Transcript Introducing a New Product

International Political Economy
Four Development Strategies: Autarky, Mercantilism,
Dependency Theory, East Asian Model
Prepared for Junior Int'l Polt. class at NENU, Fall 2015
What Is (Economic) Wealth?
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Standing Wealth (homes, cars, farms, factories, ports,
railroads, etc.)
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Liquid Assets (AKA: Capital)
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Incl. Currency reserves, portfolio investments (“securities” =
stocks & bonds)
Capital Accumulation: Allows for investment, either domestic
or foreign (i.e. FDI, which buys Standing Wealth in other
states)
Gross Domestic Product (GDP): Standard measure for
both wealth & power

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= the size of a state's total annual economic activity
GDP growth = economic growth
GDP growth rate = how fast the economy is growing (or
shriking)
How Have States Grown Their Economies in the Past?
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The first step in the modern global economy is to
Industrialize
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After a country industrializes, it may become a “postindustrial” economy (i.e. rich) and shift away from
manufacturing toward becoming a “service” economy.
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Industrialization requires extremely high domestic capital
accumulation or investment from abroad.
The richest countries are rich because they provide “financial
services” for MNCs and rich individuals. Some are now
considered “knowledge economies”.
By this time, GDP growth rates tend to slow, because the
economy is already VERY LARGE, so even 1-2% growth can
be highly significant.
OR The economy may get “stuck” in the “Middle Income
Trap” (Brazil, S. Africa) or a “Natural Resource Curse”
Development Strategies = Industrialization Strategies

Development strategies may be divided by their types and
levels of engagement with the global economy, especially
in terms of trade and sources of investment.
 The four basic strategies
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Autarky

Mercantilism
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Dependency Theory

East Asian Model
are:
Autarky = Self-Sufficiency

Usually state-led
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Often motivated by nationalism and a fierce desire for
independence or a distrust of other countries
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Trade with other countries is minimized, except for
introduction of basic technologies
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Examples: Albania in Cold War, China after Sino-Soviet
split (and various dynastic periods of closure), North
Korean ju-che
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Results: Poor. Autarkic states tend to lag economically.
Mercantilism = “Economic Realism”

Concern with relative gains requires states to protect their
own interests at the expense of others, AKA a “beggar thy
neighbor” zero-sum game
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Goal: Use protectionism (especially tariffs) to ensure a
positive balance of trade.
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Imports, which lead to outflows of capital, are bad.
Exports, which result in capital inflows (and weaken rivals by
indebting them), are desirable.
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May result in trade wars, wherein barriers to trade
reciprocally escalate, as in an arms race.

Results: Mixed. Worked “well” in high colonial era for
European empires which translated economic power into
military power. Creates a highly inefficient global economy.
Dependency Theory & World-Systems Theory
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Assumes global economic core exploits the periphery, but
periphery is dependent on the core for capital investment,
technology, etc.
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To break the dependency, poor countries should cooperate and
only trade with each other, pooling resouces to create alternative
sources of capital.
To protect “infant industries,” high tariffs keep out manufactured
products from the core
Focus on “Import Substitution Industrialization” (ISI) for domestic
consumption.
A popular strategy for independent states of Latin America
and parts of Africa in the 1960s-70s, an adaptation of
Marxism
Results: Poor. Either the core wanted to keep the periphery
dependent, or “infant industries” never were able to take
advantage of “economies of scale”
East Asian Model = Export-Led Growth (ELG)

At first, tariffs are kept high, as in ISI, but only until “infant
industries” can produce products which are globally
competitive. Barriers to trade are then lifted, free trade and
globalization are embraced.

Often, the state chooses “national champions” in strategic
industries, as in Strategic Trade Theory (STT)
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Examples: Japan, “4 Dragons/Tigers”, China, Vietnam?
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Results: Successfully sustained GDP growth,
industrialization, poverty alleviation. Dependent on
globalization & U.S. consumer market?
Can Other States Follow the East Asian
Model?
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Liberal economists & institutions debate whether states
were primarily responsible for the success, or whether
private Asian firms were better at navigating markets and
managing FDI and other capital investments.
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Is a “Confucian” culture necessary?
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A collective (nationalist) mindset may help the nation unite for
“self-strengthening”
Prioritizing education makes for an attractive workforce for FDI
Rejecting liberal democracy (at first) gives the state a lot of
power to invest in heavy (polluting) industries without regard
for labor rights & environmental protection
Are there any other success stories in modern/recent
times?