IP6000 – Seminar 1
Theory and Practice in IPE
What Is IPE?
Field of Enquiry – Public &
Private
• Domestic and international
interconnectedness affect the
allocation of scarce resources
• Global vs. International
• Relationship b/w public & private
actors
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What Is IPE?
Field of Enquiry - Theories
• Many theories have been developed;
• Nationalism
• Mercantilism
• Liberalism
• Marxism
• More – many overlap
• Positive vs. Normative theories
• IPE not united filed - strength or
weakness?
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What Is IPE?
Field of Enquiry - Power
• Power:
• Ability to impose behavioral changes
• Influence rules and norms
• Set agendas
• Distribution of power
• Potential for collaboration
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What Is IPE?
Field of Enquiry - Institutions
• Important questions in IPE:
• How does institutionalization affect
growth and other areas of economic and
international relations?
• What are the conditions that best promote
cooperation between states in the absence
of an overarching governing or ruleenforcing structure?
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What trends in the
world economy are of
particular interest in IPE?
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Trends in the World Economy
19th Century & Pre-WWI
• Change from Mercantilism:
• wealth = power
• Beggar-thy-neighbor trade policies
• Technological advancements 
increased trade, investment, and
migration
• Gold standard
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Trends in the World Economy
19th Century & Pre-WWI
• More cooperation throughout the 19th
and start of 20th century
• Britain – promoter of trade
liberalization
• Lack of institutionalization
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Trends in the World Economy
Inter-War:
• International trade collapsed in ‘30s
• Gold standard broke-down
• Trade barriers and isolationism
• Still no significant economic
institutions
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Trends in the World Economy
Post-WWII:
• International trade increases
• Fixation of exchange rates – later many
countries adopt floating rates
• Institutions – IMF, WB, GATT WTO
• Reduction of trade barriers
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Trends in the World Economy
Trend: Institutionalization
• Increase in regional an int’l
cooperation
• Institutions can guide collective action
• Increased number of states in the
system
• Challenges for trade negotiations
(Doha)
• Decolonization  Development
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Trends in the World Economy
Trend: Multi-National
Corporations
• Powerful in int’l economic relations
• FDI = $15 trillion (’09); Increased
quicker than production and int’l
trade.
• 82,000 MNCs w/ 810,000 subsidiaries
(‘09)
• Type of trade has changed:
• Manufactured goods
• Intra-industry
• Int’l production networks
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Trends in the World Economy
Trend: Globalization
• “The process of integration and
interaction among people, nations, and
government in different nations.” (Valley,
2013)
• Increased trade in goods & services,
capital, and labor. international mobility
of production, technology, and
information.
• Multidimensional – Does it overlap in
other areas? (Culture, military, ecology,
etc.)
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Trends in the World Economy
Trend: Embedded Liberalism
• Economic openness inscribed as a
prominent pillar within domestic
economic and political objectives
• Int’l openness > domestic concerns?
• The adoption of the principle of embedded liberalism
was recognition by governments that international
economic collaboration rested on their capacity to
maintain domestic political consensus – and that
international economic collaboration was… a political
bargain.” (Ravenhill, p.15)
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Trends in the World Economy
Caveats:
• Does globalization demand winners
and losers?
• Are intra-country and international
uneven development and income gaps
inevitable?
• Do/will institutions provide an
adequate overarching governing
structure?
• Are liberalizing trends irreversible?
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State Power and Domestic Interest Groups
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State Power & Domestic Interest Groups
1
The link
2
Influence to the economy
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State Power & Domestic Interest Groups
--- The Link
Jeffrey Berry, "an interest group is
an organized body of individuals
who share some goals and who
try to influence public policy.”
State power: a degree,
insulated from the pressure of
domestic interest group
make policies independently
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State Power & Domestic Interest Groups
--- The Link
Interests groups :lobby for recognition and policy
support for their objectives.
Government make particular policies, have to pay
careful attention to the political pressures they face from
different domestic groups.
Oh, gosh
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State Power & Domestic Interest Groups
--- The Link
Strong State
Weak State
• Limited access
to lobby
• Implement
public policies
independently
• Large number
of channels to
lobby.
• Policymakers
have to strike a
balance
between them.
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State Power & Domestic Interest Groups
--- The Link
What influence the state power?
