POL114H5 Chapter 4: Chapter 4 (Political Perspectives on the World Economy) - POL114 (2018)
21 Jun 2018
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Prof. Kristin Cavoukian POL114
Chapter 4 – Political Perspectives on
the World Economy
What is International Political Economy (IPE)?
Robert A. Isaak defines IPE as “the study of the politics behind the economic relations among
peoples & nations in order to assess their relative wealth & power”. Theodore H. Cohn suggests that
IPE is “concerned with the interaction between ‘the state’ and ‘the market’.” Thomas Oatley defines
IPE as “the study of how economic interests and global processes interact to shape government
policies.”
ECONOMIC POLITICS ASCENDANT
Factors for the Ascendance of IPE in IR
oIncreasing Global Interdependence: It became evident by the 1960s that economic activity, facilitated by
advances in technology, was linking the economies of states to an unprecedented extent. Economic institutions,
organizations & agreements became very important. They became just as prominent as military institutions.
oDecline of U.S. Economy: In the latter half of the Cold War, the U.S. economy entered a period of decline, &
many concluded that U.S. economic dominance was over. In the 2000s, the American dollar continued its slide
against the euro, the yen & the Canadian dollar, prompted by concerns about America’s economic performance &
public debt. The global financial crisis of 2008-9 raised new doubts about the role of American leadership.
oRise of Other Economies: During the Cold War, others recovered from WWII devastation & became
important actors. China’s emergence as an economic power in the late 1980s led to much speculation that the
Chinese economy may one day rival that of the United States, with dramatic implications for global politics.
oRise of Multinational Corporations (MNCs): The rise of MNCs challenged prevailing views about the
dominance of states in IPE. 1/3 of world trade is accounted for the MNCs, which there are 60,000 of.
oThe Oil Shock: In 1960, oil-producing states formed the Organization of the Petroleum Exporting Countries
(OPEC) to coordinate production. They resisted pressure for lower prices & ensured steady revenues. In 1973,
OPEC put an oil embargo against the West in retaliation for their support of Israel in the Arab-Israeli War. It caused
economic chaos, raised the international significance of OPEC states & increased awareness of IPE.
oEuropean Integration: In 1993, an expanded community of 21 states renamed itself the European Union
(EU). On May 1, 2004, 10 states joined the EU, followed by 2 in 2007, continuing a process that remains the
leading example of economic & political integration in the world. U.K. left in 2016.
oGrowing Awareness of Global Disparities: Beset by high levels of poverty, poor infrastructure, economies
dislocated by colonialism, a lack of modern technology & political instability, former colonies that became
independent countries were automatically at a disadvantage in the world economy. The disparity between the
wealth & power of the rich industrialized countries of “the North” and the great majority of less-developed
countries (LDCs) in “the South” emerged as a serious challenge in global politics, and remains so today.
oCollapse of the U.S.S.R.: The U.S.S.R. illustrated importance of economics as a foundation for state power.
REALIST APPROACHES
The state is the most important actor in international economic affairs and states act to secure &
advance their economic interests defined in terms of economic power. Economic power is
regarded as a foundation of state power. They argue states are concerned with relative gains in
economic strength. They see the world as a zero-sum competition. They say that MNCs still need to
Chapter 4 – Political Perspectives on the World Economy
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Prof. Kristin Cavoukian POL114
operate in an environment regulated by states, so they’re power isn’t as significant. Also, economic
organizations are built & managed by states, and are forums for state action & competition.
What is Mercantilism?
Mercantilism derived from Adam Smith’s writings, who criticized economic practices of a
mercantile system in Europe between 1500-1750. Mercantilists argued that the accumulation of gold
& silver in a state treasury would provide the foundation for military strength & political influence.
To accumulate such wealth, states sought not only to acquire more precious metals but also to export
more goods than they imported. Mercantilists were therefore early advocates of balance of trade
surpluses.
What is Neo-Mercantilism (or Economic Nationalism)?
After the Industrial Revolution, neo-mercantilists emphasized the building of state power not through
the accumulation of precious metals, but through economic practices aimed at generating balance of
trade surpluses. This is done by stimulating domestic production & promoting exports. However, a
balance of trade surplus can come only at the expense of trading partners (who must have a trade
deficit). As a result, neomercantilism is often referred to as a beggar-thy-neighbour economic
policy.
They believe there’s a hierarchy of economic activity in global economics: high-technology
industries are preferable to steel/textile industries, which are in turn preferable to agricultural
production, etc.
What are Examples of Mercantilist Government Practices?
oTariffs: Taxes charged to goods as they enter a country. This makes the good more expensive for consumers,
which makes it less desirable & can incentivize consumers to purchase domestically produced products.
oNon-Tariff Barriers: Safety, health, labelling or environmental standards that can exclude foreign products.
oSubsidies: Programs that provide direct financing, low-cost loans or tax exemptions to high-value industries.
oQuotas: Limits to the number of any given product that’s imported into a country. A common practice is for states
to negotiate “voluntary” quotas, where states agree to limit their export to a particular country, to avoid sanction.
The 1970s: A Decade for Protectionism
Despite the limited success of the General Agreement on Tariffs & Trade (GATT) negotiations in
reducing tariffs in the 1950-60s, the 1970s ushered in a new era of protectionism, which resulted
from several events. The boom in oil prices brought on by the OPEC cartel, the shift from fixed to
flexible exchange rates, rising competition from export-led industrializing states like Japan & the
newly industrialized countries (NICs), and increased trade subsidies & barriers imposed by the
European Economic Community all created a climate of economic uncertainty. A major recession in
the early 1980s, brought on partly by a steep rise in oil prices, further contributed to this uncertainty.
What is the Balance of Payments?
An accounting system for recording a state’s financial transactions with the outside world. Comprises
of 2 accounts: current account & capital & financial account. Current account includes exports &
imports of merchandise (ex: cars, radios), services, investment incomes & payments (dividends &
interest income), and foreign aid. The capital & financial account includes investment inflows &
outflows. States with a troubled balance of payments may borrow money from the International
Monetary Fund (IMF) or sell bonds. Another account is a state’s official reserves, which
represents the foreign currencies, gold & other financial assets they possess.
Chapter 4 – Political Perspectives on the World Economy
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Document Summary
Robert a. isaak defines ipe as the study of the politics behind the economic relations among peoples & nations in order to assess their relative wealth & power . Ipe is concerned with the interaction between the state" and the market". thomas oatley defines. Ipe as the study of how economic interests and global processes interact to shape government policies. Factors for the ascendance of ipe in ir: increasing global interdependence: it became evident by the 1960s that economic activity, facilitated by advances in technology, was linking the economies of states to an unprecedented extent. Economic institutions, organizations & agreements became very important. They became just as prominent as military institutions: decline of u. s. economy: in the latter half of the cold war, the u. s. economy entered a period of decline, & many concluded that u. s. economic dominance was over.
