International Political Economy

Deepak Prakash Bhatt, PhD

Politics refers to achieving and exercising positions

of governance - organized control over a human community

Politics is the practice and theory of influencing other people on a civic or individual level

Politics is exercised on a wide range of social levels Clans and tribes of traditional societies Local governments and up to sovereign states,

to international level Methods

Promoting own political views among people Negotiation with other political entities Making laws Exercising force

Politics

An economy or economic system

consists of the production, distribution or trade, and consumption of limited goods and services by different agents in a given geographical location

The economic agents can be individuals, businesses, organizations, or governments

Transactions occur in a certain currency

Economy

A given economy is the result of a set of processes that

involves its- Culture Values Education Technological evolution, history, social organization, political

structure and legal systems Geography, natural resource endowment, and ecology

These factors give context, content, and set the conditions and parameters in which an economy functions

Some cultures create more productive economies and function better than others, creating higher value, or GDP

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The original term used for studying production, buying, and

selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth

Political economy originated in moral philosophy Developed in the 18th century as the study of the economies

of states Introduced in France in 1615 with the well-known book

by Antoine de Montchrétie ”Traité de l’economie politique” The world's first professorship was established in 1754 at

the University of Naples, Italy In the late 19th century, the term economics came to

replace political economy

Political Economy

Political Economy refer to very different things-

Chicago school Marxian analysis Virginia school Advice given by economists to the government Public on general economic policy or on specific proposal

A rapidly growing mainstream literature from the 1970s has expanded beyond the model of economic policy in which planners maximize utility of a representative individual toward examining how political forces affect the choice of economic policies

It is available as an area of study in colleges and universities

Today

IPE is an interdisciplinary field comprising approaches to the

actions of various actors Rapidly developing social science field of study that

attempts to understand international and global problems using an eclectic interdisciplinary array of analytical tools and theoretical perspectives

The growing prominence of IPE as a field of study is in part a result of the continuing breakdown of disciplinary boundaries between economics and politics in particular and among the social sciences generally

Increasingly, the most pressing and interesting problems are those that can best be understood from a multidisciplinary, interdisciplinary, or transdisciplinary point of view

International Political Economy

Anthropologists, sociologists, and geographers

use political economy in referring to the regimes of politics or economic values

This emerge primarily at the level of states or regional governance, but also within smaller social groups and social network-Micro finance in Bangladesh

Because these regimes influence and are influenced by the organization of both social and economic capital

The analysis of dimensions lacking a standard economic value e.g., the political economy of language, of gender, or of religion

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Global political economy (GPE), is an academic discipline within the

social sciences that analyzes IR in combination with political economy

IPE scholars are at the center of the debate and research surrounding globalization both in the popular and academic spheres

Other topics that command substantial attention among IPE scholars are international trade and development

The relationship between democracy and markets, international finance, global markets, multi-state cooperation in solving trans-border economic problems, and the structural balance of power between and among states and institutions

Unlike conventional international relations, power is understood to be both economic and political, which are interrelated in a complex manner

New dimension

Liberal believes in freedom for private powers at the

expense of public power (government) It asserts that markets, free from the distortions caused by

government controls and regulation, naturally will harmonize demand and supply of scarce resources resulting in the best possible world for populations at large

David Ricardo whose theory of comparative advantage suggested that trade between different nations

Adam Smith’s formulation that nations could benefit both parties even in circumstances where one would feel intuitively that one nation would benefit from trade at the expense of the other

Liberal View

The 'realist' view, also known as

nationalist accepts the power of free markets to deliver favorable outcomes

While it holds that optimum conditions generally are obtained with moderately strong public power exerting some regulatory control

Realist View

The 'Marxist' view believes that only

robust application of strong public power can check innate tendencies for private power to benefit elites at the expense of populations at large

Marxist View

Constructivists assumes that the

domain of international economic interactions is not value-free, and that economic and political identities, in addition to material interests, are significant determinants of economic action

Constructivist View

The Americans are positivist and attempt to

develop intermediate level theories that are supported by some form of quantitative evidence

British IPE is more "interpretivist" and looks for "grand theories”

They use very different standards of empirical work This characterization of IPE has been hotly debated Forum was the -2008 Warwick RIPE Debate:

‘American’ versus ‘British’ IPE

USA Vs the UK

Globalization is the process of international

integration arising from the interchange of world views, products, ideas, and other aspects of culture

Advances in transportation and telecommunications infrastructure, including the rise of telegraph and the internet are major factors in globalization

