This document provides an introduction to concepts in international political economy. It discusses key issues like actor behavior, system governance and globalization. It also outlines different analytical perspectives including liberalism, realism and structuralism. It reviews international economic history in the 19th century, interwar period and postwar era. Specific topics covered include international trade, money and finance, economic development, the environment and energy. The document examines issues around governance of the global economic system and prospects for the future.

1. INTRODUCTION TO
INTERNATIONAL POLITICAL
ECONOMY
Political Science 186
Global Studies 123

2. I. Introduction – Conceptual and
Analytical Issues
• 1. What is International Political Economy?
• 2. What are the issues?
• A. Actor behavior
• B. System governance
• C. Globalization

3. I. Introduction (cont’d)
• A. Actor Behavior. How do we explain and evaluate the actions of
states?
• 1. Levels of analysis: international (structural, systemic) vs. domestic
• 2. State (government, public sector) vs. society (markets, private sector)

4. I. Introduction (cont’d)
•B. System Governance. Formulation,
implementation, and enforcement of rules;
promotion of cooperation; management of conflict
• 1. Governance without government; governance
mechanisms (regimes)
• 2. Organizing principles: automaticity, supranationality,
hegemony, pluralism (negotiation, cooperation)

5. I. Introduction (cont’d)
• C. Globalization. Inter-national vs. globalized model of world
economy

6. II. Analytical Perspectives on Political
Economy
• 1. Liberalism
• 2. Realism (statism, economic nationalism, mercantilism)
• 3. Structuralism (Marxism, historical materialism)

7. II. Analytical Perspectives on IPE -
Liberalism
• A. Focus: individuals, households, enterprises
• B. Nature of economic relations: harmonious; interests reconcilable
• C. Relationship between economics and politics: economics drives
politics

8. II. Analytical Perspectives on IPE -
Realism
• A. Focus: states
• B. Nature of economic relations: conflictual (zero-sum game)
• C. Relationship between economics and politics: politics drives
economics

9. II. Analytical Perspectives on IPE -
Structuralism
• A. Focus: classes, social forces
• B. Nature of economic relations: conflictual (zero-sum game)
• Relationship between economics and politics: economics drives
politics

10. III. Alternative Perspectives on
Globalization
•1. Definition: a broadening, deepening, and
acceleration of interconnectedness of states and
markets; networks of connections at
intercontinental distances
•2. Alternative views: from “hyperglobalists” to
skeptics
•3. Why do we care? By creating a dissonance
between the jurisdiction of states and the domains
of markets, globalization problematizes governance:
who is in charge?

11. III. Globalization (cont’d)
• 4. Perspectives on causes and consequences
• A. Liberalism: triumph of markets; good for economic welfare
• B. Realism: product of state policy; bad for power of states
• C. Structuralism: triumph of markets; bad for poorer states and
disadvantaged classes

12. IV. International Economic History –
Nineteenth Century
• 1. Three major developments
• 2. Political economy issues
• 3. Key lessons

13. IV. Nineteenth Century - three major
developments
A. Monetary system: classical gold standard
B. Trading system: movement toward free trade in 1860s-70s, then
back toward protectionism
C. Core-periphery relations: rise of “new imperialism” after 1870s

14. IV. Nineteenth Century - political
economy issues
• A. Gold standard: What accounted for its stability and relatively
smooth operation?
• B. Trade: What accounted for the free trade movement in the 1860s-
70s? What accounted for the subsequent return to protectionism?
• C. Core-periphery relations: What accounted for the “new
imperialism?”

