Global Trends Unit 3 - International Political Economy

universal agreement

there is no ________ _________ on how IPE should be defined

contending definitions of IPE

1. state-centered definition of IPE

2. Marxist definition of IPE(social class based definition of IPE)

Transnational Corporations

large corporations engaging in all sorts of economic transactions and activities that cut across borders

International Political economy

a field of inquiry that studies the ever-changing relationships between governments, businesses, and social forces across history and in different geographical areas

political and economic

dimensions of IPE

political dimension of IPE

accounts for the use of power by a variety of actors including individuals, domestic groups, states(as single units), International organizations, NGOs, and TNCS

economic dimension of IPE

deals with how scarce resources are distributed among individuals, groups, and nation-states

human behavior

The market can also be thought of as a driving force that shapes

perspectives regarding the nature of the IPE

1. Liberalism

2. Marxism

3. Nationalism/Mercantilism

16th century

Mercantilism is the oldest of the three perspectives on the nature and functioning of the IPE, dating back as early as the ___ ________ (perhaps even earlier)

Friedrich List

intellectual father of mercantilist thought

classical economics

mercantilist thought is often thought in response to

critique of classical economics.

Marxism, by contrast, is the youngest of the three and is advanced by Karl Marx who also emerged as a

communism and “import-substitution” strategies

the relevance of Marxism declined greatly due to the end of _________ and “_____-______” _______ of LDCs

analytic tool and ideological critique

while Marxism has been discredited, it survives as an _________ ____ and ___________ _______ of capitalism as long as the flaws of the capitalist system remain

Mercantilism/nationalism

a theoretical and ideological perspective which defends a strong and pervasive role of the state in the economy – both in domestic and international trade, investment and finance

sophisticated and interventionist

As it developed in the 21st century, mercantilism (or neo-mercantilism) defended an even more ______________ and ____________ role of the state in the economy

disciplinary role

According to mercantilists, states should also play a ____________ ____ in the economy to ensure adequate levels of competition

Japanese, South Korean, Taiwanese and Chinese

The proof of the relevance of mercantilist thought in the contemporary international political economy is found in the recent experience of the ________, ____ _____, ________, and _______ national political economies whose states fulfilled the above stated roles almost perfectly

developmental state approach

Instead of the term mercantilism, however, East Asian economies used the term “__________ ____ ______” (a less politically laden term) to describe the nature of their national political economy system.

Liberalism

a mainstream perspective in International political economy and it defends the idea of free market system

advantages of free trade among its advocates

• reduces prices

• raises the standard of living for more people

• makes a wider variety of products available

• contributes to improvements in the quality of goods and services

comparative advantage

If countries focused on what they do best and freely trade their goods with each other, all of them would benefit - this concept is known as

economic globalization

the theory of comparative advantage has been undermined by the current wave of

competitive advantage

despite global acceptance of the concept of free trade, governments continue to engage in protectionism due to the transition from the theory of comparative advantage to what is known as

83 percent and 1.0 percent

the richest 20 percent of the world‘s population controlled ____________ of the world‘s income, while the poorest 20 percent controlled just _______

volatility of a global capitalist system

Marxists then tell us that crises such as income inequality, labor exploitation, child labor, and child slave labor all reflect the inherent

contemporary theories of international political economy

1. Hegemonic Stability theory(HST)

2. Structuralism

3. Developmental State approach

Hegemonic Stability theory

• a hybrid theory containing elements of mercantilism, liberalism, and even Marxism

• the root of the economic troubles of Europe and much of the world in the Great Depression was the absence of a benevolent hegemon(dominant state acting as a leader)

Bretton Woods institutions

During its explanatory power to the Great Depression, HST has thus influenced the establishment of the _______ _____ ___________ (IMF and WB) - products of American power and influence

Structuralism

• a variant of the Marxist perspective

• starts analysis from a practical diagnosis of the specific structural problems of the international liberal capitalist economic system

  • center-periphery (dependency) relationship between the Global North and the Global South which permanently resulted in an unequal (trade and investment) exchange.

• also known as the ‘Prebisch-Singer thesis’ named after its Latin American proponents

primary production

Prebisch-Singer thesis spread to Asian and African countries during the 1950s which led to the domestic promotion of agricultural and other types of _________ _________as a central objective in many development plans

Developmental State approach

• arose by realizing the failure of neo-liberal development paradigm in solving economic problems of developing countries

• a variant of mercantilism and it advocates for the robust role of the state in the process of structural transformation

• refers to a state that intervenes and guides the direction and pace of economic development

core features of developmental states

1. strong interventionism

2. existence of bureaucratic apparatus

3. existence of active participation and response of the private sector to state intervention

