Download International Political Economy

Deepak Prakash Bhatt, PhD
Politics
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 Politics refers to achieving and exercising positions
of governance - organized control over a human
community
 Politics is the practice and theory of influencing other
people on a civic or individual level
 Politics is exercised on a wide range of social levels
 Clans and tribes of traditional societies
 Local governments and up to sovereign states,
to international level
 Methods
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Promoting own political views among people
Negotiation with other political entities
Making laws
Exercising force
Economy
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An economy or economic system consists of
the production, distribution or trade,
and consumption of limited goods
and services by different agents in a given
geographical location
The economic agents can be individuals,
businesses, organizations, or governments
Transactions occur in a certain currency
….
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 A given economy is the result of a set of processes that
involves itsCulture
Values
Education
Technological evolution, history, social organization,
political structure and legal systems
 Geography, natural resource endowment, and ecology
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 These factors give context, content, and set the conditions
and parameters in which an economy functions
 Some cultures create more productive economies and
function better than others, creating higher value, or GDP
Political Economy

 The original term used for studying production, buying, and
selling, and their relations with law, custom, and government,
as well as with the distribution of national income and wealth
 Political economy originated in moral philosophy
 Developed in the 18th century as the study of the economies of
states
 Introduced in France in 1615 with the well-known book
by Antoine de Montchrétie ”Traité de l’economie politique”
 The world's first professorship was established in 1754 at
the University of Naples, Italy
 In the late 19th century, the term economics came to
replace political economy
Today

 Political Economy refer to very different things
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Chicago school
Marxian analysis
Virginia school
Advice given by economists to the government
Public on general economic policy or on specific proposal
 A rapidly growing mainstream literature from the 1970s has
expanded beyond the model of economic policy in which
planners maximize utility of a representative individual toward
examining how political forces affect the choice of economic
policies
 It is available as an area of study in colleges and universities
International Political
Economy

 IPE is an interdisciplinary field comprising approaches to the
actions of various actors
 Rapidly developing social science field of study that attempts to
understand international and global problems using an eclectic
interdisciplinary array of analytical tools and theoretical
perspectives
 The growing prominence of IPE as a field of study is in part a
result of the continuing breakdown of disciplinary boundaries
between economics and politics in particular and among the
social sciences generally
 Increasingly, the most pressing and interesting problems are
those that can best be understood from a multidisciplinary,
interdisciplinary, or transdisciplinary point of view
….
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 Anthropologists, sociologists, and geographers
use political economy in referring to the regimes of politics
or economic values
 This emerge primarily at the level of states or regional
governance, but also within smaller social groups and
social network-Micro finance in Bangladesh
 Because these regimes influence and are influenced by the
organization of both social and economic capital
 The analysis of dimensions lacking a standard economic
value e.g., the political economy of language, of gender,
or of religion
New dimension
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 Global political economy (GPE), is an academic discipline within
the social sciences that analyzes IR in combination with political
economy
 IPE scholars are at the center of the debate and research
surrounding globalization both in the popular and academic
spheres
 Other topics that command substantial attention among IPE
scholars are international trade and development
 The relationship between democracy and markets, international
finance, global markets, multi-state cooperation in solving transborder economic problems, and the structural balance of power
between and among states and institutions
 Unlike conventional international relations, power is understood to
be both economic and political, which are interrelated in a complex
manner
Liberal View
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 Liberal believes in freedom for private powers at the
expense of public power (government)
 It asserts that markets, free from the distortions caused by
government controls and regulation, naturally will
harmonize demand and supply of scarce resources
resulting in the best possible world for populations at
large
 David Ricardo whose theory of comparative advantage
suggested that trade between different nations
 Adam Smith’s formulation that nations could benefit both
parties even in circumstances where one would feel
intuitively that one nation would benefit from trade at the