15. IV. Nineteenth Century - key lessons
• A. No single (mono-causal) explanations; need to sift the evidence.
• B. No single rule for all regimes; different governance mechanisms
can exist side by side

16. V. International economic history –
interwar period
• 1. Major developments
• A. Breakdown during World War I
• B. Attempted reconstruction during 1920s
• C. Renewed breakdown (Great Depression) during 1930s

17. V. Interwar period (cont’d)
• 2. Political economy issue: What explains the failure of the
attempted reconstruction?
• A. Liberalism: markets failed because of wrong-headed government policies
• B. Structuralism: internal contradictions of capitalism
• C. Realism: absence of effective governance (theory of hegemonic stability)

18. VI. International economic history –
postwar period
•1. Major developments
• A. Creation of new international institutions: IMF, World
Bank, GATT
• B. Cold War, leading to two separate blocs (East-West)
and the rest (Third World)
• C. Unprecedented economic growth (early years)
• D. Globalization
• E. Rise of Europe, Japan; East Asia; China and BRICs
• F. From G-7 to G-20
• G. Increasing instability

19. VI. Postwar period (cont’d)
• 2. Political economy issues
• A. What explains the origins of the postwar system?
• B. What accounted for the relative success of the system in its early years?
• C. What accounts for the increased instability in more recent years?

20. The World Economy Today
• 1. Major developments
• A. Globalization and Regionalism
• B. Shifting balance of power among states
• C. Key challenges: trade, finance, development, environment, energy
• 2. Political economy issues
• A. Can key challenges be managed?
• B. Where will leadership come from?

21. VII. International Trade
1. Basic issue: a tension between desire for material benefits of an
open system and pressure to promote/defend state and/or
particularist interests
a. Advantages of free trade: efficiency, growth
b. Disadvantages of free trade: dependence, losses to key constituencies
c. Collective action problem: how to manage the basic tension

22. VII. International Trade (cont’d)
•2. Postwar experience: GATT/WTO
• a. Purposes: liberalization, dispute resolution
• b. Principles: non-discrimination, reciprocity, safeguards
•3. Protectionism (actor behavior)
• a. Instruments of trade policy
• b. Arguments for protection
• c. Practical motivations

23. VII. International Trade (cont’d)
• 4. Managing the system (system governance)
• a. Promotion of liberalization
• b. Dispute resolution
• c. Safeguards
• d. Other current issues

24. VII. International Trade (cont’d)
• 5. From multilateralism to regionalism
• a. Types of regional trade agreements (RTAs, PTAs)
• b. Advantages and disadvantages
• i. For individual countries
• ii. For overall system (trade creation, trade diversion)
• c. Postwar experience
• i. First wave: 1950s-60s
• ii. Second wave since 1980s
• d. Why the renewed interest in RTAs?
• e. Significance for system governance

25. VIII. Money and Finance
•1. Basic issue: as with trade, a tension between
desire for the material benefits of an open system
and pressure to promote/defend state and/or
particularist interests
•2. Basic concepts
• a. Balance of payments; deficits
• b. Financing: reserves, borrowing, liquidity
• c. Adjustment: the “Three D’s,” “Unholy Trinity”

26. Balance of payments deficits
• In case of deficit, two basic choices
• Finance: (1) run down assets or (2) build up liabilities (borrow)
• Adjust: (1) reduce external spending or (2) increase external revenues
• How to adjust: the “Three D’s”
• Deflation: (1) tighter fiscal policy (decrease gov’t spending, raise taxes) or
monetary policy (higher interest rates)
• Devaluation (depreciation): lower exchange rate
• Direct controls: (1) trade controls (tariffs or NTBs) or (2) capital controls
• Is there another D? Answer: D’em others…
• Summary: the Unholy Trinity

27. The Unholy Trinity

28. VIII. Money and Finance (cont’d)
•3. Postwar experience
• a. IMF, Bretton Woods system
• b. Financing: US dollar, SDRS, capital markets
• c. Adjustment: breakdown of pegged exchange-rate
system – currency wars?
• d. Debt problems; financial crises
•4. Managing the system
• a. Exchange rates
• b. International capital markets
• c. International currencies
• d. Who’s in charge?

