Jaechun Kim

Introduction to International Rela-

tions International

Regime/International Political Economy

Intl RegimeDefinition?

Concept is relatively new… in 1980s… Sets of implicit or explicit principles, norms,

rules, and decision-making procedures around which actors’ expectations converge…

This is the most widely accepted definition of International Regime

Stephen Krasner (1982)

GATT – what is it? Is it international regime? Established in 19471994 – WTO…

GATT is a formal agreement, but regime includes informal institutions (implicit and explicit principles and norms…) as well…

What is International Trade Regime? What is it made of?

Informal partsPrinciples – idea that member states cherishNorms – specify general standards of behavior… norms of reciprocity

Formal partsRules – formal rules specified by GATTDMP – specifies the ways in which you arrive at decisions

Rules and DMP change, but Principles and Norms seldom change…

Sogang GSIS regime? Marriage regime?

Examples of international regime?Intl aviation regime

Intl post delivery regime

Nuclear non-proliferation regime

Intl Trade Regime

Intl Monetary Regime…

Free international economic relations (or free international trade relations) is (international) quasi-public goods…or collective goods…

Why?

Beneficial, but hard to provide…

Free international econ order was established twice in world history… when?

Who or what provided it??

How can we explain the origin of the post WWII free international economic relations?

Realist answer to this? Hegemon! e.g., Stephen Krasner, “State Power and the Structure of International Trade”

It takes hegemon to create and maintain free international economic order… Creation of free international economic order

force others to join..bear the costs of creation of such order…

Managementmonitor other states’ behavior and punish defectors

e.g. US, GB..

HST (Hegemonic Stability Theory)

The US had the preponderance of power and had the will to act as hegemon in the post WWII era... Therefore created and maintained post-WWII free international economic order (free trade order)…

Brits played the role of hegemon in the late 19 th c…

Decline of American hegemon in the late 1970s and early 1980s?!

Germany and Japan were catching up.. Vietnam quagmire… too much spending in military..Abandonment of BW monetary system…

What should have happened according to realism (HST)?

What really happened?

How would you explain the continuation of free international economic order?

Regime theorists (a.k.a., neo-liberal institutionalists)

answer lies in international regime… internationall free trade regime sustained free international trade order…!

Robert Keohane (Neoliberal institutionalist) –After Hegemony (1984)

Cooperation is possible without hegemony since International Regimes make this cooperation possible…

Anti-thesis of HST…

Keohane however uses realist assumption!Anarchy assumption and Rationalist assumption…

Hegemony is less important for the continuation of cooperation…

Although hegemony can facilitate cooperation, it is neither necessary nor a sufficient condition for continuation of cooperation…

Once regime is created, it takes life of its own.

What are the functions and/or benefits of international regimes? What are the mechanisms by which international regimes elicit cooperation?

Reducing transaction costs… etc.

non-hegemonic cooperation is difficult but not impossible…

IPE History of IPE as a distinct discipline of IR

Little interest in IPE in the post WWII era… Booming industry in the post-Cold War era

What is PE?

Interplay between politics and economy.

IPE – the way international politics affect international economy and vice

versa…

Three traditions in IPE

Realism (statism; mercantilism); Liberalism; Marxism

 

Realist theory of IPE

Early mercantilists (Friedrich List; Alexander Hamilton)

F List said: Discussion of IPE must begin with a recogni-tion of inherently conflictual nature of IR… (realist as-sumptions about the world…)

Primary goal of state is to pursue power and security. Realpolitik… breaching international norm is OK…de-fection is OK (if it helps our interests!)

Discount the primacy of liberal international economic system and institutions… Open international econ or-der is important only when it benefits our national inter-ests…

“Beggar-thy-neighbor policies” are OK!...

