INS3003 Exam 2

What is democracy?

government by the people; a form of government in which the supreme power is vested in the people and exercised directly by them or by their elected agents

Demos + Kratia

"Demos" (the people) + "kratia" (power of authority)

What is the connection between the nation-state system and democracy?

The UN is organized on a democratic basis. The GA and voting of issues.

The nation-state system is built on this western liberal democratic system.

Realists Post-War Predictions

Why We Will Miss the Cold War

Mearsheimer said there was safety in bipolarity

Constructivist Post-War Predictions

Samuel Huntington - Clash of Civilizations (constructivist)

Was predicting even bigger conflict than we have seen before

Liberalist Post-War Predictions

Liberalists

Cooperation continuing

Democracy spreading

Very optimistic about the post-cold war world

Continued peace and cooperation

Francis Fukuyama

wrote "The End of History" - (liberalism) - The collapse of communism signaled the "end of history" and would usher in a new age of democratization and prosperity

We look at democracy as occurring in 3 different ways

1. The US Declaration of Independence

2. The second wave of democracy was after World War II is over

In the late 60s, we see a decrease in democracy due to a series of military coups in Latin America, the civil war in artificial states in Africa - there is democratic backsliding

3. The end of the Cold War signals the third wave of democratization.

the only region that did not see democracy in the third wave

The Arab world

The United States is considered to be a ____ democracy. Why?

flawed. Pluralism knocks the United States down, because we have two major political parties.

Fukuyama describes...

The End of History =

The "end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government"

Georg Hegel (1770-1831)

Survival: Humans have a desire for survival.

Ability to Reason: What aids us in our survival is our ability to reason.

Natural "spiritedness" that desires recognition --> every human being wants recognition of their worth/value. It is this desire of recognition that leads us to compete with each other.

Hegel has a solution for this conflict that arises from competition. What is it?

Democracy gave us what we innately desire: recognition, prestige, respect.

Our leaders are dependent on us because we vote for them. This grants citizens power. Our opinions matter. There is a recognition in democracy of the role of all people. We do not need to compete for recognition and value in our government because it is bestowed on us.

How does democracy grant prestige, respect, and recognition?

"Great Equalizer" --> All states have recognition of their worth. It is bestowed upon the states by the international system.

Fukuyama's preeminence of ideas (reason)

When Fukuyama looks at history, he sees history as a continued evolution of ideas. For Fukuyama, democracy is the answer, so there is no need to keep evolving.

We realized that we needed a better system due to

human's ability to reason.

Liberal democracy =

consent of the governed + limited government + capitalism

WWI is considered to be a war of

nationalism

WWII is considered to be a war of

ideology

There is a competition between these ideological systems during WWII

communism, fascism, and liberal democracy

There is a competition between these ideological systems during the Cold War

communism and liberal democracy

Fukuyama argues that democracy

won and established itself as the best form of government and there is no need for political ideological evolution. Why is democracy the best? Because it meets the needs of all the people.

Challenges to Fukuyama's Approach:

- This is the story of the west. This didn't happen organically outside of the Western world.

- Capitalism has some flaws. Not everybody comes out on top., Capitalism hasn't made every country wealthy.

- No new ideologies? Who is to say that there will be no new ideological development?

Modernization Theory:

Democracy is a result of an industrializing world. There seems to be a correlation between democracy and wealth.

cities are

seats of power

Civil Society

power in the hands of civilians instead of rulers and military. The people have more agency. This goes hand in hand with the development of middle class.

Democratic Stability Theory

Wealth doesn't cause democracy, but it does help democracies achieve greater stability

How do the Democratic stability theory and Fukuyama's argument go hand in hand?

Fukuyama says...

Liberalism is stabilised when underwritten by the abundance of a modern free market economy

Democratic Peace Theory

Proponents of democracy argue that the safest worlds are worlds propagated with democracies, because democracies value peace.

Immanuel Kant and "Perpetual Peace"

"When citizens get to choose, they will choose peace and reject war." - Immanuel Kant

In democracy, the citizen is the primary stakeholder. In contrast, in authoritarian regimes, it is easier for the government to declare war.

1994 State of the Union Address Pres. Bill Clinton:

"The best strategy to ensure our security and to build a durable peace is to support the advance of democracy everywhere. Democracies don't attack each other. They make better trading partners and partners in diplomacy." → Democratic Peace Thesis, goes along well with the Democratic Stability Theory.

