INTERNATIONAL POLITICAL ECONOMICS

PART I. INTRODUCTION ........................................................................................................................................................................... 4

CHAPTER 1. INTRODUCTION TO IPE .................................................................................................................................................. 4
I. What are the issues? 4
1. Actor Behavior.......................................................................................................................................................................................... 4
2. System Governance ............................................................................................................................................................................. 4
3. Globalization ............................................................................................................................................................................................. 4
II. International Political Economy 4
III. Structures of International Political Economy 5
1. The Production and trade Structure ........................................................................................................................................... 5
2. The Money and Finance Structure .............................................................................................................................................. 5
3. The Knowledge Structure ................................................................................................................................................................. 5
4. The Security Structure........................................................................................................................................................................ 6
IV. Four levels of analysis in IPE 6
1. Global level: ................................................................................................................................................................................................ 6
2. Country level ............................................................................................................................................................................................ 6
3. Provincial/state level ............................................................................................................................................................................ 6
CHAPTER 2. INTRODUCTION TO GLOBALIZATION .................................................................................................................... 7
PART II. IPE PERSPECTIVES .................................................................................................................................................................. 11
CHAP 3. WEALTH AND POWER: THE MERCANTILISM PERSPECTIVE.............................................................................. 11
I. Introduction 11
II. Situation of birth 11
1. Socio‐economical situation ........................................................................................................................................................... 11
2. Scientific and thinking situation .................................................................................................................................................. 12
3. Geographical discoveries ................................................................................................................................................................. 12
4. Political situation .................................................................................................................................................................................. 12
III. Economic characteristics and main contributions of mercantilists 12
IV. Two main periods of development 12
V. Nationalist characteristic of mercantilism 13
CHAP 4. LIBERAL PERSPECTIVE: LAISSEZ –FAIRE .................................................................................................................... 15
I. Roots of economic liberalism 15
II. Major liberal economists 15
1. Adam Smith (1723-1790) and the theory of invisible hand ............................................................................................. 15
2. David Ricardo (1772-1823) and the theory of comparative advantage ................................................................... 17
3. John Stuart Mill and the evolution of liberalism ................................................................................................................. 17
4. Keynesian and the Great depression ........................................................................................................................................ 17
5. Reagan, Thatcher, and the Neoliberals ....................................................................................................................................18
CHAP 5. ECONOMIC DETERMINISM AND EXPLOITATION: .................................................................................................. 20
STRUCTURALIST PERSPECTIVE ........................................................................................................................................................ 20
I. Feudalism, Capitalism, Socialism - Marx’s Theory of History 20
II. Some specific contributions of Marx to Structuralism 21
1. The definition of social class ............................................................................................................................................................ 21
2. Class conflict and the exploitation of workers ..................................................................................................................... 21
3. Capitalist control over the state .................................................................................................................................................. 22
4. Ideological Manipulation ................................................................................................................................................................ 22
III. Lenin and International Capitalism 22
IV. Imperialism and Global World Orders 23
1. Dependency Theory ............................................................................................................................................................................ 23
2. Modern World System Theory ..................................................................................................................................................... 23
3. Neoimperialism, Neocolonialism, and Empire-Building Redux ............................................................................... 23
PART III. STRUCTURES IN IPE.............................................................................................................................................................. 26
CHAP 6. INTERNATIONAL PRODUCTION AND TRADE STRUCTURE ................................................................................ 26
I. Introduction 26

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 1. Production structure .......................................................................................................................................................................... 26
2. Global production................................................................................................................................................................................ 27
2.1. Foreign Direct Investment ..................................................................................................................................................... 27
2.2. Mercantilist Concerns about Changes in Global Production .............................................................................28
2.3. Large transnational corporations and competition ................................................................................................28
2.4. Governance of TNCs .................................................................................................................................................................. 29
a. Tax Avoidance .............................................................................................................................................................................. 29
b. Corporate Wrongdoing .........................................................................................................................................................30
2.5. The changing production structure .................................................................................................................................30
3. Trade structure ...................................................................................................................................................................................... 31
3.1. Free Trade.......................................................................................................................................................................................... 31
3.2. Government intervention........................................................................................................................................................ 31
a. Political Arguments for Intervention .............................................................................................................................. 32
b. Economic Arguments for Intervention ......................................................................................................................... 32
3.3. Trade ................................................................................................................................................................................................... 33
a. Liberal View on Trade .............................................................................................................................................................. 33
b. Mercantilist Views on Trade ................................................................................................................................................ 33
c. Structuralism Views on Trade ............................................................................................................................................. 33
II. Global trade relations before WWII 33
III. Development and changes that have occurred in the post WWII production and trade
system 34
1. Post-WWII International Trade Structure 1 ...........................................................................................................................34
2. Post-WWII International Trade Structure 2 .......................................................................................................................... 35
3. Post-WWII International Trade Structure 3 .......................................................................................................................... 36
IV. Instruments of trade policy (Annexe) 37
1. Tariffs ........................................................................................................................................................................................................... 37
2. Subsidies................................................................................................................................................................................................... 38
3. Import Quotas and Voluntary Export Restraints ............................................................................................................... 38
4. Local Content Requirements ....................................................................................................................................................... 38
5. Antidumping Policies........................................................................................................................................................................ 38
CHAP 7. THE IPE OF INTERNATIONAL DEBT AND FINANCIAL CRISIS ............................................................................ 39
I. A primer on foreign exchange 39
II. Three Foreign Exchange Rate Systems 41
1. The Classic Gold Standard: Phase I ............................................................................................................................................ 41
2. The Bretton Woods System: The Qualified Gold Standard and Fixed Exchange Rates: Phase II .......... 41
3. The Float‐ or Flexible‐Exchange‐ Rate System: Phase III and the Changing Economic Structure
............................................................................................................................................................................................................................ 41
III. The IPE of International Debt and Financial Crisis 41
1. The debt crisis of the 1980s ............................................................................................................................................................. 41
2. The peso crisis and the tequila hangover ............................................................................................................................. 44
3. The Asian financial crisis ................................................................................................................................................................. 44
4. The IMF and the Asian crisis .........................................................................................................................................................45
5. The Argentine Financial Crisis ......................................................................................................................................................45
6. Lessons from these crises ...............................................................................................................................................................45
7. Long term debt and the HIPCs ...................................................................................................................................................45
7.1. Liberals’ point of view ................................................................................................................................................................45
7.2. Mercantilists’ point of view ................................................................................................................................................... 46
7.3. Structuralists’ point of view .................................................................................................................................................. 46
CHAP 8. KNOWLEDGE AND TECHNOLOGY STRUCTURE .................................................................................................... 47
1. Knowledge and Technology: The Basis of Wealth and Power .................................................................................. 47
2. Three important trends have become apparent over the last twenty years: .................................................. 47
2.1. The pace of technological changes has quickened. ............................................................................................... 47
2.2. Knowledge and technology are increasingly dispersed ..................................................................................... 47
2.3. Information moving from desk to desk or from country to country very easy ...................................... 47
3. The International knowledge structure................................................................................................................................. 48

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 4. Technology and technological innovation .......................................................................................................................... 48
4.1. Key characteristics of technological innovation ....................................................................................................... 48
4.2. Innovation concept................................................................................................................................................................... 48
4.3. The Nature and Effects of technology Innovation .................................................................................................. 49
5. The IPE of Technology and Intellectual Property Rights ..............................................................................................50
6. Three Perspectives on Intellectual Property Rights ......................................................................................................... 51
6.1. Liberalism .......................................................................................................................................................................................... 51
6.2. Mercantilism ................................................................................................................................................................................... 51
6.3. Structuralism .................................................................................................................................................................................. 51
7. North – South Conflicts Over Intellectual Property Rights ........................................................................................... 51
CHAP 9. GLOBAL SECURITY STRUCTURE ..................................................................................................................................... 52
1. Security....................................................................................................................................................................................................... 52
1.1. Realist approaches ....................................................................................................................................................................... 52
1.2. Liberal approaches ...................................................................................................................................................................... 53
2. The Multilayered Security Structure ......................................................................................................................................... 53
2.1. The Top Layer ................................................................................................................................................................................. 53
a. Unilateralism ................................................................................................................................................................................ 53
b. Multilateralism ............................................................................................................................................................................54
c. Isolationism ...................................................................................................................................................................................54
2.2. The Second Layer ........................................................................................................................................................................54
a. The UN..............................................................................................................................................................................................54
b. NATO and UN Peacekeeping ............................................................................................................................................. 55
c. Human Rights and the ICC .................................................................................................................................................. 55
d. International Criminal Court ............................................................................................................................................... 55
2.3. The Third Layer ............................................................................................................................................................................. 55
REVISION ...................................................................................................................................................................................................... 56

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 PART I. INTRODUCTION
CHAPTER 1. INTRODUCTION TO IPE
Object What are the issues?
- Actor behavior
- System governance
- Globalization
What is International Political Economy?

I. What are the issues?

1. 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)
3. Individual

2. System Formulation, implementation, and enforcement of rules; promotion of cooperation;

Governance management of conflict
1. Governance without government, governance mechanisms (regimes)
2. Organizing principles: automaticity, supranationality, hegemony (bá quyền),
pluralism (đa nguyên) (negotiation, cooperation)

3. Globalization International vs. globalized model of the world economy

II. International Political Economy

International political economy is the study of a fundamental tension between and
dynamic interaction of two spheres of life, which we can call as:
- Society and individuals,
- Politics and economics, or
- States and markets

Breaking apart the One way to understand the basic of IPE is to pick apart its name
IPE’s name Firstly, it deals with "INTERNATIONAL"
- It means that it deals with issues that cross national borders and with relations
between and among nation-states.
Secondly, IPE is "POLITICAL"
- It involves the use of state power to make decisions about who gets WHAT, WHEN
and HOW in the society.
- Political process is a complex and multi-layered, that involves nation-states, bilateral
relations among nation-states and many international organizations, regional
alliances and global agreements
Lastly, IPE is about the "ECONOMY" or "ECONOMICS"
- It means that it deals with how scarce resources are allocated to different use and
distributed among individual through the market process.

IPE - Political economy is the intellectual discipline that investigates the rich interface
between economics and politics
➔ International political economy is the extension of that investigation to the
international sphere.
➔ The study becomes international when it focuses on the aspects of state-market
relations that extend beyond the borders of a single nation-state, becoming
international, regional or global in nature.

