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Chapter 14

Chapter 14 Summary


Department
Political Science
Course Code
POL208Y1
Professor
John Haines
Chapter
14

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Chapter 14: International political economy in an age of globalization
•Theories of IPE: liberal, mercantilist and Marxist. Recently look at rational choice analysis.
•Impact of globalization on world-economy? Diminishing the states role? What about for different
kinds of states? How do international institutions manage these impacts and challenges - What role
do we expect them to play in managing globalization?
IPE tries to explain what creates and perpetuates institutions (rules, norms, laws, organizations)
and what impact they have on the world economy.
End of cold war met challenges of integrating the Eastern bloc countries into the world system.
Tribal, religious, ethnic conflicts forced analysts to more carefully examine links between poverty,
economic stagnation and the debt of countries/inter-state conflict (Rwanda, Indonesia, former
Yugoslavia). – IMF, WTO, World Bank.
Post-war world-economy
•Bretton Woods 1944; policy makers need to resolve a) no Great Depression of 1930s would follow
war – stable monetary system and world trading system needed and b) rebuild war-torn economies
of Europe
IMF 1946 (ensure stable exchange rate and provide emergency assistance to countries balance of
payments), International Bank for Reconstruction and Development aka World Bank46
(facilitate private investment and reconstruction in Europe and developing countries), General
Agreement on Trade and Tariffs (GATT) 1947 (became forum for negotiations of trade
liberalization).
•Plans for a world-economy postponed with US policy of containment of Soviet Union (US takes
more direct role in reconstruction fearing the rise of communism in Europe): Marshall Plan 1947,
gold standard replaced by US-gold backed dollar standard. IMF, WB and GATT by 1950 were
western bloc organizations.
•Less support to Bretton Woods by 1965 when US economy began to change: US involvement in
Vietnam, urban redevelopment and public education programs and no raise in taxes = less
competition for US goods in world as their prices rose at home. US dollar confidence drops.
•European economic integration brought new players to the stage: EEC (European Economic
Community) meant no longer depend on US policy in NATO, military exercises and support for
the gold standard. ELI in Asia (Japan, South Korea, Taiwan NICs) challenge US trade
competition.
1971 US decides to change the international monetary systems rules by no longer having a gold-
backed dollar; no more Bretton Woods system. High inflation of 1970s and OPEC oil crisis in
1973 brought world into stagflation (high inflation + low economic growth). Industrialized
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countries begin to discuss monetary issues and coordinating exchange rates among themselves =
Group of Seven (US, Japan, Germany, UK, France, Italy and Canada) in 1975.
•Protectionism emerged in trade (especially in industrialized countries); trade barriers, violating
principles of GATT of non-discrimination i.e. Multifiber Arrangement of 1973.
Relationship between north and south; highlights dependency theory/structuralist theories that
emerged in 1970s about the negative aspecets of interdependence. Impeding development
possibilities in the south. Brandt Report 1980; high-level-policy makers findings on why the
international community should respond to these challenges of development.
1980 shift in US economic policy, 1979 saw US Federal Reserve raised interest rates to stem
inflation and contract economic activity in the states. This had impact on world-economy. 1960s-
70s saw facilitated global capital markets and financial flows yet the rise of interest rates in 1979
was a wake up call to investors and creditors who realize many loans cannot be repaid.
•Debt crisis means IMF role in economy expands significantly; SAPS imposed as immediate
measures to decreases inflation, govt expenditure and its role in economy – trade liberalization,
deregulation, privatization = neoliberal policies of 1980s vs. Kensyians belief of govt intervention
in economy. By late 1980s Washington Consensus as a neoliberal policy was being used to reflect
US interests.
1990s end of cold war faces challenge of how to integrate Central and Eastern European
countries. IMF and WB was not broad enough and thus NGOs and governments were given roles
too. Broadened more than just international trade, but intellectual property rights… food safety
standards. Emerging economies such as China and India played important role in trade, finance
and development assistance negotiations by 2007.
Traditional and new approaches to IPE
1.Liberal tradition: free market reigns morally and efficiently speaking. Free trade enables
countries to effectively benefit from their comparative advantages. Invisible hand guides the
economy and ensures efficient and equitable distribution. Govt and institutions must ensure
openness and operation of markets; decision-makers must not be corrupt or ignorant of economic
choices in pursuit of successful economic policies.
Order achieved through invisible hand.
2.Mercantilist tradition: same presumption as realists in IR; no focus on individual policy
makers or their choice but assume that world-economy is an arena of competition among states
seeking to maximize their relative gains – survival. States do so by ensuring self-sufficiency in key
strategic industries and commodities and by using trade protectionism, subsidies, selective
investments in the domestic economy. Most powerful states define rules and limits of system
through hegemony, alliances, balances of power and thus stability achieved (when one state
plays role of hegemon through their basic rules or theres a balance of power).
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