3 points to note from Clinton's speech:

1. Democracies don't fight each other (when it comes to empirical data, this is the closest thing we have to an undisputed fact out there)

2. Democracy solves the security dilemma created by anarchy

3. Democracies prefer each other in trade and diplomacy.

Democratic Peace According to Constructivist views

100% behind Democratic Peace Thesis

Shared political ideology → To include values and norms

Democracies value peace

That makes working with democracies easy

But we can work with others too, because we still value peace above war

*democracies can still work with nondemocracies because peace is our agenda

Democratic Peace According to Realist views

Not as behind to Democratic Peace Theory. They're still heavy proponents of democracy, but they'd ask:

Does democracy guarantee that conflict won't erupt with another democracy?

Are there other reasons why democracies might not have engaged each other in conflict?

Realists are not closed off to the possibility of conflict breaking out due to competition and states being self-interested

Realists don't argue that the data is inaccurate, but they say that maybe there are other reasons why democracies might not have fought with each other.

The empirical data study period includes times during which democracies have typically been allied together against greater threats. In the absence of a greater threat, what would happen? If there is not a greater threat, will democracies turn against each other?

Democratic Peace According to Liberalists views

100% on board

Democratization has been a cornerstone of Liberalism (i.e. Fukuyama)

Democracies pursue cooperation

Democracies are heavily engaged in IOs

Democracies are part of the same democratic based institutions/agreements

Democracies engage by way of interdependence

Democracies are grounded on the rule of law

Democracies promote diplomacy (and avoid the militarized version)

Alexander Wendt (1995)

illustrates the social construction of reality with his example that 500 British nuclear weapons are less threatening to the United States than five North Korean nuclear weapons.

American's perception of the British is not that they are a warmongering power. We don't perceive the British as a threat.

Dr. Bendeck's in class example of constructivism

Everyone thinks of a different table in their mind. We either have to say "Okay, we have differences, let's see what we can do to work together," or "My way or the highway."

Examples of conforming to another culture because we value peace:

Two examples:

Hillary Clinton as the Secretary of State wearing a hijab (2009)

Michelle Obama as First Lady in Indonesia wearing a hijab (2010)

Wearing it was a sign of respect

How can we explain the correlation between a decline in warfare and increasing democratization?

Democratic culture and Audience costs

Democratic culture

Democratic governments are responsible to their people. There are constraints on our politicians. If the democratic population wants peace, we expect the government to find a way to come to a peaceful solution.

Audience costs

We don't want our politicians going out and making threats. If we make a threat, we want that threat to have weight.

If we accept that democracies are more peaceful because the population wants peace. Because democracies are more peaceful, we do not expect democracies to threaten war. If a democratic leader threatens war, we must expect that our leader means it. If we say there is a redline, we want our enemy to know there will be consequences if the line is crossed. If the line is crossed and there are no consequences, we lose face.

Transparency

In a democracy, we have an expectation that our leaders are transparent. We expect that other democracies function the same way.

So are democracies more peaceful? Is this true?

According to the data, this is the closest thing to a fact that we have.

Are there differences between strong and weak democracies?

Weaker and newer democracies might be more likely to get into conflict.

But they are still less inclined to pursue it.

Exceptions to the Democratic Peace Thesis

Two examples of democracy being sacrificed:

Iran - 1953 - Operation Ajax

Guatemala - 1954

Iran - 1953 - Operation Ajax

1951- Mohd. Mosaddegh gets elected as the new Prime Minister of Iran. He began to nationalize Iran's oil industry.

There were arguments that this was communism.

Covertly, the United States CIA worked against Iran and Mohd. Mosaddegh to turn the people against his regime. To incite discontent within the military. To put pressure on the Shah. The Shah removed Mohd. Mosaddegh from power. Iran was not a democracy anymore. From the CIA perspective in the Cold War context, it eliminated a potential threat of communism.

Guatemala - 1954

Operation PBSuccess

*United Fruit Company

1951 - Jacobo Árdenz came to power. Árdenz was left-leaning. He nationalized the fallow land of the United Fruit Company. He was talking about redistributing the land to the people.

1954 - CIA carries out operation inspired by the success of Iran. It was the same thing. The CIA was working covertly to incite discontent within the military. The CIA worked to train anti-Árdenz operatives that would land in Guatemala to carry out a successful coup against the Árdenz regime. 480 operatives landed, but it was not a success. The coup attempt failed but Árdenz was afraid this would be followed by the US military. Árdenz fled into exile. In his place, a military regime came to power.

