Transcript Lecture Ten on IPE and Economic Systems PowerPoint

Lecture #10
Perspectives on International Political Economy:
Mercantilism, Liberalism, & Marxism
Introduction to International
Political Economy (IPE)
Introduction – Conceptual and Analytical Issues
• 1. What is International Political Economy?
• 2. What are the issues?
• A. Actor behavior
• B. System governance
• C. Globalization
I. Introduction (cont’d)
• A. Actor Behavior. How do we explain and evaluate the
actions of states?
• 1. Levels of analysis: international (structural, systemic)
vs. domestic
• 2. State (government, public sector) vs. society (markets,
private sector)
I. Introduction (cont’d)
• B. System Governance. Formulation, implementation, and
enforcement of rules; promotion of cooperation; management of
conflict
• 1. Governance without government; governance mechanisms
(regimes)
• 2. Organizing principles: automaticity, supranationality, hegemony,
pluralism (negotiation, cooperation)
I. Introduction (cont’d)
•C. Globalization. Inter-national vs.
globalized model of world economy
Introduction
• Countries and non-state actors have historically
pursued several different approaches to the
international political economy:
• Mercantilism (Realism)
• Capitalism (Liberalism)
• Marxism
Mercantilism
Analytical Perspectives on IPE -Realism
•A. Focus: states
•B. Nature of economic relations: conflictual
(zero-sum game)
•C. Relationship between economics and
politics: politics drives economics
What is Mercantilism?
• Theory of economic
organization
• Way to organize a nation’s
economy
• Goal: make Mother Country
wealthy
• Today? Capitalism, Communism
Mercantilism
•Dominant approach until 1800s
•Goal is to maximize state wealth (originally
gold and silver)
Basic Ideas of Mercantilism
• Establish colonies
• Control/regulate trade
• Export raw materials & resources
from colony to Mother Country
• Export finished products from
MC to colony
• Favorable Trade Balance for MC
Mercantilism
•Wealth cannot be created, only acquired
• Through conquest and theft (imperialism)
• Through exporting more than you import and
protecting domestic industries
•Economics is a zero-sum game
• One country’s gain is another’s loss
• Emphasis on relative gains
Basic Ideas of Mercantilism
• Navigation Acts (1650s
and 1660s)
 Attempts by Britain to
control trade
• Salutary Neglect
 Britain’s “hands off”
approach helped
colonies
 Until 1760s
Mercantilism: Positive
Effects
• Guaranteed markets
• Protection from competition
• Especially helpful when
colonies young to limit risk
• Raised prices for smugglers 
Mercantilism: Negative Effects
• Limited opportunities to trade
• Industrial development
restricted
 Certain UK industries protected
• A bigger problem toward end of
colonial period
 Colonies wealthier
 Colonial economies more diverse
Mercantilism: Negative
Effects
• Economics seen as “Zero Sum
Game”
• England $↑, Colonies $↓
• Colonies have trade deficit
• Colonies lack species/money
• Certain Industries in England
protected
Economic
Liberalism/Capitalism
Analytical Perspectives on IPE - Liberalism
•A. Focus: individuals, households,
enterprises
•B. Nature of economic relations:
harmonious; interests reconcilable
•C. Relationship between economics and
politics: economics drives politics
Economic Liberalism (Capitalism)
• Became popular in 1800s
• Economics is a positive-sum game
• It is possible to expand the pie, not just fight over
how it will be divided
• Emphasis on absolute gains
IR and Capitalism: Laissez-Faire figures
• Adam Smith :
CAPITALISM/Laissez-faire
• Wealth of Nations, 1776
• “the individual, pursuing
his SELF-INTEREST, will
bring on general benefits to
society”
• NEED for free markets (no
government intervention)
IR and Capitalism: Laissez-Faire figures
• Thomas Malthus:
predicted that the
population would outpace
the world’s food supply
• People should limit
kids
• Wrote: An Essay on
the Principle of
Population
• No gov’t help for the
poor
IR and Capitalism: Laissez-Faire figures
• David Ricardo: “iron law
of wages”
• Limit kids b/c people have
more kids when $ is strong;
• increase in labor later
means a decrease in $$
and….
• Unemployment increases
• “No gov’t help for the poor”
IRON LAW OF
WAGES
Capitalism (Adam Smith, David Ricardo)
• The economy is seen as a complex natural organism
• Human labour is a key source of wealth
• Seeking balance between self-interest and cooperation
• “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our
dinner, but from their regard to their own interest. We address ourselves, not to their
humanity but to their self-love, and never talk to them of our own necessities but of their
advantages. “ (The Wealth of Nations”)
• Division of labour
• Key role of the market as an integrating force
• Harmony of interests between classes is possible
• Key role of the state in maintaining a market economy
CAPITALISM
•1. Private Ownership
•2. Profit Motive
•3. Market Economy
CAPITALISM
• 1. Private Ownership: Capital
belongs to individuals who are
FREE to do what they wish with it.
• For this reason, capitalism is also
called the “free-enterprise” system
CAPITALISM
• 2. Profit Motive: based on the
economic laws of supply and
demand, when enough people
