Topic 1:Introduction: States and Markets: Topic 1: Introduction: States and Markets ECON420: Global Business and Trade Ref: Balaam and Veseth (2001), Ch 1 - 4; Cohn (2002) Ch 1 - 5


Outline: Introduction: A primer on IPE The mercantilist perspective The liberal perspective The structuralist perspective Outline


INTRODUCTION: A PRIMER ON INTERNATIONAL POLITICAL ECONOMY (IPE): INTRODUCTION: A PRIMER ON INTERNATIONAL POLITICAL ECONOMY (IPE) While the 3 broad theoretical perspectives are well-established, there is variation in the nomenclature:


The international-domestic division: The international-domestic division It is also common for IPE analysts to make the distinction between the international and the domestic dimensions in terms of the causes of international political and economic trends e.g. Third World poverty Unequal global economic order, or domestic politics and economics within LDCs?


Other variants of IPE: Other variants of IPE Over the last decade or so, a number of ‘hybrids’ have emerged These cannot always be ‘neatly’ classified, but they can be presented in terms of how they relate to the three broad perspectives Newer issues (gender, environment, technology, migration) present the three perspectives with challenges, and variants of IPE have emerged which focus on these factors (with limited success, IMHO) e.g. Social constructivists: largely the product of the deliberations of post-modern political scientists … there is no clear reality out there .. the world must be 'interpreted'


What is IPE?: What is IPE? Political economy is the field of study that brings together the disciplines of politics and economics It is the ‘science of social management’, focusing upon the interaction between ‘state’ and ‘market’ An inherent tension exists between states and markets … State: preservation of national sovereignty & unity; Market: openness and breaking down barriers These tensions are heightened when one considers the international dimension.


The interdisciplinary nature of IPE: The interdisciplinary nature of IPE IPE is truly interdisciplinary in approach and includes among its ranks economists, political scientists, sociologists, anthropologists, historians, and geographers IPE theorists seek to break down the silos that can sometimes stifle creative thought The challenge is huge, especially when one considers political economy at the international level – analysis of social, cultural, economic, political and historical factors becomes so much more complex.


The evolution of IPE: The evolution of IPE IPE is a relatively recent area of academic enquiry and made great strides only in the mid-1970s (1) From the late 19th century there was a strong trend towards disciplinary development – hence the evolution of economics and political science and their international sub-disciplines The Cold War, oil crises, and Third World debt heightened concern about international stability, and this when IPE began to take off. (1) Dr Susan Strange, (1970), ‘International Economics and International Relations: A Case of Mutual Neglect’, International Affairs, Vol 46 Issue 2, pp 304 - 315


The increasing relevance of IPE: The increasing relevance of IPE As the silos of economics and political science have struggled to analyse the problems presented by globalisation and provide appropriate solutions, an IPE enquiry has become increasingly relevant Critics of IPE point out that there is no all-embracing theory – is this a weakness? No, it’s a candid admission – social science theory ‘is always for someone and for some purpose’ (Cox, 1981, Millennium, p. 128) The three IPE perspectives are predicated upon different sets of values.


THE MERCANTILIST PERSPECTIVE: THE MERCANTILIST PERSPECTIVE Merchantilism/Realism is the oldest school of thought in international relations (IR) – Thuycidides (c. 471-400BC) is generally credited with being the first writer in the realist tradition Realism’s prominence within IR is not replicated within IPE Realists have developed theories by drawing from politics and history rather than economics, and their emphasis on power directs their attention to strategic-security issues rather than economic issues.


The defining characteristics of realism: The defining characteristics of realism Two main strands: Machiavellian strand: Concerned with attaining and keeping power. Sees little connection between economics and politics Mercantilist strand: Associated with a distinctive realist approach to IPE. Sees power and security on the one hand and economic relations on the other Emphasise no central authority above nation-states within the international system The state is a rational, unitary actor that seeks to maximise benefits and minimise the costs in furthering the national interest.


