Politics Of The Global Economy- Test 1

State

A political actor with 4 traits:

territory, population, government, sovereignty

Nation

A group of culturally, historically, ethnically, etc…similar people who feel a communal bond

Power

The ability for one state/nation/actor to get another state to do something

Hard Power

An actor’s physical capabilities that allows them to get others to do what they want:

size of military, economy, population, resources, etc

Soft power

The amount of influence that an actor can utilize to get other actors to do stuff:

ideologies, setting an example, etc

Structural Power

The ability to alter the structure of the global political economy

Anarchy

The absence of any political authority or influence, sometimes resulting in disorder or chaos

Transnational Corporations (TNCs)

Business entities that operate in several countries but manages its operations from their home countries

example: Apple, Samsung, Microsoft, etc

Non-governmental organization

A independent organization that operates outside of government control.

They may be mission oriented or receive aid from government or corporations

Sovereignty

When an actor has control over a population with minimal authority over said actor

Markets

A method of allocating resources using prices as the central mechanism

Intergovernmental organizations

An entity, often created by a treaty or agreement between multiple states, that work together on issues of a common interest.

Examples: World Trade Organization (WTO), United Nations, International Money Fund, etc

Rational Choice

A theory that explores the decision making of individuals and the outcome of those decisions.

This theory assumes that individuals will act in their personal interest, maximizing their gains and minimizing their losses.

Has been used to explain surprising outcomes and why there individual choices may harm society as a whole in certain cases

Prisoner’s Dilemma

A scenario created based off Rational choice that illustrates the conflict between individual self interest and mutual benefit.

2 suspects have been taken into custody with stolen goods and are being investigated for murder. If suspect 1 confesses, they go free and the other is imprisoned for life. If both stay silent, they each get 1 year of prison. If they both confess, they both get 10 years of prison.

Rational choice suggests that both suspects will confess as they don’t know what the other suspect will do, leading to the two of them being imprisoned for 10 years when they would have been better off staying silent and only getting 1 year.

Public Good

A commodity/service/resource that anyone can enjoy without reducing its availability to others.

Example: clean air, water

Free rider

An entity or individual benefits from a resource, system, good, or service but does nothing to contribute back the system (doesn’t bear any costs, just benefits for free).

Nash Equilibrium

In game theory, the outcome that is reached when each player abides by their own personal strategy as there is no incentive to change their strategy.

These strategies are often in the player’s best interest.

Purpose of Theory

Concepts and hypothesis that create a cause and effect relationship between social and political factors.

Specifically, they try to:

1) Describe the world or a phenomenon

2) Make connects and explain phenomenon

3) Making predictions based on these theories and upcoming scenarios

Institutionalism

A theory that focuses on how simple and complex institutions impact individual decision making.

Tries to focus on the broader “rules” and how institutional action can impact the behavior of individuals.

Constructivism

How ideals, beliefs, values, social norms, etc, impact behavior and shape reality.

Example: What is an actor’s preferences, how were they formed and how might they change?

Empirical theory

Tries to explore how things/the world works

Normative theory

Explores what policies will result in a “good society.” 

Refers to hypothesis about what is right or wrong, desirable or undesirable, and what is just or unjust

Logic of collective action

Explores why individuals in large groups often fail to act in their common interest due to the free rider problem and the tragedy of the commons.

Individuals acting in their self interest may not be best for society.

Adam Smith

Scottish philosopher and economist sometimes referred to as “the father of economic/capitalism.” Played a big role in the foundation of liberalism.

Advocated for larger national and international markets that could generate more wealthy for everyone.

Founder of the invisible hand theory, suggesting that the market will function properly when individuals act within their self interest

Invisible hand theory

A theory that suggests that individuals acting in their self interest will result in a successful, socially beneficial free market economy for everyone (provided it is tempered by competition) 

Positive sum

The idea that everyone can benefit in economic relationships

Market Failure

When markets fail to bring socially desirable actions.

One of the only scenarios that liberals argue that government intervention is necessary

Absolute gains

Refers to whether an actor is better off compared to a previous instance in time

Relative gains

Refers to whether one actor is doing better or worse than another actor

Supply and demand

-The total amount of a good or service that producers are willing to offer at a specific price point

-The quantity of a product or resource that consumers are willing to purchase at a specific price point

The interactions between these two factors determine the market equilibrium, specifically when the quantity supplied = quantity demanded.

