INTRODUCTION TO INTERNATIONAL POLITICAL ECONOMYPolitical Science 186Global Studies 123

I. Introduction Conceptual and Analytical Issues1. What is International Political Economy?2. What are the issues?A. Actor behaviorB. System governanceC. Globalization

I. Introduction (contd)A. Actor Behavior. How do we explain and evaluate the actions of states?

1. Levels of analysis: international (structural, systemic) vs. domestic2. State (government, public sector) vs. society (markets, private sector)

I. Introduction (contd)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 (contd)C. Globalization. Inter-national vs. globalized model of world economy

II. Analytical Perspectives on Political Economy1. Liberalism2. Realism (statism, economic nationalism, mercantilism)3. Structuralism (Marxism, historical materialism)

II. Analytical Perspectives on IPE - LiberalismA. Focus: individuals, households, enterprisesB. Nature of economic relations: harmonious; interests reconcilableC. Relationship between economics and politics: economics drives politics

II. Analytical Perspectives on IPE -RealismA. Focus: statesB. Nature of economic relations: conflictual (zero-sum game)C. Relationship between economics and politics: politics drives economics

II. Analytical Perspectives on IPE - StructuralismA. Focus: classes, social forcesB. Nature of economic relations: conflictual (zero-sum game)Relationship between economics and politics: economics drives politics

III. Alternative Perspectives on Globalization1. Definition: a broadening, deepening, and acceleration of interconnectedness of states and markets; networks of connections at intercontinental distances2. Alternative views: from hyperglobalists to skeptics3. Why do we care? By creating a dissonance between the jurisdiction of states and the domains of markets, globalization problematizes governance: who is in charge?

III. Globalization (contd)4. Perspectives on causes and consequencesA. Liberalism: triumph of markets; good for economic welfareB. Realism: product of state policy; bad for power of statesC. Structuralism: triumph of markets; bad for poorer states and disadvantaged classes

IV. International Economic History Nineteenth Century1. Three major developments2. Political economy issues3. Key lessons

IV. Nineteenth Century - three major developmentsA. Monetary system: classical gold standardB. Trading system: movement toward free trade in 1860s-70s, then back toward protectionismC. Core-periphery relations: rise of new imperialism after 1870s

IV. Nineteenth Century - political economy issuesA. Gold standard: What accounts for its stability and relatively smooth operation?B. Trade: What accounts for the free trade movement in the 1860s-70s? What accounts for the subsequent return to protectionism?C. Core-periphery relations: What accounts for the new imperialism?

IV. Nineteenth Century - key lessonsA. No single (mono-causal) explanations; need to sift the evidence.B. No single rule for all regimes; different governance mechanisms can exist side by side

V. International economic history interwar period1. Major developmentsA. Breakdown during World War IB. Attempted reconstruction during 1920sC. Renewed breakdown (Great Depression) during 1930s

V. Interwar period (contd)2. Political economy issue: What explains the failure of the attempted reconstruction?A. Liberalism: markets failed because of wrong-headed government policiesB. Structuralism: internal contradictions of capitalismC. Realism: absence of effective governance (theory of hegemonic stability)

VI. International economic history postwar period1. Major developmentsA. Creation of new international institutions: IMF, World Bank, GATTB. Cold War, leading to two separate blocs (East-West) and the rest (Third World)C. Unprecedented economic growth (early years)D. Rise of Europe, Japan; East Asia; China and BRICsE. GlobalizationF. Increasing instability; slowing growth

VI. Postwar period (contd)2. Political economy issuesA. What explains the origins of the postwar system?B. What accounts for the relative success of the system in its early years?C. What accounts for the increased instability, slower growth in more recent years?D. What can be done to manage the system in the future?

VII. International Trade1. Basic issue: a tension between desire for material benefits of an open system and pressure to promote/defend state and/or particularist interestsa. Advantages of free trade: efficiency, growthb. Disadvantages of free trade: dependence, losses to key constituenciesc. Collective action problem: how to manage the basic tension

IV. International Trade (contd)2. Postwar experience: GATT/WTOa. Purposes: liberalization, dispute resolutionb. Principles: non-discrimination, reciprocity, safeguards

3. Protectionism (actor behavior)a. Instruments of trade policyb. Arguments for protectionc. Practical motivations

VII. International Trade (contd)4. Managing the system (system governance)a. Promotion of liberalizationb. Dispute resolutionc. Safeguardsd. Other current issues

VIII. Money and Finance1. Basic issue: as with trade, a tension between desire for the material benefits of an open system and pressure to promote/defend state and/or particularist interests

