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Chapter 12 National Economic
Competition
Ps 130 World Politics
Michael R. Baysdell
Saginaw Valley State University
Theories of International Political Economy
• Economic nationalism
• Economic internationalism
• Economic structuralism
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Economic Nationalism:
Economic Statecraft or Mercantilism
• Realist approach
– Alexander Hamilton
– IPE is a zero-sum game
– Emphasis on political goals
• Practices or Strategies
– Imperialism/neoimperialism (mercantilist theory)
– Economic incentives and disincentives
– Protectionism and domestic economic support
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Economic Internationalism
• Liberal approach
– Free economic interchange, laissez-faire, capitalism
– Non-zero-sum game
• Practices
– Early capitalist theory (Adam Smith, The Wealth of Nations)
– “Mixed Economy” approach—modify the worst abuses of
capitalism
– National competition, but cooperation is increasing
– Limited role of politics in economics
– Keynesian economics
• Use IGOs and national governments to regulate international
economic interchange and ensure the spread of capitalism and free
trade
• IMF, GATT, and other organizations to promote trade and ease
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inequities
Economic Structuralism
• Marxism, neoimperialism, neocolonialism
• Karl Marx, “The Communist Manifesto” (1848):
Bourgeoisie exploits proletariat.
• Dependency theory: Colonialism hampered the
long-term development of LDCs
• World systems theory: Western dominated
capitalist system pits CORE against PERIPHERY.
Structure determines politics and structure is
based on the “haves” (EDCs) exploiting the
“have-nots” (LDCs)
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The World Economy:
Globalization and Interdependence
• Trade
• International investment
• Monetary relations
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Trade
• General pattern of expanding trade
– Merchandise trade
• Primary goods
• Manufactured goods
– Services trade
• Includes services from insurance to education
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Factors Promoting Expanded
Trade
Productive technology (supply)
Resource requirements (demand)
Materialism (demand)
Improved transportation (supply and
demand)
• Free trade philosophy
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International Investment
• Foreign direct investment (FDI)
– Stake in foreign companies or real estate,
with the aim of gaining controlling interest
• Foreign portfolio investment
– Does not involve control of companies
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International Investment and
Multinational Corporations (MNCs)
• Private enterprises
• Subsidiaries operating in more than one state
• Ownership of plants and/or resource extraction
in other countries
• Most based in North
• Immense wealth gives influence (United Fruit,
Royal Dutch Shell
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Monetary Relations
• Globalization of money
– Four main banking centers: Germany, Japan, United
Kingdom, United States
• Globalization of financial services
• North-South patterns of money and banking
– International regulation of money dominated by North
• Exchange rates—there are advantages and disadvantages to
weak currency (good for exports, but consumers lose with
more expensive imports)
• Balance of payments ultimately affected by interest rates
• Higher U.S. interest rates=stronger dollar=more imports
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The World Economy:
Diverse Circumstances
• All economic theories recognize that the
world is divided into two spheres:
– North America and Europe (North)
– Africa, Asia, and Central and South
America (South)
– But, there are exceptions–divisions are
based more on economic and political
factors than on geographic location
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Problems with Classifications
• Not a clear dichotomy
– Newly industrializing countries (NICs)
– Countries in transition (CITs)
– Inaccurate statistics–difficulty of measuring and
reporting
– Questionable relevance of data (GNP vs. GNP-PPP)
• “Poor” is a relative term— “Poor” in EDCs much
better off than “poor” in LDCs.