Globalization is interdependence of economic and cultural activities

Globalization and Theories about the Global Economy

Two views are pertinent Age old or Modern process Several scholars place the origins of

globalization before the European age of discovery and voyage to the New World

Others trace the origins to third millennium BC But in the late 19th century and early 20th

century, the connectedness of the world's economies and cultures grew very quickly

Time

The Silk Road is a series of trade and cultural

transmission routes that were central to cultural interaction through regions of the Asian continent connecting the east and west by linking traders, merchants, pilgrims, monks, soldiers, nomads and urban dwellers from China to the Mediterranean sea

Extending 6,437 km., silk trade begun during Han Dynasty (206 BC to 22- AD)

They took great interest in the safety of their products being traded and extended the Great Wall (21,196km.) to ensure the protection of the trade route

Silk Road or Route

Proto-globalization is a period of the history of globalization

roughly spanning the years between 1600 and 1800 the phase of increasing trade links and cultural exchange that

characterized the period immediately preceding the advent of so-called 'modern globalization' in the 19th century

Proto-globalization was characterized by the rise of maritime European empires- Portuguese, Spanish, Dutch and British empire.

Proto-globalization distinguished itself from modern globalization on the basis of expansionism, the method of managing global trade, and the level of information exchange

Proto-globalization trade and communications involved a vast group including European, Muslim, Indian, Southeast Asian and Chinese merchants, particularly in the Indian ocean region

Proto age

The term globalization has been in increasing use since

the mid-1980s and especially since the mid-1990s In 2000, the International Monetary Fund  identified four

basic aspects of globalization- Trade and Transactions Capital and investment movements Migration and movement of people The dissemination of knowledge

Further, environmental challenges-climate change, pollution, cross boundary issues

Globalizing processes affect and are affected by business, economic-cultural resources and natural envireonmet

New age

Ronald Robertson, professor of sociology at University of

Aberdeen, defined globalization in 1992 as-the compression of the world and the intensification of the consciousness of the world as a whole

Sociologists Martin Albrow and Elizabeth King define globalization as-all those processes by which the peoples of the world are incorporated into a single world society

In The Consequences of Modernity, Anthony Giddens uses the following definition- Globalization can be defined as the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa

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After WW II, work by politicians led to the BWI, an agreement by

major governments to lay down the framework for international monetary policy, commerce and finance, and the founding of several international institutions intended to facilitate economic growth multiple rounds of trade opening simplified and lowered trade barriers

GATT, led to a series of agreements to remove trade restrictions. GATT's successor was the WTO, which created an institution to manage the trading system

Exports nearly doubled from 8.5% of total gross world product in 1970 to 16.2% in 2001

The approach of using global agreements to advance trade stumbled with the failure of the Doha Round of trade-negotiation

IMF,

Institutions

International Tourism International Sports Drug Trade Human smuggling and trafficking Education Economic-capital flight Inter-banking system

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World-systems theory is a multidisciplinary,

macro-scale approach to world history and social change that stresses that the world system should be primary unit of social analysis

World-system refers to the inter-regional and transnational division of labor, which divides the world into Core Countries Semi-periphery countries Periphery countries

Theories

Heckscher–Ohlin model the pattern of

international trade is determined by differences in many factors

It predicts that countries will export those goods that make intensive use of locally abundant factors

These countries will import goods that make intensive use of factors that are locally scarce

Trade theory

NTT is a collection of economic models in

international trade which focuses on the role of increasing network effects, which were developed in the late 1970s and early 1980s

New trade theorists relaxed the assumption of constant returns to scale, and some argue that using protectionist measures to build up a huge industrial base in certain industries will then allow those sectors to dominate the world market

The value of protecting "infant industries" has been defended

New Trade theory

Apter, David E. Rethinking Development: Modernization,

Dependency and Post Modern Politics, NewburyPark, Calif: Sage, 1987

Gilpin, Robert, “Three Ideologies of Political Economy,” The Political Economy of International Relations, Princeton University Press, 1987

  Gilpin, Robert. “The Insecure Trading System” The Challenge of

Global Capitalism, Princeton University Press, 2000.  Goldstein, Joshua S. International Relations, 6th edition (Ed.),

Pearson Education: Delhi, 2006.  

Books

Robertson, Justin. Power and Politics after Financial Crisis:

Rethinking Foreign Opportunism in Emerging Markets(ed.), Palgrave McMilan: New York, 2008.

