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International Political Economy Introduction • International Political Economy (IPE) – Interplay of economics and politics in world affairs • States vs. Markets = Misleading Assumptions – States cannot rule the global economy – Systems of Institutions • The rules, norms, laws, organization, and habits that for the system – A defining feature of IR » Globalization and international cooperation of states and institutions – Modern IPE born from Cold War end • Promoted many of IPE main institutions – UN, IMF, WB, and WTO Post-WWII World-Economy • Bretton Woods Conference – Discussed future of world economy following WWII • Resolve two Serious Problems – Prevent another Great Depression » Stable Global Monetary System » Open World Trading System – Rebuilding War-Torn Europe – Bretton Woods System Established • Promote a New World Economic Order – Created International Monetary Fund (IMF) – Created International Bank for Reconstruction and Development (IBRD) » Later became World Bank (WB) – Created General Agreement on Trade and Tariffs (GATT) » Replace by World Trade Organization (WTO) in 1995 International Monetary Fund • Membership of 185 Countries • Promoted International Monetary Cooperation – Created a Stable Exchange Rate Regime • All currencies based on US Dollar • US Dollar would be back by Gold (Gold Standard) • Provided stability for all currencies • Provides emergency assistance to countries facing a temporary economic crisis – Today provides assistance to developing nations • Conditionality or – Requires countries who barrow money to meet certain conditions = liberalization and privatization of economy » Backlash from anti-globalization movement Continue and World Bank • Structural Adjustments – Due to the US raising interest rates (protectionism) on developing nations loans, which caused the counties to defaulting » Counties need to take immediate measures to receive new loans • reduce inflation, cut social welfare, trade liberalization, deregulation, and privatization • Major Backlash from anti-globalization movement • World Bank - Originally IDRB – Assists in the Development of Countries • Original Purpose was Post-WWII Europe – Worlds largest source of Development Funds » $16 Billion in annual loans • Requires Reforms in a barrowers country – Ending Poverty, Promoting Human Rights, etc… » Minor backlash from anti-globalization movement General Agreement on Trade and Tariffs • Forum for negotiation on trade liberalization • Removal of restrictions, barriers or tariffs – Free-Trade • Solved trade conflicts – Interim Agreement = Only established until permanent organization could be formed • Operated for Four Decades – Proved powerless to stop Economic Protectionism (tariffs to promote internal growth) of 1970’s » Replaced by stronger World Trade Organization in 1995 • Administering WTO Trade Agreements • Forum for trade negotiations • Handling trade disputes • Monitoring national trade policies • Supplying technical assistance to developing counties IPE and the Cold War • Containment – Prevent the spread of Communism to Western Europe and other nations • Postponed development of Modern IPE • Marshall Plan – Massive Financial Aid to Europe • Promoted IPE Institutions and Western Bloc Organizations – Gold Standard Replaced by Dollar Standard » Western Countries embraced Dollar • Brent Woods System was promoted to develop capitalism globally Continue • Collapse of Brent Woods – Economic troubles in the US due to cost of Vietnam and Great Society without raising taxes • US announced in 1971 – End of Gold Standard » Allowed major currencies to “Float” through deregulation • WWW.XE.COM • Protectionism of US Economy – Charge of 10% on imports to help grow internal industries – Emerging Economies no longer dependent on US • European Economic Community (EEC) • Tigers of Asia (Japan, South Korea, Taiwan, and Eventually China) – Global Stagflation • Low growth (Stagnation) and high inflation – Promoted countries to engage in Protectionism Continue – North-South Gap • Gap in economic development in northern hemisphere (Industrialized Nations) and southern hemisphere (Developing Nations) – Challenged by Developing Nations » Promoted New International Economic Order • Sought better representation in institutions • Promoted Fair Trade • Increase in Aide • Protection of Economic Sovereignty • Unsuccessful – New Governments in the 1980’s promoted opposite • Changed the Study of IPE – Tries to answer “why are so many countries in the world under developed” and focus now on Interdependence Continue • Neo-Liberalism (Neo-Conservatism in US) of the 1980’s – Challenge to Keynesian Economics of 30’s - 70’s • John Maynard Keynes – Governments should play an active and interventionist role in the economy to ensure both growth and equity. – Neo-Liberalism encourages • Limited or no government role • Deregulation of laws and institutions • Allow markets to regulate business – Washington Consensus • Term implies NL mainly a reflection of US interests Continue • End of the Cold War – Problem • Integrating USSR, Soviet Bloc, and Soviet backed developing nations • Burden fell to World Bank and IMF – Conditionality created problems » Coercion and Conformity – World Trade Organization • Created to alleviate problems of WB and IMF • Voting power shifted from US and EU when other powerful economies refused to cooperate unless power adjusted Traditional Approaches to IPE • The Liberal Tradition – Free Market and exchanges currencies • Voluntary exchange and markets that are efficient and morally desirable – Allows