GLOBAL POLITICAL ECONOMY
(ECO 374)
SPRING SEMESTER 2009
PROFESSOR: JERRY FOX, PH.D
Global Political Economy
Guidelines for writing assignments
Guidelines for Short Papers
1.
Select an article from a newspaper, journal or news website relating to the
assigned global political economy topic.
2.
Using a word processor, type a short (one page) analysis of the article. Relate the
article to the politico-economic perspective that is assigned (e.g.,
neomercantilism, economic liberalism, structuralism).
3.
Stable the article or a copy of the article to the back of your paper.
4.
Submit the materials on time.
Guidelines for the Term Paper
Format
1.
2.
3.
4.
5.
6.
7.
8.
Double-spaced, 12 point font
1 inch margins—top, bottom and sides
Subheadings (e.g., introduction, conclusion, main subtopics)
Bibliography—five or more references
Footnotes or endnotes: reference all statistics, quotes and key ideas
Tables and graphs are useful
Normally 7 to 10 pages in length, excluding bibliography, endnotes, tables, graphs.
Submit on time.
Subject Matter
1.
2.
3.
4.
5.
Choose a topic from chapters 11-20 of the textbook.
Select 1, 2 or 3 of the end-of-chapter questions.
Answer the research questions thoroughly, using outside sources in addition to the
textbook. Give examples and to elaborate on the key concepts.
Use critical thinking.
Submit the topic to the professor for approval on the assigned date.
You may submit a rough draft of your term paper prior to the final paper due date, so as to
receive feedback from the professor regarding possible improvements for your final paper.
Introductory Concepts
Viewpoints for analyzing world events
1.
National Viewpoint
2.
Regional Viewpoint
3.
International Viewpoint
4.
Global Viewpoint
Definition of the Global Political Economy: Intersection of the following subjects
1.
International Relations
2.
Political Science
3.
Economics
4.
Economics and Politics simultaneously affect each other (Political Economy)
Four Structures in the Global Political Economy
(Economic Security Versus Military Security)
1.
Security Structure (Economic and Military)
2.
Production Structure—trade, GDP, DCs, LDCs, NICs
3.
Finance Structure—money flows, exchange rates, investment, international debt
4.
Knowledge Structure—technology, science, information; impact on economic and
military security
Three Politico-Economic Ideologies
1.
Neomercantilism—national self-interest
2.
Economic Liberalism—market forces perspective, democracy
3.
Structuralism—inequities in the global structure, Marxism, dependency theory
Neomercantilism
A.
Classical Mercantilism and Neomercantilism—involvement of the government
into international economic and political matters (e.g., trade, investment, money flows,
technology transfer, foreign aid, military policy, the activities of multinational corporations).
A win-lose proposition or zero-sum game. One nation gains from a foreign policy, while the
partner country becomes worse off. If all states practice neomercantilist policies, then all
countries become worse off (lose-lose outcome.
The relation between economic neomercantilism versus political realism.
B.
Characteristics of Classical Mercantilism:
1.
Prior to the industrial revolution
2.
Feudal monarchies
3.
Agriculture-based economies, gold standard
C.
Objectives of Mercantilism—gold, silver, wealth and treasure of the monarchy
through trade, exploration, conquest, war, royal intermarriages, taxation. The power of a
kingdom/empire is partly measured in terms of the king’s treasure. Gold and silver were
used to mint coins in the feudal monetary system, and to pay for war and construction.
1. Achieve trade surpluses to increase the gold flow to the king
2. Military conquest to increase the treasure of the king (malevolent mercantilism)
3. Colonialization/imperialism of the Americas, Africa and Asia to acquire new gold
4. Mining activities to acquire gold and silver
5. Role of land ownership, serfs, and the merchant class
D.
Transition from Mercantilism to Neomercantilism (New Mercantilism)
1.
Industrial Revolution—technological shift from agriculture to manufacturing
2.
Freedom movements—religious, political, economic
3.
Shift from gold standard to fiat money & modern banking/finance
E.