4. regime legitimacy built on development results

most influential National Political Economy systems

1. American System of Market-oriented Capitalism

2. Japanese System of Developmental Capitalism

3. German System of Social Market Capitalism

secondary importance

The American system of political economy is founded on the premise that the primary purpose of economic activity is to benefit consumers while maximizing wealth creation; the distribution of that wealth is of

neoclassical model

Despite numerous exceptions, the American economy does approach the __________ ______ of a competitive market economy in which individuals are assumed to maximize their own private interests (utility), and business corporations are expected to maximize profits.

assumption of the American model

• markets are competitive/should be promoted to be competitive through antitrust/other policies

• unless explicitly forbidden, almost any economic activity is permitted

• economy is open to the outside world unless specifically closed

• emphasis on consumerism and wealth creation

• insensitivity to the social welfare impact of economic activities

abstract theory of economic science

Although Americans pride themselves on their pragmatism, the American economy is based upon the _______ _________ _______ _____ to a greater degree than is any other economy

oligopolistic corporations

the American economy was profoundly transformed by the late nineteenth-century emergence of huge corporations and the accompanying shift from a proprietary capitalism to one dominated by large,

big business

in the US, the power balance shifted away from ___ _______ when

1. the New Deal of the 1930s established a strong regulatory bureaucracy and organized labor was empowered

2. the Full Employment Act of 1946 was passed

3. the Keynesian idea that the federal government has a responsibility for full employment and social welfare was accepted

ideal and reality in American economic life

Commitment to the welfare of individual consumers and the realities of corporate power have resulted in an unresolved tension between

persistent sense of business responsibility

In the American economy, there has been no _______ ____ __ __________ ____________ to society or to individual citizens unlike Japanese/German corporations

shifted back and forth

over time, the balance between the ideal and the reality of the American economy has

executive, legislative, and judicial

in the American Economy, authority over the economy is divided among the _________, __________, and __________ branches of the federal government and between the federal government of the fifty states

Industrial Policy

refers to deliberate efforts by a government to determine the structure of the economy through such devices as financial subsidies, trade protection, or government procurement

forms of industrial policies

1. Sectoral policies

2. macroeconomic and general policies

sectoral policies

formed to benefit particular industrial or economic sectors

macroeconomic and general policies

designed to improve the overall performance of the economy

agriculture and national defense

the United States has employed sectoral policies in just a few areas, notably in ___________ and _____ _______ until the 1980s where the US took major steps toward establishing a national industrial policy

more important than others

The rationale or justification for industrial policy and associated interventionist activities is that some industrial sectors are ____ ________ ____ ______ for the overall economy

market failure

In general, however, the only justification for an industrial policy considered legitimate in the United States is to overcome a

advice of American occupation officials

following WW2, Japan’s economic and political elite ignored the _______ __ ________ ________ ______ and set their sights on making vanquished Japan into the economic and technological equal and even superior of the West.

Meiji Restoration

Ever since the ______ ___________ (1868), Japan‘s overriding goals have been making the economy self-sufficient and catching up with the West

militarism

Since its disastrous defeat in World War II, however, Japan has abandoned ______ and has focused on becoming a powerful industrial and technological nation, while also promoting internal social harmony among the Japanese people

neo-mercantilism

the political goals of Japan have resulted in a national economy policy best characterized as ___-________ involving

• state assistance

• regulation

• and protection of specific industrial sectors

in order to increase their international competitiveness and attain the “commanding heights” of the global economy

why Japan wants to achieve industrial/economic equality

1. Japan’s experience as a late developer

2. Japan’s strong sense of economic and political vulnerability

3. the Japanese people’s overwhelming belief in their uniqueness, superiority of their culture, and their manifest destiny to become a great power

terms used to describe the Japanese system of political economy

• developmental state capitalism

• collective capitalism

• welfare corporatism

• competitive communism

• network capitalism

• strategic capitalism

central role

the term developmental state capitalism best captures the essence of the Japanese system, because this characterization conveys the idea that the state must play a ______ ____ in national economic development and in the competition with the West

domestic harmony

any aspects of the Japanese economy that puzzle foreigners are a consequence of a powerful commitment to

tripartite alliance

Following Japan‘s defeat in World War II, the ruling ________ _______ of government bureaucracies, the governing Liberal Democratic Party (LPD), and big business began to pursue vigorously the goal of catching up with the West

most remarkable aspect

Industrial policy has been the ___ ________ ______ of the Japanese system of political economy

policies Japan has used to promote its infant industries

• Taxation, financial, and other policies that encouraged extraordinarily high savings and investment rates.

• Fiscal and other policies that kept consumer prices high, corporate earnings up, and discouraged consumption, especially of foreign goods.

• Strategic trade policies and import restrictions that protected infant Japanese industries against both imported goods and establishment of subsidiaries of foreign firms.

• Government support for basic industries, such as steel, and for generic technology, like materials research.

• Competition (antitrust) and other policies favorable to the keiretsu and to interfirm cooperation.

