lecture 2 prewwii

7/29/2019 Lecture 2 PreWWII

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International Political Economy #2

A Crash Course in Political Economy History

William Kindred Winecoff

Indiana University at Bloomington

August 27, 2013

W. K. Winecoff | IPE #2: Pre-WWII History in IPE Perspective 1/23
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What Is IPE?

IPE studies how politics shape developments in the global economy andhow the global economy shapes politics. It focuses most heavily on the

enduring political battle between the winners and losers from global

economic exchange Oatley, ch. 1.

IPE is an interdiscipline, drawing from international relations,

comparative political science, economics, sociology, anthropology.Its roots go back to the origins of social science, but as a distinct field it

is only about 40 years old.

As such, it has focused on the politics of the global economy post-World

War II.

Our first few classes will consider how that system developed

and how it matters still. For that, well look to history.

In many ways, this is the story of the maturity (and

immaturities) of early industrial capitalism.

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2013 vs. 1913

Similarities:

One leader in the global economy: UK then, US now.

Rising challengers: Germany then, China (?) now.

Highly-integrated economies then and now (at least in Europe

in 1913): globalization in both eras.

Large support for liberal economic policy.

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2013 vs. 1913, con.

Differences:

No governance mechanisms for the global economy then,

many now.No (overtly) imperial competition now; instead, inclusion.

No gold standard now.

Nationalism then; regionalism now (?).

Democracy as exception then, norm now.

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2013 vs. 1913, con.

Throughout this course we will focus on three characteristics: hierarchy

in the global power distribution, institutions, and interconnectedness.

The basic argument this week: the rise of the US as a hegemonic power

is inextricably linked with its prominence in the global economy.

Following WWII, it chose to help govern the system in an inclusionaryway. The rest of the world economy became (or is becoming) integrated

into that system, in stages, ever since.

This system benefits the US, is created in its image in key

respects, and enhances American power.

But it also provides opportunities for others that would not

otherwise exist.

I.e., the global economy is politicized.

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Getting to 1913

The first era of globalization was the product of British hegemony.

The industrial revolution began there, so British producers were

advantaged in global markets.

UK producers wanted to sell globally.

UK consumers wants to buy globally.

British power pushed others into opening up trade markets. France was

biggest tariff reducer.

By 1900, trade was 800% larger (as a share of the world economy) than

it was in 1800. Shipping capacity increased by 2,000%.The trading system was buttressed by the gold standard, with London

as the pre-eminent financial center.

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Pre-WWI Imperialism

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Pre-WWI Empires and Trade

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Pre-WWI Tariffs

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Pre-WWI Agriculture

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Pre-WWI Manufacturing



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Pre-WWI Immigration



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The Gold Standard

Local currencies (e.g. British , U.S. $) were valued in gold weight.

Pros: price stability across countries reduced uncertainty and facilitated

trade.

Cons: governments had no flexibility to adjust to economic booms and

bust via monetary policy.

Markets speculated on which governments would go off gold.

Financial flows surged, then shrank. As gold left, domestic

economies crashed.

Publics, esp in democracies, demanded action from their

governments.

Insecurity of global economy under gold standard sparked a new round

of imperial competition.



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Domestic Politics of the First Era of Globalization

Democracy is emerging and consolidating in some places and

threatening to do so in others.

I.e., governments need to make their citizens happy.

Empire-building is one way to do that: create markets for exports,

provide cheap goods for imports, get access to needed natural resources.

Industrial technology increases means for imperialism: transportation,

arms, communication.

Socialism is increasingly popular among workers as industrializationspreads.

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International Politics of the First Era of Globalization

Other countries industrialize, esp post-Civil War US and post-unification

Germany, but are not as open as UK.

As others rise, UK becomes increasingly protectionist.

Imperial competition quickens:

US flirts with empire, but less need because of huge resources.

Germany: No colonies, not much access to seas because

Britain controlled them.

Germany builds a fleet to challenge UK Royal Navy, touching off

industrialized arms race.

By the onset of the 20th century UK is no longer biggest industrializedpower, but it is still setting rules for the system.

Arthur Balfour (ex-UK Prime Minister), 1907: We are probably fools

not to find a reason for declaring war on Germany before she builds too

many ships and takes away our trade.



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Pax Brittanica Fades

UK responds to growth of others by instituting imperial preference for

trade with its colonies.

This further excludes Germany (and others).

Lays the groundwork for World War I.

WWI not caused by the assassination of some Archduke by some

anarchist. It was caused by an inability to manage the integration of

rising powers into the global political economy.

A century of peace and prosperity is destroyed.

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The USs Position

Woodrow Wilson understood that the pre-war system was undesirable.

Woodrow Wilsons Fourteen Points (January 8, 1918):

1. No secret alliances, as under Concert of Europe.

2. Freedom of the seas.3. Non-discrimination in trade (no need for empires).

4. General disarmament.

5 - 13. National self-determination / decolonialization.

14. An international association of nations to maintain

sovereignty and guarantee independence.Generally accommodative to defeated WWI powers (esp. Germany).

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The Fallout from WWI

The Bolshevik Revolution in Russia.

The Treaty of Versailles: punitive reparations demanded from Germany.

France and UK owe money to the US.

Germany pays debt to France/UK, France/UK pay debt to US, US

lends to Germany.

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No Post-World War I Order

Wilson wins 1919 Nobel Peace prize, but is unable to attend peace talks.

Treaty of Versailles (which U.S. never ratified) much harsher towards

Germany than 14 Points. German dissatisfaction remains.

No decolonialization, no free trade, no freedom of the seas, no general

disarmament. League of Nations fails, largely because U.S. doesnt join.U.S. should take over leadership it is the biggest manufacturer,

supplier of global finance, and overall economy but chooses to stay

quasi-isolationist.

U.S. boom weakened global economy; U.S. bust crushed it.

Governments responded with beggar thy neighbor exchange rate

devaluations and trade protectionism; the first wave of globalization was

over.

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The Great Crash

No order. Economic instability (Great Depression):

Kindleberger: The international economic system [was]

rendered unstable by British inability and U.S. unwillingness

to assume responsibility for stabilizing it.

US financial weakness prevents lending to Germany, Germany

hyperinflates to pay back UK/France, Depression spreads, gold standard

abandoned, fascism rises (first in Spain and Italy, then Germany).

Economic instability often leads to political instability: WWII.

WWII was essentially the same war as WWI: no meaningful pathway forGermany to rise peacefully. No institutions to manage their integration.

The result was a collapse in interconnectedness.

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The Depression: Collapse in Trade

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The Depression: Devaluations

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Segue

By the 1930s the system was disintegrating completely. Trade, output,

employment, investment, everything collapsed. It was the worst crisis of

capitalism.

But we can think of WWI, the Great Depression, and WWII as being

inextricably linked.

These events demonstrate the importance of hierarchy, institutions, and

interconnectedness.

American policymakers learned these lessons as well. Even before the

end of WWII they were determined not to repeat the same mistakes.

The US decided not to let this happen anymore. But if it was going tomanage the system, it wanted the system to be governed by its rules.

And thats what well discuss on Thursday.

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lecture 2 prewwii

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