A. Hamilton – nurture our “infant industry!” If the US wants to be more powerful, we have to inter-vene in the market and cultivate manufacturing sector…

Economy is only means to enhance states’ power.Economy is subordinate to politics…

Contemporary realists IPE theories (R. Gilpin; S. Kras-

ner…)

Methodologically, they are more positivist in orientation…

States’ power and states’ interests do shape econ outcomes, in-

stead of saying that states’ power and security concern should

shape econ policies…

R. Gillpin – states and states’ interests does dominate the logic of

IPE… not international institutions or regimes…

S. Krasner – Pattern of international econ relations reflect global

BOP.. Powerful countries shape word econ relations… e.g., HST!  

Liberalist theory of IPEClassical Liberalism (A. Smith; D. Ricardo)

Politics shouldn’t intervene in the market… let the “invisible hand” do the trick! laissez faire!

The goal of the state goes beyond security and power to the protection of human rights and en-hancement of individual welfare..

Free economy will create greater welfare to the peo-ple..

Contemporary liberalists (R. Keohane)Regimes (institutions) and interdependence do mat-

ter as well…  cf. Realists - only states’ power and na-tional interests affect IPE..

MarxismMarxist political economy starts from the assump-

tion that economics is about the relations be-tween people and classes, not the relationship between commodities, prices, supply , and de-mand…

Economics is about people and the social rela-tionships between them…

K economy is a dynamic system full of contradic-tions…

Early Marxist theories – international K

economy would collapse!!

Neo-Marxist theory of IPE… structural de-

ficiency of international K economy!! Dependency theory ( 從屬理論 )I. Wallerstein – International Capitalist System

Anti-globalizationists

Negative impact of internationalization of K

economy ….

International Monetary System (or Regime)

Why IMS matters?

Sound international monetary system is a prerequisite for maintenance of stable world economy. It is prerequi-site for the growth of world trade and foreign invest-ment…

IMS imposes different costs and benefits upon states and groups within them. Different IMSs have varying impact on the distribution of power among states and welfare of different groups within the states… important political implica-tions!!!

 

Requirements for Stable IMS (Interna-tional Monetary System)

Liquidity What is it?

Amount of cash or liquid assets that can be

easily available…

IMS should provide an adequate supply of

liquid assets to finance international trans-

actions…

 

Adjustment Mechanism It must specify methods to resolve BOP (Balance of

Payments) disequilibria…

What is BOP?

All payments between a country and its trading part-

ners ..

Current Account + Capital Account

BOP deficit adversely affects states’ economy…

Confidence

Sound IMS should provide confidence in the system..

History of international Monetary System

The Era of Specie Money

In the pre-modern era, specie money was the ba-

sis of the IMS.

What is specie money?

Specie money constituted a medium of

exchange...

Governments had no control over monetary issues

(money flow)…

The Era of Political MoneyDuring the 18th and 19th centuries, a financial revolution

took place... Paper money; modern banking; private credit instruments… This was very important. Why?

The government started printing money… govern-ment acquired extensive control over the money supply!

“macro-economic variable” influence econ activities… Government could solve the inadequacy of specie

money.. For instance, government could fight against “deflation-

ary pressure.” But this can also create inflationary bias… which will

diminish the value of currencies… and instability in IMS…

We want both flexibility in domestic econ policies and stability in IMS, but…

Trade off between autonomous domestic econ policies and stable international monetary order…

The way this dilemma has been resolved charac-terizes the subsequent phases in the history of IMS…

The Classical Gold Standard (1870-1914)

Features: Central bank of a state bought and sold gold at a fixed price! Price of gold

was fixed.. Private citizens could freely export and import gold… Central banks didn’t interfere with K flow…!! Fixed XR mechanism for adjusting BOP payment

problem…!!!

Embodiment of classical liberal economic principles.. Laissez-faire economic policies!

Very successful IMS.. Facilitated growth of world trade and global prosperity.. It achieved remarkable success in creating and sus-taining stability in international economic (monetary) relations…

But at the cost of autonomy in domestic economic policies…

This system worked pretty well till WWI…

The Interregnum between Classical Gold Stan-dard and BW System: Gold Exchange Standard

Why did the Gold Standard collapse?