The German System of Social Market Capitalism

• emphasizes exports and national savings and investment more than consumption

• permits the market to function with considerable freedom

• except for the medium-sized business sector, the nongovernmental sector of is highly oligopolistic and is dominated by alliances between major corporations and large private banks

balance social concerns and market efficiency

The German system of political economy attempts to

labor and the larger society

The German’s corporatist version of capitalism is characterized by greater representation of _____ and ___ _____ ____ in the governance of corporate affairs than in Anglo-Saxon share holder capitalism

law of co-determination

in Germany labor has a particularly important role in corporate governance as seen by the “___ __ __-________” which mandates equal representation of employees and management on supervisory boards

indirect

The most important contribution of the German state to the economic success of their economy has been

codified law

Germany has a highly developed system of _______ ___ that reduces uncertainty and creates a stable business climate

Bundesbank

At the core of the German system of political economy is their central bank, or __________ which has been compared to that of the German General Staff in an earlier German domination of the Continent

European Economic and Monetary Union

Movement towards the ________ ______ and _________ _____ has further increased the powerful impact of the Bundesbank.

defender of the mark and inflation

Although the Bundesbank lacks the formal independence of the American Federal Reserve, its pervasive influence over the German economy have rested on the belief that the Bundesbank is the “_________ ____ ____”(euro) and the opponent of dreaded ________

modest

the role of the German state in the microeconomic aspects of the economy has been __________ as seen by the Germans not having had an activist industrial policy although, like other advanced industrial countries, the government has spent heavily on research and development

dying industries

The German government has not intervened significantly in the economy to shape its structure except in the support it has given through subsidies and protection to ______ _________ such as Lufthansa and Bundespost(mail and telecommunications)

important differences among National Political Economy Systems

1. the primary purposes of the economic activity of the nation

2. the role of the state in the economy

3. the structure of the corporate sector and private business practices

the keiretsu

Japanese system of tightly integrated industrial grouping

role of the state in that economy

The purpose of economic activity in a particular country largely determines the

shareholders and banks

when considering corporate governance and private business practices, ____________ have an important role in the governance of American business while ____ have played a more important role in both Japan and Germany

barter trade

The exchange of a good or service for another illustrates a particular type of trade, referred to as

money for goods and services

In the contemporary period, however, the great preponderance of trade involves the exchange of

never entirely free

cross border trade is mediated by 2+ sovereign authorities with control over their own national trade which means that free trade(the unrestricted purchase and sale of goods and services without the imposition of constraints) is

the modern age

the scope and scale of cross-border trade exists at its peak in

autarky

a policy premised on complete economic independence or self-sufficiency

impossible and self-defeating

in the general public, most people acknowledge that the antithesis of trade, namely autarky, is essentially _________ and ___ ___________ in the industrial and post-industrial eras

Global/Regional Free Trade Agreements

One of the most common answers to “how is international/global trade governed? is the idea that ______/_______ ____ _____ _________ govern it - institutions like World Trade Organization (WTO) and North American Free Trade Agreement (NAFTA) or similar other organizations

North American Free Trade Agreement

a trade agreement among the U.S., Canada, and Mexico

protectionist/mercantilist policies

the notion of free trade in NAFTA had and still have significant element of ____________/_________ _______ such as tariff, import ban, import quota

types of nontariff barriers

• import bans

• import quotas

• domestic health, safety, and environmental regulations

• technical standards

• inspection requirements

Transnational production

a type of production in which different parts of the overall production process for a particular product take place across different national territories and it is one major element of the international or global political economy(in short, global FDI)

complex and larger in scale and scope

today transnational production networks are immensely more _______ and _____ __ _____ ___ _____ than at any other time in history

decrease in transport and communications cost

one of the most important factors for the international production structure

across borders

the developments of new and better technologies and improvements in global finance have also made it easier and more profitable to build integrated production systems

World Bank

investment and development process in the developing countries, on the other hand, are directly or indirectly governed by the

reconstruction of Europe

The WB was primarily designed as a vehicle for the disbursement of Marshall Plan money set up to aid the (immediate) _____________ __ _________ and was exactly the US had hoped to achieve

controversial and negative

unlike in the case of Europe, the impact of the WB on the development of developing countries has been at best ___________ and at worst ____________

reason for the impact of the WB on developing countries

1. ‘one size fits all’ types of excessive and hard to implement policy prescriptions

2. tough aid/loan conditionality for policy conformance

3. rough relationship with developing countries that want their freedom

monetary system and a credit system

The global financial system is divided into two separate, but tightly inter-related systems: a __________ _________ and a _____ _____

international monetary system

can be defined as the relationship between and among national currencies

international credit system

refers to the framework of rules, agreements, institutions, and practices that facilitate the transnational flow of financial capital for the purposes of investment and trade financing

inextricably related

from their definitions, its easy to see how the monetary and credit systems are _________ _____ to one another