The mercantilists: The mercantilists The term was first used by Adam Smith to describe economic thought and practice in Europe (1500-1750) Mercantilists believed that a state’s power depended above all else on the accumulation of ‘specie’ (gold, silver) It followed that conflict was central to international economic relations, with power and wealth the ultimate goal of national policy Smith’s opposition to mercantilism was instrumental in ensuring liberal views were dominant in 19th century.


Mercantilists and the Industrial Revolution: Mercantilists and the Industrial Revolution Mercantilism gained ascendancy following the industrial revolution Industrialisation, in the mercantilist view, became a central requirement for countries seeking national security, military power and economic self-sufficiency Protectionism was deemed an important measure to ensure fledgling economies like the US were able to develop without the rigours of foreign competition.


Mercantilism in the interwar period and thereafter: Mercantilism in the interwar period and thereafter Mercantilist ideas gained even more currency during the depression years with the virtual breakdown of cooperative relations The extreme nationalism and trade protectionism during this era contributed to the outbreak of WWII The establishment of the Bretton Woods system ushered in a more open economic system, and liberalism became the dominant school of thought in the post war international economic system.


The mercantilist revival: The mercantilist revival In the 1970s and 1980s, a number of factors contributed to a re-emergence of mercantilism as a major perspective in IPE: The decline is the Cold War causing a change in focus away from strategic-security issues The emergence of OPEC The increase in competition from Europe and Japan The relative decline in US hegemony Mercantilist view that liberals and structuralists were guilty of economic determinism, underestimating the importance of politics.


Hegemonic stability theory: Hegemonic stability theory The thinking here is that a relatively open and stable international economic system is most likely when there is a single dominant or hegemonic state This state will have sufficient resources to provide leadership, and be willing to pursue policies that create and maintain a liberal economic order Mercantilists are particularly interested in this theory because of their preoccupation with the interactions of powerful states.


Mercantilism and the Third World: Mercantilism and the Third World Although concerned with relative gains arising from power and influence, mercantilists tend to focus on the relative gains of advanced nations Mercantilists have produced more studies on North-South relations in recent times, but largely because some nations in the South have posed a challenge to the power position of the North Unlike the liberals, economic development is not seen as a desire for prosperity and well-being, but a quest to become less vulnerable to the North.


Critique of the mercantilist perspective: Critique of the mercantilist perspective Mercantilists often correctly criticise the liberals and structuralists for their ‘economism’ However, they can over-compensate and the centrality of politics may be over-stated The state as unitary actor is probably the most controversial of mercantilist assumptions As globalisation increases, non-governmental actors like TNCs have a greater role to play in foreign policy The preoccupation with relative gain also causes them to be sceptical of international institutions.


THE LIBERAL PERSPECTIVE: THE LIBERAL PERSPECTIVE Liberalism can trace its lineage back to the time of Adam Smith and David Ricardo Today, liberals can be found among mainstream economists, Western business communities, writers for The Economist, The Wall Street Journal and the AFR, and officials at the IMF and World Bank It is the most influential perspective in IPE at this point in time Note: the IPE term ‘liberal’ means something quite different in the context of US domestic politics – this sometimes causes confusion.


The defining characteristics of the liberal perspective: The defining characteristics of the liberal perspective Liberal IPE is very diverse in nature which means that it is difficult to identify a core statement that encapsulates their philosophy Liberals are pluralists and therefore focus on many actors and levels of analysis Three variants of liberalism may be identified: Orthodox liberalism Interventionist liberalism; and Institutional liberalism


Orthodox liberalism: Orthodox liberalism Orthodox liberals are mainly concerned with the promotion of ‘negative freedom’ – the freedom of the market to function with minimal interference from the state The earliest liberals date back to John Locke (17th century), but Smith and Ricardo are considered central figures in the promotion of this philosophy The key argument put forward was that the ‘invisible hand’ of the free market would serve to maximise efficiency and prosperity for all.


