Global Political

Economy

1
 Big Deal
• After 2016 election, the Trump Administration withdrew
US from the Trans-Pacific Partnership.
• More than a year later, in early 2018, the remaining 11
members reconstituted the agreement as the
Comprehensive and Progressive Agreement for Trans-
Pacific Partnership (CPTPP)
• Australia, Brunei, Canada, Chile, Japan, Malaysia,
Mexico, New Zealand, Peru, Singapore, and Vietnam
• Combined GDP: 13.5 Trillion, or 13.4% of global GDP

2
 Post WWII
• Modern international economic system traces back to
the end of World War II

• Ensure Great Depression will not occur again

• Head off ‘beggar thy neighbor’ policies and economic
nationalism
• Believed to be one of the principle causes of WWII
• Rebuild Europe

• What Institutions/Organizations did the international

community develop to address these problems? Take 5

3
 New Institutions

• International Monetary Fund (IMF)

• Lender of last resort
• Maintain stable exchange rates
• Prevent balance of payments crises
• Conditionality/structural adjustment

4
 New Institutions
• World Bank
• Designed to aid in rebuilding Europe
• Mission has expanded to aid poor countries in
efforts at:
• Poverty elimination
• Infrastructure development
• Building governance capability (corruption, financial
systems)

5
 New Institutions
• General Agreement on Tariffs and Trade (GATT)
• Intended to keep trade open and tariff based
barriers low
• Arose out of the failure to establish an international
trade organization
• Institutionalized series of trade
negotiations
• Eventually ‘organizationalized’ as the
World Trade Organization (WTO)

6
 New Institutions
• Gold Standard/Dollar as reserve currency
• Initially, all currencies would be tied to gold
• Cold War changed the dynamic:
• U.S. dollar became THE reserve currency of the West
• Western currencies exchange rate fixed to the $$$
• Dollar fixed to gold at $35/ounce (now $995/oz)
• Nixon eliminated the gold standard in 1971

7
 Three Traditions
• Liberalism and Neoliberalism
• Based on Adam Smith’s economic theorizing
• Invisible hand guides markets to optimize the provision
of basic goods (housing, food, etc).
• Free markets
• Comparative advantage of states
• States are good at different things
• Gains come when states specialize in areas where they
excel.

8
 Three Traditions
• Nationalism
• Economy exists to further state interests.
• Economic growth good both for itself and…
• Ability to build military capability
• Economic power is fungible (interchangeable) with
military power
• Characterized by economic nationalism and
protectionism
• Tariff barriers
• Non tariff barriers
• Example: beer

9
 Three Traditions
• Marxism
• Structural and deterministic approach
• Capitalism drives class struggle
• conflict between the owners of production and the
working class,
• valuable as a critical theory

© Source unknown. All rights reserved. This content is excluded from

our Creative Commons license. For more information,
see https://ocw.mit.edu/help/faq-fair-use/.
10
 Three Traditions
• Related approach: Dependency theory (dependencia)
• Developed in Latin America (Former Brazilian President
Fernando Henrique Cardoso major contributor)
• World divided into Core and (semi)Periphery
• Core: advanced manufacturing, significant value added
• Periphery: Basic or no manufacturing, raw materials
• Periphery sell raw materials or basic manufactured goods to Core
• Core sells more expensive finished products and advanced manufactured
goods to Periphery.
• Since raw materials and basic manufacture goods are less valuable than
finished products and advanced manufactured goods, money constantly
funneled from Periphery to Core.
• Periphery remains poor and perpetually dependent on the Core.
• Policy solution: Import Substitution Industrialization (ISI).

11
 Rational Choice
• Revisiting Rational Choice Theory (RAT Choice)
• Born and raised in economic theory; dominant in
Political economy
• Key: Actors’ preferences and interests can be
assumed (want more power or money)
• Key: Actors have perfect knowledge
• Simplifying assumptions designed to explain and
predict behavior
• Core challenge: determine the incentive structure
facing actors given a set of preferences and interests

12
 Rational Choice
• Two levels of analysis
• Individual level
• State behavior explained as the result of power
competition between groups
• group interests are the result of combined individual interests.

• Institutional level
• states as individual actors
• institutions represent interest maximization efforts on
the part of states to minimize free riding and defection.

13
 Constructivism

• We’ll focus on this more next week

• Policies are influenced by historical and
sociological factors
• More attention to the formation of interests and
preferences (in contrast to RAT Choice); role of
beliefs, roles, traditions, ideologies

14
 Hegemony

• Returning to hegemony: ideational authority.

• Neo-liberalism is hegemonic in this instance because it shapes
the very way we perceive the international economic system
and gives instruction on how best to engage with it and deal
with problems. It pervades the existing international
institutions and defines the parameters of debate. Control is
manifested not just through force, but by redefining what
actors believe is in their best interest.

15
 Peer Discussion

• Discuss with your fellow students a question you

have about Marxism or IPE

16
 Globalisation in the IPE
context
• Internationalisation
• Technological revolution
• Deterritorialisation
• Liberalisation
• Does it really make
sense to talk about
globalisation as having the
same consequences to
the United States and Bangladesh?
© Source unknown. All rights reserved. This content is excluded from our Creative
Commons license. For more information, see https://ocw.mit.edu/help/faq-fair-use/.
17
Globalisation in the IPE
context
• Globalists – Global economy is emerging and states
are losing their capacity to control economic
interactions; MNCs can simply leave if they do not
like the economic policies of their home state; point
to the Asian financial crisis [what happened here] as
a (albeit negative) example.
• Skeptics – We’ve seen this before (pre-WWI), MNCs
are still state based and do not relocate very often,;
still need state-based resources like educated
workforce, infrastructure, and proximity to major
(state-based) markets.
• What do you think?

18
Globalisation in the IPE
context

• What traditional theories have to say about IPE in

an era of globalisation

19
 Neo-Liberal
Institutionalists
• States will join institutions to facilitate the
cooperation necessary for the international
economic system to function effectively and
efficiently. Doing so maximizes gains for all the
involved parties, so it is in states’ rational national
interest to do so.
• Institutions will also:
• fill the gaps where markets (sometimes) fail
• aid states in making optimal rational economic decisions
• make it possible for the rising tide on the international
economy to lift all boats.

20
 Neo-Realists

• Institutions reflect the interests of the dominant

states, and weaker players join in because they have
little choice. Once the institutions fail to serve the
interests of the powerful states, they will be
abandoned. Institutions do not shape interests

21
 Constructivists
• Institutions reflect neither the power political
calculations of states or calculations of objectively
determined, fixed, and easily calculated long term
interests.
• Interests are affected by identity and the social
structure of ideas, knowledge, and interaction.
• Other actors who shape states’ identities and
interests are active in the international system.

22
 Regionalisation
• A stopgap response by (usually weak) states to the
degradation of state power caused by globalisation.
Regional organizations enable states to limit their
loss of sovereignty by concentrating their focus on
a more limited geographic scope.

OR…

23
 Regionalisation
• a means to increase cooperation by forming tighter
interdependence ties with neighboring states, further
enhancing the mutually beneficial nature of
international economic system. Regional institutions
supercharge the dynamic at the global level by
deepening ties while providing greater flexibility

OR…

24
 Regionalisation

• an indicator of shared identity dynamics that states

turn to as a counter to uncertainty.

25
MIT OpenCourseWare
https://ocw.mit.edu/

17.41 Introduction to International Relations

Spring 2018

For information about citing these materials or our Terms of Use, visit: https://ocw.mit.edu/terms.