IR201 INTRO TO INTERNATIONAL

RELATIONSGLOBALIZATION AND INTERNATIONAL POLITICAL ECONOMY

WHAT IS INTERNATIONAL POLITICAL ECONOMY?• The Politics of Global Economic Relations

• The study of a fundamental tension between and the dynamic interaction of two spheres of life, which we can variously call “society and individuals”, “politics and economics”, or “states and markets”.

• Any way you say it, political economy is about the lines that both connect and divide national interest from individual self interest.

Society Individuals

Economics

Markets

Politics

States

WHAT IS INTERNATIONAL POLITICAL ECONOMY (IPE)? • One way to understand the basics of IPE is to pick apart its name.

• It is INTERNATIONAL meaning it deals with issues that cross national borders and with relations between and among nation states.

• It is POLITICAL in that it involves the use of state power to make decisions about who gets what, when and where in a society. The political process is complex and multi layered, involving nation states, bilateral relations among nation states and many international organizations, regional alliances, and global agreements.

• Lastly, IPE is about the ECONOMY or economics which means that it deals with how scarce resources are allocated to different uses and distributed among individuals through the decentralized market process.

• Economic analysis and Political analysis often look at the same questions but economic analysis focuses less on issues of power and national interest and more on issues of wealth and income and individual interest.

• Political economy, therefore, combines these two ways of looking at the world in order to grasp more fully society’s fundamental nature.

FIRST PRINCIPLES: STATES AND MARKETS

• Think of political economy as the field of study that analyses the problems and questions arising from the parallel existence and dynamic interaction of “state” and “market” in the modern world.

• Political economists focus on the basic conflict that exists between the interests of the individual and the broader interests of the society in which that individual exists.

• To put this in another way, political economy is the study of the tension between the market, where individuals engage in self interested activities and the state, where those same individuals undertake collective action which is in the national interest or in the interest of a broadly defined community or ‘society’.

• In short, political economy looks at the fundamental tension between economics and politics.

FIRST PRINCIPLES: STATES AND MARKETSSTATE:• Realm of collective action and decision.

• By state, we usually mean political institutions of a modern nation state, a geographic region with a relatively coherent system of government that extends over a region.

MARKET:

Realm of individual action and decisions.

• By market we usually mean the economic institutions of modern capitalism.

• The market is the sphere of human action dominated by individual self interest and conditioned by forces of competition.

SOCIETY contains BOTH state and market elements.

• The parallel existence of states (politics) and markets (economics) creates a fundamental tension that characterizes political economy.

• States and markets do not always conflict , but they do overlap to such a degree that their fundamental tension is apparent.

ECONOMICS POLITICS

INTERNATIONAL POLITICAL ECONOMY

socıety

THE STRUCTURES OF INTERNATIONAL POLITICAL ECONOMY• The international political economy is a network of bargains between and among states (that deal in

power) and markets (that deal in wealth). These bargains determine the production, exchange, and distribution of wealth and power.

• Bargains can take many forms. Some are formal agreements signed, ratified and enforced. Other bargains are merely conventions, understandings or rules of thumb.

• Some IPE bargains can be seen as RELATIONAL POWER, which is the power of one player to get another to do or not do something.

• However, what is increasingly important in IPE, is STRUCTURAL POWER, where ‘the power to shape and determine the structures of the global political economy within which other states, their political institutions, their economic enterprises and their scientists and professional people have to operate’.

• In a sense, these structures are the institutions and arrangements that govern the behavior of states and markets in the international political economy, which together produce, exchange and distribute wealth and power.

THE STRUCTURES OF THE INTERNATIONAL POLITICAL ECONOMY• The four global structures are:

SECURITY PRODUCTION

FINANCE KNOWLEDGE

THE SECURITY STRUCTURE

• Security from natural forces or from the threats and actions of others is perhaps the most basic human need.

• When one person or group provides security for another or contributes to that security, a security structure is created.

