Homework 1
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LectureSlides-InternationalPoliticalEconomy.pptxTECON 325 International Political Economy:
Reference: IPE, 5th ed., Oatley
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Introduction to IPE
What is IPE?
International Political Economy (IPE)
The study of the political battle between the winners and losers in global economic exchange
Requires an understanding of politics and economics
Develop a modern theoretical framework to understand the issues
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What is IPE?
Economic integration makes “society” better off
Lowering barriers to the flow of goods, money, and factors of production
Total Benefits > Total Costs
Gains are distributed unevenly
Integration creates “winners” and “losers”
“Losers” fight against integration, “winners” fight for it
Played out through domestic and international financial/political institutions
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What is IPE?
Workings of IPE
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Politics
Global Economy
Economic Forces
Policy
The Steel Tariffs (2002-2003)
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Illustrate the type of conflict we will study
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The Steel Tariffs (2002-2003)
U.S. steel increasingly uncompetitive in global markets
34 mills closed 1997-2002
18,000 workers laid off
Bush administration lobbied by United Steel Workers of America
Raised import tariffs to protect domestic steel industry
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The Steel Tariffs (2002-2003)
Tariffs raised domestic prices, hurting domestic users
Consuming Industries Trade Action Coalition
U.S. consumers!
Domestic groups and foreign gov’ts lobby Bush administration to lower tariffs
Brought case before the WTO
Bush administration drops tariffs in the face of retaliatory action
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The Steel Tariffs (2002-2003)
What we need to understand in IPE:
Economic interests of political groups
Economic theory
Domestic and foreign political systems
The role of international organizations (WTO)
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Two Basic Questions
How does politics affect resource allocation?
Resources are finite
People disagree over how to use them
What are the consequences of these decisions?
Welfare consequences: general “well-being”
Distributional consequences: who gains/loses?
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The Steel Tariffs (2002-2003)
Allocation:
More investment in U.S. domestic steel industry
More jobs for U.S. steel workers
Consequences:
Inefficient allocation: “society” is worse off
U.S. steel wins while U.S. consumers, steel users and foreign producers lose
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The Tire Tariffs (2009-2012)
Questions:
How did the tariffs affect the allocation of resources?
i.e. Employment, tire production, production/consumption of related goods
What were the consequences of this reallocation?
Who are the parties involved? Who won? Who lost?
What was the role of international organizations?
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What is IPE?
Four areas of study:
International Trade System (real)
International Monetary System (monetary)
Multinational Corporations
Economic development
All are distinct but interrelated
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The International Trade System
Centered around the World Trade Organization (WTO) – IGO dedicated to global economic integration
~$35 trillion in goods and services annually
Also “challenged” by regional trade agreements (e.g. NAFTA)
How does the struggle between winners and losers shape global and regional trade systems?
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The International Monetary System
Decentralized – allows people using different currencies to trade with one another
Critical to international flows of goods and investment
How does the struggle between winners and losers shape monetary and exchange rate policy?
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Multinational Corporations
Controversial but prominent role in global economy
1/4 of global production, 1/3 of global trade
Powerful political influence in many different countries
How does the struggle between winners and losers affect efforts to attract and control MNCs?
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Economic Development
Different development strategies associated with different outcomes
Which strategies have been successful and why?
How does the struggle between winners and losers shape the development strategies governments adopt?
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Studying IPE
Two “flavors” of IPE research:
Explanatory studies: what happened? (positive)
Evaluative studies: was it good? (normative)
Textbook focuses on explanation
Help us evaluate current issues in IPE
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Studying IPE
Modern IPE emphasizes incentives and institutions
Evolved out of three competing traditional schools
Three traditional schools of thought:
Mercantilism
Liberalism
Marxism
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Mercantilism
National power derives from wealth
Three modern principles:
National power requires economic strength
Promote exports over imports
Some forms of production are “better”
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Liberalism
Developed to challenge Mercantilism
All countries can gain from trade
Markets ensure efficient allocation of resources
Limited role for state in economic activity
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Marxism
Developed as a critique of capitalism:
Capitalists extract value from labor, paying only subsistence wage
Capitalists control the state and resource allocation
Predicted revolution:
Concentration of capital
Falling wages
Imbalance between production and consumption
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Studying IPE
The three schools offer different views on the forces driving allocation:
The state (Mercantilism)
The market (Liberalism)
The capitalist class (Marxism)
And different criteria for evaluating policy
National power (Mercantilism)
Social welfare/efficiency (Liberalism)
Distribution of wealth (Marxism)
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Studying IPE
Modern IPE scholarship emphasizes interests and institutions
Where do the political/economic interests of agents come from?
How do institutions aggregate those preferences and form policy?
Most often, interests = income
Also affected by “mental models” of cause and effect
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Studying IPE
Institutions are rules governing the political process
Who chooses policies?
How do they choose?
How are decisions enforced?
Esp. internationally
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Historical Context
Globalization began in 1800s centered on Britain
Large flows of money, people, goods across borders
Caused by technological advances reducing shipping costs
Britain repeals Corn Laws in the 1840s
Opened markets to imported grain
Followed by wave of bilateral agreements
Currencies pegged to gold standard in late 1800s
Maintained price stability
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Historical Context
Globalization halted abruptly due to WWI
Many nations severed economic ties and withdrew from trade agreements
Opportunity for U.S. to replace Britain as hegemon
U.S. remained isolationist
European recovery slowed under debt burden (thanks to U.S.)
Fragile post-war globalization ended by U.S. stock market crash in 1929
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Historical Context
Globalization resumed after WWII with U.S. embracing role as hegemon
Helped design international institutions to support globalization (WTO, IMF, World Bank)
Wider public acceptance of active role of state in economy
Inter-war retrenchment evidence that globalization is not inevitable?
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Conclusion
IPE studies the system defined by the interplay between politics and economics
Feedback loop between economic forces and policy
Political competition between winners and losers
Explains how policy affects resource allocation as well as the welfare/distributional consequences
Competing visions offered by three classical schools of thought
Modern IPE emphasizes interests and institutions
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