Full definition IPE is the science which concerns the social, political and economic arrangements
affecting the global systems of production, exchange and distribution and the mix of
values reflected therein. Those arrangements are not divinely ordained, nor are they the

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 fortuitous outcome of blind chance. Rather they are the result of human decision taken
in the context of manmade institutions and sets of self-set rules and customs

III. Structures of International Political Economy

- IPE is a network of bargains between and among STATES (that deal in power) and
MARKETS (that deal in wealth). These bargains determine the production, exchange
and distribution of wealth and power.
- The IPE bargains are;
+ Relational Power: the power of one player to get another player to do something
+ Structural Power: the power to shape and determine the structures of the global
political economy within which other states, their political institutions, their
economic enterprises and professional people have to operate

- The previously mentioned structures are the institutions and the "rules of the game"
that govern the behavior of states and markets in the IPE, which together produce,
exchange and distribute wealth and power.
- The four global structures are;
+ Production and trade
+ Finance
+ Knowledge
+ Security

1. The Production - The production structure is defined as the sum of all arrangements determining
and trade Structure what is produced, by whom and for whom, by what methods and on what terms.
- Production is the act of creating value and wealth and wealth is closely linked to
power.
- The issue of who produces what- for whom - on what terms - lies at the heart of IPE.
- Recent decades have seen dramatic changes in the production structure, with
production of certain high-value items such as automobiles shifting from the USA to
Japan and now to other countries such as Korea, Mexico, Brazil and China.
- These structural changes affect the distribution of wealth and power in the world.

2. The Money and - It is the pattern of money flows between and among nations
Finance Structure - This structure defines that who has access to money, how and on what terms
- Finance structure is a description of how certain resources are allocated and
distributed between and among nations
- In this respect, money is a means, not an end

3. The Knowledge - Knowledge is power, knowledge is wealth for those who can use it effectively.
Structure

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 - Nations with poor access to knowledge in the form of industrial technology, scientific
discoveries, medical procedures and communications are at disadvantage relative
to others.
- In todays world, the bargains made in the security, production and finance structures
depend on access to knowledge.

4. The Security - The most basic human need

Structure - When one person or group provides security for another, a security structure is
created

IV. Four levels of analysis in IPE

1. Global level: - It is the broadest and most comprehensive level of analysis.
- How important global factors such as changes in technology, commodity prices, and
climate create barriers and opportunities for all countries.
- For example, issues of globalization, climate change, cyber security...

2. Country level - Analyze how relationships between countries affect global outcomes.
- For example: Alliances and the balance of power (distribution of power) between
countries: The presence of a hegemon (a dominant power), the rise of emerging
powers can create serious power conflicts.
- Countries that mismanage transnational corporations and establish themselves as
tax havens undermine other countries' efforts to maintain welfare programs and
distribute a portion of national income. greater for workers.

3. Provincial/state - Analyze how bureaucratic decision making and type of government shape
level outcomes.
- Examines how lobbying, electoral pressure, culture, and a country's class structure
determine foreign policy actions.

Values and There are variety of theories that attempt to describe:

Viewpoints: - How states and nations should interact -> Normative theories
Theoretical - How states really behave -> Positive theories
Perspectives on IPE The Three main IPE theories are
- Mercantilism or Economic Nationalism
+ It looks IPE issues mainly in terms of national interest
+ It is closely associated with political science
- Liberalism or Economic Liberalism
+ It looks IPE issues mainly in terms of individual interests
+ It is closely associated with the system of markets that are the study of
economists
- Structuralism or Marxism
+ It looks IPE issues mainly in terms of class interests
+ It is closely associated with the methods of analysis employed by many
sociologists

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 CHAPTER 2. INTRODUCTION TO GLOBALIZATION
Imagine two islands...
- Both produce fish and coconuts
+ Fishing requires boats (capital) and labor
+ Coconut harvest requires trees (land)) and labor
- Different amounts of resources
+ One island has many trees and few boats
+ Other island has many boats, but few trees
➔ Comparative advantages

The Impact of Trade - Who cares about the price of coconuts?

+ People who eat coconuts
+ People who own trees (land)
+ People who climb trees (labor)
- Who cares about the price of fish?
+ People who eat fish
+ People who own boats (capital)
+ People who sail and fish (labor)
- Closed econ: domestic price is often higher than in open econ

Who Could Object?

1870’s to 1920

Definition of In a general sense, the increasing worldwide integration of economic, cultural, political,
globalization religious, and social systems. Economic globalization is the process by which the whole
world becomes a single market. This means that goods and services, capital, and labour
are traded on a worldwide basis, and information and the results of research flow readily
between countries.

Globalization - Increased integration of the world’s economies

+ Trade in goods and services
+ Flows of capital
+ Movements of people
- Driven by political changes and technological innovation

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 It is globalization if…
- Trade-creating forces change domestic commodity prices
- Decline in transportation costs
- Removal of barriers to trade
- Changes in domestic commodity prices induce a reshuffling of resources between
economic activities

Before the 19th - Transport costs were flat on Atlantic and Asian trade routes
Century - Trade consisted of non-competing goods
+ Expensive luxuries that could bear the high costs of transportation
+ No impact on domestic production
- No price convergence on key commodities – cloves, coffee, pepper and cloth

19th Century - Britain repealed the Corn Laws

Political - Gunboat diplomacy forced Japan to open its markets
Developments - British victory in the Opium Wars caused China to open port cities to trade
- Open Door Policy
- Dollar Diplomacy
- Spanish-American War

19th Century - Transportation

Innovations + Railroads
+ Steamships
+ Refrigeration
+ Suez Canal and Erie Canal
- Communication
+ Telegraph lines

Three Faces of - Trade of goods and services

Globalization - Movement of people
- Flow of financial capital

Globalization and - Globalization is not new

history - Keynes: “Internationalization” of economic life in 1913 “…normal, certain and
permanent, except in the direction of further improvement…”

After WWI in US - 1917 Literacy Act

- 1921 Quota Act (restricting immigration from Eastern Hemisphere countries)
- 1924 Johnson-Reid Act (lowered immigrant quotas from 356,000 to 165,000)
- 1927 National Origins Act (set the overall immigration quota at about 150,000 based
on national origins of the US population in 1920)

Second Era of - Political changes resulted from the idea that economic interdependence would help
Globalization maintain peace between nations
- Multinational negotiations on trade

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 + 1947 – General Agreement on Tariffs and Trade (GATT) and subsequent trade
rounds
+ 1995 – World Trade Organization (WTO)

GATT “Provisional” agreement (1948 – 1994)

Dramatic tariff reductions were negotiated in a series of trade rounds
Grew from 23 to 128 countries

WTO - Created in the Uruguay trade round

- Established in Geneva in 1995
- 164 member countries up to now
- GATT was updated and still forms the legal framework for WTO negotiations on the
goods trade
- WTO provides a negotiating forum and a place to settle trade disputes
- Governed by a set of international agreements
+ GATT
+ GATS (General Agreement on Trade in Services)
+ TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights)

Regional Trade - Examples include

Agreements + North American Free Trade Agreement
+ Association of Southeast Asian Nations
+ Common Market of the South (MERCOSUR)
+ European Union
- Regional agreements have been praised and criticized

Second Era of - Innovations in transportation

Globalization + Modern container ships
+ Airplanes
- Innovations in communication
+ Computers, cell phones, and the Internet
+ Fiber optic networks
- Allowed new global markets to emerge

21st Century Trade - Between 1960 and 2000, the share of the world’s production that was exported
increased from 12% to 25%
- In 2022, developing economies' share in world exports has risen to about 42 per cent,
compared to 37 per cent in 2010
- New types of trade

20th Century - Foreign portfolio investment is the purchase of securities of foreign countries, such
Capital as stocks and bonds, on an exchange.
- Foreign direct investment is building or purchasing businesses and their associated
infrastructure in a foreign country

20th Century - Emigration vs. Immigration

Movement - Late 20th century was dramatically different from late 19th and early 20 th
➔ And what about the 21st century?
+ Digitalization
+ Protectionism
+ Green &Circular economy

Globalization is - an economic process that reflects dense interconnections based on new

usually technologies and the mobility of trade and capital;
characterized as - the integration of national markets into a single global market;

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 - a political process that weakens state authority and replaces it with the power of
deregulated markets;
- a cultural process that reflects a growing network of complex cultural
interconnections and interdependencies in modern society.

Some analysts further claim that globalization

- is an inevitable occurrence that has produced a new form of capitalism-
hypercapitalism;
- is a process for which nobody is in charge;
- benefits everyone, especially economically;
- furthers the spread of democracy in the world.

Questions for - Define and outline the major features of globalization. Explain the connection
revision between economic liberal ideas and globalization. Which of the three IPE
perspectives (or combination of perspectives) about globalization do you agree with
most? Explain why.
- Based on what you have learned so far in this chapter and from reading newspapers,
outline a few things you know about the connection between globalization, the
financial crisis, and capitalism. Do you agree with those who suggest that the
financial crisis raises serious concerns about the viability of capitalism? Explain.

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 PART II. IPE PERSPECTIVES
CHAP 3. WEALTH AND POWER: THE MERCANTILISM PERSPECTIVE
Mercantilism - Mercantilism is the oldest and psychologically most deeply embedded of the three
IPE perspectives.
- It accounts for one of the basic compulsions of all people and nation-states: to create
and sustain wealth and power in order to preserve and protect the nation's security
and independence from any number of real and imagined threats.
- Historically, classical mercantilism connoted efforts by states to promote exports and
limit imports, thereby generating trade surpluses that would strengthen the nation
while protecting certain groups within society.

Realism - Realism is closely related to mercantilism in that it also emphasizes state efforts to
achieve security (which are explored in more detail in Chapter 9). While mercantilists
usually focus on economic threats to a country, realists emphasize a wider variety of
physical threats - and encourage the use of both military and economic instruments
to deter attacks on it. Of course, in a globalized political economy, it gets harder all
the time to separate economic from military threats to nation-states. Today,
neomercantilism accounts for a more complex world marked by intensive
interdependence where states use a wider variety of instruments -especially
economic one - to protect their societies.