Market equilibrium is said to be the most efficient market point 

Business Cycle

Fluctuation’s in a nation’s economy, often characterized through expansions and contractions overtime

Opportunity costs

When making a choice, is the next best alternative that is given up to make said choice

Laissez-faire

“Let be, let pass.” A type of economic systems where transitions between private actors are free to occur without economic/governmental intervention.

Suggests that governments should leave the market alone and let it function

Economic rationality (homo economicus)

Assumes that economic actors will make rational decisions by weighing costs and benefits to maximize their own self-interest.

It is argued that the economy will function best when this occurs with minimal intervention

Interventionalist Liberalism (Keynesianism)

Argue that governments have important roles in the economy, especially during market failure.

Government should pump money into the economy during a recession and reduce spending during peaks. This should flatten peaks and minimize troths.

Government should also provide a safety net for citizens, regulate the financial industry, and provide a range of public services

Hegemonic stability theory

When a dominant state/power engages in more “friendly” economic activity and leadership, other countries are more likely to cooperate and follow suite.

Friedrich Hayek

Free market philosopher who guided the neoliberal revolution of the 1980s.

Explained how prices relay information about products and help people determine their economic plans and decision making.

Also advocated for less authority intervention in markets

Ordoliberalism (social market economy)

Argued that states needed to provide the proper legal environment for the economy to maintain fair competition.

Markets can grow, but in an orderly fashion that takes care of the population and not just private markets

Rent-Seeking

An entity that aims to increase its wealth without making any contributions to the wealth or benefit of society.

Can occur through the manipulation of a political or economical environment

Market vs Distributive Justice

Market: advocates for a system with minimal government intervention where individuals are rewarded based off merit and productivity

Distributive: Emphasizes fairness and equality in the distribution of wealth, income, power, and opportunities, considering social, economic, and cultural impacts

Terms of Trade and Trade balance

Refers to the ratio of a country’s export prices vs their import prices.

A favorable ratio suggests that a country is earning more money than they are spending

Infant industry theory

New industries in a country will need protection against competition before they can mature and develop enough to meet its rivals

Protectionism

Policy designed to restrict the import of goods and services.

Examples include tariffs, quotas, etc

autarky

Refers to economic independence or self-sufficiency

Strategic trade theory

Argues that countries should pursue competitive advantage in those industries of future economic benefit to the nation where the socioeconomic costs of falling behind competitors are huge

Trade balance

The difference between the value (amount) of a country’s exports vs its imports

Alexander Hamilton

Famous advocator of mercantilist (economic nationalist) theory.

Argued that the US should protect their manufacturers from foreign competition so they could industrialize, grow, and increase their power

Fredrich List

German economist who argued that Germany should industrialize behind trade barriers so that they can grow to match their competition

Foreign Direct Investment (FDI)

A substantial, long-term investment/ownership steak in a foreign company or project made by a an investor, company, or government from another country.

Often used to expand an actor’s operations into a new region

Economic Structure

Refers to the arrangement and organization of various sectors and industries within an economy, highlighting how resources are allocated, how production is organized, and how goods and services are distributed.

Nationalists argue that the structure of the economy is often influenced by major economic powers

Value-added

Enhanced products/commodities that can demand higher prices than their raw materials.

These enhancements to these products or services can increase their market appeal and can result in higher revenue and profits

Industrial policy

Government intervention/assistant efforts to encourage and develop specific industries in the economy.

This is often strategic, as it could be used to build up future industries with high potential, or help failing industries.

Karl Marx

German philosopher who was a big voice behind Marxism.

Argued that society is divided into classes, namely the owners of production and the working class.

Also was behind the historical materialism term

Bourgeoise and Proletariat

The capitalist class who owns the means of production (factories, land, etc) and exploit the labor of the proletariat for profit.

The working class who sells their labor to the bourgeoise for profit

Dependency theory

Argues that free trade can lock poor countries into a dependent state where they are prone to exploitation

Lenin’s theory of imperialism

Argues that capitalism goes through stages, the last being imperialism.

Capitalism goes from competitive markets to monopolies, eventually leading to the concentration of wealth and dominance of financial capital. 

The final stage is when a few entities control economic resources, driving nations to compete for global dominance.  