countries to benefit from their advantages (natural, resources, endowments, and specializations) – Little or no regulation of markets or currencies by governments – Order in markets will be self-regulatory • The Mercantilist Tradition – Realist Perspective = Power of States • World economy is an arena of competition among states seeking to maximize relative strength and power Continue – For survival, states must maximize wealth in independence – Trade protectionism is emphasized – Governments must use protective measures (invest in strategic industries, subsidies, trade tariffs, etc…) to ensure the strengths of the domestic and international economy of the state – IS controlled by hegemony, who sets the norms and institutions to benefit itself • Marxian Tradition – World-Economy is an arena of competition, and capitalism is the driving force • Class struggle between oppressed (workers) and oppressors (Capitalist) – Capitalist seek profits at expensive of workers • Unequal exchange between Periphery (developing) and Core (developed) nations – Wealth flows from poor to rich countries New Approaches to IPE • Rational Choice – Neo-Utilitarian Approach • John Stuart Mill’s book “Utilitarianism” – Weighing the pros and cons, actors will choose the most advantageous choice – Preferences are known/fixed and actors will make best choice to promote their interest – Two Approaches to Rational Choice • Political Economy Approach – Focus on Interest Groups and how they impact the IPE » Societies are pluralist and governments follow the actions of groups promoting specific interest » Governments make their IPE choices by the actions of specific interest groups within the economy » Coalitions of interest groups influence governments and institutions for their personal gain Continue • Institutionalism Approach – Focuses on the interaction of states and how they impact the IPE » States create institutions in order to maximize utility within the constraints of world markets and world politics – Social Constructivism • Policies in the world-economy are affected by historical and sociological factors – Actors formulate preferences and behaviors based on beliefs, roles, traditions, ideologies, and patterns of influences » There is no set/fixed preferences in IR or IPE » Preferences reflect actors ideas, culture, and knowledge – Choice will often reflect the hegemony » Institutions promote hegemony » Coercion or consent prevails » Legitimacy is promoted and desired Globalization and the IPE • Globalization is strongly debated in IPE Studies – Four Aspects of Globalization in IPE • Internationalization – Increase economic interactions and interdependence across borders • Technological Revolution – Impact on new communication technologies • Deterritorialization – Extent distances, borders, and places influence the way people identify themselves and act • Liberalization – Reduction in government role in the economy which allows the new IPE to exist – Debate exist between how each impacts the world Continue • Is globalization diminishing the role of the state in the world economy – The Globalists Response = Yes • As interdependence occurs – Multinational trade, production, investment, and finances move in and out of countries more easily » Governments lose their capacity to regulate economy • Footloose Modern Businesses • Companies will leave if no econ liberalization – The Sceptics Response = NO • Footloose Modern Business model is false – Globalist have no evidence to back up claims » Knowledge-Intensive Economy • Skilled or semi-skilled workforce, good infrastructure, and proximity to markets dictate choice Institutions and the IPE • Globalization increases interdependence – Both good and bad • Asian Financial Crisis – Meltdown of South East Asia Economies that lead to sever economic impact in other countries – Demonstrates how a crisis in one country can easily spill into other countries – Led to a call for stronger international economic institutions, more cooperation, monitoring, and regulation – Institutions • States create institutions to achieve better gains through cooperation and coordination • States agree to be bound by certain norms, rules, and decisions – States don’t always follow Continue • Institutionalist = Institutions reflect liberalization – Institutions emerge primarily as solutions to universal problems or market failures – Will regulate gaps and failures of open system – Focus on absolute gains » Over all the benefits of everyone involved • Realist = Promote states power and wealth – Hegemony is liberal-democracy – Institutions reflect will of hegemony to ensure survival and power gain of hegemony – Focus on relative gains » The benefits of the individual states – Cooperation is constrained by power struggles » Institutions will be abandoned if no positive gain for state » Institutions only accommodate the needs of weaker states when needs don’t interfere with powerful states Continue • Social Constructivists – Reject the definable/fixed rational choice of realist and institutionalists » Realist wrong because institutions don’t always reflect power politics » Institutionalists wrong because institutions don’t always reflect the need of markets, trade, etc… – Interest are impacted by identity » Which is created by social structure of interactions, normative ideas, and beliefs • Institutions change when identity of states change • Social movements with a state impact IPE • Human Rights Moments • Environmental Movements • Etc.. • All impact modern IPE because they change identity of states • Puts pressure on political leaders to change institutions