I. Introduction
Mercantilism = the name given to some 250 years of economic literature and practice of
economic policy between 1500 and 1750 in Italy, Spain, England, Holland and France
(written usually by merchant businessmen)

How to increase - Increasing trade, growing role of cities and growth of nation states.
money? - Increasing role of market (factors of production began to be bought and sold in
markets – manufacturing capitalism developed which laid foundations for the
Industrial Revolution)

- Very diverse views but a problem solving approach - an intellectual reaction to

problems of the times = how to get money from the trade
- An underdeveloped understanding of society – quite mechanical view of society and
the role of state and markets.

II. Situation of birth

1. Socio‐economical - At the end of XVth century, the collapse of the Feudalist mode of production=> the
situation birth of the Capitalism. Why the Capitalism?
+ The mass production of goods and services
+ The development of the productive force= handicraft’s labor => machine =>
Division of labor => higher productivity
+ The process of primary accumulation of capital in Europe
- Three ways of primary accumulation of capital (tích lũy nguyên thủy tư bản):
+ To dispossess the farmer of land
+ To do the trade unequally with the colonies
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 + To pillage in colonies
2. Scientific and - The invention of the compass and the magnet
thinking situation - The development of the shipbuilding creates the opportunities for the navigation
and the international trade
- XVth century = The Renaissance in Europe => The role of human being => the new
world outlook

3. Geographical - 1492: The America by Christopher Colombo (Italian)

discoveries - 1496: The Africa by Vasco de Gama (Portuguese), India by seaway and some asian
countries
- 1514 to 1521: The tour of the world by seaway by Magellan
- The role of these discoveries:
+ The new world market
+ The colonialism
+ Improve the role of international trade by seaway

4. Political situation absolute monarchy where the politic depend on the kings but the economic forces
depend on capitalists

III. Economic characteristics and main contributions of mercantilists

1. “Bullionism” -> the eco. health of a nation could be measured by the amount of precious metal [gold or
silver] which it possessed.
• ‘Hard’ money was the source of prosperity, prestige, and strength for a nation.
• Bullionism dictated a “favorable balance of trade.”
- Export more than you import [a trade surplus].
+ High tariffs on imported manufactured good.
+ Low tariffs on imported raw materials.
2. Each nation must try to achieve economic self-sufficiency.
3. Those founding new industries should be rewarded by the state.
4. Thriving agriculture should be carefully encouraged.
- Less of need to import foods.
- Prosperous farmers could provide a base for taxation.
5. Sea power was necessary to control foreign markets, at least the new markets in the world
- Less need to use the ships of other nations to carry your trade goods.
- Your own fleet adds to the power and prestige of the nation
6. Impose internal taxes of all kinds.
7. Colonies would provide captive markets for manufactured
goods & sources of raw materials. (ảnh)
8. Trade is a “zero-sum” game.
A nation can gain in international trade only at the expense of
other nations.
9. A large population was needed to provide a domestic labor
force to people the colonies.
10. Luxury items should be avoided =>They took money out of the economy unnecessarily.
11. State action was needed to regulate and enforce all of these economic policies.
=> State-sponsored trade monopolies.

IV. Two main periods of development

First period (1450- - Did not distinguish the differences between the wealth and the money
1550) - Did not distinguish the traffic of goods and the traffic of money
=> “The balance of - Interdict the export of gold
money” - Concentrate the business => better control
- The State had to define the exchange rate
- Foreign businessman should spend all the money before he leaves the nation
- Trade surplus = source of accumulation

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Second period - The balance of trade => surplus of export
(1550- 1650) - Increase the treasure by intermediate trade
- Encourage the internal production
- Use the taxes to regulate the import and export activities

V. Nationalist characteristic of mercantilism

Mercantilism in - Regulation of domestic industry was not successful because government was always
Great Britain short of money.
- English Mercantilists were devoted primarily to expansion of trade and
encouragement of manufacture.
-》 Result:
- Medieval guilds disintegrated, especially when clothes production developed in
rural areas.
- Industrial processes were far freer of restrictions than were those of France.
- When Industrial Revolution began in late 18th century, absence of guilds gave
English industry a huge head start over France.
• Representants:
- Thomas Mun (1571-1641) - One of directors of East India Society
- wealth of a nation confused with stock of precious metals – outflow of precious
metals undesirable
- Re-export desirable
- In A Discourse of Trade, from England unto the East Indies (1621), Mun argued that
if total exports exceeded total imports, the export of bullion was not harmful.
- Money earned on sale of re-exported East Indian goods was in excess of amount
of bullion exported to pay for those goods.
- Mun looked at overall balance of trade, not just separate accounts with each
country.
- Mun emphasized the purchase and sale at profit, rather than buying raw
materials for domestic manufacturing.
- Money sent out in trade would come back as domestic goods are exported.
- England's Treasure by Foreign Trade, published posthumously in 1664, is a classic
of English mercantilism.
- Mun asked the question, “How do we enrich the Kingdom and increase our
Treasure?”
➔ His Answer: Not by production or the accumulation of capital goods, but by a
surplus of exports.
- Production is secondary to the accumulation of gold. Not by trading among
ourselves—the gain for one is the loss for another.

Mercantilism in - Luxury products like silks and linens tapestries, furniture, wines, etc were of major
France importance.
- Close regulation in the production of these goods was essential to maintain high
quality.
- Under Jean Baptiste Colbert, Minister of Finance under Louis XIV, national guilds
were set up to regulate major industries. Guilds remained powerful until the
French revolution
- The royal power, supported by steady revenues from the salt tax, was strong
enough to enforce regulation.
- In France, mercantilism was referred to as Colbertism.
- Jean Baptist Colbert (1619-1683)
- Since 1665 minister of finance of Louis XIV
- Mercantilist policy in France, efforts to bring the highest number of economic
activities under the state control

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 - Industrial production as a goal of economic activity • Architect of French
mercantilism or “Colbertism”.
- He was a bullionist.
- There are four important professions to the nation:
+ Agriculture => but did not have the re‐investment in agriculture = mistake
+ Trade
+ Army
+ Navy
- Uniform weights & measures.
+ Opposed taxes on internal trade.
+ Supported mandatory labor on national roads.
+ Favored a large population.
- Father of 10 or more children would be exempt from taxes.
+ Favored low wages and child labor.

Mercantilism in - Accumulation of hard money rise the nation health

Spain - To interdict th e export of gold
- To interdict the import of manufactured goods

Who benefited - Monarchs.

most from the - Merchant capitalists.
mercantilism? - Joint-stock companies.
- Government officials.

How did England Navigation Acts

make the most Purpose: England took EVERY opportunity to make money off the colonies!
$ from the The Navigation Acts
Colonies? 1. New Ship Law: Anyone that wants to trade with the English Colonies must have
a ship made either in England or in the Colonies…even if it means you have to
buy a new one!
2. Check Point Law: All ships going to the Colonies to trade must stop at an English
checkpoint to pay taxes!!!
3. Hot Sellers Law: All “hot sellers” (tobacco, wood, sugar) sold in the Colonies must
only be sold to England! (The Enumerated Articles)

What is the Big - Colonies are becoming more independent socially, politically, and economically
Picture for the - Because of the Triangular Trade, the colonies created trade relations with other
Navigation Acts? countries
What is happening - Colonists realized they no longer needed England and unhappy that England had
between England been taking advantage of them
and the Colonies?

Mercantilism: The The Positives The Negative

Positive and • The King and Parliament were making • Colonies feel betrayed
Negatives! a profit • Colonies feel bossed around
• People in England were getting jobs • Colonies prices are higher
making ships/sailors • Smuggling/bribery-illegal importing
• Colonists were making a profit and exporting
• Colonists were getting skilled in • Piracy-stealing
shipbuilding/sailing
• The Colonies are getting many trade
VI. partners all over the world

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 CHAP 4. LIBERAL PERSPECTIVE: LAISSEZ –FAIRE
Liberalism 1. Roots of economic liberalism
2. Introducing the views of prominent economists on the relationship of state-market-
society: Adam Smith, David Ricardo, John Maynard Keynes, Friedrich Hayek, Milton
Friedman and advocates of globalization.
3. Explain the spread of globalization, thereby helping to differentiate two viewpoints:
orthodox economic liberals (orthodox economic liberals - OELs) and heterodox
interventionist liberals - HILs)
4. Linking the two perspectives of OELs and HILs with the current financial crisis

I. Roots of economic liberalism

- Liberalism emphasizes human nature: peaceful, cooperative, acting according to
reason rather than emotion.
- People act in self-interest, but competition benefits individuals through cooperation.

Economic - The EL trend began in Europe in the late 17th and early 18 th centuries: classical
liberalism – EL economics
- Francois Quesnay (1694-1774) leader of a group of French economists: criticized
government intervention in the market. (physiocrats (CN trọng nông) school)
- ‘laissez-faire” = “let be, let pass” = “hand off! Leave us alone” = Liberalism.
- Classical economists: Quesney, A. Smith, D. Ricardo, F. Hayek, M. Friedman
- OELS: orthodox economic liberals (CN tự do can thiệp chính thống) – OELs – supports
the free economy
- HILs: heterodox interventionist liberals (CN tự do can thiệp không chính thống) – HILs
– supports government intervention and trade protectionism

Outstanding - Believe in and support the free market

features of EL - Respect individual initiatives
- Protect property rights
- Limit government intervention

- Nations can compete peacefully, cooperatively and constructively

- International trade: benefits for all parties
D. Ricardo – theory of comparative advantage: against the Corn Laws in England
- Countries that follow the free market reduce the level of protection (tariffs, quotas)
- International trade organizations create an environment for peaceful and
prosperous trade activities.
- The liberal perspective views the outcomes of the relationship between state-
market-society as a positive-sum game in which everyone can benefit through
exchange with others
- Through open markets, countries become part of a “global society”, bound together
by each country's interests. Therefore, the reasons for war will be weakened or
eliminated.
- Mercantilists, on the other hand, tend to view life as a zero-sum game, in which gains
by one person or group necessarily come at the expense of others.