False consciousness

When individuals or groups misperceive their real social position and interest within a capitalist society, often leading them to accept and support systems that exploit them

Core, periphery, semi-periphery countries

Technologically advanced and economically developed countries that dominate global trade and finance. Often benefit from the exploitation of the periphery and semi-periphery countries.

Less developed nations who are rich in natural resources but lack industrialization and political stability. Economically dependent on core countries.

Exhibit characteristics of both core and periphery nations. Often act as regional powers with moderate levels of development indices and growing capitalists economies.

Productivity

The ratio of what is produced to what is required to produce it

TRIPs agreement

Provided greater influence to foreign investors and increased international patent protection to a range of products and processes previously exempt from patent protection.

Initially problematic as it allowed drug companies to dictate the prices of medicine 

Absolute and Comparative advantage

Have a higher productivity in a specific product than any other country (can produce more of a specific good more efficiently than another country)

When one economic actor can produce a good at a lower opportunity cost than another actor

Heckscher-Ohlin Theory

Countries will have a comparative advantage in a good that makes use of their natural resources/factors of production

ex: A country with a high population could specialize in making simple products

Stolper-Samuelson Theory

Free trade tends to benefit owners who have abundant amounts of factors of production

General agreement on Tariffs and Trade

Was initially a tariff cutting exercise by 21 states, later provided a code of rules, a dispute settlement, and a forum for trade negotiation.

Attempted to reduce trade barriers through negotiation and meetings

Core principles of the GATT

Non-discrimination: “Treat everyone the same.” Anything granted to one country would be granted to everyone else

Reciprocity: “If we impose tariffs, you impose tariffs.” 

Transparency: Any form of discrimination must be clearly stated. Countries are urged to replace trade barriers like import quotas with tariffs instead.

Multilateral: Organizing relationships between multiple countries to promote cooperation and collective decision making.

National Safeguards: Recognizes some protective measures 

World trade Organization (WTO)

The successor to GATT, a legal and institutional foundation of the world trading system.

The sole actors are the member states.

The main decision making body is the Ministerial Conference. The general council is one step below it.

There are also other groups and councils: the Council for Trade in Goods, the Council for Trade in Services and the Council for Trade-Related Aspects of Intellectual Property Rights; and by various committees and a number of working groups and working parties.

Doha Round (“Development round”)

A landmark meeting of the WTO with the hopes of addressing the needs of developing countries.

Established countries and developed countries found themselves at odds.

Despite approximately 14 years of negotiation, the effort ultimately failed

Trans-Pacific Partnership (TPP)

Aimed to address issues such as trade in goods and services, and new issues such as investment, competition and state-owned enterprises, regulatory coherence, and transparency.

Some argued that it would help future economic prosperity, others argued that it went against groups such as environmentalists, labor unions, and health professionals.

Ultimately ended when the US pulled from the agreement in 2017

Structure and Superstructure

In Marxist theory, the structure of society is divided into two main components: the base and the superstructure.

The base refers to the mode of production, which includes the forces and relations of production, such as employer-employee work conditions and property relations.

The superstructure, on the other hand, encompasses all other aspects of society, including culture, institutions, roles, rituals, religion, media, and state.

The relationship between the base and superstructure is dialectical, meaning each influences the other.

Dialectics

Focused on chance and contradiction, the idea that everything is constantly changing due to conflicts between opposing forces. This can often be through material conditions and not only ideas.

Historical materialism 

Suggests that history is driven by class struggles. The conflict between the working class and ruling class are the main forces behind social change. As economic conditions change, so do the relationships and conflicts between these classes.

Also suggests that societal change occurs through contradictions and conflicts between material conditions. This process leads to new stages of societal development, often through revolutionary transformations.

Balance of payments:

Current account

Capital account

A method that nations use to monitor all of their international transactions within a time period. The total between all the components should be 0

Tracks the monetary flow of goods and services into a country. Exports are credits (money in, items out), imports are debts (money out, items in)

Tracks the investment money into and out of a country. Exports are debits (investments sent out of the country), imports are credits (investments received from abroad).

Tariff

A tax placed on an import good into a country

Quotas

A restriction that limits the amount of a good that can be imported into a country

Subsidies

Payments made to specific industries to help make them more competitive on the international market

Voluntary Export Restraints

When one country agrees to limit the amount of exports into another country.

