Introduction to International Political Economy
Lecture 1

What is International Political Economy?

1. Why should a person study international political economy (IPE)?
   1. IPE is interesting.
      1. Samuel Johnson - a person who is bored with IPE is bored with life!
      2. Study some of the most interesting issues and questions in the world.
   2. IPE is important.
      1. IPE affects all citizens of the world
      2. Systems of markets that are increasingly global in nature.
   3. IPE is useful.
      1. Public and private employers want individuals who can think broadly and critically
      2. Who can understand complex and dynamic systems, and who can appreciate the impact of social conditions and alternative values.
      3. News is filled with IPE
2. International political economy is complex
   1. International – issues that cross national borders and relations among nation-states.
   2. Political – state power to make decisions about who gets what, when, and how in a society.
      1. Politics is a process of collective choice
      2. Competing and conflicting interests from including individuals, business­es, and political parties.
   3. Economics – how scarce resources are allocated to different uses and distributed among individuals
      1. All countries use markets to allocated resources
      2. States differ in regulating or controlling markets
      3. Markets are a source of income and wealth and individual
3. Examples
   1. 2007 Recession
      1. United States has a 10% unemployment rate
      2. Tax revenues are down
         1. Some states have almost a 20% budget gap between tax revenue and expenditures
      3. United States has been losing its manufacturing to China and other countries
      4. China and U.S. are having some conflicts
         1. U.S. has a large trade deficit with China
         2. China holds a large reserve of U.S. dollars and U.S. debt
         3. China is trying to reduce its holdings of U.S. dollars
   2. Old Example with human rights
      1. China – largest military in the world and the fastest growing country
      2. China – bad civil rights record
         1. Tiananmen Square in 1989
         2. Jailing dissidents
      3. U.S. routinely rejected China for the Most Favored Nation Status (MFN)
         1. MFN gives most favorable treatment to export to the United States
         2. The reason is China’s civil rights record
         3. President Clinton did grant MFN status to China
      4. Benefits – granting MFN status to China
         1. Could force China to become capitalistic rush to individual liberty
         2. Isolating China could cause them to develop their own technology
            1. Develop their own processors instead of buying them from Intel
            2. China developed its own processor, the Dragon chip
         3. Reduce China’s trade barriers
            1. They buy U.S. made products
            2. Invest in China’s manufacturing
      5. Part of the Agreement
         1. China agreed to buy $3 billion worth of American civilian airplanes
         2. China will allow American companies sell nuclear reactors to China
4. Viewpoints of U.S.-China
   1. Microeconomics – trade policy impacts the markets, such as the consumers, producers, and investors
      1. Calculate welfare gains and losses in markets
   2. Macroeconomics – impact on balance of trade between the United States and China
      1. Affect production, income, and growth rates in the two coun­tries.
   3. U.S. politics – did special interest groups such as labor unions, banking associations, and multinational corporations influence government.
   4. Political Theory –
      1. U.S. is based on the Jeffersonian principles of democracy and the individual.
         1. Jefferson is 3 ^rd president of U.S.
         2. Strong rights and weak federal gov.
      2. China's government is based on Lenin and Mao.
      3. Confrontation of two sets of very different political values.
   5. Sociology – how it impacts social classes
      1. Who benefits from free trade?
      2. The U.S. working class (or the proletariat)
      3. The capital-owning class (or the bourgeoisie)
5. IPE combines many fields like sociology, politics, and economics
   1. States and markets are connected by "global systems of produc­tion, exchange, and distribution"
      1. State (or nation) – a geographic region with a coherent system of gov. that extends over the region
      2. Author claims the European Union is not a state
         1. Collection of states
         2. EU makes decisions that influence the states
      3. Judgement call – the U.S. is a collection of 50 states
   2. Culture gets exchanged also
      1. Some nations limit access to foreign movies and television shows
      2. During the cold war between U.S. and Soviet Union
      3. The U.S. sent jazz musicians to Moscow
         1. U.S. is a free, creative, multiracial society
         2. U.S. is different from Soviet image
6. Markets – allocate and distribute scarce resources
   1. The realm of individual actions and decisions.
   2. Sphere of human action dominated by individual self-interest
   3. Forces of competition
   4. Sometimes is a geographical location
      1. New York Stock Exchange
   5. More often a force.
      1. Market motivates and condi­tions human behavior.
      2. Individuals are driven by self-interest
         1. Workers want high wages
         2. Firms want to make better, cheaper, or more attractive products
   6. States and markets may have conflicts and tensions
      1. Example
         1. Wealth can become concentrated in a few
         2. State may want an even distribution of wealth
      2. Markets – a source of wealth
      3. States (politics) – a source of power
         1. States allocate and distribute power
         2. Power is the ability to affect outcomes
         3. Elec­tions – the allocation and distribution of power
7. Three levels of analysis
   1. Individual, state, and international system
   2. Causes of war
      1. Individuals
      2. Aggressive national governments (state level)
      3. Risky and unstable international power figuration (international system level)

Power and its Structures

1. Two Types of Power
   1. Relational power - the power of one player to get another player to do something (or not do it).
      1. Most common – sports like football, soccer, or chess.
   2. Structural power - the power to shape and deter­mine the structures of the global political economy
      1. All states, their political institutions, businesses, and people have to operate.
      2. The power to affect the rules, the choice of playing field, or the way that players can be deployed.
   3. United States had lots of relational power after World War II years
      1. United States still has lots of structural power
      2. Leader in technology and economics
      3. U.S. has large influence over World Trade Organization, the World Bank, and the International Monetary Fund
         1. U.S. funds large amount to World Bank and IMF
   4. Both U.S. and China have large amounts of relational power
      1. "Sticks" to punish – large militaries and weapons
      2. "Carrots" to per­suade – resource wealth, technology, and markets
2. Four power structures - produce, exchange, and distribute wealth and power.
   1. Security Structure – threats and actions of others
      1. United States
         1. Trade embargoes etc. with North Korea
            1. North Korea wants to develop nuclear weapons
   2. Production Structure – what is produced, by whom and for whom, by what methods and on what terms.
      1. Production creates wealth
      2. Mexico and China became more market oriented and countries are growing
   3. Finance Structure – pattern of money flows between and among nations.
      1. Types
         1. Loans
         2. Trade surpluses and deficits
         3. Foreign investment
      2. Example
         1. United States has large trade deficit and large federal debt
            1. Debt is approx. $10 trillion
         2. U.S. dollars are leaving the country
         3. Many countries are worried the U.S. cannot pay its debts
         4. U.S. dollar may crash
   4. Knowledge Structure – knowledge is power.
      1. Knowledge is wealth
         1. Industrial technology
         2. Scientific discoveries
         3. Medical procedures
         4. Communications
      2. Example
         1. China wanted MFN status in 1997
         2. Greater access to industrial technology
         3. Get know-how from abroad
3. Three theories – how states and nations should interact
   1. Mercantilism (or economic nationalism) – state looks out for national interest
      1. Zero sum game
      2. One person gains while the other person loses
   2. Liberalism – individuals look out for their own interests
      1. Study of markets
      2. Everyone can gain
   3. Structuralism (or Marxism or Marx-Leninism) –look at society in terms of class interests.
      1. Gov. controls markets
      2. Gov. owns the means of production and distribution