  Stiglitz, Joseph, “What I learnt at the World Economic

Crisis: the Insider” The New Republic, April 17 2000.

Sachs, Jeffrey D., The End of Poverty: Economic Possibilities for our Time, The Penguin Press: New York, 2005.

Wilber, C. K Ed.The Political Economy of Development ad Underdevelopment, 2nd Ed., New Random House, 1979.

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The Ricardian theory of comparative

advantage seen as a basic constituent of neoclassical trade theory

The Ricardian trade theory includes a presentation of Ricardo's example of a two-commodity, two-country model

A common representation of this model is made using an Edgeworth Box

This model has been expanded to many-country and many-commodity cases

Recardian Theory

Fragmentation and International Trade Theory

widens the scope for application of Ricardian comparative advantage

According to this theory-producers in different countries are allocated a specialized slice or segment of the value chain of the global production

Allocations are determined based on on "technical feasibility" and the ability to keep the lowest final price possible for each product

International Production Fragmentation Trade

Theory

Domestic or international trade depends upon

Capital Goods Services

In economics, capital goods, real capital, or capital assets are already-produced durable goods or any non-financial asset that is used in production of goods or services

International trade

Financial capital which represents obligations, and is

liquidated as money for trade, and owned by legal entities It is in the form of capital assets, traded in financial markets Its market value is not based on the historical accumulation of

money invested but on the perception by the market of its expected revenues and of the risk entailed

Natural capital which is inherent in ecologies and protected by communities to support life, e.g., a river that provides farms with water.

Social capital which in private enterprise is partly captured as goodwill or brand value but is a more general concept of inter-relationships between human beings having money-like value that motivates actions in a similar fashion to paid compensation

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Instructional capital defined originally in academia

as that aspect of teaching and knowledge transfer that is not inherent in individuals or social relationships but transferrable-knowledge or intellectual capital

Human capital a broad term that generally includes social, instructional and individual human talent in combination

It is used in technical economics to define balanced growth which is the goal of improving human capital as much as economic capital

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In IPE or economics a good is a material that

satisfies human wants and provides utility for example, to a consumer making a purchase

A common distinction is made between 'goods' that are tangible property and services which are non-physical

Commodities may be used as a synonym for economic goods but often refer to marketable raw materials and primary products

Goods

Although in economic theory, all goods are

considered tangible in reality certain classes of goods, such as information only are in intangible forms

Among other goods an apple is a tangible object, while news belongs to an intangible class of goods

Can be perceived only by means of an instrument such as print broadcast or computer

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In economics a service is an intangible commodity Service provision is often an economic activity

where the buyer does not generally, except by exclusive contract, obtain exclusive ownership of the thing purchased

The benefits of such a service, if priced, are held to be self-evident in the buyer's willingness to pay for it

Public services are those, that society-nation state, fiscal union, regional, as a whole pays for, through taxes and other means

Service

By composing and orchestrating the

appropriate level of resources, skill, ingenuity and experience for effecting specific benefits for service consumers

Investment in expertise does require consistent service marketing and upgrading in the face of competition

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International trade is the exchange of capital,

goods, and services across international borders or territories.

In most countries, such trade represents a significant share of GDP

International trade has been present throughout much of history-Silk Road and Amber Road

Its economic, social, and political importance has been on the rise in recent centuries

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Factors influencing international

Industrialization Advancement in technology Transportation Globalization Multinational corporations Outsourcing

Increasing international trade is crucial to the continuance of globalization

Without international trade, nations would be limited to the goods and services produced within their own borders

Impact

Financial Relations is a strategic management

responsibility that integrates finance, communication, marketing and securities law compliance

To enable the most effective two-way communication between a company, the financial community, and other constituencies

Financial Relations

Regime- is a form of government, the set of rules,

cultural or social norms, that regulate the operation of government and its interactions with society

Political use of the word regime is commonly applied to any government that is most of the time- Not democratically elected, imposes strict and often

arbitrary rules and laws on the people that are, because of the undemocratic nature of the government

Modern usage often gives the term a negative connotation, implying an authoritarian government or dictatorship

International Monetary Regime

Democracy is a form of government in which all

eligible citizens participate equally—either directly or through elected representatives—in the proposal, development, and creation of laws

It encompasses social, economic and cultural conditions that enable the free and equal practice of political self-determination

Democratic regime- Robert A Dahl, Democracy and Its Critics (1989), tests them against the questions raised by its critics, and recasts the theory of democracy into a new and coherent whole