expense of the other
Realist View
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The 'realist' view, also known as nationalist
accepts the power of free markets to deliver
favorable outcomes
While it holds that optimum conditions
generally are obtained with moderately
strong public power exerting some
regulatory control
Marxist View
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The 'Marxist' view believes that only robust
application of strong public power can check
innate tendencies for private power to benefit
elites at the expense of populations at large
Constructivist View
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Constructivists assumes that the domain of
international economic interactions is not
value-free, and that economic and political
identities, in addition to material interests,
are significant determinants of economic
action
USA Vs the UK
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 The Americans are positivist and attempt to develop
intermediate level theories that are supported by
some form of quantitative evidence
 British IPE is more "interpretivist" and looks for
"grand theories”
 They use very different standards of empirical work
 This characterization of IPE has been hotly debated
 Forum was the -2008 Warwick RIPE Debate:
‘American’ versus ‘British’ IPE
Globalization and Theories about
the Global Economy
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 Globalization is the process of international
integration arising from the interchange of world
views, products, ideas, and other aspects of culture
 Advances in transportation and telecommunications
infrastructure, including the rise of telegraph and the
internet are major factors in globalization
 Globalization is interdependence of economic and
cultural activities
Time
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 Two views are pertinent
 Age old or Modern process
 Several scholars place the origins of globalization
before the European age of discovery and voyage to
the New World
 Others trace the origins to third millennium BC
 But in the late 19th century and early 20th century,
the connectedness of the world's economies and
cultures grew very quickly
Silk Road or Route
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 The Silk Road is a series of trade and cultural
transmission routes that were central to cultural
interaction through regions of the Asian continent
connecting the east and west by linking traders,
merchants, pilgrims, monks, soldiers, nomads and urban
dwellers from China to the Mediterranean sea
 Extending 6,437 km., silk trade begun during Han
Dynasty (206 BC to 22- AD)
 They took great interest in the safety of their products
being traded and extended the Great Wall (21,196km.) to
ensure the protection of the trade route
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Proto age
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 Proto-globalization is a period of the history of globalization
roughly spanning the years between 1600 and 1800
 the phase of increasing trade links and cultural exchange that
characterized the period immediately preceding the advent of
so-called 'modern globalization' in the 19th century
 Proto-globalization was characterized by the rise of maritime
European empires- Portuguese, Spanish, Dutch and British
empire.
 Proto-globalization distinguished itself from modern
globalization on the basis of expansionism, the method of
managing global trade, and the level of information exchange
 Proto-globalization trade and communications involved a vast
group including European, Muslim, Indian, Southeast Asian
and Chinese merchants, particularly in the Indian ocean region
New age
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 The term globalization has been in increasing use since
the mid-1980s and especially since the mid-1990s
 In 2000, the International Monetary Fund identified four
basic aspects of globalization
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Trade and Transactions
Capital and investment movements
Migration and movement of people
The dissemination of knowledge
 Further, environmental challenges-climate change,
pollution, cross boundary issues
 Globalizing processes affect and are affected by business,
economic-cultural resources and natural envireonmet
….
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 Ronald Robertson, professor of sociology at University of
Aberdeen, defined globalization in 1992 as-the
compression of the world and the intensification of the
consciousness of the world as a whole
 Sociologists Martin Albrow and Elizabeth King define
globalization as-all those processes by which the peoples
of the world are incorporated into a single world society
 In The Consequences of Modernity, Anthony Giddens uses
the following definition- Globalization can be defined as
the intensification of worldwide social relations which
link distant localities in such a way that local happenings
are shaped by events occurring many miles away and
vice versa
Institutions
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 After WW II, work by politicians led to the BWI, an agreement by
major governments to lay down the framework for international
monetary policy, commerce and finance, and the founding of
several international institutions intended to facilitate economic
growth multiple rounds of trade opening simplified and lowered
trade barriers
 GATT, led to a series of agreements to remove trade restrictions.