II. Major liberal economists

1. Adam Smith (1723-1790) and the theory of invisible hand
- The Wealth of Nations (1776)
- Suspicion of the motives of those who use the power of the state for the public good.
+ Trust in human nature: act rationally and cooperatively
+ People work together in harmony
+ There is no need for government intervention in market activities
- Invisible hand = laissez-fair = let them do
+ Classical liberalism

15
Adam Smith Be the first to offer an overview of capitalism:
- Markets connect economic activities in society
- Markets exist for the exchange of land, labor, goods, and currency
- Competition regulates economic activities, personal interests of buyers promote
economic activities
- Freedom to establish private enterprises
- Respect and ensure personal property ownership

The invisible hand - “It is not from the benevolence of the butcher, the brewer, or the baker, that we
expect our dinner, but from their regard to their own interest. We address ourselves,
not to their humanity but to their self-love, and never talk to them of our necessities
but of their advantages”.
- Research starting point = economic man. Human subjects are studied in each
economic behavior
- Invisible hand = profit problem
➔ “Give me what I needs and I’ll give you what you needs”
- Economic man will operate within a structure of the market
+ There is private ownership of the means of production
+ The driving force of the economy = profit
+ Operating principle = economic freedom (freedom to produce, do business,
consume...)
➔ The free market mechanism can always regulate supply = demand

- “If the demand for some good drops, the price will decline, profits will be below
normal, and the number of producers will decline.
- Similarly, if the demand for some good rises, its price will rise, increasing the profits
above normal, which leads to entry of new firms”.
- The relationship between producers and consumers in the market mechanism: the
design is decided by the producer but the consumers will vote for the type of product
they like => dominates the decision of the business owner
➔ Invisible hand = objective laws governing human activities

Impact of the 1. Firms will produce at minimum average cost

invisible hand 2. Businesses also always have to improve product quality, reduce costs, diversify
designs...
3. Businesses will respond to signals from consumers, without state intervention.

State roles 1. “First task: national defense and security, protecting society from violence and invasion
by other countries”
2. “Second task: protect citizens against injustice, opposition in society, protect
individual freedom”

16
 3. Third, take care of and develop public assets, and encourage education for the whole
community

2. David Ricardo (1772-1823) and the theory of comparative advantage

- David Ricardo (1772-1823) followed Smith in adopting the classical economic liberal
view of international affairs.
- He pursued successful careers in business, economics, and as a Member of
Parliament. Ricardo was a particular champion of free trade, which made him part
of the minority in Britain’s Parliament in his day.
- He opposed the Corn Laws which restricted agricultural trade. About trade, Ricardo
was one of the first to explore some of the precepts of a natural (scientific) law about
trade.

Law of Comparative - Ricardo's Law of Comparative Advantage improved upon the earlier Law of Absolute
Advantage Advantage. How?
- If A (Advanced land) is more productive than B (Backward land) in every productive
activity, would both countries benefit from trade?
- The law of absolute advantage has no answer to this question.
- Ricardo's law of comparative advantage showed that the answer is yes.

3. John Stuart Mill and the evolution of liberalism

- J.S. Mill (1806 – 1873) developed a philosophy of social progress based on moral and
spiritual development rather than simply the accumulation of wealth.
- Mill believes that a capitalist society built on the concept of individual interests and
economic freedom is unlikely to achieve good social welfare.
- To achieve social progress, the state needs to implement certain policies to support
the market, and correct market mistakes.
- Education and health issues for the poor
- The problem is when does the state need to intervene and how to intervene?

4. Keynesian and the Great depression

- John Maynard Keynes (1883-1946), like J.S. Mill, concerned about the negative effects
of the market.
+ His ideas were popular from the 1930s to the 1970s
+ Great Depression (1926-1929): individuals and markets tend to make wrong
decisions, so the 'invisible hand' can make serious mistakes. (pg.39)
- Paradox of thrift: fear of recession => reduced consumer demand => reduced
production => unemployment => reduced income => economic recession.
- Need for government intervention (e.g. government expenditure)
- Keynesian thought: invisible hand of the market + active visible hand of the state.
(pg.39-40)
+ Bretton Woods System (1944): liberalism + Keynesian economic thought
+ IMF & WB to control the monetary and financial system
+ GATT (1947): international trade management
- Keynesian: economic management must be carried out in cooperation and peace
between countries that are members of the three organizations in the Bretton
Woods system.
- Countries should gradually unwind regulatory policies to open up their economies
as they recover and become more competitive.
- Keynesian: 1930s-1970s

The resurgence of - In the late 1960s, President Nixon and others attacked Keynesianism and the cost of
classical liberalism President Johnson’s Great Society program, seeking to put more emphasis on
economic growth instead of stability.

17
 - In 1973 the United States replaced its fixed exchange rate system with a flexible
exchange rate system, which led to increased speculation on currencies and more
money circulating in the international economy
- That same year 1973, Organization of the Petroleum Exporting Countries (OPEC) oil
price hikes led to an economic recession in the industrialized nations, but also
massive amounts of OPEC’s earnings recycled back into Western banks. Meanwhile,
many Western European states, Japan, Brazil, Taiwan, and South Korea were
competing with the United States for new trade markets. Keynesian policies to deal
with the recession generated stagflation - the coexistence of low growth and high
inflation, which were not supposed to occur together.

The return of - In this environment of low economic growth and increasing competitiveness,
liberalism – The Keynes’s ideas were gradually replaced by those of the Austrian Friedrich Hayek
neoliberalism 1899–1992) and Milton Friedman (1912–2006)
- Their more orthodox economic liberal policy ideals and values featured “minimally
fettered” capitalism—or a limited state role in the economy. These increasingly
popular ideas laid the intellectual groundwork for what became a distinct variation
of liberalism, otherwise known as economic liberalism or neoliberalism
- Many of Hayek’s and Friedman’s ideas are echoed in the views of contemporary
economic liberals like Paul Ryan, the 2012 Republican vice-presidential candidate in
the United States. Writing in the conservative Wall Street Journal, Ryan argues that
high-taxing, high-spending, highly indebted European states should not serve as
models for good government. Rather, he believes that American freedom could best
be ensured by, among other things, limiting the size of the state and relying on
“families, communities, churches and local institutions—and [on] the government
only as a last resort.

5. Reagan, Thatcher, and the Neoliberals

- Margaret Thatcher (PM of GB) and Ronald Reagan (PM of US) were the main
practitioners of policies that owed much more to Smith, Hayek, and Friedman than
to Mill or Keynes.
- Thatcher’s motto was TINA—“There Is No Alternative” to economic liberal policies.
She saw the principles of free market capitalism as the only viable option for
economic and social progress. She believed that the competitive market, individual
liberty, and limited government intervention were essential for economic growth,
efficiency, and personal freedom. According to Thatcher, alternative approaches,
such as socialism or extensive government intervention, were fundamentally flawed
and would lead to stagnation and loss of individual freedoms.
- President Reagan promoted “supply-side economics” which is the idea that lower
taxes instead of increased spending by government would increase the money
supply and generate its own demand, unleashing capital to businesses and
consumers. The top income tax rate in the United States was cut in stages from 70
percent in 1980 to 33 per-cent in 1986.
- Reganomics: tax reduction; deregulation in the banking, energy, and investment
sectors and promote free trade; privatization of many state-owned corporations in
communications, aviation, and truck manufacturing industries; promote
globalization.
- The success of liberal economic policies in the US and GB, along with the collapse of
communism in Eastern Europe in 1990, pushed developing countries in Southeast
Asia and Latin America to have fast-growing economies. pursue an open market
policy. Mexico, India, and China reform their economies, encourage investment, and
promote trade with the US
- Between the 1990s and the present, there has been much criticism of neo-liberal
policies, especially in developing countries (Mexico, Russia, Thailand).
+ The environment is devastated
+ The gap between rich and poor is getting wider
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 + Placing too much importance on the rational aspect of the individual
+ Too easy lending by banks, too much investment between countries financial
crisis
- Do we return to Keynesian economic thought?
➔ Modern Keynesians; Post Keynesian and The theory of the Mixed economy

Four main findings in this chapter

- First, economic liberal ideas continue to evolve as a reflection of changes in the

economy and the power and influence of actors and institutions.
- Second, economic liberalism gained renewed popularity due to its association with
the laissezfaire Reagan and Thatcher administrations, culminating in the
globalization campaign of the 1990s.
- Third, since then orthodox economic liberalism has increasingly come under attack
for its failure to predict or sufficiently deal with such things as the financial crisis and
poverty in less developed countries (LDCs).
- Fourth and finally, we end with the suggestion that although weakened, laissez-faire
ideas and policies are likely to remain popular in the United States and many other
nations.

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CHAP 5. ECONOMIC DETERMINISM AND EXPLOITATION:
STRUCTURALIST PERSPECTIVE
Structuralism - The structuralist perspective, with a focus on economic power and class conflict,
offers a way to recognize their underlying logic. Structuralism has its roots in the
ideas of Karl Marx but today encompasses a much broader group of scholars and
activists.
- While most structuralists do not share the commitment to a socialist system as
envisioned by some Marxists, they do believe that the current global capitalist
system is unfair and exploitative and can be changed into something that distributes
economic output in a more just manner.

The return of - Indeed, the structure in structuralism is the global economic system. The global
structuralism capitalist economy acts as an underlying system or order that is the driving force in
society. It shapes society’s economic, political, and social institutions and imposes
constraints on what is possible.
- Recent developments related to the global financial crisis highlight not only the
failures of free market capitalism but also the political clout of the economic elite,
who receive bailouts while ordinary tax-payers struggle.

I. Feudalism, Capitalism, Socialism - Marx’s Theory of History

- Karl Marx (1818–1883): Born in Trier, Germany, Marx did his most significant work while
living in England, spending hours on research at the British Museum in London.
- Marx’s theory of history, his notion of class conflict, and his critique of capitalism must
all be understood in the context of nineteenth-century Europe’s cultural, political,
and economic climate.
- “The history of all hitherto existing society is the history of class struggles.”
(Marx, The Communist Manifesto, 1848)

Historical - Marx’s theory labeled “historical materialism”

materialism - Historical materialism takes as its starting point the notion that the forces of
production, defined as the sum total of knowledge and technology contained in
society, set the parameters for the whole political-economic system.
- The key Marxist claim is that changes in technology determine changes in the social
system. Thus, Marx has been considered a technological determinist, at least within
his theory of history.
- At very low levels of technology (primitive forces of production), society would be
organized into a hunting-gathering system. At a higher level, we would see an
agricultural system using steel ploughs and horses, oxen, or other beasts of burden.
- This technological advancement (although still considered primitive by modern
standards) causes a change in the social relations in society, specifically the
emergence of feudalism. Instead of hunters and gatherers banding together in
small-scale tribes with a relatively equal division of the economic output, feudalism
is characterized by a large strata of peasant-farmers and a smaller aristocracy

The evolution Marx sees the course of history as steadily evolving from one system of political economy
(or “mode of production” in his words) to another due to the growing contradiction
between the technical forces of production and the social class or property relations in
which they develop.