The structure of political institutions: authoritarian
regimes VS democracies
How who gets to vote: which group has a
representative voice
The electoral system: proportional representation VS
plurality-based systems
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State Power & Domestic Interest Groups
---influence to the world economy
How the ways
in which
people earn
their income
Determine a
group’s particular
stance on a given
international
economic issue.
The assets
they own
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State Power & Domestic Interest Groups
---influence to the world economy
State-Centered Approach
State has the power to strongly dictate policies and
would be in a position to raise aggregate social welfare
as it can focus on the interest of the majority of its people.
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State Power & Domestic Interest Groups
---influence to the world economy
State-Centered Approach
Even in countries that do have strong state power, no
explicit guarantee that these governments will necessarily
form policy to the benefit of its people.
Bad guy
I hate you~~~
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State Power & Domestic Interest Groups
---influence to the world economy
Society-Centered Approach
Trade policy is a reflection of the demands from the
most influential interest groups.
The factor
model
The sector
model
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State Power & Domestic Interest Groups
---influence to the world economy
Society-Centered Approach
The Factor model:
The Heckscher-Ohlin trade mode
the Stolper-Samuelson theory
Immigration:
Anti-immigrant groups VS pro-immigrant groups
similar skill workers
AeA association
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State Power & Domestic Interest Groups
---influence to the world economy
Society-Centered Approach
The factor model:
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State Power & Domestic Interest Groups
---influence to the world economy
Society-Centered Approach
The factor model:
The American Federation of Labor and Congress of
Industrial Organizations (AFL–CIO)
VS
The Business Roundtable (BRT)
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State Power & Domestic Interest Groups
---influence to the world economy
Society-Centered Approach
The factor model
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State Power & Domestic Interest Groups
---influence to the world economy
Society-Centered Approach
The sector model
Import-competing groups VS export-oriented groups
The Union of Needle trades, Industrial, and Textile
Employees (UNITE) is an union in the United States which core
industries are textile and apparel manufacturing.----importcompeting sectors
A coalition of business associations representing American hightech firms---export-oriented sectors
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State Power & Domestic Interest Groups
---influence to the world economy
Society-Centered Approach
The sector model
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State Power & Domestic Interest Groups
---influence to the world economy
Society-Centered Approach
The sector model
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IP6000 – Seminar 1
Considering Liberalism &
Marxism in present-day
conditions
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Liberalism
What is Liberalism in terms of IPE?
• Globalization  ‘Liberalising’ of
economies
• Ultimate goal: Universal Free Trade
• ‘No basis for international conflict’
Frieden & Lake
• Government role NOT to interfere
with the market
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Liberalism
What IS the government’s role?
• Provide necessary conditions for free,
competitive market to exist
• Entitled to spend on public goods
• Defence, Education, Roads
• Protection of property rights
• Why we form societies
• Strict codification
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Liberalism
Strict property rights – the downside
• However – strict property rights can
 exploitation, poor resource
management
• Common Pool Resources (CPRs)
• ‘customary tenure’
• Therefore, via liberalist norms, are
not ‘owned’ land grabs
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The Tragedy of the Commons
Why does liberalism purport this?
• Views individuals as self-interested
• CPRs - high ‘subtractibility’and
difficult ‘excludability’
• Therefore will overuse the CPR
• Thus, Liberalism argues the state
needs to intervene with regulations
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A Preferable Perspective?
The Tragedy is not inevitable
• Elinor Ostrom – state control of
resources often less effective
• Experiments show people can craft
rules, sanction non conformance
• Collective action often achievable
• With 75% of global poor living
rurally, sharing these CPRs is crucial
to sustainable development
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Marxism
‘Capitalism is inherently conflictual’
• Class-based – worker v businessman
• Dependency Theory – extends this
internationally
• Poor countries exploited by rich
• High tariffs, protectionism,
community property rights
• Present-day: China? – Glennie,
2012
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Criticisms of Dependency Theory
Globalisation  economic gap
between rich and poor has decreased
• Multi-National Corporations (MNCs)
now seen by scholars as allies
• Underestimated capitalist agrarian and
industrial transformation and its impact
in the ‘periphery’
• ‘Conceptually loose and theoretically
weak’
• Contradictions - Larrain
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Implications
Liberalism requires lessons from
Dependency Theory to remain
relevant in present-day conditions
• Dependency Theory widely discredited
• BUT – community property rights
• This view on property is crucial for any
perspective, including liberalism, to
remain relevant today
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IP6000 – Seminar 1
What are‘institutions’?