GATT's successor was the WTO, which created an institution to
manage the trading system
 Exports nearly doubled from 8.5% of total gross world product in
1970 to 16.2% in 2001
 The approach of using global agreements to advance trade
stumbled with the failure of the Doha Round of trade-negotiation
 IMF,
….
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 International Tourism
 International Sports
 Drug Trade
 Human smuggling and trafficking
 Education
 Economic-capital flight
 Inter-banking system
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Theories
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 World-systems theory is a multidisciplinary, macroscale approach to world history and social
change that stresses that the world system should be
primary unit of social analysis
 World-system refers to the inter-regional and
transnational division of labor, which divides the
world into
 Core Countries
 Semi-periphery countries
 Periphery countries
Trade theory
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Heckscher–Ohlin model the pattern of
international trade is determined by
differences in many factors
It predicts that countries will export those
goods that make intensive use of locally
abundant factors
These countries will import goods that make
intensive use of factors that are locally scarce
New Trade theory
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 NTT is a collection of economic models in international
trade which focuses on the role of increasing network
effects, which were developed in the late 1970s and early
1980s
 New trade theorists relaxed the assumption of constant
returns to scale, and some argue that using protectionist
measures to build up a huge industrial base in certain
industries will then allow those sectors to dominate the
world market
 The value of protecting "infant industries" has been
defended
Books
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 Apter, David E. Rethinking Development: Modernization, Dependency
and Post Modern Politics, NewburyPark, Calif: Sage, 1987
 Gilpin, Robert, “Three Ideologies of Political Economy,” The
Political Economy of International Relations, Princeton University
Press, 1987
 Gilpin, Robert. “The Insecure Trading System” The Challenge of
Global Capitalism, Princeton University Press, 2000.
 Goldstein, Joshua S. International Relations, 6th edition (Ed.), Pearson
Education: Delhi, 2006.
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….
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 Robertson, Justin. Power and Politics after Financial Crisis:
Rethinking Foreign Opportunism in Emerging Markets(ed.),
Palgrave McMilan: New York, 2008.
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 Stiglitz, Joseph, “What I learnt at the World Economic
Crisis: the Insider” The New Republic, April 17 2000.
 Sachs, Jeffrey D., The End of Poverty: Economic Possibilities
for our Time, The Penguin Press: New York, 2005.
 Wilber, C. K Ed.The Political Economy of Development ad
Underdevelopment, 2nd Ed., New Random House, 1979.
Recardian Theory
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 The Ricardian theory of comparative advantage seen
as a basic constituent of neoclassical trade theory
 The Ricardian trade theory includes a presentation of
Ricardo's example of a two-commodity, two-country
model
 A common representation of this model is made
using an Edgeworth Box
 This model has been expanded to many-country and
many-commodity cases
International Production
Fragmentation Trade Theory
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 Fragmentation and International Trade Theory
widens the scope for application of Ricardian
comparative advantage
 According to this theory-producers in different
countries are allocated a specialized slice or segment
of the value chain of the global production
 Allocations are determined based on on "technical
feasibility" and the ability to keep the lowest final
price possible for each product
International trade
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 Domestic or international trade depends upon
 Capital
 Goods
 Services
 In economics, capital goods, real capital, or capital
assets are already-produced durable goods or any
non-financial asset that is used in production of
goods or services
….
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 Financial capital which represents obligations, and is
liquidated as money for trade, and owned by legal entities
 It is in the form of capital assets, traded in financial markets
 Its market value is not based on the historical accumulation of
money invested but on the perception by the market of its
expected revenues and of the risk entailed
 Natural capital which is inherent in ecologies and protected by
communities to support life, e.g., a river that provides farms
with water.
 Social capital which in private enterprise is partly captured as
goodwill or brand value but is a more general concept of interrelationships between human beings having money-like value
that motivates actions in a similar fashion to paid compensation
….