Does CIA intervention in Democratic countries challenge Democratic Peace given the absence of war/conflict?

No. It doesn't challenge it. The crux of Democratic Peace is that democracies don't fight each other. There was no fighting exactly.

Globalization: Howard Wiarda

"the increasing scale, extent, variety, speed, and magnitude of international cross-border social, economic, military, political, and cultural interrelations."

Thomas Friedman's 3 Stages of Globalization (From The World is Flat)

Globalization 1.0: Age of Mercantilism and Colonialism (1492-1800)

Globalization 2.0: Pax Britannica (1800-WWII)

Globalization 3.0: Pax Americana (WWII - now)

Globalization 1.0: Age of Mercantilism and Colonialism (1492-1800)

"Shrank the world from large to medium"

Mercantilism is about power and influence. Powers want to make money. They want to sell more than they buy. Mercantilism is based on the idea that a nation's wealth and power were best served by increasing exports and trade.

Colonialism is about resource extraction to benefit the home country's economy.

Globalization 2.0: Pax Britannica (1800-WWII)

The establishment of global markets, multinational trading, MNCs

"Shrank the world from medium to small" → multinational companies were going all over the world. Shrink's perception of the world. Goods seem much more accessible.

*British East India Company (BEIC) - formed in 1600. Biggest company in the world. It owned ports and it had its own military. It was the largest employer for Britain.

Companies were responsible for maintaining this global trade.

Globalization 3.0:

Pax Americana (WWII - now)

Age of the Internet

Our capabilities have also changed. Individuals can do what only banks or MNCs could previously

"Shrank the world from small to tiny"

Comparative Advantage (David Riccardo)

Ability to produce good at the lowest cost and in the most efficient way possible using what you have

Efficiency → cost efficiency

Specialization → countries specialize in those goods they have a comparative advantage on

Free trade → you need a free flow of goods to trade easily from one country to another.

Benefits? Maximize global output

Cost efficiency → goods should be sold at the cheapest cost on the market

Trade Dependency

These small, former colonies/new states seek: Wiarda: "aid, trade, markets, security, and protection" from the larger powers. When a colony becomes free, big economic powers jump in to establish trade relationships with them.

What happened to that process?

A lot of those colonies found themselves in a relationship of dependency with the bigger economic powers.

Trade Dependency vs. Economic Interdependence

Ex: US-Mexico Trade Relations (NAFTA to USMCA)

Asymmetric Trade

80% of Mexico's exports go to the US

40% of their imports come from the US

Even if dependency is not always even, there is still economic interdependence between the US and Mexico

Risks of Trade

1. Vulnerability

2. Market volatility

3. Competition

4. Supply and Demand

Cons of a country specializing their economy

When countries specialize for the purpose of trade, it can do a lot of damage to other sectors of their economy.

What happens when a country makes that strategic shift to an area of comparative advantage? Ex: Nigeria - used to produce 1. Rubber 2. Coffee 3. Cacao. Around the 1960s, they discovered oil. They decided to specialize in the production of oil. Today, oil drives Nigeria's economy. The government did not provide subsidies to produce rubber, coffee, and cacao. The support for those industries dried up.

Trade Deficits

When you import more than you export

Currency in international trade

1. Currency standards (like silver/gold standard)

2. Money Markets (Foreign Exchange Market): temporary trade that gives access to a currency

3. Trade agreements (EU- Euro): all adopted a single currency

Impact of currency value and fluctuations on trade:

Rising/high-valued currency

pros: we can buy more. Better conversion rate for dollar to a foreign currency

Cons: a strong dollar affects our exports sector. The stronger the dollar, the higher the value of their goods.

declining/low-valued currency

Pros: helps export sector, our goods are cheaper and more accessible

Ex: *Real world application: China (yuan, aka renminbi)

They keep it artificially low so they are always competitive. This is currency manipulation to boost their export economy.

Supply is fixed by

our monetary policy. Central Bank that determines the supply of the US dollar

Fiscal policy

taxes and spending. It is the responsibility of our government to maintain a stable value of our currency.

Foreign reserve currency

A foreign reserve currency is a foreign currency held by a country's central bank in its foreign exchange reserves, which are a collection of assets. These reserves are not for public use but are a country's backup funds for international trade, to stabilize the national currency, and to conduct monetary policy.

