Transcript International Political Economy

International Political Economy
Spring 2010
Lecture Two
Zainab Shakir
The Structures of IPE
• States and markets are connected by “global systems of production,
exchange, and distribution” which are termed as the STRUCTURES of
the IPE.
• These structures are the institutions and arrangements that govern the
behavior of states and markets in the international political economy,
which together produce, exchange and distribute wealth and power.
The Structures of the International
Political Economy
• The four global structures are:
SECURITY
PRODUCTION
FINANCE
KNOWLEDGE
The Security Structure
• Security from natural forces or from the threats and actions of others is
perhaps the most basic human need.
• When one person or group provides security for another or contributes
to that security, a security structure is created.
• The nature of the security structure was a contributing factor in the
debate over China’s MFN status in 1994. Sometimes China has been
thought of as a threat to US security interests, at other times it has been
seen as a part of a trilateral balance of power along with the US and
the Soviet Union.
• Until the 1970s, all trade with China was forbidden for national
security reasons. Although this ban is now gone, it is clear that
uncertainty and doubt remain regarding what threat, if any, China
represents to the US. This security question tempers to some degree
relations between the US and China in all areas.
The Production Structure
• The Production Structure can be defined as the sum of all
arrangements determining what is produced, by whom and for whom ,
by what methods and on what terms.
• Production is the act of creating wealth and wealth is nearly always
linked to power. The issue of who produces what and for whom
therefore lies at the heart of international political economy.
• Recent decades have seen dramatic changes in the production structure
with the production of certain high value products such as cars shifting
from the US to Japan and now to other countries including Korea,
Mexico and China.
• These structural changes affect the distribution of wealth and power in
the world and therefore impact the other structures of IPE.
The Finance Structure
• The pattern of money flows between and among nations.
• Defines who has access to money, how and on what terms.
• Money directly amounts to wealth and is therefore central
to IPE.
• Can you think of any transfers of money between nations
that actually take away from the wealth of the recipient
nation?
The Knowledge Structure
• Knowledge can lead to wealth for those who can use it
effectively.
• Who has knowledge and how it is used is therefore an
important factor in IPE.
• Nations with poor access to knowledge in the form of
industrial technology, scientific discoveries, medical
procedures, or instant communications for example, find
themselves at a disadvantage relative to others.
• One reason China desired MFN status in 1994 was that it
hoped that increased economic interaction with the US
would give it greater access to industrial technology. To
move up in the international production structure, China
needed to accelerate its acquisition of science,technology
and know how from abroad.
Theoretical Perspectives on IPE
•Variety of theories that attempt to describe how states and nations should interact or
how they really do behave.
•Lenses through which we can view and interpret IPE.
•Useful to think of IPE perspectives as “points of view”
•The three main IPE theories are broadly termed:
Mercantilism
Structuralism or Marxism
Liberalism
Mercantilism
• Mercantilism or Economic Nationalism
• Looks at IPE mainly in terms of
NATIONAL INTEREST.
• IPE perspective most closely associated
with political science, especially the
political philosophy of Realism.
Mercantilism
• National power comes from economic
strength
• Exports strengthen state power, imports
weaken state power
• Some exports are more valuable than others
– Manufactured goods are preferred to
primary products
Liberalism
• Liberalism or Economic Liberalism
• Looks at IPE issues mainly in terms of
INDIVIDUAL INTERESTS.
• IPE perspective most closely associated with the
system of markets that are the study of
economists.
Liberalism
• Countries gain from trade
• Comparative advantage
• Export what can be produced relatively cheaply at
home
• Import what would be produced at relatively high
costs at home
Structuralism or Marxism
• Looks at IPE issues mainly in terms of CLASS
INTERESTS.
• Most closely associated with the method of
analysis employed by most sociologists.
Marxism
The key feature of the IPE
1.
Private ownership of capital (means of production) and wage labor
2.
Natural tendency towards concentration of capital (competition
efficiency small wealthy elite)
3.
Falling rate of profit (diminishing rate of return from capital)  lower
wages
4.
Imbalance between ability to produce (efficient capital) and ability to
purchase (falling wages)
5.
Growing inequality eventually leads to revolution
6.
Role of the state is to protect capital (agent of capitalist class)
Traditional schools of thought
Mercantilism
Liberalism
Marxism
Most important
actor
The state
Individuals
Capitalist class
Role of the state
Intervene to
Property rights
allocate resources
Protect/sustain the
capitalist system
Image of the IPE Conflict between
states over trade
Harmony
Exploitation of
labor
Proper objective
Enhance
aggregate social
welfare
Promote equal
income
distribution
Enhance national
power
Jurassic IPE
Mercantilism
• Overview
• Intellectual roots of Mercantilism
Mercantilism: Overview
• First Important Coherent IPE perspective
• Central Focus: Problem of security and the role of the state and market
in providing and maintaining security in all its forms.
