Chapter 13: Global Markets and Politics: International

Political EconomyPolitical Science 100

Thursday, August 6th, 2015

Ultimately, a focus on the interaction of the state and the market, while also focusing international norms and relationships

Political Economy: “The study of the relationship between the state, as the leading authoritative actor in affluent societies, and the economy, the site in these economies where wealth is produced and exchanged.” – Rand Dyck

Local and international focuses on international economic systems

Defining international political economy

Free markets Individual freedoms Creation of wealth

International cooperation◦ Elimination of tariffs

Primary goal to limit the role of states in the market, allowing for market forces to determine distribution of wealth, competition and price

Liberal Political Economy

‘an emphasis on class and class conflict, and identifies interests of the dominant class…as the main influence on social institutions, including the state’

Capitalist system a tool of oppression, locally and globally

Tends to analyze inequality of outcomes

Identify exploitation in the systemand find ways to fix it

Marxism in Political Economy

Not entirely unlike realism

A fight for advantage, both of limited resources and for dominance

Economic development is, in effect, a competition

Strong state control of the economy locally leads to a more effective interaction globally◦ Mercantilism◦ National Socialism

Nationalistic Political Economy

Looking at bigger questions – different ways governments interact in the market.

Typically a comparative study. Looks at outcomes, similarities and differences in policy. (Why are states prosperous? What are the implications of an active government?)

Comparisons usually done at macro-level (state to state)

Government involvement often mirrors social values

Political Economy as a Big Tent

When one state’s actions drastically impact the economy or politics of another state

The United States and Canada are one major example of interdependence

The EU, more and more, also appears to be built on this (no matter what the framer’s may have initially thought)

Economic Interdependence

Often under-conceptualized component of trade is the cultural exchange

While the positives of trade are often emphasized, not always seen as such◦ Protectionism

Tariffs and Non-Tariff Barriers◦ Cultural exchanges

Global Trade

The Rise of Economics and Trade

While international trade is as old as history, it didn’t really increase exponentially until mid 1800s

Wealth of Nations (1776)

Mercantilism

British trade, the Corn Laws and imports◦ Railroads and the Royal Navy

GATT initially meant as temporary, but failure to create international trade organization (in 1947), led to it remaining in place◦ Multilateralism◦ Reciprocity◦ Non-discriminatory trade (this has become a key

component of free trade◦ Free Trade

LDCs chose not to participate, as it would dictate trade practices based on deals that other states made

Reviewing the GATT

Uruguay Round (negotiations) in 1986, led to the formation of WTO (in 1995)◦ GATT was folded into the WTO, was basically rules of

international trade

WTO sets rules for virtually all trade you can think of between member states◦ Also provides dispute resolution

2001 Doha round led to the beginning of a long-term deadlock◦ Europe and US don’t want agricultural liberalization◦ China, India, Brazil, Mexico and South Africa working to ensure

no agreements that hurt their interests

Reviewing the WTO

Regional trade blocs (might) be arising as a serious threat to broader international trade◦ Canada-EU trade deal my signal a change in this (also,

regional trade is still international)

Moderately challenging relationship between US and Europe◦ An issue of political culture

Growing economic power of China, India, Mexico and Brazil mean that trade deals are more dependent on their wills than before

Looking Forward

Ensures the movement of liquid capital

Relative value of currencies◦ Fixed and floating exchange rates

Financial Systems (dominated by IMF and World Bank)◦ Redistribution of ‘excess’ wealth

Bretton-Woods was, originally, a set of rules to regulate financial systems◦ 1971 saw the introduction of floating exchanges◦ Allowed for more private institutions◦ Speed of communication and trade◦ Deregulation

International Monetary and Financial Systems

Defining event in the relationship between North, Central and South America

Banks loaned significant sums to Latin American states, at high interest rates.◦ Upwards of $200 billion was loaned◦ Ineffective projects and corruption ensure that the

investments could not berepaid when coupled witheconomic slow-down

Banks, in turn, stopped lending, so states defaulted

The Latin American Debt Crisis

A series of significant monetary and financial crises ricocheted around the world throughout the latter half of the 1990s◦ Deregulation

1994 Mexico◦ Devalue currency, caused rush of int’l money to be pulled from

the economy, leading to further devaluation (and economic crisis)

1997 Asian Flu◦ Thailand’s economic problems impact Indonesia, South Korea and

Japan

1998 Economic crises arise in Russia, Brazil and Argentina

Repeated Failures in the 1990s

Most recent serious economic downturn due to deregulation◦ Subprime lending in the US and Britain◦ First extended contraction of the economy since

1940s◦ Wide range of impacts

Though impact briefly delayed in Europe, impact has, in fact, been much longer lasting and due in part to EU wide spread

The Great Recession - 2008

Rise of regional trade blocs◦ NAFTA, EU

The Transpacific Partnership and Canada◦ Agricultural production and protectionism

Is this an example of the Marxist interpretation of Political Economy?

Economic Regionalism (in a bit more depth)

Rise and power of OPEC◦ Iran, Iraq, Kuwait, Saudi Arabia, Venezuela

The impact of high oil prices on developed economies◦ China’s impact

Energy independence◦ Shale gas and low oil prices

High prices and the environment◦ Why shale may be fools gold

Oil and Politics

Large companies are, well, large◦ Exxon earns $500,000,000/year◦ This is more than Denmark or Argentina (41 million people!)

US producers, in the aftermath of WW2, had little competition to grow

Relative, particularly to LDCs, corporations have significant power◦ Realist world – where power matters◦ Race to the bottom◦ Political interference◦ Espionage

Global production

The Rise of the MNC

Staples theory (or trap): Economic development unique in the world. Resources so abundant, it didn’t develop economically, or politically, like anyone else. Still, a huge exporter of raw resources.

Regionalism and strong provinces

Higher levels of government involvement

Whither Canada?

Stronger welfare state than other Anglo-Saxon countries

Brokerage Party System: parties try to broker coalitionsbetween regions, each with their own interests – strict ideology is too constraining

Aggregates so many interests, cuts to welfare cannot be as strong here

Internal political economies…

More About Canada…