WWI and its aftermath… Rise of warfare state

Major consequence of WWI was a nationalization of the IMS. States quickly safeguarded their gold supplies… and disengaged from fixed XR and abandoned the pri-macy of tight monetary policy…

Advent of Keynesianism… - gov should fight against frequent recessions and high unemployment… how?

Feature of Gold Exchange Standard: Currency tied to gold. But the return to the gold std. was ruled out… In-

stead of the gold, states could use gold-backed currencies such as British Sterling… basically very similar to those of Classical Gold Standard…

It only survived a few years… Why?

Rise of welfare state… give priorities to the autonomy of domestic eco-nomic policies! welfare objectives such as continuous economic growth and full employment are more important than a stable international mone-tary order… rise of Labor Unions, etc.

Earlier, the ruling elites preferred the dangers of tight money and deflation to those of cheap money and inflation. … higher rates of unemployment and decreased welfare… but this can no longer be tolerated! Because of change in political dynamics!!!

Active intervention in monetary issues…!!

Autonomy of domestic econ policies over stable interna-tional monetary system!!

Beggar-thy-neighbor policy; competitive depreciation.. Great De-pression WWII (??)

The Bretton Woods System 1944

Two goals of the BW

A world in which government would have consider-

able leeway to pursue national economic objec-

tives, yet

the monetary order would be based on fixed XR to

prevent the competitive depreciations…

Both autonomy and stability!!

Creation of IMF to supervise BWS…

The compromise of domestic autonomy and inter-national monetary stability

Embedded Liberalism

“Unlike the economic nationalism of the thirties, it would be liberalistic in character; unlike the liberalism of the gold standard, its liberalism would be predicated upon domestic interventionism.” John G. Ruggie

 

Avoided (1) subordination of domestic economic activities

to the stability of the IMS (this was the key feature of Classical Gold Std.) and also

(2) the sacrifice of IMS to the domestic policy au-tonomy (which was the key char of the interwar period..)

Intended to enable government to pursue Keynesian growth policies at home, without sacrificing international monetary stability…

It was also intended to achieve stable interna-tional monetary system, without subordinating autonomy in domestic econ activities…

How the dilemma was solved during the BWS?

If a country is suffering temporary BOP disequilibria, IMF provided medium-term loan to the country…

If a country is suffering fundamental BOP disequilibria, the system permitted a coun-try to change its XR… with consent…

The key to the system?

American economy… dollar… Other nations pegged their currencies to the dollar,

so this was the system of fixed XR.The US pledged to keep the dollar convert-

ible into gold at $35 per ounce. Dollar was the principal medium of exchange,

store of value, and unit of accounting..

It was quite successful !!

Why did the system collapse?

Triffin Dilemma

The soundness of BW system was dependent upon liquid-ity and international confidence created by the US econ-omy. Every state wants dollars to rectify their BOP prob-lem!

But the US can’t print dollars indefinitely. Because this will create inflationary pressure, which will devalue the worth of dollar… People will lose confidence in dollar and in the sys-tem…

To provide liquidity, the US would have to run BOP deficit… ??

American BOP deficit in the long run will undermine confi-dence in the dollar and the system…

This was a dilemma!!

Two basic asymmetries.

1. The role of dollar as providing international liquid-

ity leads to American BOP deficit decreased

confidence in the IMS

2. The US, not able to devalue the dollar to improve

its BOP position!!  Vietnam War; Great Society expansionary

policy1971, 8. 15. Nixon announced that the US will

suspend the convertibility of the dollar into gold.

1976 Kingston Conference – the determi-nation of the par value of a currency is the responsibility of the country

(Non)system of flexible rates

Dirty Floating Loss of international fi-nancial discipline

Answer? More liberalization of financial and capital mar-

kets

Embedded Liberalism Revisited…

Prof. Chang, Ha-Joon of Cambridge Uni-versity

Kicking away the ladder

Bad Samaritans