Transcript 1. Introduction

International Political Economy
Chap. 13
Moving into Position: The Rising Powers
Professor. Yu Xunda
2013. 06.
CONTENT
1. Introduction
2. Transitions in the Formerly Socialist Countries
3. New Political and Economic Landscape
4. India: The Other Asian Tiger
5. China In Transition: An Analysis of Paradoxes
6. Conclusion
1. Introduction
1. Introduction ---(1)
Background: the first visit of Barack Obama to China in November, 2009.
------The rise of China, India, and other emerging countries is rapidly changing economic and security
relations into the global economies.
Transition: from state-dominated systems to market-oriented economies.
Impacts: they are profoundly reshaping their societies and connections to the global economy;
they are creating a more multipolar world.
Change in a nation's system of political economy causes
stresses and strains at all levels:
individual, market, class, national, regional, and global.
1. Introduction ---(2)
Four important theses about the rising powers:
 There is nor a single path away from socialism or communism;
 The experience of countries in transition lead us to question
many assertions in the IPE theories .
 In most countries transition has been a painful and chaotic
process that has, at least in the short run, destroyed valuable
social institutions and undermined social stability in pursuit of
long-term economic growth and political stability.
 The rising powers are ineluctably forcing Europe, the U.S., and
Japan to change.
2. Transitions in the Formerly Socialist Countries
2.1 Introduction
For communist or socialist regimes, political and economic power was rooted in a single party whose
membership was generally limited to about 5% -10 % of the populations.
---------Dominated official ideology, personality cults
 Most of the means of production---factories, land, and property---were owned by the state on
behalf of the people as a whole.
 The party-state guaranteed employment, centralized economic decisions making, and eliminated
most private commercial exchanges.
Myriad of problems:
overproduction of some goods, shortage of others, and misallocation of investment,
“soft-budget constrains”......
2.2 Development of the formerly socialist countries
Stage 1: from 1930s to 1970s.
key words: the heydays.

Their Warsaw allies had impressive growth rates, low unemployment,
and generous social safety nets form the 1950s through 1970s.
Stage 2: throughout the 1970s and 1980s.
key words: Grew worse

States found it increasingly difficult to deal with the effects of
the misallocation of resources caused by an inefficient planning
system and ignoring of fundamental market forces.
Stage 3: starting in the mid-1980s.
key words: reform

Those bad situations led leaders to seek reform of the system .
-------------------------------------------------Eg. Gorbachev and his glasnost (openness) and perestroika (restructuring).
2.3 Transitions required reestablishment
Transitions from communism required reestablishing some separation between the
state and the economy.
Two difficult parts of this process:

Marketization:
the re-creation of market forces of supply and demand;

Privatization:
the transfer of state-held property into private hands.
Debate about how to reform --------
Be gradually to minimize social disruptions
VS rapid market reforms
3. New Political and Economic Landscape
3.1 Context
How successful have all of these reforms been?
 Some of the countries in Eastern Europe and the former Soviet Union ended up with relatively stable
democratic political system, while others became mired in authoritarianism or civil war.
 As for the economy, almost all of the transition countries suffered sever economic decline, inflation,
and political upheaval in the early 1990s.
 Most countries now, have market-based economies with large private sectors.
3.2 Group 1: Countries joined the EU in 2004
Group 1: The eight countries that joined the European Union in 2004
-------- Poland, the Czech Republic, Slovakia, Hungary, Estonia, Latvia, Lithuania, and Slovenia.
They have embraced economic liberalism and social democracy.
The EU helped soften the economic transition and provided a clear set of regulations and benchmarks to which
reformers could aspire.
 Their “successful” transitions for reasons of:

a precommunist history of statehood

significant economic development;

historical ties to Western Europe;

rapid growth of civil society;

prodemocratic political parties ... ...
3.3 Group 2: Countries in the Balkans
Group 2: countries in the Balkans
---------- including Romania, Bulgaria, and the former Yugoslavia.
 Many of them suffered from ethnic fragmentation, extreme nationalism, and civil war during the 1990s.
 Semi-consolidated democracies.
Problems:
political stability in countries like Bosnia and Herzogovenia,
Serbia, and Albania.
3.4 Group 3: the CIS countries
Group 3: the Commonwealth of Independent States (CIS)
The CIS countries have had mixed transition results.
On average, it wasn’t until 2007 that the GDP recovered to 1989 levels in these countries.
 Crony capitalism: in which some have become extremely rich, often through government
connections, while many others
have seen their standard of living decline.

Democracy is weakly institutionalized or absent in the CSI countries, partly because of the legacy of a long
period of Soviet rule and the predominance of energy-intensive and heavy industries.