3 objective laws - First, the law of the falling rate of profit asserts that over time as investment causes
that would destroy machines to replace workers, profits must decline and ultimately disappear.
capitalism from - Second, the law of disproportionality (also called the problem of under consumption)
within suggests that capitalism, because of its anarchic, unplanned nature, is prone to
instability such that workers cannot afford to buy what they make.

20
 - Third and finally, the law of concentration (or accumulation of capital) holds that
capitalism tends to create increasing inequality in the distribution of income and
wealth. As the bourgeoisie continue to exploit the proletariat and as weaker
capitalists are swallowed by stronger, bigger ones, wealth and the ownership of
capital become increasingly concentrated in fewer and fewer hands.

II. Some specific contributions of Marx to Structuralism

- The following four Marxist ideas are central to contemporary structuralist analyses of
the international political economy:
+ the definition of class
+ class conflict and the exploitation of workers
+ capitalist control over the state
+ ideological manipulation

1. The definition of - Social class is determined by the ownership (or lack of ownership) of capital.
social class + A minority of people will own a disproportionate share of the productive assets
of the society; they constitute the capitalist class, also referred to as the
bourgeoisie.
+ The majority of the population owns very little capital, and indeed, many people
own no productive assets or any shares of stock; they constitute the working
class, known as the proletariat.
+ The main classes in capitalism are the bourgeoisie and the proletariat. However,
other classes such as landlords, petty bourgeoisie, peasants, and
lumpenproletariat also exist, but are not primary in terms of the dynamics of
capitalism.

2. Class conflict and

the exploitation of
workers

The conflict among - Because class relations change more slowly than technological development, social
social classes change is impeded, fostering capitalist society gradually produces a face-off
between the bourgeoisie and the proletariat.
- Bourgeoisie are wealthy elites who own the means of production - or what today
would be big industries, banks, and financial institutions, also in Parliament.
- In Marx’s day, the proletariat were the exploited workers including their families) in
Britain’s woolen mills, who received very low wages and sometimes died on the job.
Gradually, it was thought, workers would realize their common interests and would
organize and press on the bourgeoisie for higher wages and better working
conditions.
- Because workers are exploited, they share an objective economic interest in
changing the economic system, while capitalists will have an interest in maintaining
the status quo.
- Workers (1) may not subjectively recognize their common objective interest, or (2)
may recognize their interest but be unable to organize. The first is an instance of false
consciousness (discussed in the section “Ideological Manipulation”). The second may

21
 be the result of class struggle in which an organized capitalist class prevents the
successful organization of the working class, for example, into unions

3. Capitalist control - The capitalist class has greater financial resources, and this often translates easily
over the state into influence in the political system. Capitalists are typically able to donate more
money to probusiness candidates.
- There is little disagreement between structuralists and mercantilists regarding the
importance of the powers that states wield. The difference between the two IPE
outlooks concerns the motives behind the use of state power. Whereas mercantilists
see the state as an actor with its own interests (that can reflect the interests of all its
citizens), structuralists believe that a state will act to advance the narrower interests
of the class that dominates it—typically the wealthy capitalists.

4. Ideological - Power derives from the control over hard resources, like capital or the military, and
Manipulation the ability to force others to act in certain ways by structuring the choices of the
weaker to the benefit of the stronger.
- An important goal of capitalist ideology is to give legitimacy to the capitalist
economic system by controlling people’s hearts and minds. Once the working class
believes that the system is legitimate, it will believe that it is appropriate and just.
- Marxists would say that in effect, workers consent to their own exploitation. Given
the importance of legitimacy, the capitalist class will actively seek to create an
ideology in society that gives legitimacy to capitalist institutions.

III. Lenin and International Capitalism

- V. I. Lenin (1870–1924) is best known for his role in the Russian Revolution of 1917 and
the founding of the Soviet Union. In many ways, he turned Marx on his head, placing
politics over economics when he argued that Russia had gone through its capitalist
stage of history and was ready for a second, socialist revolution.
- Lenin is also known for his views on imperialism based on Marx’s theories of class
struggle, conflict, and exploitation.

Theory of - Through imperialism, advanced capitalist core states expanded control over and
Imperialism exploited what his contemporaries called “backward” colonial regions of the world,
leaving them unevenly developed, with some classes to prosper and others mired in
poverty
- Imperialism also signified the monopoly phase of capitalism or “the transition from
capitalism to a higher system,” by which he meant that the presence of monopolies
and imperialism that followed was yet another epoch of history between capitalism
and socialism.
- Lenin’s theory of imperialism has been very influential, especially among
intellectuals in the less developed countries, where his views have shaped policies
and attitudes toward international trade and finance generally. Before and especially
after World War I, cutthroat competition among capitalist nations contributed to
international tensions and conflict.
- Elites in poorer nations competed for capital and investment, which made them easy
targets for production monopolies. In these regions and countries, communist
revolutionaries and leaders, like Mao Zedong in China, Ho Chi Minh in Vietnam, and
Fidel Castro in Cuba, organized anti colonialism and anti-imperialism campaigns and
fought “wars of national liberation” against capitalist imperial powers.
- Today, most structuralists no longer believe that the falling rate of profit for
capitalists will cause the collapse of the capitalist mode of production. However,
Leninist arguments about imperialism still remain influential in China, Vietnam,
Cuba, Venezuela, and even in some industrialized nations that have active socialist
and communist parties. Leaders of these and other countries still view capitalists as

22
 profit-seeking imperialists who seek opportunities abroad where democratic
political institutions and the working class are weak.

IV. Imperialism and Global World Orders

In this section, we explore some of the more recent structuralist theories of dependency,
the modern world system, and modern imperialism (or neoimperialism) that trace their
analytical approaches and policy prescriptions to both Marx and Lenin.

1. Dependency - A structuralist perspective that highlights the relationships between what are
Theory referred to as core and peripheral countries, while calling attention to the constraints
put on countries in the latter group, is called dependency theory
- A wide range of views can be grouped together under this heading
- Theotonio Dos Santos sees three eras of dependence in modern history: colonial
dependence (during the eighteenth and nineteenth centuries), financial-industrial
dependence (during the nineteenth and early twentieth centuries), and a structure
of dependence today based on the postwar multinational corporations.
- Andre Gunder Frank has focused a good deal of attention on dependency in Latin
America and is noted for his “development of underdevelopment” thesis. He argues
that developing nations were never “underdeveloped” in the sense that one might
think of them as “backward” or traditional societies. Instead, once great civilizations
in their own right, the developing regions of the world became underdeveloped as
a result of their colonization by the Western industrialized nations.

2. Modern World - Modern world system (MWS) theory originated by Immanuel Wallerstein and
System Theory developed by a number of scholars, including Christopher Chase-Dunn. Capitalist in
nature, the world system largely determines political and social relations, both within
and between nations and other international entities.
- From the MWS perspective, the capitalist core states of northwest Europe in the
sixteenth century moved beyond agricultural specialization to higher-skilled
industries and modes of production by absorbing other regions into the capitalist
world economy. Through this process, Eastern Europe became the agricultural
periphery and exported grains, bullion, wood, cotton, and sugar to the core.
Mediterranean Europe and its labor-intensive industries became the semiperiphery
or intermediary between the core and periphery.
- According to Wallerstein, the core states dominate the peripheral states through
unequal exchange for the purpose of extracting cheap raw materials instead of, as
Lenin argued, merely using the periphery as a market for dumping surplus
production. The core interacts with the semiperiphery and periphery through the
global structure of capitalism, exploiting these regions and also transforming them.
The semiperiphery serves more of a political than an economic role; it is both
exploited and exploiter, diffusing opposition of the periphery to the core region.

3. Neoimperialism, - When the Vietnam War ended in 1975, many believed that the “naked” version of
Neocolonialism, classical imperialism was over. The U.S. public opposed military intervention in
and Empire- developing nations outside the U.S. “sphere of influence” in Europe, Japan, and Latin
Building Redux America.
- However, by the late 1970s, a more classic type of imperialism resurfaced in the
combined economic and military objectives President Carter established in his
Carter Doctrine, proclaiming the U.S. willingness to intervene in the Persian Gulf to
protect U.S. oil interests. In 1979, the Iranian Revolution overthrew the U.S.-backed
Shah of Iran, threatening U.S. control over oil and U.S. influence in the Middle East.
Soon after, the CIA supported efforts of the Mujahedeen in Afghanistan against the
Soviet occupation.
- In the 1980s, as part of the Reagan Doctrine, the United States renewed its efforts to
intervene in developing nations that threatened U.S. economic and security

23
 interests. Reagan assisted Saddam Hussein in the Iran-Iraq war and unsuccessfully
intervened in Lebanon in 1983 and 1984. To contain communism in the Western
Hemisphere, Reagan backed the contras in Nicaragua. The United States also
supported pro-Western authoritarian regimes in Guatemala, El Salvador, and other
South American countries. All this time, he (and the presidents that followed him)
never let up from seeking to control oil and assist Western oil corporations in the
Middle East. One method of maintaining that influence was by giving military and
other forms of aid to states like Saudi Arabia.
- Throughout the 1990s, President Clinton promoted economic liberal policy
objectives with selective military intervention abroad. His campaign of “engagement
and enlargement” mixed hard and soft power to explicitly draw other countries into
the global capitalist economy while expanding the scope of democracy. Based on
some of the lessons learned in Vietnam, Clinton was not as overtly interventionist as
Reagan. However, U.S. troops continued to be staged in many regions for short
periods of time. The U.S. military hit terrorist targets in Sudan and Afghanistan with
cruise missiles launched from U.S. warships. In cases where U.S. interests were not
as clear, such as Rwanda, the United States failed to intervene to save hundreds of
thousands who died in a campaign of genocide. Clinton’s preference for multilateral
(relatively equal) relations with U.S. allies set the tone for joint NATO operations in
the Balkans and for intervention in Kosovo in 1998.

