Transcript World Economy

WEEK 2: The Study of Global
Political Economy
Lecture Plan
• The Global Financial Crisis
• The World Economy
– Pre-1914
– Inter-War Period
– Post-1945
– Contemporary Period
• The Study of Global Political Economy
The Global Financial Crisis
– Implications for studying global political
economy
• Increased integration of the global economy
• Susceptibility to financial crises
• Growing importance of Private Sector Actors
• Role of the G20 in Crisis Management
Periods of Modern World
Economy
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Mercantalism ( 16th cent –18th cent.)
Extension of Global Markets until 1914
Economic Shocks in the Inter-War Period
“ Golden age of Capitalism” under the Gold
Exchange Standard of Bretton Woods (19501971)
• Extension Global Markets with Floating
Exchange Rates ( 1971-?)
World Economy: Pre-1914 (1)
• Mercantilism
– Political power equated with wealth, and vice
versa
– For centuries, little change in overall global wealth
Mercantilism helped create trade patterns such as the triangular trade in the North
Atlantic, in which raw materials were imported to the metropolis and then processed
and redistributed to other colonies.
The laws are often considered examples of British mercantilism
The Anglo-Dutch Wars were fought between the English and the Dutch
for control over the seas and trade routes in the 17th and 18th cent.
World Economy: Pre-1914 (2)
• Extension of global markets
– Industrial revolution and technological advances
– International division of labour
– Tariffs were a barrier to goods trade
– Capital and people moved relatively freely
GDP per capita at purchasing power parity in 1990 dollars for selected
European and Asian nations showing the explosive growth of some
European nations after 1800
World Economy: Pre-1914 (3)
• No significant institutionalization of international
trade or finance
• Gold standard
– Fixed exchange rate
– Reduced uncertainty and risks with foreign exchange
– Relied on the commitment of governments to play by
the rules of the game
– Undermined by increasing democratization and
popular demands
Gold certificates were used as paper currency in the United States from 1882 to
1933. These certificates were freely convertible into gold coins.
World Economy: Inter-War Period
• Economic chaos
– Economic interdependence disrupted by WWI
– Governments disagreed on measures to restore
international economic stability
– Gold standard broke down
• Misalignment of currencies
• Inconsistent adherence to ‘rules of the game’
Abandonment in 1931
– Beggar-thy-neighbour policies (increasing tariffs)
World Economy: Post-1945 (1)
• Unprecedented rates of economic growth
– GDP grew at a faster rate than before 1945
– World trade grew more rapidly than world
production
Increasing importance of imports and exports in most
economies, which led to greater political support for
liberalization
• Characterized by:
– Embedded liberalism
– Multilateralism
World Economy: Post-1945 (2)
• Embedded liberalism (Ruggie, 1992)
– Compromise between meeting domestic
economic objectives and openness to
international trade and investment
– International commitments in trade and finance
embodied in IMF and GATT
World Economy: Post-1945 (3)
• Multilateralism
– Institutionalization of international economic
cooperation
• Bretton Woods institutions (IMF, World
Bank)
– ‘generalized’ principles of conduct
• Gold Standart - 1 ons of Gold = 35 USD
• most-favoured nation (MFN) principle
The idea of open markets was something that
liberal visionaries and hard-nosed geopolitical
strategists could agree upon. It united American
postwar planners, and it was the seminal idea that
informed the work of the 1944 Bretton Woods
conference on postwar economic cooperation… The
BW agreements allowed political leaders to
envisage a postwar economic order in which
multiple and otherwise competing political
objectives could be combined. As Roosevelt said at
the opening of the BW conference, “the economic
health of every country is a proper matter of
concern to all its neighbors, near and far.”
(Ikenberry ,2001,p.163-214)
Per capita income 1000-1998 (US$)
That capitalism’s globalizing tendencies were
revived after 1945 through the postwar “golden
age” had a great deal to do with the way the
capitalist states of Europe and Japan were
restructured under the aegis of the American
state. And although the economic turmoil of the
1970s demonstrated that capitalist crises were
by no means a thing of the past, the degree of
integration between the advanced capitalist
states led them—in contrast to the 1930s—to
promote the acceleration of capitalist
globalization, rather than retreat from
it.(Panitch&Gindin,2012,p.2)
Casino Capitalism
Unregulated dynamics of global capital
movements. It began after the partial collapse of
the BW system in the late 1970s and early 1980s.
Thanks to innovations in the global financial world
(e.g.options, futures, swaps),the financial system
has become much more complex and
uncontrollable. What is new is the speed with
which money travels in search of profitable
opportunities from speculative investments in the
global financial system, whose original function
had been to facilitate cross-border trade and
investment.
Negative effects of the domination of financial
capital
1) Providing economic incentives to speculate on
financial investments, global finance capital diverts
funds from long-term productive investments.
2) Encourages banks and financial institutions to
maintain high interest rates, which significantly
reduces the ability of productive industries to
access credit.
3) Brings uncertainty and volatility in interest and
exchange rates that is extremely harmful to various
real economic sectors.
4) Undermines efforts by governments to support full
employment and reduce inequality.
World Economy: Contemporary
– Growing interdependence of countries
– Integration of developing countries into global
production networks (or global supply chains)
– Importance of global trade to economic growth
– Globalization of production networks
– Globalization of finance and complexity of new financial
instruments
– Vulnerability of global financial systems to periodic crises
– Growing influence and importance of transnational
corporations (TNCs)
Thanks