• Theoretical perspective that accounts for one of the basic compulsions
of all nation states: to create and sustain wealth and power to preserve
and protect their national security and independence.
• Wherever you find a concern about foreign threats to security whether
military, economic or cultural, you will find evidence of mercantilist
thought.
• Narrow definition of Mercantilism: state efforts to promote exports and
limit imports thereby generating trade surpluses to create wealth and
power.
• IPE thinks of mercantilism in BROADER terms: as a theoretical
perspective that puts security at the center of national concerns. A
nations security can be threatened in many ways: foreign armies,
foreign firms and their products, foreign influence over international
laws and institutions and even by foreign movies, magazines and
television.
Classic Mercantilism
• Classic mercantilist period-Grew out of developments related to the
rise of nation states in Europe during the 15th through 18th century.
• New identity as ‘nation-states’-wanted to increase the power and
wealth of their nations-mercantilist way to achieving this goalgeneration of trade surpluses.
• To the extent that wealth enhanced a state’s military power by
producing or purchasing weapons, it enhanced national security as
well.
• Therefore, Wealth came to be regarded as an essential key to achieving
and preserving national security.
• Power and Wealth intertwined in a VIRTUOUS CYCLE where power
generates wealth—can be used to buy weapons and finance armies—
increases power which leads to more wealth.
• At the same time, power and wealth also part of a VICIOUS
CYCLE—policies adopted by one nation state to generate and protect
their national wealth and security were often perceived to be at the
expense of another state.
• Mercantilism is therefore a ZERO SUM worldview—gain by one state
are seen as a loss by competing states.
Mercantilism: Overview
17th Century-Birth of “nation states” in Europe
Desire to increase wealth
and power
Wealth Generation
How???
Trade Surplus
Power to produce/purchase weapons increases
National Security Increases
Classic Mercantilism
• Colonialism as a instrument to control trade.
HOW???
• Mercantilists established colonies to be exclusive
markets for the goods of the mother country, a
source of raw materials or a source of cheap labor.
Classic Mercantilism
• Classic Mercantilism then refers to a period of history
when newly emerging nation states faced the problem of
using their economies as a means to achieve wealth and
power for the sake of national security.
• The political philosophy of Mercantilism suggested how
national leaders can create a virtuous cycle of wealth and
power that would allow them to prosper while making
them more powerful.
• Policies included the use of subsidies—generate exports—
restrictions on imports—along with the development of
colonial empires.
Mercantilism: Intellectual Roots
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As a philosophical outlook, mercantilism describes the role of the state in the
economy.
Alexander Hamilton, one of the founders of the US was proponent of
mercantilism.
Argued for trade protection and a strong role for the state in protecting
domestic industries.
To successfully industrialize, the US should adopt protectionist trade policies
that would help its industries compete with the more mature state-assisted
industries of other nations.
19th Century political economist Friedrich List made similar case for
mercantilism with respect to Germany.
National interest lies in state promotion of industry and short term sacrifice for
future gain.
State action needed to promote PRODUCTIVE POWER in the form of
education, technology, and industry.
According to List, the power of producing is..infinitely for important than
wealth itself.
Argued that manufacturing and not agriculture form a more desirable basis for
national wealth and power as manufacturing developed greater human skills
and opportunities.
Mercantilism: Intellectual Roots
• The writings of Hamilton and List incorporate a spirit of PATRIOTIC
NATIONALISM to the extent that they emphasize the state’s use of the
economy to do what is in the best interests of the nation.
• Robert Reich writes that “the idea that the citizens of a nation shared
responsibility for their economic well-being was a natural outgrowth of this
budding patriotism.”
• This kind of patriotic political economy still found everywhere in the world.
• Many officials in Less Developed Countries (LDCs) view the development
and nation building process as one of ‘catching up’ to the western
industrialized nations.
• Look at the state to protect infant domestic industries against the more mature
industries and protectionist policies of the industrialized nations.
• At some level or another, these are the emotions that drive mercantilism.
What is Neomercantilism?
• Accounts for the variety of ways that states in
today’s increasingly interdependent international
political economy attempt to create political and
economic advantages for its industries and counter
the advantages that other states give to their
industries.
• Critics of neomercantilism, such as economic
liberals usually oppose state policies that enhance
domestic welfare by promoting trade surpluses at
the expense of consumers and other countries.
Examples??
Next Class
• Mercantilism Continued…