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North-South Economic Patterns
• Trade differences
– Dominated by North
– LDCs dependent on EDCs for export earnings
– LDCs rely on primary products
• Investment differences
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North-South Societal Differences
• Disparities
– LLDCs (least developed countries)
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Lower life expectancy
Lower literacy rate
Poor health
Less access to food, water, and sanitation services
– Declining conditions in some LLDCs
• Vicious circle of extreme poverty and deprivation
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Evaluating the North-South Gap
• Mixed data on development
• Uneven patterns of development
– Disparity among countries
– Disparity within countries
– Negative by-products of development
• Explosive population growth
• Rapid urbanization
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National Economic Power
• Financial position
– Involves net trade, deficit spending, foreign debts, and
so on
• Natural resources
– Possession or lack of energy, mineral, or other natural
resources influences levels of self-sufficiency, trade, or
dependency
• Industrial output
– Industry is highly concentrated in a few countries
• Agricultural output
– Power of food production (self-sufficiency)
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North-North Economic Competition
• Changes in North’s economic climate
– Slowed growth rate
• More competition from NICs of the South and
between regional trading blocks of nations
– Shifts in labor force
• Development of high technology and e-commerce
means fewer workers and increases in productivity
• Exporting the service sector of economies
• Downsizing and outsourcing
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North-North Economic
Competition
• Changes in North’s political climate
– Shifting post–Cold War alliances
– Concern over safety of Chinese products
and enormous trade deficits with China
places strains on China's political relations
with US and EU
– Differences between US and EU nations
over Iraq and Middle East policy and
development of LDCs threaten to spill over
into disputes over bilateral economic and
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trade issues
North-South Economic Competition
• Increased tension
– LDCs are now asserting with mounting intensity their claim
that they have a right to a much greater share of the world’s
economic wealth
– North has generally rejected LDC demands for economic
concessions
– Some LDCs have become major exporters of manufactured
goods and, to a lesser degree, services that directly compete
with the EDCs’ products and services, thus undermining EDC
dominance in those economic areas
– LDCs compete for resources ($2200 Tata car will be a
problem, price of pork and beef last 5 years)
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– Widespread piracy of North’s
intellectual property by South
The South’s Reform Agenda
• New International Economic Order (NIEO)
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Trade reforms
Monetary reforms
Institutional reforms
Economic modernization
Greater labor migration
Elimination of economic coercion
Economic aid
Debt relief and cancellation
Control of human and natural resources
• North’s response: limited, barriers to
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development are internal, not our fault
Applied Economic Nationalism
• Using economic means to achieve
economic ends
– Trade and investment barriers
• Quotas, tariffs, domestic content regulations,
labor laws, and health and safety regulations
– Trade and investment supports
• Agricultural & industrial subsidies, price
supports, and loans to domestic producers
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Trade and Investment Barriers
• Tariffs
• Nontariff barriers
– Quotas
– Pricing limits
– Health and safety standards (S. Korea “Mad Cow”)
– Administrative requirements
– Japanese culture (segregating foreign products)
• Monetary barriers
• Investment barriers
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Trade and Investment Supports
• Ways in which governments intervene in free
trade to gain an unfair advantage in the
international marketplace:
– Providing domestic subsidies
– Encouraging dumping products onto foreign
markets
– Forming cartels
• All violate international trade agreements
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Using Economic Means to Achieve
Noneconomic Political Ends
• National security restrictions
• Economic incentives
• Economic sanctions
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History of Sanctions
• Date back to the city-states of Athens and
the use of trade embargoes
• Use of economic instruments to promote
policy is ancient
• Increased use of sanctions in 20th century
• Used by both international organizations
and individual countries
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Effectiveness of Economic
Sanctions
• Limited success rate, but they remain a
regularly used tool
• When do they accomplish their goals?
– Goal is modest
– Target is politically unstable and weak
– Sender and target are friendly and trade with each
other
– Imposed quickly and decisively
– Sender avoids high cost to itself
– Effectively enforced with minimal evasion or
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cheating
Drawbacks of Sanctions
• There may be unintended victims
• Country imposing sanctions can be hurt
• They may be used by EDCs to maintain
dominance over LDCs
• They can harm relations with countries not
supporting sanctions
• They can harm those whom they seek to assist
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The Future of Economic
Nationalist Policy
• Capitalism has triumphed over other
competing economic models,
particularly Marxism and socialism
• Greater economic interdependence
• Yet, powerful arguments against and
forces opposed to globalization still exist
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In Conclusion…
Economic nationalism still remains the dominant
approach to global economic affairs even though
the trend toward international economic
liberalization has grown in importance.
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Chapter Objectives
After reading this chapter, students should be able to:
• 1. Explain why politics and economics are intertwined aspects of international
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relations.
2. Analyze international political economy (IPE).
3. Discuss the economic nationalist doctrine.
4. Discuss the economic internationalist approaches to IPE.
5. Discuss the economic structuralist approaches to IPE.
6. Discuss how trade, international investment, and monetary relations affect the
world economy.
7. Analyze the economic patterns of the North and the South.
8. Analyze global economic competition in terms of the North/South divide.
9. Understand how economic means can be used to achieve both economic and
noneconomic ends.
10. Analyze the future of economic nationalist policy.
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