Characteristics of Neomercantilism:
1. After the industrial revolution
2. Democracy and capitalism
3. Manufacture-based economies; more recent shifts to information and technology
4. Nation-states, MNCS, international organizations and treaties
5. Win-lose/zero-sum
F.
Objective of Neomercantilism—increase the income and wealth of the nation (society).
The strength of a nation is measured in terms of employment, national income, GDP, economic
growth, etc. Fiat paper currency and bank deposits are primarily used in the modern monetary
system. Trade surpluses are used as a means to increase national employment and income.
G.
Types of neomercantilism: malevolent neomercantilism, trade war, export-led
growth, import-substitution, defensive, offensive, countervailing duties, nationalism,
protectionism, isolationism.
H.
Twentieth/Twentiy-First Century Neomercantilism: three time periods
1.
Relationship between WWI, Great Depression and WWII (Trade neomercantilism
was one factor associated with the Great Depression, which created political
instability that contributed to WWII). Trade War of the 1930s (currency
devaluations, tariffs, quotas)
2.
Tolerance of neomercantilism during the Cold War
3.
Post-Cold War neomercantilist tensions among developed countries
Types of neomercantilism:
A.
Malevolent neomercantilism: use or misuse of war based on economic objectives
or motivations (e.g., war for control over land, natural resources, oil, wealth)
B.
Trade war: escalating trade barriers between countries leading to a lose-lose
outcome; total volume of international trade shrinks.
C.
Export-led growth: government subsidies to promote exportations, especially to
obtain trade surpluses.
D.
Import-substitution: tarrifs, quotas, NTBs designed to reduce imports to protect
import-competing industries and jobs
E.
Defensive trade neomercantilism: retaliation against unfair trade
F.
Ofensive trade neomercantilism: unfair trade; aggressive trade policies designed
to achieve trade surpluses
G.
Countervailing duties: retaliatory import tariffs in response to unfair trade
H.
Unfair trade: noncompliance with trade treaties
I.
Fair trade: compliance with trade treaties
J.
Free trade: absence of trade barriers
K.
Dumping: exporting products at prices below average costs of production
L.
Nationalism: similar to neomercantilism; emphasis upon political dimension
M.
Protectionism: similar to neomercantilism: emphasis upon economic dimension.
N.
Isolationism: foreign policies that largely withdraw from international relations
1.
Economic Liberalism: Laissez-Faire (Free Market Ideology)
(Also Political Liberalism—democracy)
Economic Philosophers and their Contributions to Economic Liberalism
A. Classical Economic Liberalists
(i) Francois Quesnay (1694-1774)—French Physiocrat, Laissez Faire, Say’s Law
(ii) Adam Smith (1723-1790)—Invisible Hand, Wealth of Nations(1776), 3
Functions of Government in the Economy (legal framework, print money,
national defense), Absolute Advantage, Father of Modern Economics.
(iii) David Ricardo (1772-1823)—Corn Laws, Comparative Advantage
(based on resource abundance)
B. Modern Variations of Economic Liberalism
(i)
(ii)
John Stewart Mill (1806-1873)—Microeconomic Failures (e.g., education,
poverty, government programs)
John Maynard Keynes (1883-1946)—Macroeconomic Failures (e.g.,
unemployment, unstable business cycle, macroeconomic policies--fiscal and
monetary)
2.
Hegemony and the hegemonic cycle (from the perspectives of economic
liberalism, neomercantilism and structuralism); Is the US a selfish or unselfish
hegemon?
3.
American Political Liberalism versus Economic Liberalism; American Political
Conservatism, Democratic Socialism
4.
Invisible Hand, Visible Hand, and the Invisible Foot
5.
History and Characteristics of International Trade from the Perspective of
Economic Liberalism
a. Comparative Advantage versus Competitive Advantage
b. Corn Laws
c. Industrial Revolution and capitalism
d. The shortcomings of capitalism
e. Post-WWII economic liberalism
f. Relationship between economic capitalism and political democracy
g. Tension between neomercantilism and free markets
Politico-Economic Ideology of Structuralism
1.
