavioral change (Hajer in Saurin, 2001). Ecocentric scholars have a neo-Malthusian belief in
that there is a limit to the capacity of the earth and therefore advocate a steady state economy. It
takes an anti-trade attitude and promotes self-sufficiency. It focuses on the distinction between
human needs and human wants, rejects anthropocentrism and claims that man has to find his place
in the ecosystem, to which the economy is a closed subsystem. (O’Brian and Williams, 2010,
p.346+354-355)
This view clearly breaks with the liberal statement that “Trade relations are best understood in
terms of harmony and positive sum games”, claiming that trade definitely is not in harmony with
the nature and rather is a negative sum game than a positive sum game. A belief in holism, and
seeing the globe as a public good from which we all benefit, enables the creation of a negative sum
game as the globe is negatively impacted by the increase in output and pollution connected with
trade.
Liberals, however, have several counter arguments to this claim. First of all they can return to
Ricardo’s theory of comparative advantages, maintaining that free trade will lead to the most
efficient allocation of resources, thereby reducing pollution. Sun respond to this claim by arguing
that trade liberalization and globalization have made it possible for one country to transfers it’s
pollution or resource depletion to other countries, (Sun, 2004, p. 68) thereby creating pollution
heavens for countries with comparative advantages in polluting-intensive industries. Therefore free
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trade does not solve the problem, just move it, and one could argue that it even increases the
disharmony of trade relations, as the countries become more uneven and pollution is concentrated
geographically. The second liberal counterargument is that by removing import tariffs, polluting
countries will have easier access to cleaner technologies, however argues Chai, the scale of
production, i.e. the increase in output, will more than out weight the reduction in pollution. (Chai,
2002, p. 32 in Jahiel) Thirdly a regulatory race to the top argument has been developed, arguing that
free trade can promote environmental regulation in order to avoid rejection of products for export, if
they do not meet requirements in the recipient countries. A regulatory race to the bottom argument
have nevertheless also been developed, arguing that trade liberalization encourages states to reduce
environmental regulations in order to attract foreign direct investments and becoming a part of the
global value chain. In addition WTO creates pressure to weaken, not strengthen environmental
protection mechanisms, as any regulation that could reduce FDI or trade possibilities can be
challenged as an obstacle to trade. The fourth argument, the wealth argument, is presented by
Robert Ingelhart and states that when we reach post-materialism we start to be concerned about
environmental values. The solution to the environmental problem, created by wealth creation may I
remind you, in this view is to create wealth! This solution is absurd, if we keep extracting and
polluting the way we do today, paying no attention to the environment, until the entire world
population has reached post-materialism, the earth will reach its limits long before and any action
will be too late. (Lecture 10, Duncan Wigan)
Although the ecocentric approach is capable of counter arguing the liberal perspective, it is
challenged by the technocentric approach which is the other main approach within
environmentalism. The technocentric approach is reformist rather than radical and proposes market
solutions to the environmental crisis, for example by pricing of externalities. It is based on the
superiority of western cultural values, emphasizing that consumerism is embedded in us, and
believes that the current economic activity can be reconciled with long-term sustainability.
(O’Brien and Williams, 2010, p. 352). This is what Hajer terms “ecological modernization” and he
argues that it does not present or require a real solution to the environmental crisis instead it
“suggests that there is a techno-institutional fix for the present problems.” (Saurin, 2001, p. 73)
However, the ecocentrists argue that there is not, and that sustainability is incompatible with
capitalism, commodification of externalities is perverse (Goodin) and a more long-term systemic
solution is needed.
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From this paragraph it is clear that an ecocentric approach broadens the perspective of the
discussion by encompassing a view that moves beyond the orthodox IPE conceptualizations and
their shared commitment to anthropocentrism. (O’Brian and Williams, 2010, p. 351) By looking at
the world in a holist perspective as the ecocentric it becomes even more apparent that trade is not
best understood in terms of harmony and a positive sum game. As the aim of trade is to increase
output and consumption, and the aim of ecocentrism is to find a harmonic balance between human
and nature, claiming that trade is connected to harmony seems to be a contradiction in terms, from
the ecocentric point of view. Further claiming that trade and increased output would be good for all
of us becomes absurd as the environment, which is central to our survival, is affected negatively.
Concluding remarks
This paper has been a process to develop an answer to the question “How far would you agree that
trade relations are best understood in terms of harmony and positive sum games?” I started out by
reviewing the global division of labour and PTA’s impact on it and concluded, that if trade relations
had to be harmonic and result in a positive sum game, states would have to develop redistributive
mechanisms in order to avoid inequality between and within states and regions. Not all states
however are able and/or willing to do this, which lead me to questioning the validity of the liberal
statement. I moved on to a more theoretical method, taking economic nationalism as point of
departure and broadening the perspective by taking on an ecocentric approach. I arrived at the
following results:
1. Trade is a zero-sum game (List)
2. Trade relations are not harmonic but shaped by the interests of the hegemon. (List)
3. Trade increases output and is therefore not in harmony with nature. (Eccentric)
4. Trade damages the environment and is therefore not a positive sum game (Ecocentric)
Based on these findings I conclude that the statement “trade relations are best understood in terms
of harmony and positive sum games” does not take into account either the actual developments in
the space of IPE, the arguments from economic nationalism or the implications of a broader
perspective encompassing the environment. Therefore I find the view unrealistic, idealistic and
narrow-minded and I do not agree with it very far.
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Bibliography
IMF, 2011, http://www.imf.org/external/np/sec/memdir/members.aspx
Jahiel, 2006, China, the WTO, and Implications for the Environment in Environmental Politics,
Vol. 15, No. 2, 310 – 329, April 2006
-
Here in: Chai, 2002, p. 32
Lecture 2 – Theoretical traditions, Duncan Wigan, week 35 2011
-
Here in: Robert Keohane
Lecture 5 – IPE of Trade, Rasmus Herring, week 39 2011
Lecture 9 – The Space of IPE: National, Regional Global, Rasmus Herring, weeks 45 2011
-
Here in: Bhagwati, 2001
WTO Secretariat
Lecture 10 – What? The issues of IPE: Environment, Duncan Wigan, week 46 2011
-
Here in: Goodin
Rober Ingelhart
Sun, 2004, p. 68
Lecture 12 – What? The issues of IPE: Development, Duncan Wigan, week 49 2011
-
Here in: List, 1966(1885), p. 368
O’Brien and Williams, 2010, Global Political Economy, Palmgrave Macmillan
-
Here in: Randriamaro,2006, p.11
Ruggie, 1982, International regimes, transactions, and change: embedded liberalism in the postwar
economic order in International Organization, Vol. 36, No. 2, International Regimes, (Spring,
1982), pp. 379-415
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Saurin, 2001, Global Environmental Crisis as the 'Disaster Triumphant': The Private Capture of
Public Goods in Environmental Politics, 10:4, 63-84
-
Here in: Hajer, 1996, p. 248
Word Bank Corporate Secretariat, 2011, INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT SUBSCRIPTIONS AND VOTING POWER OF MEMBER
COUNTRIES,http://siteresources.worldbank.org/BODINT/Resources/2780271215524804501/IBRDCount
ryVotingTable.pdf
WTO, 2011, http://www.wto.org/english/thewto_e/whatis_e/tif_e/org1_e.htm
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