8 27 International Political Economy what is it I II the reciprocal and dynamic interaction of the pursuit of power and the pursuit of wealth political economy is created by the parallel existence and mutual interaction of the state and market a Power wealth b State market c Authority exchange d Politics economics III Global political Economy gov new policies Winners Losers IV Outley s two key questions a How does politics shape societal decisions about how to allocate available resources i The causes b Factors of production Land labor capital i What are the consequences of choices that societies make 1 Welfare consequences a That is they determine the level of societal well being 2 Distributional consequences a They influence how income is distributed between groups within countries and between nations in the international system c Levels of analysis i Two dimensions of disagreement among IPE scholars 1 Relative importance of domestic versus international forces 2 Relative importance of state vs societal forces V Levels of Analysis a 4 different perspectives i International political 1 emphasizes global geostrategic and diplomatic environment The inherent conflict among states in an anarchic world ii International economic 1 emphasizes socioeconomic factors Technology telecommunications finance production population environment iii Domestic institutional iv Domestic societal 1 1 emphasizes the role and institutions Downplays the constraints emanating from the international system and from domestic societies emphasizes economic and sociopolitical actors not political leaders National policy is determined by the demands of individuals firms and groups State Society International political International economic International Domestic institutional Domestic I Theoretical perspectives a Realism i Key assertions 1 The international system is anarchic 2 State is the principal actor 3 Rational unitary actor 4 Top priority survival and security 5 Most concerned about relative not absolute gains a Ex of relative in an agreement between x and y in terms of y if both x and y gain but x gains more than y y will not engage II Examples of Mercantilism international political economy 6 Politics over economics a Mercantilism i Power depends on the amount of gold and silver in the treasury ii Take all necessary steps to increase exports decrease imports b Economic nationalism i Hamilton Report on the subject of Manufactures 1 Emphasizes industry over agriculture 2 Economic self sufficiency 3 Trade protection I 3 propositions of modern mercantilism a Economic strengths is a critical component of national power b Trade valued only for exports i Groups should minimize imports c Some forms of economic activity are more valued than others 9 3 14 II Examples of liberal International political economics a 18th century i Product of the enlightment response to mercantilism 1 Adams Smith The Wealth of Nations a invisible hand the notion stating that the market is self correcting 2 David Ricardo a Comparative advantage science a Two separate disciplines 3 The rise of liberalism separation between economics and political III Liberalism a Key actors individuals groups states international organizations b Goals efficiency growth and individual welfare c Basic long term harmony of interest due to the invisible hand of the market d Positive sum game focus on absolute gains not really concerned about what the other persons gain IV Market e Gaps in gain the extra may be used to their advantage i e an invasion a Markets arise spontaneously to satisfy human needs i No central decision required b Markets adjust themselves and move towards equilibrium c Central role of the price mechanism supply and demand d Economic growth is linear gradual and continuous e Markets will expand and develop the world a progressive view f Spread of the market is a force for peace i Due to interdependendance Markets should be free of political interference V Examples of Marxist IPE a Key writers i Karl Marx and Fredrick Engels ii iii Lenin John Hobson non Marxist theory of imperialism VI Dependency theory combination of Marxism and Latin American structuralism a Marx s two key assumptions i The value of a good is determined by the amount of labor embedded in it ii Capitalist pays workers only a subsistence wage and retain the rest as profits to finance additional investment iii Outcome eventually an anti capitalist revolution b Three dynamics i Natural tendency toward the concentration of capital ii Falling rate of profit Return to capital will decline iii iv Over time more inequality revolution workers paradise Imbalance between the ability to produce and purchase goods VII Interaction between the competing approaches a 16th century 17th mercantilism b 18th liberals c 18th and 19th nationalist d 19th and 20th Marxism VIII Global economy in historical context a First true global economy in the second half of the 1800s Why i Technological change 1 Steam engine 2 Telegraph ii Political change 1 Trade liberalization a 1840s UK repeals the corn laws b Cobden chevalier treaty Bilateral Free Trade Agreement between UK France 2 Adoption of gold standard universal exchange rate 3 Movement of people Migration 4 Movement of capital Investment IX Institutional foundations of the postwar IPE a Two great war time conferences i San Francisco 1 Produces institutions for the international political system a United Nations i Response to failure of the League of Nations proposed under President Wilson at the end of WWI ii Bretton Woods NH 1 Produces institutions for the international economic system IMF i ii World Bank b Primarily in response to the great Depression 2 However at this point there was nothing in place to regulate trade i e no WTO b Areas of concern and the institutions that were developed to address them i Exchange rate and balance of payments IMF ii Development World Bank iii Trade WTO X From ITO to GATT a Havana charter i Agreement on ITO ii Agreement on GATT GATT WTO Two Core Principles 1 Market Liberalization a Open International trade system raises the world s standard of living b Remove gov t imposed barriers Negotiating Rounds Since the GATT was created in the 40 s up until the Uruguay round the WTO was created tariff becomes lower and lower o Kennedy 8 7 o Tokyo 6 3 in 1973 1979 6 yrs o Uruguay 3 9 in 1986 1993 7 yrs The Uruguay round is the one that established the WTO Remarkable success in reducing tariffs on manufactured goods