Structuralism and - The world economy has hardly begun to recover from the recession triggered by the
2007 Recession collapse of the housing market in the United States in 2007. Seen from a structuralist
perspective, the crisis was an inevitable consequence of the increasing power of the
capitalist class over the last forty years.
- Structuralists see the financial crisis and economic stagnation as the result of laissez
faire economic policies.
- Many structuralists point to the massive increase in the inequality of income and
wealth in the United States that began around 1970. All of the increase new income
further increasing the power of capitalists and resulting in a higher degree of
exploitation of the working class.
- Debt played a key role in this story—as a source of purchasing power, as a means of
redistribution, and as the trigger for the crisis.
- From the 1990s to 2008, large numbers of middle class and poor people could more
easily get credit cards and home mortgages. From 1989 to 2007, the mean level of
mortgage debt for the middle class, defined as those between the 40th and 60th
income percentiles, increased from $45,000 to $104,000. This form of debt would
not have been as troubling if housing prices had kept increasing. But when prices
started coming down in 2006, many home-owners owed more on their mortgages
than they could get by selling their houses.
- The forces at work in the United States are also operating on a global level. In other
words, class conflict is international. Since World War II, core nations of the industrial
North have promoted the spread of neoliberal policies throughout developing
regions of the world through the IMF, the World Bank, the WTO, and TNCs. Using
international financial institutions, rich countries "just like rich individuals” have lent
money to poor countries, setting into motion a stream of payments back to the rich.

Main theses in this chapter

- First, many see in structuralism not only the tools to conduct a scientific analysis of
existing capitalist arrangements but also the grounds for a moral critique of the
inequality and exploitation that capitalism produces within and between countries.
- Second, this framework of analysis is the only one that allows us to view international
political economy (IPE) “from below,” that is, from the perspective of the oppressed
classes, the poor, and the developing Third World nations. In contrast to
mercantilism and liberalism, it gives a voice to the powerless.

24
- Third, this perspective raises issues about human freedom and the application of
reason in shaping national and global institutions.
- Finally, structuralism focuses on what is dynamic in IPE. It views capitalism and other
modes of production as driven by conflict and crisis and subject to change. What
exists now is a system and set of structures that emerged at a particular time and
may one day be replaced by a different system of political economy.

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 PART III. STRUCTURES IN IPE
CHAP 6. INTERNATIONAL PRODUCTION AND TRADE STRUCTURE
Introduction - Nation States are interdependent – beneficial?
- Creates tensions?
- Four Structures that link nation states and other actors furthering their
interdependence
a) International production and trade
b) Finance and monetary structure
c) International security structure
d) Knowledge and technology structure

International - International production and trade structure is the set of relationships between
Production and states, international organizations (IOs), international businesses, and
Trade Structure nongovernmental organizations (NGOs) who together influence and manage
international rules and norms related to what is produced, where, by whom, how, for
whom, and at what price.
- Deals with issues such as:
1. Who produces what, under what conditions, how it is sold, to whom and on what
terms?
2. Why production and trade are so controversial?
3. Who gains from international trade?
4. What and whose terms and conditions prevail when it comes to international trade?
5. Connection of production and trade to earning income and development hence
controversial

In this chapter 1. Introduction

2. Global trade relations before WWII
3. Development and changes that have occurred in the post WWII production and
trade system.
4. US and its allies created GATT in 1947 to promote liberal values and trade based on
US strategic and military objectives.
5. In a further effort to liberalize world trade, WTO replaces GATT in 1995.
6. Other trade issues covered: increase in number of PTAs and FTAs.
7. North South trade relations and its effects on economic development etc.

I. Introduction
1. Production - Production and Trade Structure: production leads to wealth, wealth leads to power
structure – whoever produces most has most power.
- The fact that newcomers are producing now has changed trade customs and
affected IPE

How has the nature - World production increasingly becoming fragmented – vertical specialization and
of production outsourcing- eg. Boeing, Apple?
changed over time? - Changing trends – increasing mobility of capital and economic restructuring
whereby industries leave the developed w search of new markets, cheap labour and
other production advantages.

This chapter 1. A small number of middle-income developing countries are attracting the lion’s share
advances several of production that is leaving the Global North.
key arguments 2. A growing proportion of global production is organized in complex global value chains
about the (GVCs) dominated by transnational corporations (TNCs).
production structur 3. While often relying upon states and seeking benefits from them, TNCs nevertheless
e: undermine state authority by engaging in tax avoidance and wrong doing.
4. Changes in global production have tended to weaken labor, thereby increasing
inequality and the social vulnerability of workers.
26
2. Global - Transnational corporations (TNCs) play a major role in shifting global production
production around the world. For several decades after World War II, it was common for many
final goods to be produced entirely in individual countries.
Most goods and services used in production would circulate within factories or
between them in developed countries.
- As foreign direct investment (FDI) grew, TNCs expanded outside their own home
countries to build manufacturing facilities and set up offices. Eventually they started
to contract with other companies overseas for goods and services—a process called
outsourcing.
- Today, the majority of the world’s exports are intermediate goods - inputs, parts, and
components used in the production of finished goods. For example, steel is an
intermediate good used in the production of cars. Whereas in the past many
manufacturers did everything “in-house”, now they have broken the manufacturing
process into tasks that are spread around the world, necessitating more trade to
bring these tasks and parts together into final products.

2.1. Foreign Direct - Changes in where production takes place are frequently tied to changes in patterns
Investment of foreign direct investment.
- FDI consists mostly of overseas investments by foreign companies in factories,
mines, and land. About two-thirds of existing FDI is in developed countries, while
one-third is in developing countries. The biggest senders of FDI in the world are
corporations in the United States, the United Kingdom, Germany, and Japan.
- Between 1990 and 2016 the value of annual global FDI inflows increased enormously
from $205 billion to $1.75 trillion. Historically, most inward flows of FDI were
concentrated among the developed nations, especially the United States and the
European Union
- As late as 2000, developed countries received 81 percent of annual FDI inflows—in
large part because they have historically had the richest markets, the most skilled
labor forces, and the highest productivity. However, by 2016 they took in only 59
percent, as investment rapidly spread out to every continent, especially Asia.
- Beginning in the 1990s, East Asia (especially China) and Latin America (especially
Brazil) attracted a growing share of total world FDI. By the mid-2000s India began to
attract a modest amount of FDI for its growing services industry. However, the 52
poorest countries in the world, many of which are in sub-Saharan Africa, still receive
only 2 percent of global FDI inflows, undermining their future development
prospects.
- Some FDI is an unintentional result of mercantilist policies designed to keep out
foreign products. A foreign firm can get around a country’s tariff barriers by
establishing a factory in that country; in a sense, this transforms the foreign firm into
a domestic firm.
- TNCs are especially sensitive to foreign exchange (FX) rates because their costs and
revenues are denominated in different currencies. An unexpected shift in exchange
rates can raise effective costs and reduce revenues. TNCs can reduce exchange rate
risks by establishing production facilities in each of their major consumer markets
so that costs and revenues largely accrue in the same currency. TNCs also have a
strong incentive to invest overseas when their home country’s currency is
overvalued.
- FDI may also be influenced by location-specific advantages. For example, a powerful
impetus for a lot of Chinese FDI in Africa and Latin America is to directly access
natural resources—especially minerals.
- In addition, TNCs often want to invest where many other firms are located, so that
they can benefit from the pool of highly trained individuals in that area and the
intense competition and constant innovation that is built into this environment.

27
 - Some of the places in the world that have the right technological and human
environment to make a firm very competitive are California’s Silicon Valley, China’s
Pearl River Delta region, and the Indian city of Bangalore.
- To summarize, TNCs invest abroad to gain a competitive advantage, to be closer to
customers, to get around trade barriers, to mitigate currency risks, and to take
advantage of special production environments.

2.2. Mercantilist - Changes in global production can be clearly seen in GDP figures. The World Bank
Concerns about reports that in 2016 the world’s GDP totaled $76 trillion, with the United States
Changes in Global accounting for 24.5 percent of the world’s output and China accounting for 14.8
Production percent.
- The seventy-eight high-income countries had $47 trillion or 64 percent of total
output (down from 78 percent of the total in 2005).
- The 109 middle-income countries accounted for $27 trillion or 37 percent of the total.
- Sadly, the thirty-one poorest countries accounted for only $405 billion or less than 1
percent of the world’s total output.
- Middle-income countries like China, Brazil, and India are producing a growing share
of the world’s goods and services, while the United States, the European Union, and
Japan—especially since the onset of the global financial crisis—are producing a
smaller proportion of the world’s output
- Production is such a highly charged political issue because it affects, among other
things, national security, trade, employment, and income. For example, a
contentious issue in the developed countries is offshoring – when corporations move
their manufacturing or certain business functions overseas.
- Beginning in the 1980s, many companies moved factories to Asia and Latin America
to take advantage of cheap, plentiful labor. Free-trade agreements and lower
transportation costs made it more efficient to produce clothing, household goods,
and electronics overseas and export the items back to the United States and Europe.
By pushing U.S. manufacturers to offshore and outsource to China, retail chains like
Wal-Mart and Target boosted profit margins substantially. (In 2016, Wal-Mart and
Target imported by ship to the United States the equivalent of 1,382,200 cargo
containers!)
- Although liberal economists tout the greater global efficiency and cheaper prices for
consumers, critics argue that it is destroying American manufacturing and driving
down wages of blue-collar workers.
- Today, many companies are also offshoring and outsourcing services - everything
from customer service, data processing, back-office work, tax preparation, and
insurance claims processing.
- Mercantilists worry about the long-term consequences of outsourcing and
offshoring. Losing the ability to manufacture items used by the military can weaken
a country’s national security.
- Former Intel CEO Andy Grove warns that when factories move oversees, there is less
innovation and fewer jobs in the United States.

