Chapter 9

1. Chapter 9 International Political Economy (IPE)

2. International Political Economy (IPE) • Study of interrelationship between politics and economics, between states and markets • How politics can be used to achieve economic goals; how economic instruments are used for political purposes • Political bargaining over economic issues within and between states • Increasingly important (facilitated by new technologies) • Growing transactions in trade, investment, lending among states (economic globalization = broadening, thickening of economic ties among different actors -- states, international organizations, NGOs, multinational corporations, and individuals) • Expectation that governments are responsible for economic policies • Outcomes increasingly transparent to individuals and groups; more controversial, politicized

3. Economic Liberalism • Dominant paradigm in post-WWII era (aka, Neoliberalism, Washington Consensus) • Origins in Adam Smith, Wealth of Nations (1776) • Individual level • Humans are rational, seek ways to maximize self-interest • State level • Markets develop to produce, distribute, consume goods; market efficiency leads to improved welfare • State provides basic order; institutions facilitate free flow of trade and exchange; market efficiency requires separation of economics and politics; the free market, free of government interference • International level • Free flow of commerce, absence of state intervention allows for efficient allocation of resources by market; increasing interdependence leads to greater economic development based on comparative advantage; international wealth maximized; MNCs are engines of growth

4. International Institutions: WB • Bretton Woods institutions (1944); IGOs set up at end of WWII • World Bank (WB), International Monetary Fund (IMF), General Agreement on Tariffs and Trade (GATT)  World Trade Organization (WTO) • World Bank • Initially geared toward reconstruction of Europe following WWII; 1950s shifted focus to development • Loans money to states for economic development projects • 1950s-1960s, large infrastructure projects • 1970s, health, education, and housing • 1990s, sustainable development • Consistent advocate of economic liberalism, structural adjustment policies (SAPs): privatization, trade liberalization, foreign direct investment, government deregulation, tax reform

5. IMF, GATT WTO • International Monetary Fund (IMF) • Initially aimed at stabilizing exchange rates through short-term loans to states with balance-of-payments difficulties • With end of gold standard, shifted to become short-term and long term lender (not unlike WB) • Two key issues: debt, transition • Like WB, advocate of SAPs (see figure 9.2) • General Agreement on Tariffs and Trade (GATT) • Trade liberalization • Non discrimination (treat all members as if most-favored) • Exclusive use of tariffs • Preferential access in developed markets for South • “national treatment” of foreign enterprises (MNCs) • Morphed into World Trade Organization (WTO) • Forum for trade negotiations, review, dispute settlement, and enforcement • Criticized as too closely aligned with North; degrading human welfare, environmental and labor standards

7. Mercantilism/Statism • Mercantilism • 15th-18th century European states pursued economic wealth; encouraged exports over imports, industrialization over agriculture; protected domestic production (protectionism); intervened in trade to promote employment • Surplus balance of payments thought to be critical to protect national interest • Statism • Modern version of mercantilism; emphasizes role of state, subordination of economic activities to state building • Economic policies should increase state power • Examples of modern statist regimes: Japan, Singapore, South Korea, Taiwan, Thailand • Used state power to promote industrial growth; singled out industries for tax advantages; promoted exports over imports; encouraged education and technological innovation to become competitive

8. Radicalisms • Radicalism/Marxist/Dependency/World System • At one time, advocated planned domestic economies and rapid industrialization (USSR) • Post-WWII, import substitution industrialization (ISI) strategies and statist development • United in advocating restructuring of international political economy • Economic Liberalism and activities of MNCs put LDCs in state of permanent dependency • MNCs exploit working class and developing countries; co-opt state decision-makers • Capitalist system and economic liberalism responsible for inequalities within and between states • WB, IMF, WTO perpetuate dominance of North and global inequality; agents of dependency, exploitation, imperialism • Distribution of international and economic power must be altered if disadvantaged position of developing countries is to be improved

9. Global Inequalities • Major differences in economic development between North and South (see Table 9.1, 266) • New International Economic Order (NIEO) (1974) • Call by South for global economic change (in terms of trade, establishment of common fund, regulation of MNCs, restructuring of debt, increasing foreign aid, change in structure of WB and IMF) • Resulted in minor gains (preferential access to European markets; more favorable terms for commodity price stabilization plans; some rescheduling of debts) • North refused to negotiate on major issues (common fund, MNC regulation, debt cancellation, institutional reforms) • Millennium Development Goals (MDGs) • UN’s goals with regard to poverty reduction, better education, improved health, environmental sustainability, and global partnerships • Asia and Pacific appear on track; Sub-Saharan Africa not on track to meet goals

10. Human Development Index, 2002