want something, producers make
it because they want a PROFIT
CAPITALISM
• 3. Market Economy: a money value can be
placed on everything in the marketplace:
land, goods, time, and labor.
• Buyers and sellers are free to exchange
goods and services at prices determined
by…..”SUPPLY and DEMAND”
Economic Liberalism (Capitalism)
• Assumes a harmony of interests (Adam Smith):
pursuit of self-interest will make everyone better
off
• Example: Those who produce the highest quality
products at the lowest prices not only make
consumers’ lives easier/more enjoyable but reap
the highest profits
Economic Liberalism (Capitalism)
• “Laissez-faire” approach
• Comparative advantage (Ricardo)
• Countries should focus on producing those goods &
services they can produce most cheaply/efficiently
and trade for the rest
• An absolute advantage is held by any country
that can produce a given product more
efficiently than any other country in the world
Effects of Capitalism
• “Profit” for owners of
production/business
• Industrial vs agricultural economies
• Market competition = price of “things”
goes down……(because)
• Increased supply of “things”/goods
• Focus on PERSONAL
RESPONSIBILITY
Criticisms of Capitalism
• Uneven distribution of WEALTH
• Poor people live in SQUALOR: slums, bad sanitation, etc.
• Working conditions are miserable, etc, etc. see negative
effects of Industrialization
Marxism/Communism
Analytical Perspectives on IPE - Marxism
• A. Focus: classes, social forces
• B. Nature of economic relations: conflictual
(zero-sum game)
• Relationship between economics and politics:
economics drives politics
Marxism
• Prominent perspective in the 20th century
(particularly after the Bolshevik Revolution in
1917), but popularity has declined since fall of
communism in FSU/Eastern Europe and
apparent success of market model among “Asian
tigers,” etc.
COMMUNISM:
extreme form of
socialism in which “all
people” own the means
of production as the
state “withers away”
and produces a
classless society
Karl Marx’s Theory of Communism
• Idea: that History is shaped by
ECONOMIC FORCES (the way
goods are produced and distributed)
• CLASS STRUGGLE has always
existed between the “haves” and the
“have nots”
• In industrial times the “haves” are the
bourgeoisie/middle class capitalists; the
“have nots” are the wage earning
laborers
Marx’s Communist Ideas…continued
• The social class that holds the economic power also
controls the government for its own advantage… (class
wealth = class power)
• Middle class shrinks (small businesses are ruined by
capitalist giants)
• Working class GROWS as masses of poor labor at the
mercy of a small, rich elite class
How Communism is Supposed to Happen:
• Poverty and desperation drive
MASSES of workers (proletariat) to:
• seize control of the
government and the means of
production
• destroy the capitalist system
• wage a VIOLENT
REVOLUTION
• establish a “dictatorship of
the proletariat”
After the “dictatorship of the proletariat”
occurs…..
• All property and the means of
production are owned by “the
people”
• All goods and services are “shared
equally”
• A “classless society” emerges
• the “state withers away”
Marxist Theory
• Market economies are social arrangements created by specific historical forces
• Private property is a social construct, not something created by nature
• Workers produce surplus value
• Owners of capital (capitalists) take all or most of it
• Accumulation of capital in the hands of capitalists
• Power is rooted in ownership and control of capital Impoverishment of
workers
• Division of society into classes based on their roles in the economy and the
state
• Struggle between classes for power – for control of the economy and the state
• Capitalism will inevitably collapse due to its inherent contradictions
Marxism
• Key actors include social classes, MNCs, and
transnational elites (states are tools of these
elites and cogs in the capitalist system—not
independent entities)
• Assumes capitalism contains seeds of its own
destruction
Marxism
• Material economic conditions determine
outcomes (reductionism?)
• World system is stratified: core vs. periphery,
dependency theory
Marxism
• Both empirical and normative: describes the
capitalist world system, then critiques it
• Imperialism as highest stage of capitalism (Lenin)
and cause of war among capitalist powers
“Communist Paradise?”
Effects of Marxist Thought

Formation of socialist
political parties
 Advocate and support
revolutions
 Push for work reforms
 Fight against
“capitalism”

Communists take over Russia
 Communism used by
revolutionaries
 Dictatorships of Communist
Party leaders
 No communist paradise
established anywhere
Effects of Marxist Thought
• “Red Scare” = hysteria over
perceived threat of communism/
civil liberties revoked
• US foreign policy based on fighting
spread of communism after World
War II
• “COLD WAR” with USSR and
allies
• Proxy wars fought on both sides
The “perceived threat of Communism”…a
visual
As of 2010, there are five one-party Communist
nations:
1. People's Republic of China
2. Republic of Cuba
3. Democratic People's Republic of Korea (North
Korea)
4. Lao People's Democratic Republic (Laos)
5. Socialist Republic of Vietnam