International PoliticalEconomy

Introduction• International Political Economy (IPE)– Interplay of economics and politics in world affairs • States vs. Markets = Misleading Assumptions

– States cannot rule the global economy

– Systems of Institutions • The rules, norms, laws, organization, and habits that for

the system – A defining feature of IR

» Globalization and international cooperation of states and institutions

– Modern IPE born from Cold War end• Promoted many of IPE main institutions

– UN, IMF, WB, and WTO

Post-WWII World-Economy • Bretton Woods Conference– Discussed future of world economy following WWII

• Resolve two Serious Problems– Prevent another Great Depression

» Stable Global Monetary System» Open World Trading System

– Rebuilding War-Torn Europe

– Bretton Woods System Established • Promote a New World Economic Order

– Created International Monetary Fund (IMF)– Created International Bank for Reconstruction and Development

(IBRD)» Later became World Bank (WB)

– Created General Agreement on Trade and Tariffs (GATT)» Replace by World Trade Organization (WTO) in 1995

International Monetary Fund• Membership of 185 Countries

• Promoted International Monetary Cooperation– Created a Stable Exchange Rate Regime

• All currencies based on US Dollar • US Dollar would be back by Gold (Gold Standard)• Provided stability for all currencies

• Provides emergency assistance to countries facing a temporary economic crisis

– Today provides assistance to developing nations• Conditionality or

– Requires countries who barrow money to meet certain conditions = liberalization and privatization of economy » Backlash from anti-globalization movement

Continue and World Bank

General Agreement on Trade and Tariffs

IPE and the Cold War • Containment – Prevent the spread of Communism to Western

Europe and other nations• Postponed development of Modern IPE

• Marshall Plan– Massive Financial Aid to Europe • Promoted IPE Institutions and Western Bloc

Organizations – Gold Standard Replaced by Dollar Standard

» Western Countries embraced Dollar

• Brent Woods System was promoted to develop capitalism globally

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Continue • Neo-Liberalism (Neo-Conservatism in US) of

the 1980’s– Challenge to Keynesian Economics of 30’s - 70’s • John Maynard Keynes

– Governments should play an active and interventionist role in the economy to ensure both growth and equity.

– Neo-Liberalism encourages• Limited or no government role • Deregulation of laws and institutions • Allow markets to regulate business

– Washington Consensus • Term implies NL mainly a reflection of US interests

Continue • End of the Cold War – Problem• Integrating USSR, Soviet Bloc, and Soviet backed

developing nations • Burden fell to World Bank and IMF

– Conditionality created problems » Coercion and Conformity

– World Trade Organization• Created to alleviate problems of WB and IMF • Voting power shifted from US and EU when other

powerful economies refused to cooperate unless power adjusted

Traditional Approaches to IPE• The Liberal Tradition – Free Market and exchanges currencies • Voluntary exchange and markets that are efficient and

morally desirable – Allows countries to benefit from their advantages (natural,

resources, endowments, and specializations)– Little or no regulation of markets or currencies by

governments – Order in markets will be self-regulatory

• The Mercantilist Tradition– Realist Perspective = Power of States • World economy is an arena of competition among

states seeking to maximize relative strength and power

Continue– For survival, states must maximize wealth in independence– Trade protectionism is emphasized – Governments must use protective measures (invest in

strategic industries, subsidies, trade tariffs, etc…) to ensure the strengths of the domestic and international economy of the state

– IS controlled by hegemony, who sets the norms and institutions to benefit itself

• Marxian Tradition– World-Economy is an arena of competition, and

capitalism is the driving force • Class struggle between oppressed (workers) and

oppressors (Capitalist) – Capitalist seek profits at expensive of workers

• Unequal exchange between Periphery (developing) and Core (developed) nations– Wealth flows from poor to rich countries

New Approaches to IPE• Rational Choice– Neo-Utilitarian Approach

• John Stuart Mill’s book “Utilitarianism” – Weighing the pros and cons, actors will choose the most

advantageous choice– Preferences are known/fixed and actors will make best choice to

promote their interest

– Two Approaches to Rational Choice • Political Economy Approach

– Focus on Interest Groups and how they impact the IPE» Societies are pluralist and governments follow the actions of

groups promoting specific interest» Governments make their IPE choices by the actions of

specific interest groups within the economy » Coalitions of interest groups influence governments and

institutions for their personal gain

Continue • Institutionalism Approach

– Focuses on the interaction of states and how they impact the IPE» States create institutions in order to maximize utility

within the constraints of world markets and world politics

– Social Constructivism• Policies in the world-economy are affected by historical

and sociological factors – Actors formulate preferences and behaviors based on beliefs,

roles, traditions, ideologies, and patterns of influences» There is no set/fixed preferences in IR or IPE » Preferences reflect actors ideas, culture, and knowledge

– Choice will often reflect the hegemony» Institutions promote hegemony» Coercion or consent prevails» Legitimacy is promoted and desired

Globalization and the IPE• Globalization is strongly debated in IPE Studies– Four Aspects of Globalization in IPE

• Internationalization– Increase economic interactions and interdependence across

borders

• Technological Revolution – Impact on new communication technologies

• Deterritorialization – Extent distances, borders, and places influence the way

people identify themselves and act

• Liberalization– Reduction in government role in the economy which allows

the new IPE to exist

– Debate exist between how each impacts the world

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Institutions and the IPE• Globalization increases interdependence – Both good and bad• Asian Financial Crisis

– Meltdown of South East Asia Economies that lead to sever economic impact in other countries

– Demonstrates how a crisis in one country can easily spill into other countries

– Led to a call for stronger international economic institutions, more cooperation, monitoring, and regulation

– Institutions• States create institutions to achieve better gains

through cooperation and coordination • States agree to be bound by certain norms, rules, and

decisions– States don’t always follow

Continue • Institutionalist = Institutions reflect liberalization

– Institutions emerge primarily as solutions to universal problems or market failures

– Will regulate gaps and failures of open system– Focus on absolute gains

» Over all the benefits of everyone involved • Realist = Promote states power and wealth

– Hegemony is liberal-democracy – Institutions reflect will of hegemony to ensure survival and

power gain of hegemony – Focus on relative gains

» The benefits of the individual states – Cooperation is constrained by power struggles

» Institutions will be abandoned if no positive gain for state» Institutions only accommodate the needs of weaker

states when needs don’t interfere with powerful states

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