2.
3.
4.
History of Karl Marx (1818-1883)
Economic Marx—emphasis upon market failures
Political Marx—revolution as a means to replace capitalism with socialism
Economic Historical Evolution according to Marx
a. Primitive communism
b. Slavery
c. Feudalism
d. Capitalism
e. Socialism
f. Communism
5.
Three Laws of Capitalism according to Marx
a. Law of the falling profit rate
b. Law of disproportionality
c. Law of concentration
6.
7.
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10.
11.
Fourth Law of capitalism according to Lenin—Law of capitalist imperialism
WWI was an imperialist war according to Lenin
Structuralism is influential among LDCs
International institutions that favor the DCs? (UN, NAFTA, EU, IMF, IBRD)
Modern Structuralism versus Classical Marxism
Modern World Systems Theory (industrial core, semi-periphery, agricultural
periphery)
Dependence, Independence, Interdependence
Dependency Theory—LDC vulnerability to DC policies, activities and generosity
12.
13.
14.
Three eras of dependency
a. Colonial dependence—18th and 19th centuries
b. Financial dependence—19th and 20th centuries
c. MNC dependence—post-WWII period
15.
16.
17.
18.
Raul Prebisch View
UNCTAD
Hegemony from the perspective of structuralism—Is the US a selfish hegemon?
LDCs, economic development and the Structuralist perspective
International Trade Concepts
1.
2.
3.
4.
5.
6.
7.
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31.
Tension between liberal and neomercantilist forces (co-existence)
Most trade conducted by MNCs
NAFTA, CAFTA, FTAA, GATT, WTO, EU, ASEAN, Andean Group, OPEC,
Arab Cooperation Council, APEC
Multiple effects of trade—beneficial and detrimental (prices, quantity, variety,
jobs, income; effects upon workers, consumers, MNCs, domestic firms, domestic
politics, international politics)
Trade Deficit
Independence, Interdependence, Dependence
Infant Industry Case for Protectionism
Strategic Trade Policy
Factors that have led to increased trade (spread economic liberalism, reduced
trade barriers, relative peace among DCs, technological advance in transportation
and communication)
Effects of NAFTA—beneficial and detrimental; trade deficit with Mexico
Comparative Advantage
Competitive Advantage
Kennedy Round—reductions in tariffs on non-agricultural goods
Tokyo Round—reductions in non-tariff barriers (e.g., quotas, dumping, subsidies,
licensing, custom valuation, countervailing duties)
Uruguay Round—WTO, agriculture, services, intellectual property rights
Principles of Reciprocity and MFN
Omnibus Trade and Competitiveness Act of 1988—Super 301 Clause
Free Trade versus Fair Trade
Regional Trade Blocks (North America, EU, Pacific Basin)
Fortress Europe
Terms of Trade (relative prices of exports across countries)
UNCTAD, G-77
Export Earnings and Foreign Exchange for LDCs
Socialist Strategy for LDC development
Trade as a Foreign Policy Tool—sanctions, boycotts, embargoes
Effectiveness of Sanctions??
Generalized System of Preferences (GSP)
Ban and lifting of the ban on Vietnam
Three ideological perspectives regarding trade
OPEC—trade in oil, especially during the 1970s
Tax-free zones
Resolving a Balance of Payments Deficit (International Financial Crisis)
Balance of Payments—capital account (FDI, Portfolio Investment), current account
(merchandise trade, trade in services); net inflow of international reserves into and from nations.
--Fixed and flexible exchange rates
Three Main Policies
A. Liquidity—temporary solution for a temporary problem
1.
Spend existing international reserves; eventually reserves will be exhausted.
2.
Borrow hard currencies from abroad; principal and interest must be paid back. The
debt is rolled over and may become larger if the underlying causes for the balance of
payments deficit are not resolved.
B. External Measures—adjustment is shifted outside the country; neomercantilist in nature.
1.
Trade Protectionism—tariffs, quotas, subsidies, dumping, other barriers, quotas
(improves the current account by promoting exports and limiting imports)
2.
