Chapter 12 International Political Economy 3 main approaches to International Political Economy 1 Economic nationalism knows also as mercantilism o Realpolitik orientation Realist approach where the international political economy is a zero sum game with emphasis on political goals and achieving them their goals include preserving and expanding state power and securing national interests o States are commonly the primary economic actors in economic nationalism o Promote the domestic control of the economy favor domestic economic support such as tax breaks for companies that manufacture exports Imperialism neoimperialism with the economically developed countries EDCs of the North dominating the less developed countries LDCs of the South Economic incentives and disincentives Protectionism and domestic economic Practices Assets and utilization Economic Statecraft The use of political power to achieve national economic goals and the reciprocal use of economic power to gain political goals Self serving approach that is the core of economic nationalism National Economic Power o Financial Position Involves net trade deficit spending foreign debts among other aspects Possession or lack of energy mineral or other natural resources influences levels of self sufficiency or dependency Industrial is highly concentrated in a few countries o Natural Resources o Industrial Output o Agricultural Output Power of food production self sufficiency Methods of manipulating economic interchange o Barriers to Merchandise Trade Tariffs Nontariff barriers NTBs Import and export prohibitions Quotas Pricing limits Technical restrictions o Barriers to Trade in Services and Investment o Domestic Support of Trade Ways in which governments intervene in free trade to gain an unfair advantage in the international marketplace Conducting economic espionage Providing domestic subsidies Encouraging dumping All violate international trade agreements Applying Economic power o Economic Incentives Includes providing foreign aid giving direct loans or credits reducing tariffs selling or licensing the sale of sensitive technology o Economic Sanctions Methods include raising trade barriers cutting off aid trying to undermine another country s currency and even instituting blockades Drawbacks of sanctions Unintended victims Hurt the country imposing sanctions Used by EDCs to maintain dominance over LDCs Harm relations with countries not supporting sanctions Harm those whom you seek to assist o Both have mixed success rate highly contentious 2 Economic internationalism o Liberalist approach that encourages free economic interchange laissez faire capitalism where the international political economy is considered a Non zero sum game o Based on Adam Smith s exposition of capital theory The Wealth of Nations 1776 Practices o National competition but cooperation increasing o Limited role of politics in economics economics politics o Keynesian economics Belief that government should pump money into the economy by spending more and taxing less during a recession and spend less and tax more when economy is stable Use IGOs and national governments to regulate international economic interchange IMF GATT and other organizations to promote trade and ease inequities o Believe that development can be achieved within the existing economic structure through free trade and foreign investment supplemented by loans and foreign aid o Neoclassical economics o They favor free trade and oppose tariff barriers sanctions and other economic aspects that restrict the free flow of trade investments and currencies o Individuals are often the primary economic actors in economic internationalism o The liberal idea of creating a global economy was slow to take hold and began forming in the 1930s and 40s With the end of WWII came the formation of the IMF World Bank GATT and WTO a Monetary institution where EDCs gave money to LDCs to help International Monetary Fund IMF remain stable and create improvements Helped maintain exchange rate stability by giving out short term loans and to stabilize economies of the LDCs Aid CIT reorientation to market economy Asian financial crisis Russian financial crisis Early monetary regulation Established by the Bretton Woods Conference in New Hampshire Bretton Woods system operated on the basis of fixed convertibility into gold Unexpected fluctuations of exchange rates Controversies about IMF Voting based on member contribution One size fits all Conditionality Interferes with sovereignty Destabilizes countries Maintains dependency of LDCs Capitalism and social justice Defense of the IMF Since EDCs provide the funds they ought to have a proportionate say in how they are invested Reforms are necessary to correct the problems Some evidence that IMF is easing its requirements b World Bank development institution that wanted to reduce poverty Similar to the IMF but has four different agencies i International Bank for Reconstruction and Development IBRD similar to a commercial bank ii International Development Association IDA focuses on making loans at no interest to the very poorest of countries to help them provide better basic human services such as education health care clean water to improve economic productivity and to create employment iii International Finance Corporation IFC Makes loans to LDCs to promote private sector development in developing countries iv Multilateral Investment Guarantee Agency MIGA promotes the flow of private development capital to LDCs through guarantees Controversy of the World bank Dominated by North Too little funding No understanding of the needs of South Terms of loans violate sovereignty damage Not enough attention to human and environmental economies impacts of projects Promotes market economies foreign direct investment and other aspects of capitalism c Generalized Agreement on Tariffs and Trade GATT trade institution founded in 194 Eventually superseded by the establishment of the World Trade Organization WTO in 1995 Following the original mission of GATT the reduction of trade barriers WTO has sponsored trade negotiations called 3 Economic structuralism rounds that have greatly enhances the free flow of trade and capital The most recent revisions of GATT took place from 1986 1994 were called the Uruguay Round which further reduced economic barriers Future of GATT WTO Tension between sovereignty and global governance Criticism of the WTO as an agent of globalization Disagreement over how