IPE, Globalization and Inequality 1) Political Economy 2) International Political Economy (Ch 9) 3) Globalization (Ch 1

1. IPE, Globalization and Inequality 1) Political Economy 2) International Political Economy (Ch 9) 3) Globalization (Ch 10) 4) Inequality (ch 11 – reading optional): Dependency Theory, the Cycle of Poverty

2. 1) Political Economy How politics and economics are related? Politics and economics are inseparable, and in fact that political factors are crucial in determining economic outcomes Politics + ideologies drive economy (or viceversa?) “The economics of public policy” The role of the State in managing “its” economy Public good (budgeting) Private sector (taxation, regulation) Citizens’ everyday life (inflation, minimum wage) Curbing illegal activities Foster economic activity

3. Prerogatives of PE: Markets • Markets: Interaction between forces of supply (sellers) and demand (buyers). Creates value for goods and services. • No physical entity • Decentralized (customers decide, not govt) • Spontaneous • Competitive • Generates innovation • Market presupposes individual freedom

4. Prerogatives of PE: Property • Property: private ownership of goods and services. • Tangible or • Intellectual (no physical entity) • Core idea of individual freedom • States regulate property in various degrees

5. Prerogatives of PE : Public Goods • Some goods can’t function well in market or in private hands • Examples: roads, national defense, justice, public education, monetary policy, health? • Public goods: • provided by the state • used by society/individuals • not privately owned • Indivisible • Idea of collective equality, benefit shared universally • These vary widely from country to country

6. Prerogatives of PE: Social Expenditures • “Welfare”, public provisions of basic services + benefits to citizens who are in adverse circumstances • For example: education, healthcare, transportation, unemployment benefits, pension, health? • Redistribution of wealth is a power of state • Idea of collective equality, but often controversial • Expensive (advanced democracies) • Who benefits? Middle class? Poor people? • Parasitism? Lack of self-esteem?

7. Prerogatives of PE: Taxation • Who pays for public goods and social expenditures? • Taxation is the means by which State collects funds to pay public goods • Taxation varies in who is taxed (income tax, workers, employees). The right mix is difficult ! • Taxation varies in how much is taxed • Social democracies tend to have high taxation • Taxes consume a large portion of country’s GDP • Positive view: tool for generating collective equality • Negative view: voracious state takes resources from its citizens

8. Prerogatives of PE: Money and Inflation • Linked by the idea that State have to foster economic growth • Through creation and management of money • Money is a medium of exchange • Unquestioned legitimacy by the State • Central banks control its supply, typically through interest rates • Economic growth, low inflation, low unemployment, low interest rates is a difficult equilibrium • Oversupply can lead to inflation • Extreme cases: Hyperinflation—inflation of more than 50% a month!

9. Prerogatives of PE: Economic Regulation • Linked by the idea that State have to monitor the means by which the economic output is created • Rules or orders that set the boundaries of a given economic sector or practice • States supervise markets and property through regulations and sanctions • Monitor counterproductive processes • Monopoly (Microsoft) • Cartels (OPEC) • Dumping (selling below production cost) • The EU is a successful regulatory institution

10. Prerogatives of PE: Trade • States manage sale of goods and services between themselves and other countries • Determine what foreign goods may enter the domestic market • How open or closed should this be? • Tools of trade regulation: • Tariffs, taxes on imported good • Quotas, limit the quantity of an imported good • Non-tariff barriers, other restrictions • To regulate or not to regulate the trade, this is the question!

11. 4 models of Political Economy Attempt to realize an abstract ideology into practice Political economy in a particular country depends on ideology + culture + history + law + … Political economy seen as a trade-off between individual freedom and collective equality (freedom to conduct economic activities versus Distribution of wealth

12. Matrix of Political Economy Models Autarchy

13. Liberalism • Related to ideology of the same name • More business, less government, weak state • High priority on individual political and economic freedom, less on equality • Pro-capitalism (private property and free market) • Democracy requires a free market • US and other former British colonies • The power of the market over the state and society: economy leads politics?

14. Liberal Policies • Little regulation and taxation • Public goods only in critical areas • Laissez-faire—allow economy to function as it wishes • Self-regulating capitalism (“invisible hand”) • Specialization of labor • Greater tolerance for inequality and poverty

15. Social Democracy • Attempts to balance individual freedom and collective equality • Private property and markets are unchallenged, but need to be regulated • Democracy embraced • France, Germany, Sweden, Denmark • State creates positive social rights • Society over market through state?

16. Social Democratic Policies • More public goods than in liberalism—less tolerance for inequality, poverty • Trade and competition under state regulatory view • Ownership of some industries by state seen as acceptable or necessary

17. Communist Political Economy • Attempt to realize communist theory of Marx • Emphasis on total collective equality over individual freedom • Alternative to democracy but authoritarianism • Property, markets viewed as instruments of exploitation • Soviet Union and Eastern Europe until 1989-91. Cuba, North Korea, China (?) • State over market and society

18. Communist Policies • No private property — nationalization • No markets — the entire economy is directed by State • Any profit goes to the state • No competition, no unemployment • Taxation of fixed prices and wages • Trade restricted – imports of very necessary goods

19. Mercantilism • Focused on economic development • De-linked from any particular ideology • Focuses on the state over market and society • Not much concerned about freedom or equality (usually low) • Not incompatible with democracy • Little regulation and taxation • Can be found today • In non-democratic and democratic settings • Asia (Japan, South Korea, India and China) • Developing countries

