Chapter 1: International Political Economy
(F) Day of the week: Wednesday Class: IS302 Created Time: October 21, 2020 4:33 PM Database: Class Notes Database Date: October 21, 2020 4:33 PM Days Till Date: Passed Is Reference for: Socialism Last Edited Time: August 10, 2021 6:35 PM Type: Lecture, Reading Notes
Content
Every economic decision creates winners and losers
1. What is IPE?
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How the political battle between winner and loser of the global economic exchange shapes economic policies of governments
Ex: Local street cafés bring ran out of business by brand-name coffee.
2. The Four Issue Areas in IPE
All four is affected by the political battle between winners and losers
- The International Trade System: The WTO allows most states to have equal trade with one another, while other states form regional trade agreements which creates winners and losers. The political battle between the winners and losers in this economic exchange shapes the operation of the WTO-centered system and the new regional trading framework.
- The International Monetary System: helps peoples and countries exchange with each other using differing currencies. Battle between winners and losers in adjusting their currency prices can shape the operation of this system.
- MNCs: can be managed across borders. A decision in one country have effects on another. The winners and losers of MNCs will shape governments decisions on attracting and regulating MNCs.
- Economic Development: Development strategies done by governments that vary in effectiveness.
3. Three Traditional Schools of IPE
3.1. Mercantilism
- National power and wealth is tightly connected
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Trade provides one way of gaining wealth from abroad
|Wealth only gained through positive trade balance (export > import)
|Resource Allocation: Governments make effort to better the country’s trade balance
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Some type of economic activity are more valuable than others
Must prioritize high-tech industry > Industry > Agriculture
3.2. Liberalism
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Draw a strong line between politics and economics
|Trade is to enrich individuals, not to enrich or empower state
|Resource Allocation: regulated by the market supply and demand
|Governments facilitate through property rights, judicial system, and correct market failure
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Countries gain from trade regardless of whether the balance of trade is positive or negative
|More options and variety for every product in country is higher satisfaction for individuals.
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Comparative advantage is to produce products you are good at doing cheaply, while importing products which you produce costly.
|Rich countries with skilled labor should focus on high-tech industry while poor low-skilled labor countries should focus on agriculture & light industry
3.3. Marxism
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Exploitative nature of capitalism will lead to socialism
|The Bourgeoisie exploits the proletariats by not paying them much and large profits goes to capitalists (apply to state to state level as well)
|Resourse Allocation: Government is just agent of capitalists or run by capitalists
The three dynamics of capitalism are
- Competition leads to concentration of capital resources to a small group of elite capitalists for better efficiency and capital stock
- More investment in the production process at a certain point will return less profit, leads to reduced wages.
- Capitalists focus on ability to produce goods while wages fall. Citizens will not be able to buy the products
Inequality in capitalism will eventually lead revolution and collapse into socialism.
Socialism
- Everything belongs to the community, shared resources, and equally, not rich or poor
- You get the same amount no matter how much you contribute to society
- Less environmentally taxing than capitalism
Problems
- State still is in the position of power (not equal)
- Contribution doesn’t correlate with benefits means laziness and leeches
- Historical application of socialism has never succeeded
- Everyone as all strictly equal is wishful thinking
4. Interests & Institutions in IPE
4.1. Interests
Interests are goals or policy objectives of an actor in the political system or economy:
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Material interests: interests depends on their position in the economy
Every economic policy has winners or losers, which one of them you are is determined by your position in the economy
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Ideas: are mental models that create Belief in a certain economic theory or framework that will determine their course of action
Theories don’t necessarily have to be true to be ideas, just for leaders to believe in them
Ex: Leader believing in comparative advantage might lower tariffs to gain welfare.
4.2. Political Institution
Political Institutions establishes rules governing the political process for groups in/of countries to reach and enforce their decisions
In a domestic institutions there are 2 systems:
- Democratic institution: mass public participation equally
- Authoritarian System: narrow influential persons to elites
Its the same for countries where
In International Political Institutions, choice rule is relative bargaining power similar to Authoritarian System
international economic affairs are only decided by developed countries
Weak Enforcement
Political Institutions help enforce collective decisions
However, actors have little incentive to comply with decisions produced by political process, especially if they opposed it.
international system has neither a police force nor a judicial system
⇒ If non-compliance is widespread, the political process is weakended
5. The Global Economy In Historical Context
The contemporary global economy continues to deepen international economic integration that began in the 19th century.
5.1. The First Wave of Globalization
5.1.1. Technological Innovation
The invention of the steam engine and telegraph made communicating and long distance trading more viable.
- Steam powered trains and steam powered ships popularized trading heavy products
- Long distance communication became instant bring the world and economies closer together
5.1.2. Political Structure
Governments established structures to facilitate global economic exchange
Network of Bilateral Trade Agreements + Stable International Monetary System
Governments lowered their trade barriers and adopted free-trade policies
Nations adopted The Gold Standard in the 1870s
Gold backed currencies made states trust currency values will be stable
Further Globalization
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Global trade expanded dramatically each year
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Many millions migrated to different countries all around the world
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Financial capital of different countries poured across borders
Led to more improvements of railroads and transportation systems
5.2. Change in Global Political Structure
Before WW1 Britain was the center of the Global Economy
Afterwards
- U.S. and Germany industrialized quickly to challenge U.K. after WW1
- British industrial capacity weakened
- Britain Ended the war with heavy foreign debts
Economic hegemony switched to U.S.
- US denied responsibility of reconstructing global economy
- demanded European nations pay back their debts
- Debts made France demand reparations from Germany
⇒ slow European economic recovery
5.3. The Great Depression
Lingering war debts caused European economy to be fragile
The American stock market crash in October 1929 started the Great depression
- People stopped buying goods
- factories stopped making products
- Unemployment rose
5.3.1. Government Reaction
Governments raised tariffs to protect domestic market
Colonial masters created trade block to exploit their colonies
Countries without colonies used force to get them
- Japan invaded Manchuria 1930s
- Germany’s network of closed bilateral agreements
Leading to WWII
5.4. Post World War 2
U.S. learned 2 lessons from WW2
- Failure to construct global economy after WW1 caused WW2
- U.S. alone has to power to reconstruct the global economy
The Bretton Woods System was created in the conference held in Bretton Woods, New Hampshire 1944 that seeded the creation of WTO, the IMF, and the World Bank
post-World War II global economy differed from the classical liberal system
- Governments moved from minimal interventions in economy to a more active role
Even with changes, the U.S. restored the global economy of the 19th century.
Inequality Movements
Globalization had risen income and wealth, but also inequality and insecurities for the working class
Leading to election of leaders who holds nationalism and protectionism instead of globalization
6. Conclusion
- IPE studies the political battle between the winners and losers of global economic exchange.
- it is hard to understand anything about the global economy without understanding how political competition unfolds
- IPE schools: cooperation, competition between governments, and competition between labor and capital
- Importance of interaction between societal interests and political institutions