Tuesday January 26
- Discussed state of the union address / Obama’s speech – the world has changed etc
- Obama was basically asking:
How can we encourage / generate new growth?
There are 2 schematic answers to that
1. More traditional answers: we have to minimize state intervention – the market will
solve everything – neoliberalism
2.The state needs to provide the infrastructure for growth
Firms aren’t going to finance infrastructure and take care of various types of
What’s the IR impact on this debate?
- Economic theory: free trade benefits all (Smith) ; comparative advantage (Ricardo)
- Winners and losers
Internationally: Terms of Trade
- 19th C: the industrial revolution: the repeal of the Corn Laws: a dramatic growth in
See the correspondence of the rise of the hegemons (US & UK) and the rise of free trade. Can
we establish a causal link that will connect the international structure of power with the
development of trade, and free trade in particular?
Hegemonic Stability Theory I ( Krasner ) : Assumptions
A1: States prefer to avoid vulnerability
A2: Protectionism is costly
- Small states cannot afford the cost of protectionism – they have no choice but to
open up- Large states can choose to opt for stability and security over the benefits of free
trade - A hegemon takes up such a large share of the world’s market that it can enjoy the
benefits without compromising stability
The state as a whole, loses. Protectionism is costly.
However, complete free trade means a lot of vulnerability
There’s a dilemma: we don’t want to be vulnerable, but if we close our market, we lose a lot of
So Krasner suggests this logic: small states – they’re too weak and small in order to adopt
protectionism, the cost for their economy will be too big. So small states are generally going
to be pro-free trade so they have to choose vulnerability. Larger states – they can choose,
because their economy is big enough to withstand the cost of protectionism. What happens
with the hegemon? If you have a huge state, that actually controls a chunkj of the world
economy --- Krasner suggests that they have a dilemma – they are large enough that they
are no longer vulnerable. So the hegemon, once it reaches a large enough chunk of the world
economy, it can opt for free trade without paying the cost for vulnerability.
Evidence that Krasner’s wrong or right: diagram of global top 20 (the most open countries in
the world – level of personal conduct, technological conduct, economic and political conduct)
--- if you follow Krasner`s logic – the more open you are, the more vulnerable you are….
(Ireland, Switzerland….US & Norway in the middle…New Zealand & Malaysia)
Discussed state of the union address / obama"s speech the world has changed etc. There are 2 schematic answers to that: more traditional answers: we have to minimize state intervention the market will solve everything neoliberalism, the state needs to provide the infrastructure for growth. firms aren"t going to finance infrastructure and take care of various types of employees Economic theory: free trade benefits all (smith) ; comparative advantage (ricardo) 19th c: the industrial revolution: the repeal of the corn laws: a dramatic growth in international trade. See the correspondence of the rise of the hegemons (us & uk) and the rise of free trade. Small states cannot afford the cost of protectionism they have no choice but to. Large states can choose to opt for stability and security over the benefits of free open up trade. A hegemon takes up such a large share of the world"s market that it can enjoy the benefits without compromising stability.