Capital Controls—prohibit financial capital from leaving the country (improves
capital account)
3.
Promotion of direct investment from abroad into the home country (improves the
capital account), tax holidays.
4.
Exchange Rate Devaluation. (This policy improves both current and capital accounts;
exports and direct investment become cheaper; imports become more expensive)
C. Internal Measures or Austerity—adjustment is borne by the country with the deficit
1.
Restrictive fiscal policy—Reduce government spending, increase taxes, reduce
budget deficit, privatize state-owned enterprises, reduce social programs.
(These policies raise government funds to pay for international payments such as
debt and imports)
2.
Restrictive monetary policy—Reduce money supply growth, increase interest rates,
reduce inflation (This policy stabilizes the financial system and attracts foreign
investment)
***
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Internal measures may cause a recession; but in the process the current and capital
accounts may be improved ( reduced imports due to lower domestic income,
increased direct investment from abroad due to higher domestic interest rates)
Liberals favor short term liquidity and internal measures. The government should
minimize its role in the economy.
Radicals favor external measures and liquidity. The burden of adjustment should be
shifted to DCs instead of LDCs.
Neomercantilists favor external measures. The government intervenes with
international economic outcomes.
International bankers favor internal measures and external measures. The IMF and
multinational banks seek to be paid back for the loans they make.
Elements of the Bretton Woods System—set up in 1944, near the end of WWII
1.
2.
3.
4.
5.
Domestic Gold Standard Discontinued
International Gold Standard--$35 per oz. of gold
International Monetary Fund—determine fixed exchange rates, monitor balance of
payments, provide loans to countries that experience international financial crises.
(Voting power in the IMF based on economic size)
Fixed Exchange Rates
Role of the American Dollar as the international reserve currency
History of the Bretton Woods System
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
U.S. was the financial hegemon of western world
--U.S. trade surpluses due to American economic strength
--American foreign investment abroad (Marshall Plan, rebuilding of Western Europe
and Japan following WWII, military aid during Cold War)
--U.S. ran balance of payments deficits due to capital account outflow
U.S. supplied dollars to the international economy through balance of payments
deficits
--U.S. dollar remained strong due to high international demand for American dollars
In early 1960s, dollars abroad began to exceed gold reserves
Creation of SDRs
Western Europe (especially France) began to oppose American hegemony
Large U.S. Trade Deficit in 1971
Smithsonian Agreement
Collapse of Bretton Woods in 1973
Shift to flexible exchange rates and abandonment of the international gold standard;
hedging through currency futures, forwards and options.
Three time periods of the modern international financial system (early success of
Bretton Woods, later stresses and breakdown of Bretton Woods, Flexible exchange
rate system)
Concepts relating to the International Security Structure
1.
2.
3.
4.
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6.
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National security, international security, global security
Relation between strong economy, strong military and strong technology
Cold War and international security
LDCs and the Cold War
Arms Race/Space Race
Monroe Doctrine
Truman Doctrine
Domino theory
McCarthyism
Detente
NATO and the Warsaw Pact
MAD, ABM, ICBM, détente, SALT, START, Star Wars (SDI)
Vietnam War
Military inefficiency-$600 toilet seats?
Permanent war economy, military-industrial complex
Nixon Doctrine; Vietnam Syndrome
Technology and international security
Spin-offs from defense spending (e.g., airlines, email, laser, electronics)
Balance of power; balance of terror
LDCs versus DCs regarding international security
Bipolarity, multipolarity, bipolycentrism, polycentrism
Polar configuration: democracy vs. dictatorship; capitalism vs. socialism
Hegemonic cycle and international security
Economic statecraft
OPEC
Post-cold war order: Gulf War, Iraq, Afghanistan, WMDs, Rogue States,
International Terrorism
Peace dividend following Gulf War
National Security and the major political parties
LDC problems-debt, poverty, population, hunger, disease, civil war, ethnic conflict,
environment
Proliferation of nuclear weapons and mass-destructive weapons
Instant media and war coverage
Future of international security--bipolar, multipolar or unipolar order?