In the view of Douglass North, how do institutions affect growth? Does
growth have an effect on institutions as well?
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INSTITUTIONS
• Traditional Economics:
Land, Labor, Capital
• Institutional Economics:
the factors such as capital accumulation, technological innovation
is the outward manifestation of economic growth itself, rather than
the cause of the economic growth. However, the root cause of
economic growth is institutional change.
• North, D. C. (1973) ”The rise of the western world” ：
Efficient economic institution is the key to economic growth, an
efficient institution is the cause of the rise of the Western Europe
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ASPECT OF INSTITUTIONS
• Institution are the rules of the game in a society or, more
formally, are the humanly devised constraints that shape
human interaction. (Douglass North, 1994)
• Examples of institutions
i.
lower transaction cost: money, future market
ii. Control uncertainty or risk: Contract, Insurance, Public
security Plan
iii. Connect functional organization and personal income
flux: property institution, heritage method or other
workers’ rights
iv. allocation of Public good and service: expressway,
airport, school
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ASPECT OF INSTITUTIONS
•
Relationship between Institutions and people’s motivation & behaviour
• Marxism: Social relations base the economic system and the economic
system forms the superstructure. As the forces of production, most
notably technology, improve, existing forms of social organization
become inefficient and stifle further progress. Thus new institutions
and ideology are raised
• New institutional economics: the focus is on behaviour arising from a
given set of institutional rules. institutions determine the rules of
games, rather than arise as equilibria out of games.
•
Institution is “Public Good”
• Paul A. Samuelson: Public Goods, which all enjoy in common in the
sense that each individual's consumption of such a good leads to no
subtractions from any other individual's consumption of that good...
• Institutions different from other Public Goods:
• Invisible
• Excludable
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ASPECT OF INSTITUTIONS
•
•
Formal rules and Informal rules
• Formal rules
• E.g. - Laws, regulation, deed etc.
• Constitution, control the activities in the nation
• Constraints on the government to intervene
• Definite and protect property rights, ensure execution
of contract, maintain the fair competition in market
•
Informal rules
• E.g. – culture, custom, moral, ethic
• Informal rules is premise and foundation of formal rules
• formal rules established will constraint people’s
behaviour, and gradually formed a new interests and
values, forming a new kind of informal rules.
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SIGNIFICANCE OF INSTITUTIONS
• Tjalling Koopmans (1971) Institution vs Economy：
• O=f(E，S，Ps),
O: Output of economy,
E: Environment, (natural resource, capital stock, technology)
S: System,
Ps: Policies
•
•
•
•
If S and Ps are institutions and holding E constant, then
O=f(Inst)
Institutions effect on Behavior, thus grow economy.
Then O=f(B) and B=f(Inst),
B：Behavior
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INSTITUTIONS VS ECONOMY GROWTH
1) Institutions in a society could reduce uncertainty by
establishing mechanism and structure in transaction.
•
•
Transaction cost, which is also be called "institutional costs, is
the core category of new institutional economics, and firstly
coined by Ronald Coase. From Coase’s perspective, the
market transaction is not free but has cost.
James Buchanan (1980): rent seeking is spending resources
in order to gain by increasing one's share of existing wealth,
instead of trying to create wealth. The net effect of rentseeking is to reduce total social wealth, because resources are
spent and no new wealth is created.
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INSTITUTIONS VS ECONOMY GROWTH
2) Institutions provide motivation in the economic
development
• North, D. C. (1968) “Sources of Productivity Change in
Ocean Shipping, 1600-1850”
• North, D. C. (1990), “Institutions, Institutional Change
and Economic Performance”
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INSTITUTIONS VS ECONOMY GROWTH
3) Institutions create more cooperation opportunities
• Traditional Economics: highlight competition more than
cooperation.
• Prisoner's dilemma: pursuing individual reward logically
leads the prisoners to both betray, but they would get a
better reward if they both cooperated.
• Institutions can standardize people’s relationship, reduce
information asymmetry, and minimize the obstacle for
cooperation
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INSTITUTIONS VS ECONOMY GROWTH
4) Institutions force punishment system to make sure
that each part fully comply with their contracts under
cooperation framework
• Economic Man: imaginary 'perfectly rational person'
who, by always thinking marginally, maximizes his or
her economic welfare and achieves consumer
equilibrium.
• Mandatory punishment system
e.g. law and legal system
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