29. IX. Economic Development
• 1. The developing world: differentiated, difficult to generalize
• 2. Postwar rules: based on principle of non-discrimination; trade was
to function as an “engine of growth”
• 3. Postwar experience: mixed – some success stories, many
disappointments

30. IX. Development (cont’d)
•4. Why has trade failed as an engine of growth for
so many?
• a. Liberalism: market failures -- weak demand, weak
linkages, weak adaptive capacity
• b. Structuralism: natural result of capitalist exploitation
• c. Realism: result of power politics
• i. Role of great powers in writing the rules
• ii. Attempts at collective action by LDCs
• iii. Outcomes: partial success

31. IX. Development (cont’d)
• 5. Options for development strategies
• a. Export promotion
• i. Traditional exports
• Problems: inelastic demand, protectionism
• Cartels? Three conditions necessary for success: control largest part of supply; no close
substitutes; agreement on the sharing of benefits
• ii. Non-traditional exports: manufacturing, services
• b. Import substitution (“import substitution industrialization” – ISI)
• c. Regionalism

32. X. The Environment
•1. Basic problem: the environment is a collective
good, shared by all and owned by none (“tragedy of
the commons”); core issue is “externalities,” which
can cross borders
•2. Economic functions of the environment
• a. A consumption good
• b. A supplier of resources
• c. A receptacle of wastes
• d. The problem: not always mutually consistent, hence a
collective action problem – a system governance issue

33. X. Environment (cont’d)
•3. Practical dimensions
• a. Pollution (air, water, etc.)
• b. Deforestation
• c. Endangered species
•4. Possible solutions – approaches to governance
• a. Laissez faire
• b. National regulation
• c. Formal regimes
• d. Market approaches
• e. Paris Climate Accord (2015)

34. XI. Energy
• 1. Importance: the world’s single most widely
traded product
• 2. First regime: the Seven Sisters – a classic
cartel, successful because it met all three key
conditions necessary for success: control of
supply; no close substitutes; agreement on
sharing of benefits. In place until late 1960s
• 3. Second regime: OPEC
• a. Dramatic emergence in 1973
• b. Ups and downs of OPEC power since 1973

35. XI. Energy (cont’d)
•4. Reasons for variations of OPEC power over time
– back to the three key conditions for a successful
cartel
•5. OPEC’s biggest challenge: agreement on benefits
(limiting free riding)
• a. Low absorbers vs. high absorbers
• b. Special role of Saudi Arabia
•6. Prospects
• a. Demand side (conservation)
• b. Supply side: exploration, alternative forms of energy,
technology

36. XII. Multinational Corporations
• 1. Definition
• 2. Perspectives on the MNC
• 3. History
• a. Until 20th century, mostly extractive (farming, mining, etc.)
• b. Real growth began in 1950s, for 2 reasons
• i. European Common Market (trade diversion)
• ii. Decolonization (ISI development strategies)
• c. Changing sources and destination of foreign direct investment
(FDI)
• i. Increasing share of FDI from developing world
• ii. Increasing share of FDI going to developing world

37. XII. MNCs (cont’d)
•4. Perspective of home country
• i. Advantages: profits, market share
• ii. Disadvantages: avoidance of taxes, regulation
•5. Perspective of host country
• i. Advantages: capital, technology, management
expertise, market access
• ii. Disadvantage: loss of control
•6. Shifting and uncertain balance of power
between states and markets
• i. The obsolescent bargain
• ii. Multinational production, supply chains

38. XIII. Prospects for the Future
• 1. Postwar period has seen major structural changes
• a. Distribution of power between states
• b. Distribution of power between states and markets
• c. Global security environment
• 2. Future scenarios
• a. Automaticity?
• b. World economic government (supranationality)?
• c. Renewed hegemony (US? Europe? Japan? China?)?
• d. Cooperative regimes (automaticity + pluralism)?
• e. Governance by MNCs?
• f. Collapse and economic warfare?
• g. Most probable: a “mosaic” (all of the above)