2. Basic conceptsa. Balance of payments; deficitsb. Financing: reserves, borrowing, liquidityc. Adjustment: the Three Ds, Unholy Trinity

VIII. Money and Finance (contd)3. Postwar experiencea. IMF, Bretton Woods systemb. Financing/liquidity: US dollar, SDRS, capital marketsc. Adjustment: breakdown of pegged exchange-rate system currency wars?d. Debt problems; financial crises

4. Managing the systema. Exchange ratesb. International capital markets

IX. Regionalism1. Basic issue: between the national and global levels, regionalism can complicate the issue of system governance

2. Trade Regionalism (regional trade agreements)

3. Monetary regionalism (monetary unions, etc.)

IX. Regionalism Trade (RTAs)a. Types of RTAsb. Advantages and disadvantagesi. For individual countriesii. For overall system (trade creation, trade diversion)c. Postwar experiencei. First wave: 1950s-60sii. Second wave since 1980sd. Why the renewed interest in RTAs?e. Significance for system governance

IX. Regionalism - Moneya. Types of monetary regionalism: horizontal, verticalb. Advantages and disadvantagesc. Recent experiencei. Precedent of the euroii. Rise of currency competitioniii. Currency regime choices today d. Significance for system governance

X. Economic Development1. The developing world: differentiated, difficult to generalize2. Postwar rules: based on principle of non-discrimination; trade was to function as an engine of growth3. Postwar experience: mixed some success stories, many disappointments

X. Development (contd)4. Why has trade failed as an engine of growth for so many?a. Liberalism: market failures -- weak demand, weak linkages, weak adaptive capacityb. Structuralism: natural result of capitalism exploitationc. Realism: result of power politicsi. Role of great powers in writing the rulesii. Attempts at collective action by LDCsiii. Outcomes: partial success

X. Development (contd)5. Options for development strategiesa. Export promotioni. Traditional exportsProblems: inelastic demand, protectionismCartels? Three conditions necessary for success: control largest part of supply; no close substitutes; agreement on the sharing of benefitsii. Non-traditional exports: manufacturing, servicesb. Import substitution (import substitution industrialization ISI)c. Regionalism

XI. The Environment1. Basic problem: the environment is a collective good, shared by all and owned by none (tragedy of the commons); core issue is externalities, which can cross borders2. Economic functions of the environmenta. A consumption goodb. A supplier of resourcesc. A receptacle of wastesd. The problem: not always mutually consistent, hence a collective action problem a system governance issue

XI. Environment (contd)3. Practical dimensionsa. Pollution (air, water, etc.)b. Deforestationc. Endangered species4. Possible solutions approaches to governancea. Laissez faireb. National regulationc. Formal regimesd. Market approaches

XII. Energy1. Importance: the worlds single most widely traded product2. First regime: the Seven Sisters a classic cartel, successful because it met all three key conditions necessary for success: control of supply; no close substitutes; agreement on sharing of benefits3. Second regime: OPECa. Dramatic emergence in 1973b. Ups and downs of OPEC power since 1973

XII. Energy (contd)4. Reasons for variations of OPEC power over time back to the three key conditions for a successful cartel5. OPECs biggest challenge: agreement on benefits (limiting free riding)a. Low absorbers vs. high absorbersb. Special role of Saudi Arabia6. Prospectsa. Demand side (conservation)b. Supply side: exploration, alternative forms of energy, technology

XIII. Multinational Corporations1. Definition2. Perspectives on the MNC3. Historya. Until 20th century, mostly extractive (farming, mining, etc.)b. Real growth began in 1950s, for 2 reasonsi. European Common Market (trade diversion)ii. Decolonization (ISI development strategies)c. Changing sources and destination of foreign direct investment (FDI)i. Increasing share of FDI from developing worldii. Increasing share of FDI going to developing world

XIII. MNCs (contd)4. Perspective of home countryi. Advantages: profits, market shareii. Disadvantages: avoidance of taxes, regulation5. Perspective of host countryi. Advantages: capital, technology, management expertise, market accessii. Disadvantage: loss of control6. Shifting and uncertain balance of power between states and marketsi. The obsolescent bargainii. Multinational production, supply chains

XIV. Prospects for the Future1. Postwar period has seen major structural changesa. Distribution of power between statesb. Distribution of power between states and marketsc. Global security environment2. Future scenariosa. Automaticity?b. World economic government (supranationality)?c. Renewed hegemony (US? Europe? Japan? China?)?d. Cooperative regimes (automaticity + pluralism)?e. Governance by MNCs?f. Collapse and economic warfare?g. Most probable: a mosaic (all of the above)

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