Like a backup saving account.

The Classical Gold Standard (Pax Britannica) - Globalization 2.0

The British led the process of creating an international currency with the Classical Gold Standard. By the end of the 1930s, many countries had already fixed their currencies to gold.

What ultimately brought the classical gold standard down was

the Great Depression

Gold Reserve Act 1934

Nationalized Gold (a first and unusual move... it was also unconstitutional!)

Gold was transferred to US Treasury - even removed from the Federal Reserve:

Private holdings and use of gold coins became illegal

(except for use in things like dentistry and jewelry = gold bars)

Exporting gold was made illegal

The government adjusted the price of gold from $20.67 per ounce to $35 per ounce = Devalued dollar by 69%

(but that increased our gold value from $4 billion to $7.35 billion)

* only applied to American gold held at that time

After the Gold Reserve Act 1934, Gold went from being a currency to a ______

commodity

"Beggar Thy Neighbor" Protectionism

High tariffs + Currency Devaluation

Tariffs → halt the flow of goods. If your economy is hurting, you don't want to splurge. Only buy necessities. Tariffs block those goods from coming in. You want to help your export economy by selling more goods than you buy. Exports>Imports

Everybody is selling, nobody is buying. There is nowhere for the goods to go. It is completely counterproductive.

The lower value dollar is affecting the consumers in the US. The people have less spending power. Everything you need to exist is unaffordable.

Result = trade ground to a halt

Got the name "Beggar Thy Neighbor" because it was very extreme. It turned the neighbor into a begga

"Beggar Thy Neighbor" protectionism (in short)

refers to economic policies, such as tariffs, import restrictions, and currency devaluation, that a country uses to benefit its own economy at the expense of its trading partners

WWII brought the US out of the Great Depression because

it ramped up production.

Connection between economic and political instability (and war)...

Political stability and economic stability goes hand in hand.

*Both Mussolini and Hitler rose to power in times of economic crisis, and Britain and France were too weak to stop them from making war.

Italy: Economic crisis and unhappy population

Beginning of Fascism was in Italy

Mussolini was very militaristic

Germany:

Felt effects of the Great Depression very quickly

They borrowed a lot of money from the US

Economic crisis led to economic instability

Nazis came to power. Second fascist power in Europe.

France and Britain weren't able to stop the rise of fascism in Europe, because they were too weak.

Europe's Economic Crisis was due to WWII:

Inflation

Unemployment

Massive debt

Trade Deficits

Balance of Payment Deficits (balance of all transactions coming in and going out of a country by way of Trade, Transfers, and Investment)

Depleted Gold and Dollar Supply

The Dollar-Gold Standard (or simply Dollar Standard)

US pegged to gold at $35 per ounce, everyone else pegged to the dollar

*Made the US dollar the Reserve Currency and currency of trade

There was not enough gold to peg to. The US had an abundant supply of gold to back up the US dollar. The US dollar became the currency from trade and commerce. It makes the US dollar the dominant reserve currency.

Why was the Dollar Standard a system that the world could have confidence in?

It was a stable system. The US had the gold to back the dollar.,

The gold was held in Fort Knox. It is forbidden to go there.

**The dollar/gold standard would have flexibility built in.**

**There is about a 1-2 percent buffer. There was a plan in case it shifts too far. They would be able to adjust the peg at the IMF.

Countries could have confidence in the Dollar-Gold Standard because it was

fixed. $35 per ounce of gold. No need to worry about fluctuations.

To reestablish global trade post economic crisis, the world needed a ____ currency:

1. Need a trade currency - US dollar is the global trade currency. The Dollar/Gold Standard does not exist anymore. It went out in the 1970s. It didn't change the US dollar's position as chief trade and reserve currency.

Bretton Woods

The United Nations Monetary and Financial Conference (Known as Brettton Woods because it took place in Bretton Woods, New Hampshire in July 1944).

44 allied nations came together on month after D-Day

For the allied powers, it was simply a matter of time of winning WWII.

The purpose of the conference was to plan the post-war order. Stability was the goal.

The United States took the lead.

Harry Dexter White of the US Treasury

played a leading role in the financial decisions, representing the US.

During Bretton Woods, the US was closely assisted by

*John Maynard Keynes from the British Treasury* (Think Keynesian Economics)

Keynesian: Heavy government involvement, top down system

Keynes and White would go back and forth, and they decided on a moderate version of Keynesian Economics. A lot of direction would be needed at the start.

