PSC 116G Study Guide - Final Guide: Population Momentum, Asthma, International Inequality
1. Describe the evolution of the current free trade regime that dominates the current international
economy.
• Two main perspectives that have dominated international economic thinking for specific periods
of history: Economic Liberalism and Mercantilism
o 1600s – 1850: Mercantilism
o 1850 – 1914: Liberalism
o 1920s – 1930s: Mercantilism
o 1945 – PRESENT DAY: Liberalism
• Inter-war period provides best examples of the bad consequences of the imbalance between
liberal and mercantilist influences on the international political economy
o Tariffs were raised throughout this period
o Britain and France increased their exports to their colonies and restricted imports from
their rivals
o Italy, Japan, and Germany look at consequences as means of economic expansion
o These mercantilist measures did little to protect and actually further harmed the IPE
after the Great Depression
o The back and forth switching had a lot to do with correcting the mistakes made during the
Great Depression
o After WW2, liberalism was the perspective that stuck to present day
• Remember, mercantilism favors protectionism
o Protectionism – policies designed to increase the costs of imports or decrease the costs
of exports
What is the economic philosophy guiding this system?
• Economic Determinism:
o Economics drives politics
o Political behavior is motivated by economic goals
o Political outcomes are determined by economic power
What were the major institutions on which that system is based, and what functions did they serve?
• 1. International Monetary Fund (IMF)
o Pillar of Bretton Woods System
o Function; to monitor and correct problems when the values of currencies were threatened
o Set up fixed exchange rate based on the U.S. dollar
o Coordinate and cope with problems in the area of financial management
• 2. World Bank
o Originally created to aid in the reconstruction of Europe/Japan and aid pooer developing
countries
o But, post-war reconstruction took over priority
o Provided capital, in the form of loans, to rebuild countries
o Funds come from private sectors NOT government
• 3. General Agreement of Tariffs and Trade (GATT) / World Trade Organization (WTO)
o Primary function: to increase international trade by reducing tariffs and barriers to
trade
o Enforced a collective mechanism says, if one state gives a break to another state, it must
be applied to all states
o Evolved into the World Trade Organization (WTO) in 1955 – 122 countries
In what ways did the institutions change over time?
• GATT turned into WTO in 1995
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• Eventually, the system started to crumble as European countries became powerful economies
Finally, describe some of the problems associated with the free trade regime.
• 1. Free-Rider Problem
o A market failure that occurs when people take advantage of being able to use a common
resource, or collective good, without paying for it
• 2. Degradation of Natural Resources
o Free trade leads to depletion of timer, mineral, etc.
• 3. Reduced Tax Revenue
o Smaller countries struggle to replace revenues lost from import tariffs and fees
• 4. Collective Goods
o The state only is to provide collective goods that the market cannot produce
o All states have access to them
2. Compare and contrast mercantilism and economic liberalism.
• Economic Liberalism:
o Primarily concerned with economics and economic relationships, politics should be
centered around the economic interests of the state (economic determinism)
o Based on Adam Smith’s Wealth of Nations (1776)
▪ Smith assumes that greater wealth for all is in any society’s best interest
o Individual self-interest produces social goods
o Leads to comparative advantage
• Mercantilism:
o Primary goal is to export more than you import to avoid being dependent on another state
o Prioritizes relative gains over absolute gains
o Increase cost of imports to ensure relative gains (Protectionism)
o Tariffs, subsides, quotas and regulations all help to ensure that domestic goods are more
likely to be produced
• Distinctions between them: Mercantilism sees competition as important while economic
liberalism prioritizes cooperation
What are the assumptions of each regarding the economy and politics?
• Economic Liberalism:
o States that economies come first, and that politics should serve the economic interests of
the state
o Foundation for economic determinism
o Complex divisions of labor will lead to greater wealth for all
o Free Markets produce higher quality and efficiency (survival of the fittest)
o Markets produce ‘invisible hand’ effect directing economic relations
▪ Invisible hand effect: the market will direct economic relations
▪ Much better and more efficient in government
▪ Basis for laissez fair politics
o General Conclusion: individual self-interest produces social goods, sees cooperation
between states as the key to greater prosperity for all states (absolute gains)
• Mercantilism:
o Politics comes first
o Wealth was a tool to power, not the primary goal itself (unlike economic liberalism)
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o Sees competition between states as primary feature of the international system (relative
gains)
o Ensure a positive balance of trade
What are the weaknesses of each?
• Economic Liberalism:
o Offers little to no restriction on economies
o Relies on the cooperation of states, since each must specialize in a single area
▪ States are thus made less “sovereign” due to this reliance on cooperation
o There is no such thing as true Laissez Faire economy, must always be some type of
government intervention
• Mercantilism:
o Tariffs can lead to increased prices for foreign goods/imports
o Leads to a primary goal in exporting more than its imports. IMPORTANT BECAUSE: if
the opposite occurs (which is likely), the state’s power and autonomy is sacrificed due to
its dependence on other states
o Causes economic tensions: utilizes competition between states
o Restrictions on free trade, costs are increased for consumers, is more beneficial for
businesses than the consumer
Which general theories of international relations do mercantilism and economic liberalism best
correspond with and why?
• Economic Liberalism:
o Best corresponds with liberalism
o Sees cooperation between states as the key to greater prosperity for all states, which
focuses on absolute gains primarily
• Mercantilism:
o Best corresponds with realism
o Sees competition between states as primary feature of the international system, which
focuses on relative gains primarily
3. Describe the North-South Gap.
• North-South Gap – often used to describe the economic state of the international political
economy
• Describes a sharp divide between the wealthy countries in the ‘North’ and the lesser
developed countries (LDC’s) of the ‘South’
o Broad distinction
What are historical explanations of the plight of the global South?
• Overall wealth has grown since WW2 and so has global inequality
o 1980-2010: countries relative GDP decreases
o 1990-2010: increased poverty in 37 developing states
o 1990-2008: Average income per person in global South increased from $3,000 to
$5,500. In the North it increased from $20,000 to $31,000
The dimensions of the gap:
• Economic
o Wealthiest 5% of world population is 114 times larger than the poorest 5%
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Document Summary
Great depression: after ww2, liberalism was the perspective that stuck to present day, remember, mercantilism favors protectionism, protectionism policies designed to increase the costs of imports or decrease the costs of exports. What is the economic philosophy guiding this system: economic determinism, economics drives politics, political behavior is motivated by economic goals, political outcomes are determined by economic power. In what ways did the institutions change over time: gatt turned into wto in 1995, eventually, the system started to crumble as european countries became powerful economies. Finally, describe some of the problems associated with the free trade regime: 1. Free-rider problem: a market failure that occurs when people take advantage of being able to use a common resource, or collective good, without paying for it, 2. Degradation of natural resources: free trade leads to depletion of timer, mineral, etc, 3. Reduced tax revenue: smaller countries struggle to replace revenues lost from import tariffs and fees, 4.