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International regimes often form in response to a

need to coordinate behavior among countries around an issue

International political use of regime concerns international regulatory agencies which lie outside of the control of national governments

In the absence of an overarching regime- trade between countries would have to be governed by numerous bilateral agreements, which would become impossibly complex to administer worldwide

International Regime

International monetary regimes or systems

are sets of internationally agreed rules, conventions and supporting institutions, that facilitate- International trade Cross border investment Reallocation of capital between nation states

Provide means of payment acceptable between buyers and sellers of different nationality, including deferred payment

International Monetary

Regime

To operate successfully, they need to inspire

confidence, to provide sufficient liquidity for fluctuating levels of trade and to provide means by which global imbalances can be corrected

The systems can grow organically as the collective result of numerous individual agreements between international economic factors spread over several decades

Alternatively, they can arise from a single architectural vision as happened at Bretton Woods in 1944

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400 BC in Indian subcontinent Greek city-states 4th century Until the 19th century the global monetary

system was loosely linked with Europe, the Americas, India and China were separate economies, and monetary systems were regional

Bretton Woods Agreement-that established the post–WW II monetary order, with fixed exchange rates of currencies to the dollar, and convertibility of the dollar into gold

Use of system and ages

Two international institutions, the International

Monetary Fund and the World Bank were created A key part of their function was to replace private

finance as more reliable source of lending for investment projects in developing states

Nixon shock of 1971, ending convertibility, the US dollar has remained the de facto basis of the world monetary system

The Euro has gained use as a reserve currency and a unit of transactions

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Members-188 Nepal became member - September 6, 1961 Working to-

Foster global monetary cooperation Secure financial stability Facilitate international trade Promote high employment Sustainable economic growth Reduce poverty around the world

IMF

The IMF is mandated to oversee-the

international monetary and financial system and monitor the economic and financial policies

The Fund typically analyses the appropriateness of each member country’s economic and financial policies

For achieving – Economic growth Assesses the consequences of these policies for

other countries and for the global economy

Surveillance

Members 186 Nepal became member in 1961 Provides loans to developing countries for

capital programs Official goal is the reduction of poverty All its decisions must be guided by a

commitment to the promotion of foreign investment and international trade and to the facilitation of capital investment

WB

The adoption of the MDGs in 2000 solidified an

historic global partnership to focus on reaching seven specific targets to reduce poverty, hunger, disease and illiteracy

The World Bank comprises two institutions- International Bank for Reconstruction and

Development (IBRD) International Development Association (IDA)

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1 January 1995 Impact of Globalization Nepal became member - 23 April 2004 The organization deals-regulation of trade between

participating countries It provides a framework for negotiating and

formalizing trade agreements And a dispute resolution process aimed at enforcing

participant's adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments

WTO

Doha Development Round which was focused

on addressing the needs of developing countries

The conflict between free trade on industrial goods and services but retention of protectionism on farm subsidies to domestic agricultural sector products

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Globalization is the process of international

integration arising from the interchange of world views, products, ideas, and other aspects of culture

Advances in transportation and telecommunications infrastructure, including the rise of telegraph and the internet are major factors in globalization

Globalization is interdependence of economic and cultural activities

Globalization Discontent and Global Financial Crisis

Dominant theoretical political and intellectual

discourse Raising crucial questions Defining set of radically transforming social

and economic relations Human Development as defined by UNDP-well

defined ideological divide within the field of development

Inevitability-of-globalization: Keith Griffin

Globalization….

Multiplicity of sense The global interdependence of nations The growth of world system Accumulation on a world scale The global village Cross national flows of goods, investment,

production and technology have created a NEW WORLD ORDER

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Three routes of flows of finance and

commodity trade Imperialist and colonial conquest Trade and investment among

advanced economies Exchange among third world

economies

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Growth of corporate monopolies The export of capital Worldwide extension of the market based on a

division of labor between specialized production and raw materials and commodities

New World Order Structural Adjustment Programs (SAPs) Multilateral Agreement on Investment (MAI)

Critics

Decentralization of government that for the

most part-from above and within Lack of control by local authorities over the

allocation of funds and design of macroeconomic policy

Underlying system-transnational capitalists in their collective or individual interests

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Privatization is always associated with

denationalization of economy Hegemonize civil society Privatization is reversing social welfare Age of capitalist democracy NGOs and INGOs Conditions of popular revolutions The Role of state in building socialism

Privatization