4 agreements came out of Bretton Woods, known as the Bretton Woods system:

1. The acceptance of the Dollar-Gold Standard

2. International Monetary Fund (IMF) - conditionality

3. International Bank for Reconstruction and Development (IBRD) - today known as the World Bank

First goal: reconstruction. To rebuild Europe.

4. The General Agreement on Tariffs and Trade (GATT) - the World Trade Organization (WTO) today

Conditionality

Conditional aid: The IMF will assess the country's economy, identify where the problems are, what went wrong, and the IMF will provide economic assistance - with conditions. // Structural adjustment: The IMF tells the country what they need to fix.

Was the IBRD enough to rebuild Europe?

No. The IMF would provide loans to Europe to reconstruct. It was not enough. It will necessitate the Marshall plan.

To not have trade blocks due to favouritism, GATT implemented the ______

most favored nation. Whatever a country agrees to with their most favored nation, that applies to everybody to ensure there is a free flow.

Did GATT apply to agricultural goods?

only applied to manufactured and industrialized goods, not agriculture

What does GATT stand for?

The General Agreement on Tariffs and Trade

What was the early blip in the Bretton Woods system?

A dollar shortage and convertibility crisis

Convertibility crisis

European countries could no longer convert their currencies into dollars. The scarcity of the dollar had become a crisis.

Europe was going through a very grave economic crisis.

Does life go back to normal after war ends?

No. Life doesn't go back to normal after war.

Ex. Peace deal was signed for Gaza but people's lives just don't go back to normal.

Why were the dollar shortage and the convertibility crisis such a threat to post-WWII world?

This ran the risk of stopping Bretton Woods before it even started going. No dollar standard or currency for trade.

The Marshall Plan (1948)

Political Focus: to stop the spread of communism in Europe. France and Italy were the two countries that came into focus.

Economic Focus: to do whatever it took to make sure that the countries of Europe had whatever they needed to rebuild, have dollars, and start trading.

France and Italy shared some things in common, that the Marshall Plan aimed to address:

- After the war, both countries were facing very serious economic problems. Housing problems due to war damage, high level of unemployment, high levels of inflation.

- Both of these countries were also democracies. The people had a say on who runs the government and what parties come to power.

- Communist parties in both parties gained seats and votes into cabinet level positions.

- During WWII, both countries had very vibrant resistant movements. Those resistance movements tended to be communist, which translated to communist political support.

George C. Marshall

Secretary of State appointed by Truman to reach out to the European countries to see what they needed. Important: The US blames the economic problems for starting WWII. - Access your economy and tell us what you need. Europe: "Give us a dollar figure." And the US did.

Were satellite states allowed to take money given to Europe through the Marshall Plan?

The satellite states weren't allowed any money from US economic relief.

Results of the Marshall Plan

A political and economic success

Communism was done in Italy and Germany

The Long Boom

1950-1973 is considered an economic "Golden Age" of growth and expansion. Total World Trade grew from $47 billion from 1950 to $177 billion in 1966. Bretton Woods worked.

In the end, Bretton Woods stopped working for the US. Why?

It was working very well for the world, but it wasn't working so well for the US in the long run.

- American Deficit Spending

- This deficit spending was by design in the beginning to get dollars out in the market and make it accessible.

- US was trading on unfavorable terms

- Trade Imbalance (Dollar Standard artificially inflated the dollar) - The US had a higher value currency than everybody else's. Their goods were cheaper than ours. They could outbid us and they were more competitive than we were.

- US gold holdings declined relative to the US dollar. We have more US dollars in circulation than we have gold in the reserve.

Charles de Gaulle and American dollars

Charles de Gaulle challenged the U.S. dollar's dominance by criticizing the Bretton Woods system, which he called the "exorbitant privilege" for the United States.In response to his concerns, France began secretly converting its U.S. dollar reserves into physical gold between 1963 and 1966, repa-triating it to France. De Gaulle's actions, and similar moves by other countries, significantly reduced the U.S. gold stock. This pressure, combined with other factors, ultimately led President Richard Nixon to end the convertibility of the U.S. dollar to gold in 1971, effectively ending the Bretton Woods system.

Did Japan and Germany help the US when Bretton Woods was failing?

No. If Japan and Germany adjust their exchange rates, the US would be a little bit more competitive against them. Japan and Germany said no. Realism → self interested