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 Instructional capital defined originally in academia as
that aspect of teaching and knowledge transfer that is not
inherent in individuals or social relationships but
transferrable-knowledge or intellectual capital
 Human capital a broad term that generally includes
social, instructional and individual human talent in
combination
 It is used in technical economics to define balanced
growth which is the goal of improving human capital as
much as economic capital
Goods
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 In IPE or economics a good is a material that satisfies
human wants and provides utility for example, to a
consumer making a purchase
 A common distinction is made between 'goods' that
are tangible property and services which are nonphysical
 Commodities may be used as a synonym for
economic goods but often refer to marketable raw
materials and primary products
….
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 Although in economic theory, all goods are
considered tangible in reality certain classes of
goods, such as information only are in intangible
forms
 Among other goods an apple is a tangible object,
while news belongs to an intangible class of goods
 Can be perceived only by means of an instrument
such as print broadcast or computer
Service
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 In economics a service is an intangible commodity
 Service provision is often an economic activity where
the buyer does not generally, except by exclusive
contract, obtain exclusive ownership of the thing
purchased
 The benefits of such a service, if priced, are held to be
self-evident in the buyer's willingness to pay for it
 Public services are those, that society-nation state,
fiscal union, regional, as a whole pays for, through
taxes and other means
….
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By composing and orchestrating the
appropriate level of resources, skill,
ingenuity and experience for effecting
specific benefits for service consumers
Investment in expertise does require
consistent service marketing and upgrading
in the face of competition
….
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 International trade is the exchange of capital, goods,
and services across international borders or
territories.
 In most countries, such trade represents a significant
share of GDP
 International trade has been present throughout
much of history-Silk Road and Amber Road
 Its economic, social, and political importance has
been on the rise in recent centuries
Impact
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 Factors influencing international
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Industrialization
Advancement in technology
Transportation
Globalization
Multinational corporations
Outsourcing
 Increasing international trade is crucial to the continuance
of globalization
 Without international trade, nations would be limited to
the goods and services produced within their own
borders
Financial Relations
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 Financial Relations is a strategic management
responsibility that integrates finance,
communication, marketing and securities law
compliance
 To enable the most effective two-way
communication between a company, the financial
community, and other constituencies
International Monetary
Regime
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 Regime- is a form of government, the set of rules, cultural
or social norms, that regulate the operation of
government and its interactions with society
 Political use of the word regime is commonly applied to
any government that is most of the time Not democratically elected, imposes strict and often
arbitrary rules and laws on the people that are, because of
the undemocratic nature of the government
 Modern usage often gives the term a negative
connotation, implying an authoritarian government or
dictatorship
….
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 Democracy is a form of government in which all
eligible citizens participate equally—either directly
or through elected representatives—in the proposal,
development, and creation of laws
 It encompasses social, economic and cultural
conditions that enable the free and equal practice of
political self-determination
 Democratic regime- Robert A Dahl, Democracy and
Its Critics (1989), tests them against the questions
raised by its critics, and recasts the theory of
democracy into a new and coherent whole
International Regime
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 International regimes often form in response to a
need to coordinate behavior among countries around
an issue
 International political use of regime concerns
international regulatory agencies which lie outside of
the control of national governments
 In the absence of an overarching regime- trade
between countries would have to be governed by
numerous bilateral agreements, which would
become impossibly complex to administer
worldwide
International Monetary Regime
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 International monetary regimes or systems are sets
of internationally agreed rules, conventions and
supporting institutions, that facilitate International trade
 Cross border investment
 Reallocation of capital between nation states
 Provide means of payment acceptable between
buyers and sellers of different nationality, including
deferred payment
….
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 To operate successfully, they need to inspire
confidence, to provide sufficient liquidity for
fluctuating levels of trade and to provide means by
which global imbalances can be corrected
 The systems can grow organically as the collective
result of numerous individual agreements between
international economic factors spread over several
decades
 Alternatively, they can arise from a single
architectural vision as happened at Bretton Woods in
1944
Use of system and ages
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 400 BC in Indian subcontinent
 Greek city-states 4th century
 Until the 19th century the global monetary system
was loosely linked with Europe, the Americas, India
and China were separate economies, and monetary
systems were regional
 Bretton Woods Agreement-that established the post–
WW II monetary order, with fixed exchange rates of
currencies to the dollar, and convertibility of the
dollar into gold
….