• The nature of the security structure was a contributing factor in the debate over China’s most favoured nation (MFN )status in 1994. Sometimes China has been thought of as a threat to US security interests, at other times it has been seen as a part of a trilateral balance of power along with the US and the Soviet Union.

• Until the 1970s, all trade with China was forbidden for national security reasons. Although this ban is now gone, it is clear that uncertainty and doubt remain regarding what threat, if any, China represents to the US. This security question tempers to some degree relations between the US and China in all areas.

THE PRODUCTION STRUCTURE

• The Production Structure can be defined as the sum of all arrangements determining what is produced, by whom and for whom , by what methods and on what terms. Production is the act of creating wealth and wealth is nearly always linked to power. The issue of who produces what and for whom therefore lies at the heart of international political economy.

• Recent decades have seen dramatic changes in the production structure with the production of certain high value products such as cars shifting from the US to Japan and now to other countries including Korea, Mexico and China.

• These structural changes affect the distribution of wealth and power in the world and therefore impact the other structures of IPE.

THE FINANCE STRUCTURE

• The pattern of money flows between and among nations.• Defines who has access to money, how and on what terms.• Money directly amounts to wealth and is therefore central to IPE.

THE KNOWLEDGE STRUCTURE

• Knowledge can lead to wealth for those who can use it effectively.• Who has knowledge and how it is used is therefore an important factor in IPE.• Nations with poor access to knowledge in the form of industrial technology,

scientific discoveries, medical procedures, or instant communications for example, find themselves at a disadvantage relative to others.

• One reason China desired MFN status in 1994 was that it hoped that increased economic interaction with the US would give it greater access to industrial technology. To move up in the international production structure, China needed to accelerate its acquisition of science, technology and know how from abroad.

GLOBALIZATION

• Capitalism is historically rooted in international trade

• Division of labour on the international scale

• Movement of goods, money, people between countries creates a global network of economic ties

• A global capitalist economy gradually emerges as a result of integration of national economies into a single world system

• Key role of states in its creation and development

• First leader – Holland (17th-18th centuries), then - Great Britain (18th - 19th centuries)

• Challenged by others (France, Germany), displaced by the United States in the 20th century

GLOBALIZATION• 19th century globalization led to World War I• The Great War triggered off the global crisis of capitalism• The 1917 Russian revolution• The Great Depression• The rise of fascism• World War II

• Challenge to political leaders: restructuring the global system

GLOBALIZATION• United Nations Monetary and Financial Conference• 730 delegates from 44 countries• 2 global institutions created:• International Monetary Fund – to coordinate monetary policies of states

and render financial assistance to governments• International Bank for Reconstruction and Development (now called the

World Bank) – to help rebuild national economies on a capitalist basis• proposed 3rd global institution: International Trade Organization – would be

set up as World Trade Organization in 1995

GLOBALIZATION

• 1940s-1970s:

• Government regulation of markets, welfare state, a relatively liberal regime of international economic relations

• A welfare state is a concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens.

• Global capitalism was saved by government policies which regulated the market economy and redistributed wealth

GLOBALIZATIONThe rise of global capitalTransnational (or multinational) corporationsThe first in history was established in 1600 – British East India CompanyThere are 63,000 transnational corporations worldwide, with 690,000 foreign affiliates51 of the world's top 100 economies are corporationsThree quarters of all transnational corporations are based in North America, Western Europe

and JapanNinety-nine of the 100 largest transnational corporations are from the industrialized countriesRoyal Dutch Shell's revenues are greater than Venezuela's Gross Domestic Product. Using this measurement, WalMart is bigger than Indonesia. General Motors is roughly the same size as Ireland, New Zealand and Hungary combined

GLOBALIZATION

• Success and growth of the global capitalist economy led to concentration of enormous power in the hands of multinational corporations

• Global capital was chafing at the limitations imposed on it by states

• From late 1970s:

• A shift in state policies toward deregulation of business activities and reduction of taxes on wealth

• “Triumph of freedom”

GLOBALIZATION

• “The Washington Consensus”, or Neoliberal Orthodoxy – dominant Western economic ideology since the early 1980s• Liberalization – maximum possible freedom of market interactions

• Stabilization – balanced state budgets, limits on government spending

• Privatization – selling off public enterprises to private owners

• In sum: changing the balance of power between global capital and the state

GLOBALIZATION

1. ECONOMIC

2. TECHNOLOGICAL

3. CULTURAL

4. POLITICAL

5. MILITARY

THESE ASPECTS ARE ALL INTERCONNECTED!