Often occurs when the imposing country threatens to place barriers against the export country

Non-tariff barriers

Restriction used to control the amount of trade across a border without using tariffs

Fiscal Policy

Taxation and government spending to influence the economy

Monetary policy

A set of tools used by a country’s central bank.

Involves:

--management of the money supply

interest rates.

Quantitative easing

When the central bank purchases government bonds or other securities to stimulate the economy.

Buy bonds to increase the money supply, encouraging spending and investment.

Sell bonds to reduce the money supply, raising interest rates naturally and discouraging spending

Gold Standard

When a country’s currency is tied to a fixed amount of gold

Exchange rates

The value of one currency with respect to another.

This can effect the purchasing power of a currency, and the prices and demand of imported and exported goods

Bretton Woods (Dollar standard) system

Other currencies were pegged to the US dollar. The value of the dollar was fixed at $35 per an oz of gold

It was apart of an agreement between 44 countries to reduce the variability of exchange rates between countries.

Triffin Dilemma

Countries started to worry about the US dollar, which at the time was tied to gold. At this point, the amount of dollars in circulation exceeded the amount of gold that the US had in reserve.

Countries were worried that the connection between the dollar and gold would be severed, and the dollar’s value would be allowed to float

Purchasing Power Parity

The relative value (purchasing power) of currency both within and outside a nation.

Often uses a “basket of goods” that compares the equivalent costs between one country and another.

Mundell-Fleming Trilemma

Countries want, but cannot simultaneously have:

• Independent monetary policy

• Stable exchange rates

• Free flows of capital in and out of a country

Why?

• With 1 and 3, the exchange rate will move

• with 1 and 2, capital flows must be restrained

• with 2 and 3, monetary autonomy (bullet point 1) must be sacrificed

Capital mobility

The ease with which capital (money, assets, investments), can move in and out of a country

Criteria for a successful monetary system

Stability- in the value of a currency

Flexibility- the ability for a currency to adapt

Credibility

Fixed exchange rate

When a country’s currency is tied to a specific, non-changing (mostly), value often based off another country’s currency or a valuable object/commodity that retains its value

Floating exchange rate

When a country’s exchange rate is determined by the supply and demand for that currency in the global market.

Managed exchange rate

The market determines the exchange rate of a currency, but the central bank intervenes to influence or stabilize that currency. 

International Monetary fund (IMF)

An intergovernmental financial institution that monitors the global economy to keep it stable and healthy.

It can loan money, give advice, and support nations in financial trouble

Factors of production

The inputs or building blocks used to make goods and services. The main examples are:

• Land- physical space

• Labor- workers, effort and skill used to create products

• Capital- tools, machinery, and other technologies

Factor intensities

The relative amounts of different factors of production (land, labor, capital) used to produce goods.

Example: A capital-intensive good uses a high ratio of capital to other factors to produce this good (more capital is used to make the good than labor or land).

Dumping (unfair trade practice) 

When a country/company sells a good to a foreign country at a price below their own domestic value/production cost.

Example: If the US sells TVs for $500 in state, but sells them for $250 in France

Countervailing (unfair trade practice)

Tariffs placed on imported goods that have been subsidized by the exporter’s government

Trade Creation

The creation of new trade that would not have existed without economic integration.

Essentially, it is the result of removing trade barriers by creating a free trade area or a new union to make it easier to trade goods with less obstacles (such as tariffs for instance).

Example: The European Union which removed trade barriers between member countries and created a single market.

Trade diversion

When a country shifts its imports from a more efficient producer to a less efficient one.

An example was the North American Free Trade Agreement (NAFTA). It increased trade between the United States, Canada, and Mexico, but some criticized it for allowing less efficient Mexican workers to displacement more efficient producers in non-member countries.

Antonio Gramsci and Intellectual Hegemony

Argues that the leading groups tend to try to establish and convince the “lower class” that a certain system is beneficial to them. (its possible that this system may not be that beneficial to them and this is just exploitation of the working class)

Contradictions of Capitalism

• Competition can lead to monopolies, making profit harder to obtain

• Businesses exploit the workers and have different objectives. Businesses’ wants to minimize costs and maximize profit, which could lower wadges. Workers want better wadges and working conditions. 

• Can cause uneven development, as some increase their wealth at the expense of others to the point where some become dependent on others

• Can lead to overproduction or under-consumption, resulting in business cycle fluctuations and less social stability