20. Mercantilist Policies • Private property + national ownership • Active industrial policy—state tries to direct production, parastatals • Imports seen as loss of national profit and foreign dependency • Taxation, Central bank (not independent), tariffs, non-tariff barriers, trade regulations, Instrumental to development • Small welfare state

21. Limitations of Each System Liberalism: huge inequality and monopolies Social Democracy: expense of welfare state, inefficiency, “welfare retrenchment” Communism: authoritarianism, inefficiency Mercantilism: distorts market

22. Future of Political Economy? World has become more liberal over time

23. 2) International Political Economy • International relations + Political economy • Fusion of economic and political analysis in IR • Change of perspective: from State as unitary actor (political economy) to State within an international system (IPE) • How the interaction of different models of domestic political economies (1) influence international trade, investment, and finance (2) lead to the formation of international economic treaties and institutions

24. International economic history – postwar period Major developments • Creation of new international institutions: IMF, World Bank, GATT • Cold War, leading to two separate blocs (East-West) and the rest (Third World) • Unprecedented economic growth • Rise of Europe, Japan; East Asia; China • Globalization • Increased instability after 1971-73

25. Systemic Factors influencing IPE • International trade • Balance of trade (exports minus imports) ex: US vs Germany, US vs world economy • Interactions among different models (liberal, social democracy, mercantilist, …) • Exchange rates (price of one currency in terms of another) • Protectionism: tariffs, quotas, subsidies • international organizations (WTO, IMF, World Bank, UN) • NGOs and IGOs

26. Analytical Perspectives on IPE - Liberalism • Free international trade – what factors open trade? • Comparative advantage, economic efficiency • Focus on individuals and enterprises • Nature of economic relations: harmonious; interests reconcilable, mutual benefits → NOT a zero-sum game • Relationship between economics and politics: economics drives politics

27. Analytical Perspectives on IPE - Liberalism Governmentintervention in trade Tariffs, Quotas Non-Tariff Barriers

28. Analytical Perspectives on IPE -Realism • Focus: state power • Imports seen as weakening the state (economic self-sufficiency at its extreme) • Attention to domestic employment against delocalization • Nature of economic relations: conflict over the gains of trade (zero-sum game, what I gain is what you lose) • Power affects distribution of wealth • Relationship between economics and politics: politics drives economics

29. Analytical Perspectives on IPE -Constructivism • Focus: preferences and goals of citizens, State leaders, and intellectual leaders • IPE driven by diffusion of new ideas, development of new values • Lack/development of international governance on economy depends on actors’ preferences • Goals and preferences vary: shared understanding and normative agreements among actors (currently on globalization) could change over time • Ruggie: post WWII normative order on economy eminently liberal but needed balancing exceptions (socialist, communist PE)

30. Analytical Perspectives on IPE - Marxism • Focus: classes, social forces • Nature of economic relations: conflictual (zero-sum game) • Gains from trade distributed unequally leads to poverty • Search for equality domestically and internationally • Relationship between economics and politics: economics drives politics

31. World Showing States by Size GDP (2015) What do you see on the map?

32. World Showing States by Size GDP (2015) Economically, a tripolar order with complex exchanges The US The EU “Asia”

33. …but do not forget this:overall, toward a Tri-polar System?

34. 2) Future of IPE – Globalization? Globalization: economies have become more liberal over time

35. IPE and Globalization Inter-national vs. globalized model of world economy? • International world economy: presupposes existence of different models • Globalization: different models still existing but trend toward one (liberal economics) • Globalization of Trade • Globalization of Finance

36. Globalization • Definitions: • Simple: Interdependence, economies affect other economies (our recession causes other recessions) • More Complex: The process of state’s economies becoming more interrelated and interdependent, and the consequences this has for politics, society, culture, security, the environment, ... • The increasing interdependence is happening because of Liberal Economics

37. Globalization • Free Trade or Not Free Trade • America generally in favor of free(ish) trade • Some exceptions (agriculture) • Others argue this makes US hypocritical • Pros/Cons, huge debate in a nutshell: • Pros: Economic Advantages – Macro look • Cons: Social/Political/Cultural Costs – Micro look

38. 3) Inequality: Dependency Theory • Economic Structuralist Critique, alternative to liberal economics • Unequal relationship between developed and developing countries • Liberal economy benefits rich states, not poor • Neocolonialism: poor states are politically independent, but economically dependent • Idea of core versus periphery of the world • Poor states mostly sell commodities, unfinished goods • Rich states produce manufactured goods • Poor states need rich states more than viceversa

39. Dependency Theory Developed Cs Less Developed Cs North America Western Europe Japan Large middle class High Tech Industrial products High skills High wages Cars, chemicals, aerospace, telecomm, electronics, software Africa, Asia, Middle east, Latin America Primary products, raw materials Commodities Elites vs impoverished Low skills Low wages Bananas, coffee, minerals, rubber, timber

40. Inequality: the Cycle of Poverty Set of factors that self-reinforce poverty

41. Inequality: the Cycle of Poverty • Dual economy: vast majority of people are poor, very small minority are rich, no middle class • Low Productivity: country does not produce any or little surplus to be invested, all is consumed • Insufficient Capital: little surplus means lack of capital for local/international entrepreneurs to start business • Few Human Services: no capital, no taxes, so schools, police departments, running water not assured