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 Two international institutions, the International
Monetary Fund and the World Bank were created
 A key part of their function was to replace private
finance as more reliable source of lending for
investment projects in developing states
 Nixon shock of 1971, ending convertibility, the US
dollar has remained the de facto basis of the world
monetary system
 The Euro has gained use as a reserve currency and a
unit of transactions
IMF
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 Members-188
 Nepal became member - September 6, 1961
 Working to
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Foster global monetary cooperation
Secure financial stability
Facilitate international trade
Promote high employment
Sustainable economic growth
Reduce poverty around the world
Surveillance
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 The IMF is mandated to oversee-the international
monetary and financial system and monitor the
economic and financial policies
 The Fund typically analyses the appropriateness of
each member country’s economic and financial
policies
 For achieving –
 Economic growth
 Assesses the consequences of these policies for other
countries and for the global economy
WB
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 Members 186
 Nepal became member in 1961
 Provides loans to developing countries for capital
programs
 Official goal is the reduction of poverty
 All its decisions must be guided by a commitment to
the promotion of foreign investment and
international trade and to the facilitation of capital
investment
….
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 The adoption of the MDGs in 2000 solidified an
historic global partnership to focus on reaching
seven specific targets to reduce poverty, hunger,
disease and illiteracy
 The World Bank comprises two institutions International Bank for Reconstruction and
Development (IBRD)
 International Development Association (IDA)
WTO
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1 January 1995
Impact of Globalization
Nepal became member - 23 April 2004
The organization deals-regulation of trade between
participating countries
 It provides a framework for negotiating and formalizing
trade agreements
 And a dispute resolution process aimed at enforcing
participant's adherence to WTO agreements, which are
signed by representatives of member governments and
ratified by their parliaments
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….
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 Doha Development Round which was focused on
addressing the needs of developing countries
 The conflict between free trade on industrial goods
and services but retention of protectionism on farm
subsidies to domestic agricultural sector products
Globalization Discontent and Global
Financial Crisis

 Globalization is the process of international
integration arising from the interchange of world
views, products, ideas, and other aspects of culture
 Advances in transportation and telecommunications
infrastructure, including the rise of telegraph and the
internet are major factors in globalization
 Globalization is interdependence of economic and
cultural activities
Globalization….
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 Dominant theoretical political and intellectual
discourse
 Raising crucial questions
 Defining set of radically transforming social and
economic relations
 Human Development as defined by UNDP-well
defined ideological divide within the field of
development
 Inevitability-of-globalization: Keith Griffin
….
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 Multiplicity of sense
 The global interdependence of nations
 The growth of world system
 Accumulation on a world scale
 The global village
 Cross national flows of goods, investment,
production and technology have created a NEW
WORLD ORDER
….
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Three routes of flows of finance and
commodity trade
Imperialist and colonial conquest
Trade and investment among advanced
economies
Exchange among third world economies
Critics
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 Growth of corporate monopolies
 The export of capital
 Worldwide extension of the market based on a
division of labor between specialized production and
raw materials and commodities
 New World Order
 Structural Adjustment Programs (SAPs)
 Multilateral Agreement on Investment (MAI)
….
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 Decentralization of government that for the most
part-from above and within
 Lack of control by local authorities over the
allocation of funds and design of macroeconomic
policy
 Underlying system-transnational capitalists in their
collective or individual interests
Privatization
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 Privatization is always associated with
denationalization of economy
 Hegemonize civil society
 Privatization is reversing social welfare
 Age of capitalist democracy
 NGOs and INGOs
 Conditions of popular revolutions
 The Role of state in building socialism