The post-Soviet countries have some of the comparatively lowest rankings in the world in measures of
good governance as the WGI measured.
--------------------- The emergence of “oligarchs”, mortality crisis
E.g : the failure of democracy in Russia
4. India: The Other Asian Tiger
4.1 Introduction
 India has often been portrayed as a caged tiger
poised to leap to unimaginable economic heights.
 India’s reluctance to fully embrace economic
liberalization is rooted in a variety of historical, political,
and infrastructural obstacles.
Eg. protectionist policies,
governmental bureaucracy and poor public infrastructure,
inadequate education,
vocational training programs....
4.2 Independence in 1947: Bounded Autonomy
In the preindependence period ----- a colony of the Britain
 The British East India Company made India into a subservient provider of raw materials for the
manufactories of Great Britain.
 The impact of British colonial establishments--- property rights, infrastructural development, the English
language, and a broad political and legal framework--aided the eventual emergence of India’s democratic
institutions and the fundamentals of its statehood following independence.
India’s economic story after independence has demonstrated the effects of both state-led and private
sector-led growth, providing a unique case study of comparative growth strategies.
 Jawaharlal Nehru, India’s first prime minister, prompted a vision of a self-reliant, import substitutionled model of growth that was as independent of foreign capital as possible.
 Although India chose a foreign economic development model, the motives of the Indian leadership
were nationalist in nature.

India retained democracy and private property.
 Disadvantage: Suppressive business environment, the protection of infant industries.
4.3 Beginning of a Mixed Economy & the Green Revolution
A mixed economy:
Although the states reserved the right to entry in nearly all sectors, it realized that openness to some foreign
investment was necessary for an industrializing economy.
Green Revolution:
 India emerged out of famine and became not only an agriculturally
self-sufficient nation but a surplus-exporting agrarian powerhouse.
 It also played an important part in stimulating auxiliary sectors of
India’s economy.
 Shifted India’s experience with agriculture from that of subsistence
to an economically viable capitalist model.
4.4 Placing India: Recent Versus Past Growth
Critics of Nehru’s state-directed policies point out that his strategies were loftily aimed at
reaching a level of modernity exhibited by the Soviet Union.
Ends: reducing incentives for private investment in industry
In the mid-1980s, Prime Minister Rajiv Gandhi began the policies of liberalization.
------- Relaxed restrictions,
eliminated price controls,
overhauled the tax system,
increased the flexibility of industrial firms......
4.5 Post-Reform Performance
During the 1980s a noticeable acceleration of growth was due in part to liberalization, a boost in public investment,
and a modest engagement with the global economy.
Economic growth in the early 1990s proved unsustainable --------------foreign debt crisis
 In mid-1991, India’s foreign debt had climbed to $72 billion, making India the world’s 3rd largest debtor.
 In response to the 1991 crisis, India’s minister of finance at the time. Manmohan Singh, instituted a series
of long overdue, sweeping reforms which were aligned with the “Washington Consensus”.
The five years following India’s 1991 liberalization registered record high annual growth rated of 6.7 percent.
Unlike many East Asian economies, India’s economic performance since its 1991 reforms has been characterized
by capital-and skill-intensive growth as opposed to export-led growth of labor-intensive manufactured goods.
-------------------------------------------------- India’s recent development model tenuously combines strongly protectionist state-led industrial
growth with neoliberal, market-driven growth. India skipped from an agricultural economy to a
service-driven economy, bypassing a labor-intensive industrial revolution.
4.6 Outlook for the future: The Crisis and Beyond
GDP grew at an average annual rate of more than 8% form 2002 to 2008.
 The advantage of population structure (compared with China);
 Less susceptible to global market.
India’s protectionist measures and
initial distrust of foreign markets helped India
survive the global economic slowdown. While
the infrastructure is a leading area desperate
for reform in India.
5. China In Transition: An Analysis of Paradoxes
5.1 Introduction:
China in the last three decades has adopted increasingly liberal economic policies on its way to
becoming a leading manufacturing power and major player in the global economy.
However, China’s strengths, are counterbalanced with a number of internal and external struggles associated
with rapid change.

Internally, Chinese government must grapple with the growing tensions between open markets and
constrained social freedoms.

Externally, Beijing makes calculated realist decisions about security and economic strategy, but finds
itself ever more dependent on the success and support of other nations.
Several paradoxes:
 Beijing has presided over a broadly mercantilist system that nevertheless is fueled by global
interdependence.
 The Chinese government has applied economic liberalism to advance its control over society.
 Chinese leaders have used an underlying structuralist rhetoric to foster a consumer culture.
5.2 Roots of China's rise:
Transition to Market Socialism ---(1)
By the late 1970s, China’s economy was unstable. Legitimacy of the Communist Party was in serious
jeopardy.
Deng Xiaoping: Socialism with Chinese characteristics
 He concluded that ideology alone could not sustain the party-state after the tumult of the preceding
decades. He believed that major reforms to raise the standard of living for all Chinese were necessary
to maintain social control.
The two most important reforms:
Household contract responsibility system
“the open door”
---- A necessary consequence of the reforms has been a greater recognition of private property rights.
5.3 Roots of China's rise:
Transition to Market Socialism ---(2)
Unlike the transition away from socialism in the ex-Soviet bloc, China has introduced these market freedoms
without giving up Communist Party power.
Classical socialism
→
Market socialism
Market socialism: a hybrid system that retains central power but encourages private economic activities.
 Private enterprise and markets enjoy a more liberal climate but still remain “the bird in the cage”.
 Urbanization-- numerous of “floating population” emerged.
Rapid growth fueled tensions and distrust between the Chinese population and the Communist Party
leadership. China’s government has gone to great lengths to censor expressions of dissatisfaction.
E.g. Tiananmen Square crackdown in 1989,
the suppression of the Falun Gong religious movement in 1999.

