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Introduction to International Relations International Regime/International Political Economy Jaechun Kim Intl Regime Definition? Concept is relatively new… in 1980s… Sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors’ expectations converge… This is the most widely accepted definition of International Regime Stephen Krasner (1982) GATT – what is it? Is it international regime? Established in 1947 1994 – WTO… GATT is a formal agreement, but regime includes informal institutions (implicit and explicit principles and norms…) as well… What is International Trade Regime? What is it made of? Informal parts Principles – idea that member states cherish Norms – specify general standards of behavior… norms of reciprocity Formal parts Rules – formal rules specified by GATT DMP – specifies the ways in which you arrive at decisions Rules and DMP change, but Principles and Norms seldom change… Sogang GSIS regime? Marriage regime? Examples of international regime? Intl aviation regime Intl post delivery regime Nuclear non-proliferation regime Intl Trade Regime Intl Monetary Regime… Free international economic relations (or free international trade relations) is (international) quasi-public goods…or collective goods… Why? Beneficial, but hard to provide… Free international econ order was established twice in world history… when? Who or what provided it?? How can we explain the origin of the post WWII free international economic relations? Realist answer to this? Hegemon! e.g., Stephen Krasner, “State Power and the Structure of International Trade” It takes hegemon to create and maintain free international economic order… Creation of free international economic order force others to join.. bear the costs of creation of such order… Management monitor other states’ behavior and punish defectors e.g. US, GB.. HST (Hegemonic Stability Theory) The US had the preponderance of power and had the will to act as hegemon in the post WWII era... Therefore created and maintained post-WWII free international economic order (free trade order)… Brits played the role of hegemon in the late 19th c… Decline of American hegemon in the late 1970s and early 1980s?! Germany and Japan were catching up.. Vietnam quagmire… too much spending in military.. Abandonment of BW monetary system… What should have happened according to realism (HST)? What really happened? How would you explain the continuation of free international economic order? Regime theorists (a.k.a., neo-liberal institutionalists) answer lies in international regime… internationall free trade regime sustained free international trade order…! Robert Keohane (Neoliberal institutionalist) –After Hegemony (1984) Cooperation is possible without hegemony since International Regimes make this cooperation possible… Anti-thesis of HST… Keohane however uses realist assumption! Anarchy assumption and Rationalist assumption… Hegemony is less important for the continuation of cooperation… Although hegemony can facilitate cooperation, it is neither necessary nor a sufficient condition for continuation of cooperation… Once regime is created, it takes life of its own. What are the functions and/or benefits of international regimes? What are the mechanisms by which international regimes elicit cooperation? Reducing transaction costs… etc. non-hegemonic cooperation is difficult but not impossible… IPE History of IPE as a distinct discipline of IR Little interest in IPE in the post WWII era… Booming industry in the post-Cold War era What is PE? Interplay between politics and economy. IPE – the way international politics affect international economy and vice versa… Three traditions in IPE Realism (statism; mercantilism); Liberalism; Marxism Realist theory of IPE Early mercantilists (Friedrich List; Alexander Hamilton) F List said: Discussion of IPE must begin with a recognition of inherently conflictual nature of IR… (realist assumptions about the world…) Primary goal of state is to pursue power and security. Realpolitik… breaching international norm is OK…defection is OK (if it helps our interests!) Discount the primacy of liberal international economic system and institutions… Open international econ order is important only when it benefits our national interests… “Beggar-thy-neighbor policies” are OK!... Hamilton – nurture our “infant industry!” If the US wants to be more powerful, we have to intervene in the market and cultivate manufacturing sector… A. Economy is only means to enhance states’ power. Economy is subordinate to politics… Contemporary realists IPE theories (R. Gilpin; S. Krasner…) Methodologically, States’ they are more positivist in orientation… power and states’ interests do shape econ outcomes, instead of saying that states’ power and security concern should shape econ policies… R. Gillpin – states and states’ interests does dominate the logic of IPE… not international institutions or regimes… S. Krasner – Pattern of international econ relations reflect global BOP.. Powerful countries shape word econ relations… e.g., HST! Liberalist theory of IPE Classical Liberalism (A. Smith; D. Ricardo) shouldn’t intervene in the market… let the “invisible hand” do the trick! laissez faire! The goal of the state goes beyond security and power to the protection of human rights and enhancement of individual welfare.. Free economy will create greater welfare to the people.. Politics Contemporary liberalists (R. Keohane) Regimes (institutions) and interdependence do matter as well… cf. Realists - only states’ power and national interests affect IPE.. Marxism Marxist political economy starts from the assumption that economics is about the relations between people and classes, not the relationship between commodities, prices, supply , and demand… Economics is about people and the social relationships between them… K economy is a dynamic system full of contradictions… Marxist theories – international K economy would collapse!! Early theory of IPE… structural deficiency of international K economy!! Neo-Marxist Dependency I. theory (從屬理論) Wallerstein – International Capitalist System Anti-globalizationists Negative impact of internationalization of K economy …. International Monetary System (or Regime) Why IMS matters? Sound international monetary system is a prerequisite for maintenance of stable world economy. It is prerequisite for the growth of world trade and foreign investment… IMS imposes different costs and benefits upon states and groups within them. Different IMSs have varying impact on the distribution of power among states and welfare of different groups within the states… important political implications!!! Requirements for Stable IMS (International Monetary