Community of Nations
US in decline
Role of the UN
International Security and the three perspectives—liberalism, structuralism,
neomercantilism
International Security and Religious Conflicts
Is war obsolete as a means of resolving international disputes?
Hawks Versus Doves
Three Politico-economic Perspectives Regarding Globalism
Ideas and
Issues
Classical View
(based on early
perspective
and
experience)
Neomercantilism
Feudal Monarchies (preindustrial revolution);
monarchy control of
economy; goal--king's control
of wealth and power
Economic Liberalism
Laissez-faire, invisible
hand, comparative
advantage (Adam
Smith, Francios
Quesnay, David
Ricardo); goal-economic freedom;
small role of
government in the
economy
Microeconomic
failures (John Stewart
Mill), Macroeconomic
failures (John Maynard
Keynes); government
correction of market
failures
Structuralism
Marx & Lenin--four laws of
capitalism (falling profits,
disproportionality,
concentration, capitalist
imperialism); capitalism
flawed; goal--business
wealth
Economic
interest and
moral critique
of capitalism
Democratic Capitalism (postindustrial revolution);
government intervention in
international markets for
national aims (e.g., gdp,
employment, income)
State manipulation of
international capitalism for
national self interest;
Government policies create
win-lose outcomes among
nation-states; possible loselose outcomes (e.g., trade
war)
International
Trade
Trade Barriers--tarrifs,
quotas, NTBs
Free Trade, Fair
Trade--trade treaties
(WTO, NAFTA, etc.)
Corporate economic
interests simultaneously
creates wealth and
poverty; emphasis on gap
between rich and poor
(domestically and
internationally)
LDC Preferential
Treatment--UNCAD, GSP
(Generalized System of
Preferences)
International
Finance
Fixed Exchange Rates,
External Measures (trade
barriers, capital controls,
currency devaluation)
Austerity, Market
Forces, Flexible
Exchange Rates
Liquidity (low interest
loans and increased
foreign aid), External
Measures
Malevolent Neomercantilism-use of war for economic gain
Use of war to promote
freedom (political and
economic) versus
avoidance of foreign
entanglements
Foreign wars by DCs
against LDCs are the
worst form of exploitation
Foreign Aid
Motivated by self-interest;
strings attached
Often ineffective;
promotes dependency;
market forces superior
to foreign aid
DCs should increase aid to
LDCs
Technology
Transfer
Protect technology for
national interest
Free market forces
determines flow of
technology
Faster, cheaper
technology transfer from
DCs to LDCs
Environment
National interest motivation-win/lose outcomes (pursue
economic interests, while
other states pursue
environmentalism?)
Market forces with
some government
policies to deal with
externalities
(cooperative solution)
Harm to the environment
is a consequence of the
profit incentive of
capitalism
Modern
Variations
(20th-21st
century)
International
Security
Individual economic
interest creates
mutually beneficial
outcomes; capitalism
generally beneficial
(based on the principle
of economic freedom)
World Systems Theory,
Dependency Theory;
vulnerability and lop-sided
power structure (Raul
Prebisch)
Global Political Economy, ECO374
Review Questions for First Midterm Exam
Instructor: Jerry Fox
Answer TWO of the following three questions. Each question is worth 50 points
for a total of 100 points. Answer completely, use critical thinking, refer to current
events and history, and give examples.
1.
Discuss the mercantilist policies and characteristics of feudal Europe.
Indicate the similarities and differences between neomercantilism and mercantilism.
What forces caused mercantilism to evolve into neomercantilism? Describe the
various economic effects of mercantilism and neomercantilism? How and why did
excessive neomercantilist policies contribute to the occurrence of the Great
Depression and World War II?
2.
Describe the history and practice of neomercantilism after WWII. Discuss the
influence of the U.S. and the U.N. upon post-WWII neomercantilism. Define and
contrast the different kinds of neomercantilism and give examples (e.g., export-led
growth, import-substitution, defensive neomercantilism, offensive neomercantilism,
malevolent neomercantilism, trade war, protectionism). Discuss the concept of
hegemony from the viewpoint of neomercantilism.