Also there are some expanded social services and gains in rights that have helped
the Communist Party bolster control domestically and gain favor internationally.
5.4 Roots of China's rise:
Transition to Market Socialism ---(3)
 The real key to sustainability of their government is maintaining the breakneck rate of development that has
been pumping wealth into the economy.
 8% as a minimum annual growth rate of GDP that will forestall widespread social unrest.
Advises:

Beijing must balance its mercantilist-realist aspirations with the humbling reminder of its global
economic interdependence.

It has been compelled to continue liberalizing its economy as a mechanism for maintaining its own
social control.

It must develop its own consumer culture and domestic spending---a task to be delicately balanced
with the structuralist rhetoric and culture of saving.
5.5 Paradox I:
Mercantilism That Runs on Global Interdependence
Criticism: the Chinese government unfairly enabled its country’s “miracle” of economic development.
Policies: Keeping China’s currency artificially devalued, providing unfair export subsidies, allowing inhumane
working conditions, turning a blind eye to widespread violations of IPRs.----representing a strategic
threat to the economic and security interests of the U.S.
The prospect of a stronger China is considered unacceptable.


Reasons: political system, human rights practices, security affairs.
While political oppositions led to noteworthy economic backlash.
China hardly holds a blank check to leverage its economic power over other countries.
China’s strength as a producer is founded on an interdependence with consumers in the rest of the developed
world. What’s more, a strong China benefits many countries.
The U.S-China relationship is a defacto partnership between Chinese savers /producers and U.S spenders /borrowers.
5.6 Paradox II:

Liberal Economic Prosperity as a Method of Social Control
Many believe that Beijing sees a direct relationship between economic growth and social
control.
 As the global economic downturn slowed the pace of growth in China, the Chinese
government felt increasing at risk of popular unrest.
Measures:
-------economic stimulus program,
-------maintaining strict control over public discourse,
-------exercising force,
-------widely information control ......
5.7 Paradox III: Fostering a Consumer Culture with Structuralist Rhetoric
 Embracing the liberal global economy has allowed China’s leadership to facilitate
exponential growth while maintaining social control.
 However it has also pulled the nation into a deep dependency on its export economy and a
resulting massive trade surplus.
 Fostering such internal economic growth provide a more reliable and stable economic model.
 But, reducing the trade surplus will mean more than
an infrastructure shift.
Questions:
Does economic liberalism depend on political
liberalism and freedom of expression?
6. Conclusion
6.1 China
Economic liberals
------- see China’s success in a positive light:
1. China seems to vindicate their assertion that free markets and open trading systems lead to
rapid growth and mutual interdependence.
2. China’s wealth is creating unstoppable pressures for more internal democracy and forcing
the country to behave more responsibly internationally, which actually strengthens institutions of
global governance.
Realist are less sanguine about China:
① China’s military modernization will allow it to threaten U.S. military hegemony.
② View China as a mercantilist in disguise, unfairly violating the rules of free trade and
malevolently hurting its competitors.
③ China’s domestic policies pose a threat to its own people and the rest of the world.
6.2 India
Most IPE scholars expect that it will take many years for India to become a global power.
Realists:

Hope India will be a regional buffer against Islamic extremism
in neighboring Afghanistan and Pakistan.

See India as a close ally of the U.S. and a counterbalance
to China.
Economic liberals:

Proof moving away from a state-dominated economy leads to
rapid growth.
Structuralists:

Tend to pooh-pooh the India-rising type, nothing that caste, corruption, and exploitation
still leave most Indians in deep poverty.
6.3 Post-Soviet and Eastern European Countries
-------- Post-Soviet and Eastern European countries play different roles in the global economy.
Economic libers:
 The integration of many postcommunist states into the EU is evidence of the triumph of
the triumvirate of democracy, capitalism, and peace.
Structuralists:
 many countries like Russia, Ukraine, and Moldova are worse off now than under communism because
of the breakdown of the state and the unfairness that accompanied the transition to market-based
economies and quasi-democratic regimes.
Realists:
 Concerned about the security threats from an authoritarian Russia that claims spheres of influence
around its borders and eagerly uses its oil-and-gas wealth to pressure others.
 In a word, the transition process is extremely diverse, and the results have been
dramatically different.
Discussion Questions
• How are China's reform experiences different from those of Russia and Eastern Europe?
China aims to reform its market without a radical alteration in its political system. Is it
possible to change the market so dramatically without changing the state? Explain.
• Which of the three core IPE theories do you feel best explains the paradoxes apparent in
China's development model? Why?
• In many ways, China and India appear to be developing under opposite models-- India
focused on service industries with a robust democracy and China emphasizing exportoriented manufacturing with a strong central government. What similarities and differences
exist in their models?
• In what ways has state intervention helped and hindered the rising powers?