System) Liquidity What is it? Amount of cash or liquid assets that can be easily available… IMS should provide an adequate supply of liquid assets to finance international transactions… Adjustment Mechanism It must specify methods to resolve BOP (Balance of Payments) disequilibria… What All is BOP? payments between a country and its trading partners .. Current BOP Account + Capital Account deficit adversely affects states’ economy… Confidence Sound IMS should provide confidence in the system.. History of international Monetary System The Era of Specie Money In the pre-modern era, specie money was the basis of the IMS. What is specie money? Specie money constituted a medium of exchange... Governments had no control over monetary issues (money flow)… The Era of Political Money the 18th and 19th centuries, a financial revolution took place... Paper money; modern banking; private credit instruments… This was very important. Why? The government started printing money… government acquired extensive control over the money supply! “macro-economic variable” influence econ activities… Government could solve the inadequacy of specie money.. For instance, government could fight against “deflationary pressure.” But this can also create inflationary bias… which will diminish the value of currencies… and instability in IMS… During We want both flexibility in domestic econ policies and stability in IMS, but… Trade off between autonomous domestic econ policies and stable international monetary order… The way this dilemma has been resolved characterizes the subsequent phases in the history of IMS… The Classical Gold Standard (1870-1914) Features: Central bank of a state bought and sold gold at a fixed price! Price of gold was fixed.. Private citizens could freely export and import gold… Central banks didn’t interfere with K flow…!! Fixed XR mechanism for adjusting BOP payment problem…!!! Embodiment of classical liberal economic principles.. Laissez-faire economic policies! Very successful IMS.. Facilitated growth of world trade and global prosperity.. It achieved remarkable success in creating and sustaining stability in international economic (monetary) relations… But at the cost of autonomy in domestic economic policies… This system worked pretty well till WWI… The Interregnum between Classical Gold Standard and BW System: Gold Exchange Standard Why did the Gold Standard collapse? WWI and its aftermath… Rise of warfare state Major consequence of WWI was a nationalization of the IMS. States quickly safeguarded their gold supplies… and disengaged from fixed XR and abandoned the primacy of tight monetary policy… Advent of Keynesianism… - gov should fight against frequent recessions and high unemployment… how? Feature of Gold Exchange Standard: Currency tied to gold. But the return to the gold std. was ruled out… Instead of the gold, states could use gold-backed currencies such as British Sterling… basically very similar to those of Classical Gold Standard… It only survived a few years… Why? Rise of welfare state… give priorities to the autonomy of domestic economic policies! welfare objectives such as continuous economic growth and full employment are more important than a stable international monetary order… rise of Labor Unions, etc. Earlier, the ruling elites preferred the dangers of tight money and deflation to those of cheap money and inflation. … higher rates of unemployment and decreased welfare… but this can no longer be tolerated! Because of change in political dynamics!!! Active intervention in monetary issues…!! Autonomy of domestic econ policies over stable international monetary system!! Beggar-thy-neighbor policy; competitive depreciation.. Great Depression WWII (??) The Bretton Woods System 1944 Two goals of the BW A world in which government would have considerable leeway to pursue national economic objectives, yet the monetary order would be based on fixed XR to prevent the competitive depreciations… Both autonomy and stability!! Creation of IMF to supervise BWS… The compromise of domestic autonomy and international monetary stability Embedded Liberalism “Unlike the economic nationalism of the thirties, it would be liberalistic in character; unlike the liberalism of the gold standard, its liberalism would be predicated upon domestic interventionism.” John G. Ruggie Avoided (1) subordination of domestic economic activities to the stability of the IMS (this was the key feature of Classical Gold Std.) and also (2) the sacrifice of IMS to the domestic policy autonomy (which was the key char of the interwar period..) Intended to enable government to pursue Keynesian growth policies at home, without sacrificing international monetary stability… It was also intended to achieve stable international monetary system, without subordinating autonomy in domestic econ activities… How the dilemma was solved during the BWS? If a country is suffering temporary BOP disequilibria, IMF provided medium-term loan to the country… If a country is suffering fundamental BOP disequilibria, the system permitted a country to change its XR… with consent… The key to the system? American economy… dollar… Other nations pegged their currencies to the dollar, so this was the system of fixed XR. The US pledged to keep the dollar convertible into gold at $35 per ounce. Dollar was the principal medium of exchange, store of value, and unit of accounting.. It was quite successful !! Why did the system collapse? Triffin Dilemma The soundness of BW system was dependent upon liquidity and international confidence created by the US economy. Every state wants dollars to rectify their BOP problem! But the US can’t print dollars indefinitely. Because this will create inflationary pressure, which will devalue the worth of dollar… People will lose confidence in dollar and in the system… To provide liquidity, the US would have to run BOP deficit… ?? American BOP deficit in the long run will undermine confidence in the dollar and the system… This was a dilemma!! Two basic asymmetries. 1. The role of dollar as providing international liquidity leads to American BOP deficit decreased confidence in the IMS 2. The US, not able to devalue the dollar to improve its BOP position!! Vietnam War; Great Society expansionary policy 1971, 8. 15. Nixon announced that the US will suspend the convertibility of the dollar into gold. 1976 Kingston Conference – the determination of the par value of a currency is the responsibility of the country (Non)system of flexible rates Dirty Floating Loss of international financial discipline Answer? More liberalization of financial and capital markets Embedded Liberalism Revisited… Prof. Chang, Ha-Joon of Cambridge University Kicking away the ladder Bad Samaritans