3.
Discuss the ideology of economic liberalism. What are the main contributions
of Francois Quesnay, Adam Smith, David Ricardo, John Stuart Mill and John
Maynard Keynes? What are the functions of government in the economy according
to economic liberals? Describe the role of the United States and the United Nations
upon the spread of economic liberalism after WWII. Discuss the concept of
hegemony from the viewpoint of economic liberalism.
ECO 374
Review Questions for Second Midterm
Dr. Fox
Answer two of the three questions. Each question is worth 50 points for a total of 100
points on the exam. Use critical thinking and give examples.
1.
Discuss the two main accounts that form the balance of payments. Why do these two
accounts tend to offset each other? Describe the relationship between the U.S. and Japanese
balance of payments. Why is a large balance of payments deficit usually problematic?
What policies may be utilized to resolve a balance of payments crisis? Refer to the triangle
model. Discuss the significance of internal measures, liquidity and external measures. What
roles do the three ideological perspectives and the IMF play in resolving a balance of
payments crisis?
2.
Discuss the ideology of structuralism. Describe the ideas of Marx and Lenin. What
are the four laws of capitalism according to Marx and Lenin? Are those laws realistic?
Explain. What is the difference between the economic Marx and the political Marx? Discuss
dependency theory and the world systems view. Describe the concept of hegemony from the
viewpoint of structuralism. What is the modern structuralist perspective regarding the
economic development of LDCs?
3.
What factors have led to increased international trade since WWII? Explain the
concept of comparative advantage. What were the results of the Kennedy Round, the Tokyo
Round and the Uruguay Round upon international trade? Discuss the relation between
GATT and the WTO? What are the effects of regional trading blocks in the global political
economy (e.g., NAFTA, EU, Pacific Basin). Has NAFTA been successful? Explain.
Describe the effectiveness of trade as a foreign policy tool (.e.g., sanctions, boycotts,
embargoes).
Economics 374, Global Political Economy
Review Questions for Final Exam
A.
Is the US a hegemon in decline? Explain. Discuss the perspectives of structuralism,
liberalism and neomercantilism as they apply to US hegemony. Give some examples to
support your argument (e.g., trade, investment, security, technology). Is the theory of the
hegemonic cycle relevant to world today? Explain.
B.
Discuss the similarities and differences of the three ideological perspectives. Discuss
the strengths and weaknesses of each of the three ideological perspectives. Which
perspective is most useful for understanding and solving current global politico-economic
problems? Explain.
1.
What is the difference between national security and international security? Discuss
the issue of American foreign policy from the perspectives of structuralism, liberalism and
neomercantilism. Describe the international security structure of the Cold War. How and
why has US foreign policy and the international security structure changed since WWII?
Explain the difference between the hawks and the doves.
2.
Discuss the issue of foreign aid from the viewpoint of DCs and LDCs. Describe the
history of U.S. foreign aid since the end of WWII. What is donor fatigue? Discuss the issue
of foreign aid from the perspectives of liberalism, structuralism and neomercantilism. How
well does the US do in terms of foreign aid? Should US foreign aid be increased, decreased,
or remain steady? Explain. Discuss the relation between the Nixon Doctrine and Donor
Fatigue. How and why has US foreign aid policy changed since WWII?
3.
Why and when was the Bretton Woods system created? How effective was this
system? Refer to the international gold standard, the role of US dollars, fixed exchange rates,
SDRs and the IMF. Discuss the influence of U.S. balance of payments deficits upon the
international monetary system. Why did the Bretton Woods system collapse? How has the
international monetary system changed since the end of Bretton Woods? What is the
difference between the World Bank and the IMF?
4.
Discuss the determinants that influence the technological capabilities of a country?
Discuss the issue of technology transfer from the perspective of DCs and LDCs. Explain the
concept of brain drain. Indicate the liberal view, the neomercantilist view and the radical
view regarding technology transfer. What is the role of intellectual property rights in the
transfer of technology? What are the main methods of technology transfer?