2.3. Large - How Large Are TNCs?

transnational + The tens of thousands of TNCs account for about one-quarter of global gross
corporations and domestic product (GDP) and one-third of world exports
competition + All are headquartered in developed countries, and most are in the petroleum,
mining, automobile, or telecommunications industry.
- Trends in Competition between Corporations
+ The emergence of large TNCs headquartered in emerging countries - especially
China - has increased competition in some global industries. after more than
three decades of neoliberal reforms in much of the world, competition in many
national industries and in some global industries has actually decreased. Due
to mergers and acquisitions (M&As) among TNCs, there are fewer and larger
companies in many sectors
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 - Greater concentration of producers can have many negative effects on nations.
Heterodox liberal scholar Joseph Stiglitz argues that oligopolistic markets in many
sectors of the U.S. economy, including pharmaceuticals and health insurance,
contribute to rising inequality.
- Concentration has also led to higher prices for airline travel, cellular phone service,
and textbooks. There are similar trends in many other developed countries. In some
cases large corporations illegally conspire in ways that hurt workers and consumers.
For example, the largest manufacturers of LCD panels were found to have colluded
to fix the price, causing consumers to pay more for notebook computers and
televisions.
- Governments can enhance competition through anti-trust actions, but U.S. officials
are less politically committed to doing so than their EU counterpart - partly because
of the staggering amount of corporate money and lobbying in the U.S. political
system.

2.4. Governance of Global Value Chains

TNCs - It was common decades ago for large companies to be vertically integrated,
meaning they owned most of their supply chain, from the production of materials to
manufacturing to wholesale distribution. Since the 1980s, production has
increasingly been organized in global value chains (GVCs) (also called “global
production networks” (GPNs)) that encompass “the full range of activities that firms
and workers perform to bring a product from its conception to end use and beyond.”
- We can say that each GVC is “governed” because typically there is a lead TNC that
plays a dominant role in organizing firms in a complex supply chain. For example, in
the case of smartphones, Apple performs the designing, branding, patenting,
logistics, and retailing associated with iPhones, but it depends on Japanese,
Taiwanese, German, and South Korean companies to produce many components,
which are exported to China
Three important questions to ask are:
(1) Which countries and companies gain the most profit from the entire value chain?
(2) How do GVCs affect employment and economic development in different
countries?
(3) How can companies in a GVC move from just doing low-wage assembly or making
low-technology components to making cutting-edge components or even
designing and branding their own products?
Political economists believe that in order to answer these questions we have to
understand how GVCs are governed.
GVCs have contributed to rising inequality in developed countries by concentrating
benefits in the hands of large firms that have cut blue-collar jobs in developed countries
and shifted production to contractors in developing countries

Relations between - TNCs as Tools of National Power (ICT, Financial institution, high tech TNCs represent
states and TNCs its national power.
- TNCs Gaining Leverage over States. Both states and TNCs control valuable resources,
and they need each other. States want the investments and technologies that TNCs
can offer. TNCs, for their part, desire access to the natural resources, skilled labor, and
national markets in different states

TNCs out of (state) - Tax Avoidance.

control? - Corporate Wrongdoing

a. Tax Avoidance What methods do corporations use to lower their taxes?

➔ In recent years scholars have focused extensively on their use of tax havens,
transfer pricing, and tax inversions.

29
Tax havens Tax havens are countries or jurisdictions where corporate tax rates are low and financial
regulations are often relatively lax. TNCs often try to direct as much of their global profits
as possible to these havens. This usually requires moving profits on paper between
various affiliates of a TNC, even if the profits end up in places where the TNC does not
engage in any production, have many employees, or sell many goods. These affiliates
take a variety of forms, including parent companies, subsidiaries, and shell companies
that do little more than facilitate business transactions. Governments find it difficult to
trace all these interconnected parts of TNCs.

Transfer pricing - When affiliates of the same TNC trade with each other, the prices they charge often
do not reflect the true market value of the goods and services. Why would a TNC
declare artificial import and export prices?
- Typically, a TNC is trying to lower its bill for tariffs on imports. It is also a way to
transfer profits (on paper) from a company unit in a high-tax country to a unit in a
low-tax one, thus reducing the TNC’s global tax bill.

Tax inversion - A large corporation in one country sells itself to (or buys) a smaller corporation in
another country and then reincorporates there. Nothing about the operations of the
corporation change, but the tax home is relocated to a lower-taxing country.
- Since 2012, a number of U.S. TNCs, including Medtronic and Burger King, have
reincorporated in low tax countries to avoid U.S. taxes on their global revenues.
Pharmaceutical company Pfizer tried to carry out an inversion with the Irish
company Allergan in 2016, even though more than 40 percent of Pfizer’s drug sales
are in the United States
- So what are governments doing? For a number of years, the OECD has been trying
to tackle base erosion and profit shifting (BEPS) - their term for the process whereby
TNCs artificially shift profits to low-tax locations where they have very little real
economic activity.
- Many TNCs establish a legal “tax home” that is different from the countries where
most of their employees and sales exist. The OECD’s efforts paid off in 2017 when
nearly 70 countries signed a Multilateral Convention to Implement Tax Treaty
Related Measures to Prevent BEPS (MLI). The MLI includes a number of rules to
reduce corporate tax avoidance. Notably, the Trump administration decided that the
United States would not sign the Convention.

b. Corporate - Market manipulation in financial markets in 2012: The London Interbank Offered Rate
Wrongdoing (LIBOR) is set each day by the world’s largest banks. Each bank independently
estimates a rate at which it could borrow from other banks. Their offers are averaged
to produce the LIBOR, a benchmark rate in financial markets upon which interest
rates are set for mortgages, credit cards, student loans, and corporate loans. The
banks were found to have been conspiring since 2003 to manipulate the LIBOR up
and down in order to enhance their profits
- Another example of audacious corporate wrongdoing was Volkswagen’s
manipulation of software in vehicles to disguise the fact that its diesel automobiles
did not meet U.S. and EU emissions standards.

2.5. The changing - Automation: robots, AI => effects on labors ?

production - Enterprises from countries like Brazil, Russia, India, and China (the BRICs) challenge
structure the dominance of Western TNCs
- Developing countries are no longer just large recipients of FDI; they are becoming
global investors themselves
- State-owned enterprises from China and other countries have gained a much larger
share of international mergers and acquisitions in recent years.

30
Questions for 1. Why do TNCs engage in foreign direct investment? Explain whether or not the
revision following statement is accurate: “Most TNCs invest in less developed countries because
of the low wages that they can pay there.”
2. Explain recent changes in the pattern of FDI and in the organization of TNCs. What
are some of the implications of these changes?
3. In what ways are global value chains beneficial to developed and developing
countries?
4. How should leaders of developed countries respond to the effects of globalized
production on their domestic corporations and workers?
5. Discuss the ways in which states and TNCs are mutually reliant on each other. How
has the balance of power between the two changed in the last two decades?

3. Trade structure Five major theses in this section

1. Free trade is an aspiration, not a reality. All trade is shaped to varying degrees by the
distribution of power between states and by state laws, regulations, and policies. To fully
understand trade, we have to consider the political context in which it occurs,
2. Trade controversies today are rooted in efforts by businesses and nation states to
capture the benefits of imports and exports while limiting trade’s negative effects on
producers and society.
3. The negative effects of the global financial crisis and neoliberalism have accelerated
resistance to further liberalization of trade in manufactured goods and agricultural
products, especially in the highly industrialized countries. Global trade negotiations are
at an impasse.
4. The “losers” under the current trade system are increasingly well organized politically,
increasing the chances that their demands for better controls on both production and
globalization will have political traction in the coming years.
5. The digital revolution has made liberalization of trade in services an important issue
in international trade negotiations. Countries with leading technology-based
corporations are spearheading the effort to gain access to new markets for digitally
delivered services throughout the world.

3.1. Free Trade - Free trade refers to a situation where a government does not attempt to restrict
what its citizens can buy from another country or what they can sell to another
country.
- While many nations are nominally committed to free trade, they tend to intervene
in international trade to protect the interests of politically important groups.

The revised case for - Two situations where restrictions on trade may be inappropriate: retaliation and
free trade politics.
- Retaliation and Trade War
+ Krugman argues that strategic trade policies aimed at establishing domestic
firms in a dominant position in a global industry are beggar-thy-neighbor policies
that boost national income at the expense of other countries
+ A country that attempts to use such policies will probably provoke retaliation
- Domestic Politics
+ Since special interest groups can influence governments, Krugman argues that
strategic trade policy is almost certain to be captured by special interest groups
within an economy, who will distort it to their own ends

3.2. Government - There are two types of arguments for government intervention: political and
intervention economic.
- Political arguments are concerned with protecting the interests of certain groups
within a nation (normally producers), often at the expense of other groups (normally
consumers)
- Economic arguments are typically concerned with boosting the overall wealth of a
nation (to the benefit of all, both producers and consumers)
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a. Political - protecting jobs
Arguments for - protecting industries deemed important for national security retaliating to unfair
Intervention foreign competition
- protecting consumers from “dangerous” products
- furthering the goals of foreign policy
- protecting the human rights of individuals in exporting countries

Protecting Jobs - The most common political reason for trade restrictions is protecting jobs and
and Industries industries
- Usually this results from political pressures by unions or industries that are
"threatened" by more efficient foreign producers, and have more political clout than
the consumers that will eventually pay the costs

National Security - Protecting industries such as aerospace or electronics because they are important
for national security is another argument for trade restrictions

Retaliation - When governments take, or threaten to take, specific actions, other countries may
remove trade barriers, however, if threatened governments don’t back down,
tensions can escalate and new trade barriers may be enacted

Protecting Consumer protection can also be an argument for restricting imports

Consumers
Furthering Foreign - Trade policy can be used to support foreign policy objectives
Policy Objectives - Preferential trade terms can be granted to countries that a government wants to
build strong relations with
- Trade policy can also been used to punish rogue states that do not abide by
international laws or norms (the U.S. has done this with Libya, Iran, Iraq, North Korea,
and Cuba)
- However, it might cause other countries to undermine unilateral trade sanctions

Protecting Human - Governments sometimes use trade policy to improve the human rights policies of
Rights trading partners
- Unless a large number of countries choose to take such action, however, it is unlikely
to prove successful
- Some critics have argued that the best way to change the internal human rights of
a country is to engage it in international trade
- The decision to grant China MFN status in 1999 was based on this philosophy

b. Economic - The Infant Industry Argument: The infant industry argument suggests that an
Arguments for industry should be protected until it can develop and be viable and competitive
Intervention internationally.
- The infant industry argument has been accepted as a justification for temporary
trade restrictions under the WTO
- However, it can be difficult to gauge when an industry has grown up
- Critics argue that if a country has the potential to develop a viable competitive
position its firms should be capable of raising necessary funds without additional
support from the government

Strategic Trade - Strategic trade policy suggests that in cases where there may be important first
Policy mover advantages, governments can help firms from their countries attain these
advantages.
- Strategic trade policy also suggests that governments can help firms overcome
barriers to entry into industries where foreign firms have an initial advantage

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International Trade - The limitations of scarce resources mean that no nation can produce as much as it
Comparative wants of all goods and services; opportunity cost must therefore be considered.
Advantage - Opportunity cost is the value of the best alternative when a choice is made.
- The theory of comparative advantage holds that a nation should produce those
goods that have a lower opportunity cost than the same goods produced in other
countries.

