International Relations Essay 2 ONLY ONTIME

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The Globalization of World Politics (6e)

16. International political economy in an age of

globalisation

Baylis, Smith & Owens

Baylis, Smith & Owens: The Globalization of World Politics 6e

International political economy

• IPE is focused on the interplay of economics and politics in world affairs

• What drives and explains events in the world economy?

• IPE tries explain what creates and perpetuates institutions and what impact institutions have on the world economy

Baylis, Smith & Owens: The Globalization of World Politics 6e

The post-war world economy

• In 1944, world leaders meeting in Bretton Woods planned three institutions to promote a new world economic order

• The International Monetary Fund (IMF) was to ensure a stable exchange rate regime and emergency assistance to countries facing temporary financial crises

Baylis, Smith & Owens: The Globalization of World Politics 6e

The post-war world economy

• The World Bank was to facilitate private investment and reconstruction in Europe, and developments in other countries

• The General Agreement on Tariffs and Trade (GATT), established in 1947, was to be a forum for negotiations on trade liberalization

Baylis, Smith & Owens: The Globalization of World Politics 6e

The post-war world economy

• The Bretton Woods ideals were ‘postponed’ when the containment of the Soviet Union became a priority

• The previously planned institutions became distinctly Western in character and depended heavily on the USA

• In 1971, the United States, facing gradually stronger competition, abandoned the gold standard in order to defend the dollar

Baylis, Smith & Owens: The Globalization of World Politics 6e

The post-war world economy

• The Bretton Woods system broke down in 1971 and smaller subgroups of countries started discussing monetary issues among themselves

• The oil crisis of 1973 led to widespread stagflation

• Many countries began to use new protectionism, contravening GATT policies

• Developing countries sought to implement a new international economic order

Baylis, Smith & Owens: The Globalization of World Politics 6e

The post-war world economy

• In the 1980s, institutions such as the IMF began promoting liberalization, privatization, and deregulation

• The term Washington consensus was used to imply that prevailing neoliberal policies were in fact a reflection of US interests

• In 1995 the GATT was replaced by the World Trade Organisation, and an expanded range of international issues were being negotiated

Baylis, Smith & Owens: The Globalization of World Politics 6e

Traditional and new approaches to IPE

• Three separate traditions dominate historically: the liberal tradition; mercantilism; and Marxism

• Where liberals prefer free trade, mercantilists view the international system as a jungle where each state must maximize its wealth and independence – if necessary using tariffs to accomplish these aims

• Marxism views world economic relations as a class struggle between oppressor and oppressed

Baylis, Smith & Owens: The Globalization of World Politics 6e

Traditional and new approaches to IPE

• Rational choice analysis borrows economic concepts to explain politics

• Even policies that today look absurd may once have been rational from the perspective of some or many involved actors

• Institutionalists apply the assumptions of rational choice to states as they interact with other states

• A core assumption is that international institutions are created in order to maximize state utility

Baylis, Smith & Owens: The Globalization of World Politics 6e

Traditional and new approaches to IPE

• In social constructivism the assumption is that world economy policies are affected by historical and sociological factors

• The way actors understand their own preferences will depend on prevailing beliefs and patterns of thinking in the world economy

• Many prevailing beliefs are embodied in institutions – but whose interests are at the heart of these beliefs?

Baylis, Smith & Owens: The Globalization of World Politics 6e

The globalisation debate in IPE

• The term globalisation refers to at least four different sets of forces or processes in the world economy: – Internationalization – Technological revolution – Deterritorialization – Liberalization

• The question is how it affects the role of the state and international cooperation (and institutions)

Baylis, Smith & Owens: The Globalization of World Politics 6e

• In September 2008, a US investment bank defaulted, causing a major financial crisis

• A number of governments had to intervene to rescue central financial institutions

• The crisis revealed failures in corporate governance and in regulation in the rich world

• In developing countries the crisis led to a ‘development emergency’, with massive drops in exports of goods and services

Case study 1: The financial crisis of 2008

Baylis, Smith & Owens: The Globalization of World Politics 6e

Case study 1: The financial crisis of 2008

• For these countries it was made evident that participation in an independent global economy carries risks caused by unregulated global finance

• Policymakers on all levels now agree on the primacy of state authorities in regulation to restrict excessive risk

• They also agree that national regulators must harmonize their policies to achieve stability