International Political EconomyIntroduction to International Relations

The role of the state Contemporary global economy◦ Trade and financial system: relatively liberal than in the previous

eras (cf. WWI and WWII)

◦Example: The Bretton Woods System after WWII Two goals: (1) a world in which governments would have considerable leeway

to pursue national economic objectives, yet (2) the monetary order would be based on fixed XR to prevent competitive devaluations

◦Both autonomy and stability…

Issue-areas for comparison The role of the state◦ Neo-liberalists vs. mercantilists debate◦ Command economy, developmental state

International Trade and Financial Policies◦ Neo-liberal orthodoxy vs. protectionism◦ Market liberalization, deregulation, privatization vs. TBs and NTBs imposition,

ISI, subsidies, SOEs

The role of international institutions◦ World Trade Organization, International Monetary Fund, World Bank

Despite the liberal contemporary economic order, the state remains the primary visible actor…

In the Cold War period, the idea of communism gained widespread attention.◦ Developing countries: Adopt central economic planning!◦ Command economy…

Command economy Features:

1. Most of the means of production are owned and managed by the state;2. Prices and decisions on what to produce are determined by state planners

First developed by the Soviet Union

Achievements: Soviet Union and China were able to jumpstart Industrial development◦They can dictate the movement of people and resources from one sector of the economy to another

Command economy “Entire industries were created in the USSR, along with millions of

jobs that drew peasants away from the countryside and into higher-paying jobs and higher living standards.”

BUT, collapse of communism in East Europe◦ Plus, “market socialism” in China and Vietnam◦ Failures of command economies became evident…

◦ What’s wrong?

Command economy Weaknesses:

◦ Absence of consumer signals – how much to produce?◦ Need for highly skilled and honest bureaucracy – usually absent in Third

World…

Developmental state East Asian economies◦South Korea, Taiwan, Hong Kong and Singapore◦Malaysia, Thailand, Indonesia◦Common observation: except China, these countries based their

growth on free market principles (??)

◦But actually, governments have actively stimulated economic growth…

◦Hence, developmental state

Developmental state Notion formulated by Chalmers Johnson

Comparison between Western industrial nations and East Asian capitalist nations:

◦ US and GB (regulatory states): “government refrains from interfering in the market place, except to insure limited goals (e.g. protection of consumer rights)”

◦ Developmental states: “intervene actively in the economy in Order to guide or promote particular substantive goals (e.g. full employment., export competitiveness, energy self-sufficiency)”

Developmental state Japan◦Ministry of International Trade and Industry(MITI)◦Role in postwar industrial recovery◦ Japanese model adopted in varying manners by other countries

South Korea◦Economic Planning Board

Developmental state Taiwan◦Council for Economic Planning and Development

Singapore◦Economic Development Board

Government intervention is far more extensive and direct than in the West, influencing economic sectors (such as agriculture and industry), whole industries (such as computers, automobiles, and electronics), and particular companies (such as Hyundai)…

Developmental state Applicability of East Asian development model?◦Political prerequisite (Chalmers Johnson):◦Most developmental states have been authoritarian during their

industrialization push

◦ Two qualities needed for transferability:◦ (1) highly skilled government bureaucracy, (2) close cooperation

between leading economic sectors, most notably business, labor, and agriculture

International Trade and Financial Policies◦ Neo-liberal orthodoxy vs. protectionism◦ Market liberalization, deregulation, privatization vs. TBs and NTBs imposition,

ISI, subsidies, SOEs

The role of international institutions◦ World Trade Organization, International Monetary Fund, World Bank