ECONOMIC GLOBALIZATION

EARLY CAPITALIST IDEAS:

1. “Free Market Economy” (Adam Smith, Wealth of Nations, 1776)

Market is “free” from State control

2. Division of labor

3. Competition

ECONOMIC GLOBALIZATION

TODAY:

Economies Are Increasingly Linked TogetherEX: NAFTA (MX, CA, US), The EU, WTO (World Trade Organization)

• Only global international organization dealing with the rules of trade between nations

• Goal: help producers of goods and services, exporters, and importers conduct their business

ECONOMIC GLOBALIZATION

MULTI-NATIONAL CORPORATIONS• OLD: Dutch East India Company• 1602 company of Dutch merchants & independent trading companies • Spice trade monopoly in East Asia• Power to colonize territories & enslave indigenous people• Indonesia & South Africa

ECONOMIC GLOBALIZATION

• NEW: Nike, Wal-Mart, Royal/Dutch Shell • Top 100 multinationals are all US-owned companies!• Royal/Dutch Shell: global group of energy and petrochemical companies,

operating in more than 140 countries and territories, employing more than 112,000 people

ECONOMIC GLOBALIZATION• Little Industry and Technology in poor countries• Can economic globalization help reduce poverty?• “Brain Drain” - the emigration of highly trained or qualified people from a

particular country.• Debt (IMF loans) poor countries can’t even pay back interest• 300 million people live on less than $1/day• 48% people in sub-Saharan Africa in extreme poverty (less than 750

calories/day)• Gap between rich and poor increasing

TECHNOLOGICAL GLOBALIZATION• “World Wide Web” has exploded in last 10 years

• Computers can move money around world = “finance capital”

• Silicon Valley is 9th largest economy in world! - Silicon Valley, in the southern San Francisco Bay Area, is home to hundreds of start-up and global technology companies, with Google, Apple and Facebook among the most prominent.

CULTURAL GLOBALIZATION

• Cultural Imperialism = Dominance of one culture over others• Hollywood movies, MacDonald’s, Disneyland, Starbucks • Dominance of the Western culture

POLITICAL GLOBALIZATION

• Political globalization ”refers to an increasing trend toward multilateralism (in which the United Nations plays a key role), toward an emerging ‘transnational state apparatus,’ and toward the emergence of national and international nongovernmental organizations that act as watchdogs over governments and have increased their activities and influence”

• The United Nations: Global association of governments. Facilitating cooperation in international law, security, economic development, and social equity

MILITARY GLOBALIZATION

• Military globalization is the increase of range within which military power can be projected through the progress of military organization and technology and the increasing strategic interrelation first of regional systems and later of the global system.

• Similarly to economic globalization, military globalization involves strategic integration of a system as expressed in network of alliances.

• Contrary to economic and socio-cultural globalization, strategic integration entails centralization under a single command.

GLOBALIZATION SEEN AS A PROGRESS

• Import-export of goods

• Investment of capital in another country to produce goods there

• Creation of international production networks – the world as a factory

• Removal of obstacles to trade and financial flows

• Migration of workers to seek employment anywhere

• Capital is free to go anywhere to seek a higher rate of profit

• Global division of labour reaches unprecedented scale: everybody depends on everybody else

GLOBALIZATION SEEN AS A DISASTER

• Concentration of capital on a global scale accelerates• Capital acquires global control over production, exchange, government

policies, people’s lives• Downward pressure on wages in poor countries• Pyramid of debt grows to stimulate the global economy• At a certain point, the pyramid collapses – inevitably (see current affairs)