Interventionist liberalism: Interventionist liberalism The most influential figure in the promotion of this strand of liberal thought is J.M. Keynes His ideas came to the fore in the immediate post war period when he called for greater management of the market in the presence of pessimistic business expectations. Keynesianism dominated for more than two decades, before a return to orthodox liberalism following the ‘stagflation’ emanating from the oil crises, and the rise to power of Thatcher and Reagan, who embraced the ideas of Milton Friedman. John Maynard Keynes 1883-1946


Institutional liberalism: Institutional liberalism Interdependence theorists argue that transport and MNCs have altered the conditions of international economics and that there is a need for international policy coordination as the best means for achieving national economic goals in an increasingly interdependent world These theorists also argue that the scope of international relations has expanded, encompassing new areas such as pollution, human rights, immigration and sustainable development.


Institutional liberalism: Institutional liberalism Regime theorists point out that international interactions seem to be more orderly in some issue areas than others With the growth of interdependence, states have established some norms, rules and principles to regulate each others’ behaviour; e.g. trade International regimes are normally associated with international organisations; e.g. WTO is embedded in the world trade regime.


Liberalism and the Third World: Liberalism and the Third World The North-South divide is not an issue for orthodox liberals because they believe that LDCs will benefit from access to free markets They assume that the problems that beset LDCs are to do with the irrational or inefficient policies adopted in these countries Many subscribe to modernisation theory (e.g. Walt Rostow’s ‘stages of economic growth’) and that development is about abandoning traditional methods (like countries in the North did), in favour of the free market Interventionists agree, but argue for assistance where necessary from the likes of the IMF and World Bank.


Critique of the liberal perspective: Critique of the liberal perspective Liberals tend to view international economic relations as occurring in a competitive market where value-equivalent trades harmoniously for value-equivalent Where bottlenecks do arise, the interventionists argue that these problems can be resolved by supplementing the economic system (rather than replacing it) Mercantilists and structuralists criticise liberals for their inattention to power and distributional issues, putting too much faith in the market.


THE STRUCTURALIST PERSPECTIVE: THE STRUCTURALIST PERSPECTIVE This is the only perspective that takes a historical approach It is concerned with social structure and its primary focus is on exploitation, where one class dominates another, or the rich North exploits the poor South The structuralist perspective is founded upon the writings of Karl Marx Note, however, that it is perspective that incorporates a wide range of theoretical approaches.


The defining characteristics of the structuralist perspective: The defining characteristics of the structuralist perspective Structuralists identify the relationship among classes as the main factor affecting the economic and political order Each mode of production (e.g. feudalism, capitalism) is associated with two opposing forces; an exploiting non-producing class and an exploited class of producers The state is depicted as being nothing more than an agent acting on behalf of the dominant class in capitalism – the bourgeoisie.


Studies of imperialism: Studies of imperialism In contrast to liberal theories which emphasise the mutual benefits of international interactions, theories of imperialism portray some societies engaging in conquest and control over others Hobson (1965) argued that three major problems plagued capitalist societies: low wages and underconsumption by workers, oversaving by capitalists, and overproduction Capitalists must look to countries abroad as an outlet for their excess goods and profits, giving rise to imperialism. John A Hobson (1858-1940)


Dependency theory: Dependency theory Dependency theorists reject the optimism of liberal modernisation theorists, and argue that advanced capitalist countries either underdevelop the Third World or prevent LDCs from achieving genuine autonomous development While the advanced ‘core’ countries benefit from their global linkages and experience dynamic development, the poor ‘peripheral’ countries are constrained by their dependence upon the core countries.


Whither the structuralist school?: Whither the structuralist school? Dependency theory lost a lot of credibility during the 1980s with the rapid industrialisation of East Asian NICs Questions about the structuralist perspective as a whole have been raised with the demise of state socialism These questions notwithstanding, it continues to have major relevance today in that it is a perspective that devotes attention to distributive justice issues – something not adequately dealt with by the liberals or the mercantilists.


A revival of the structuralist approach?: A revival of the structuralist approach? Pressure to replace post war interventionist liberalism with orthodox liberalism has caused considerable dissatisfaction among the ‘have-nots’ in society, providing weight to the argument that a revival in structuralism is possible Recent advances in world-system theory, Gramscian theory, business conflict theory, and other theories within this school also indicate that the structuralists continue to provide an important alternative to mercantilism and liberalism.