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Introduction to International Political Economy (IPE) Prof. Amado Mendoza, Jr., Ph.D. Department of Political Science International Political Economy Material reality (ipe) and theory (IPE) A multidiscipline field of study bridging economics and political science (and several other social sciences such as sociology, geography, among others) Concerned with interaction between states, markets, and societies Clarification of chronology Classical political economy—18-19th century (Smith, Ricardo, Marx, Mill) Modern international political economy—1960s-to date Old IPE—1960s-early 1990s New IPE—early 1990s—to date The OEP paradigm demarcates between old and new (modern) IPE The state and the market: key categories in old IPE The state (political component of IPE)—a sovereign territorial unit with a government and a population; involved in the pursuit of POWER The market (economic component of IPE)—coordinating mechanism where supply and demand determine prices, output and methods of production; involved in the pursuit of WEALTH State-market relations I Opposing institutional logics State logic--exclusion, national sovereignty, territorial bounded-ness Market logic--inclusion, expansion, economic openness, breaking down of state barriers State-market relations II Complementary and symbiotic relations States protect property rights, provide infrastructure to facilitate market transactions Internationally, states conclude agreements/form organizations to promote economic openness State-market relations III State power is largely defined by level of its economic development State-market interactions—core issue in the study of old IPE (late 1960s-early 1990s) Society and social groups in the new IPE State and society interactions Market-society interactions State-society interactions Social groups make demands on the state for protection against the vagaries of the international economy States enter into treaties with other states for the same purpose Individuals employed abroad fatten states’ foreign exchange reserves State-society interactions II State-society interactions are bracketed by tensions States are still largely circumscribed by territoriality Individuals and social groups have transcended territoriality due to changes in ipe Market-society interactions Market-society relations are based on supplier-consumer relations Consumer demand (generated by a number of variables) stimulates supplier activity and product innovation and vice versa Business cycles induce appropriate social responses Key relations for consideration in IPE Between state and market Between economic and political Between domestic and international Fundamental premises of modern IPE Political and economic domains cannot be separated in any meaningful sense States and markets—not necessarily contrasting principles of social organization; parts of integrated ensemble of human governance Intimate connection between domestic and international International economy vs. global economy International economy: sum total of economic relations between and among states Global economy: the international economy plus a transnational integrated production and service economy Rough schema to understand the post-WW2 ipe Dimensions Period I Period II Strategic environment Cold War Post Cold War --pre 9/11 --post 9/11 Strategic concern ‘High’ politics ‘High’ & ‘Low’ politics Secular economic trends Institutional architecture Kondratieff expansion Kondratieff contraction Bretton Woods institutions Post Bretton Woods institutions Theory IR theory esp. realism IPE theory The inter-war years The Great Depression led governments to adopt protectionist measures; deepened crisis and ultimately led to international war After WWII, the challenge is to set up a system that would prevent the repeat of these occurrences Necessary features of post-war systems Stable exchange rate system Control of international capital flows Availability of short-term loans for countries with BOP problems Rules to keep economies open to international trade A reserve asset or unit of account (such as the gold standard) The Bretton Woods system: anchored on fixed exchange rates IMF: to provide BOP support World Bank: to provide longer term financial support for development GATT: to help negotiate lower tariffs and encourage international trade Negligible LDC participation or voice in BW institutions; non-participation of Soviet bloc Breakdown of the BW system Increased US spending under LBJ for domestic programs and Vietnam war financed without tax increases Competitiveness of US products and confidence in the US dollar dropped Nixon shock of 1971: suspension of the dollar’s convertibility to gold at $35/oz. Ups and downs of US hegemony Creation of liberal world economy coincided with Cold War Long ‘post-war’ boom Marshall Plan and similar efforts aimed towards Soviet containment The eventual resurgence of Europe and Japan undermine US economic predominance End of Cold War does not result in US economic hegemony Key features of the Kondratieff downturn and beyond Rise of OPEC and crude oil prices; the petrodollar phenomenon ‘Stagflation’ and new protectionism among industrial states Assertion of developing country interests through NIEO and UNCTAD Rise in interest rates and Third World debt crisis Washington consensus as policy prescription Emergence of anti-globalization movements Current state of BW agencies World Bank: development agency making loans to developing countries IMF: gained greater role in defining economic policy of developing countries with the 1980s debt crisis GATT: transformed into WTO which could better enforce trade rules and settle disputes Overall economic trends in the post war period I International trade has grown more than global economic output; increased competition; drop in trade barriers Significant increase in trade in services More goods become trade-able with decreasing costs of transport (container van and RORO technology) Overall trends II Increased integration of global financial markets due to financial deregulation, new financial goods and advances in ICTs; greater chances for contagion during crises; financial flows dwarf real economy Overall trends III Rise of new industrial economies Greater frequency of crises Increased inequality within and between nations Forms of capitalism Enterprise (Anglo-Saxon) capitalism Social (market) capitalism State capitalism Rise of IPE: big changes in world economy Decline of US economic preponderance and challenge to traditional notions of power and security posed by US failure in Vietnam New economic challenges : OPEC, demands for NIEO, NICs, EU, emerging economies End of the Cold War and globalization further underline the centrality of IPE in the study of international relations Major theoretical clusters in IPE theory Realist/statist theories Varieties of liberalism Marxist/critical theories Other IPE perspectives Short history of contemporary IPE Early intervention and abdication of economists Enter political scientists and IR scholars The economists return Early efforts of economists Jacob Viner (1948). “Power and plenty” Richard Cooper (1968). The Economics of Interdependence. Charles Kindleberger (1970). Power and Money. Raymond Vernon (1971). Sovereignty at Bay. Abdication of economists Chilling effect of post-war anticommunism Prevailing ontology of economics (after marginal revolution) concentrated on private actors, addressing efficiency and welfare Prevailing ontology of economists Not trained to think in terms of the public sphere Not comfortable with the political question of distribution Importance of institutions are discounted; rules are given Attention was directed to policy outcomes instead of inputs New institutionalism North, Williamson, and Coase Recognize the importance of organizational variety and path dependent processes on actor behavior Institutions as devices to lower transactions costs and protect property rights Resistance to IPE on epistemological grounds IPE issues cannot be handled adequately by the standard toolkit of neoclassical economics Discipline became more abstract and relied more on deductive logic Opted for deductive simplicity for theoretical generalization instead of inductive descriptive for external validity IR and political scientists Robert Gilpin. The Political Economy of International Relations Robert Keohane and Joseph Nye. Power and Interdependence. Susan Strange. “International Economics and International Relations: A Case of Mutual Neglect.” Benjamin Cohen’s transatlantic divide American IPE: hard science, positivist, empiricist, formal modeling and quantification, problem solving orientation British IPE: philosophical, normative, eclectic, big picture orientation The return of economics to American IPE New paradigm in American IPE: ‘open economy politics’ (OEP) Coined by Robert Bates and promoted by David Lake The OEP paradigm The analysis starts with individuals with defined interests It then proceeds to how political institutions aggregate these individual interests The last step is to study how the aggregated interests are translated into government policy (say tariff policy)