International Trade - International trade has grown dramatically – increased demand for goods that
cannot be produced locally
- Multifold increase in trade volume- world trade in merchandise and services
increased from $84 billion in 1953 to 24.9 trillion U.S. dollars in 2023– reflects growing
internationalization or globalization of production

3.3. Trade - Trade - the liberal route to development – generating income and jobs – countries
engaged in efforts to regulate trade to maximize its benefits and minimize the costs
to their economies.
- How would the three perspectives in IPE (liberalism, mercantilism and structuralism)
view trade?

a. Liberal View on - Washington Consensus (based on liberalist ideology- free trade based on
Trade comparative advantage is positive sum for all nations) – promoted by US, its allies
and institutions such as WTO, IMF and WB.
- For the liberalists the benefits of open international trade far outweigh its costs

b. Mercantilist - Fredrich List and Alexander Hamilton both argued for protection of infant industries
Views on Trade through tariffs and quotas in order to national independence and security.
- Neomercantilists today also challenge the assumption that comparative advantage
unconditionally benefits all parties engaged in trade – people in the importing
country will be laid off as comparative advantage shifts to other nations.
- Also in many cases states can intentionally create comparative advantage almost
overnight in the production of new goods and services simply by adopting strategic
trade policies that invest heavily in those products.
- Trade protection is necessary because of the fear of becoming dependent on
another nation and the possibility of exploitation

c. Structuralism - Trade helped dominant mother countries to dominate and subjugate the economies
Views on Trade of the colonial territories.
- Colonial territories provide mother countries with primary goods, mineral resources
and well as market for output.
- Industrialized countries converted these primary resources into finished products
and sold it to other major powers and back to the colonies
- Peripheral countries have become underdeveloped as a result of contact with
industrial nations through trade

II. Global trade relations before WWII

- Throughout history, states have shifted between trade liberalization and
protectionism.
- In the nineteenth century mercantilist trade restrictions gave way to freer trade:
Britain lowered its import duties in 1815 and opened its borders to food imports by
repealing its Corn Laws in 1846; Britain and France then signed the Cobden–
Chevalier Treaty in 1860, which resulted in a network of treaties lowering tariff
barriers throughout Europe. However, Britain’s declining hegemony, France’s defeat
in the Franco-Prussian War, and the 1873–96 depression lowered the enthusiasm for
free trade; and the outbreak of World War I completely disrupted the European trade
treaties.

33
 - Efforts to remove trade restrictions after World War I were unsuccessful as states
reacted to harsh economic conditions by increasing their tariffs, or taxes on products
that pass through a customs border.
- Tariffs rose not only in European states recovering from the war but also in the United
States, which had become a net creditor nation and the world’s largest industrial
power.
- The U.S. Congress increased import duties with the 1922 Fordney–McCumber Tariff,
and after the stock market crash, Congress passed the 1930 Smoot–Hawley Tariff Act,
which increased average ad valorem rates on dutiable imports to 52.8 percent, the
highest U.S. tariffs in the twentieth century
- Although the United States was the largest industrial power during the interwar
period, U.S. industries feared a renewal of European competition, and U.S.
agricultural groups were concerned about lower agricultural prices.
- The U.S. Constitution gives Congress the sole power to regulate commerce and
impose tariffs, and members of Congress were susceptible to protectionist pressures
because they do not have national constituencies.
- Protectionist producer groups were politically organized in specific industries,
whereas consumer groups benefiting from free trade were more diffuse and had
little influence. Party politics also played a role in the Smoot–Hawley tariff because
the Republicans who were more protectionist than the Democrats had a Senate
majority.
- The Smoot - Hawley tariff had disastrous results as other states retaliated with their
own import barriers: World trade declined from $35 billion in 1929 to $12 billion in
1933, and U.S. exports fell from $488 million to $120 million.
- To reverse this damage, the U.S. Congress passed the 1934 Reciprocal Trade
Agreements Act (RTAA), which transferred authority to the president to lower tariffs
by up to 50 percent in bilateral trade negotiations with other countries. The RTAA for
the first time linked U.S. tariff levels to international negotiations instead of having
Congress set tariffs on a unilateral, statutory basis.
- From 1934 to 1945, the United States lowered its tariffs by an average of 44 percent
in bilateral trade agreements with 27 countries; but tariffs were so high in the early
1930s that these agreements mainly corrected earlier excesses.
- The U.S. decision to lower tariffs only in exchange for similar concessions by other
states (hence the name Reciprocal Trade Agreements Act) also limited the scope of
the agreements, and many states refused to lower their tariffs. Thus, protectionism
continued to affect trade relations throughout the interwar period.

III. Development and changes that have occurred in the post WWII production and
trade system
1. Post-WWII - Bretton Woods System and GATT (1947-1979) – The GATT grew out of an agreement
International Trade reached in Bretton Woods, New Hampshire (1944) to create an international
Structure 1 institution that would promote free trade.
- The failure of the International Trade Organization (ITO) – 1947 the General
Agreement on Tariffs and Trade (GATT) was instituted based on the principle of
reciprocity and nondiscrimination, (the most favored nation) – GATT negotiating
“rounds” were successful in lowering trade barriers on manufactured goods, but not
on some goods (especially agriculture)

International Trade - To prevent a recurrence of the interwar period protectionism, the United States and
Organization (ITO) Britain began bilateral discussions in 1943 to lay the groundwork for postwar trade
negotiations.
- In 1945, a U.S. State Department document formed the basis for multilateral
negotiations that resulted in the 1948 Havana Charter, or Charter for an International
Trade Organization (ITO). In addition to trade policy, the charter dealt with economic

34
 development, full employment, international investment, international commodity
arrangements, restrictive business practices, and the functions of an ITO
- However, the Havana Charter negotiations were protracted, and 23 states began
negotiations to lower tariffs before the charter was ratified; in October 1947, these
states signed the General Agreement on Tariffs and Trade (GATT).
- It was assumed that GATT would be folded into the ITO when it was formed, but the
Havana Charter did not satisfy either U.S. protectionists or free traders. Whereas
protectionists feared that the ITO would permit low-cost imports and infringe on U.S.
trade policy, free traders believed that the charter’s escape clauses and exceptions
would hinder trade liberalization. Thus, the U.S. Congress never ratified the Havana
Charter, and GATT became an informal, global trade organization by default.

GATT and - Whereas the ITO would have been a UN-specialized agency like the IMF and World
Informality Bank, GATT never gained specialized agency status; it was mainly a written code of
behavior on international trade with more limited legal obligations than the planned
ITO.
- Despite its informal origins, GATT gradually developed characteristics of an IO; it had
committees, working parties, and a small secretariat, and it made decisions that
were binding on members. Some analysts even argue that GATT was more effective
than the IMF and World Bank because of its informality. Whereas “the strength of a
formal arrangement such as the IMF is its rigidity; that of an informal, ideas-based
institution such as GATT is its adaptability.” GATT’s strengths included its
negotiations to reduce tariffs and nontariff barriers, and its steadily growing
membership

GATT: Informality - First, some trade sectors were largely exempt from GATT regulations. Agriculture
and problems was treated as an exception to GATT restrictions on import quotas and export
subsidies, and the North imposed quotas on textile imports.
- Second, GATT was more like a club than a formal organization, and its members
could easily waive some regulations. For example, states circumvented the GATT ban
on import quotas through voluntary export restraints, or pressure on others to
“voluntarily” decrease their exports.
- Third, GATT’s dispute settlement procedures often did not resolve trade conflicts.
- Fourth, U.S. balance-of-trade deficits caused the United States to charge that others
were unfair traders. Only by enhancing GATT’s authority could the United States be
deterred from taking unilateral measures to ensure fair trade.
- Fifth, as globalization increased, many DCs wanted GATT rules to extend beyond
trade in goods to trade in services, intellectual property, and investment.
- By the mid-1980s, a number of trade experts therefore warned that GATT had to
upgrade its rules and dispute settlement procedures; extend its discipline to
agriculture and textiles; and focus on newer areas such as services and intellectual
property.
- Although the Uruguay Round negotiations began with plans to simply upgrade
GATT, the decision was made during the round to replace it with the WTO. (GATT
continues to exist as the largest trade agreement under the WTO.)

2. Post-WWII - Increasing Protectionism (1980-1993)

International Trade - Increasing trade deficits in the U.S
Structure 2 - The rise of Europe and Japan Strategic trade policies grew in importance, especially
in the 1980s and 1990s.
- The idea of strategic trade policy is that comparative advantage is not fixed, but is
dynamic.
- Effective state policies can create comparative advantage.

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3. Post-WWII - The Uruguay Round and the WTO In 1986, GATT members began new negotiations
International Trade to reduce tariffs– the Uruguay Round.
Structure 3 - The talks focused on several areas. The problematic areas have been Services and
Intellectual Property, Agriculture
- Uruguay Round established the WTO to implement enforcement mechanisms for
more effective the global trade rules

The WTO - The WTO took over the GATT’s role in 1995.
- WTO has enforcement power through its Dispute Settlement Panel to interpret WTO
agreements and authorize sanctions on member-states that violate trade rules.
- The WTO became the new target for anti-globalization movements
- North – South Disparity?
+ Around 55 % developed country share of world output
+ 14 % share of East Asia and the Pacific developing countries

The Uruguay Round - In 1986, GATT members began new negotiations to reduce tariffs- the Uruguay
and the World Round. The talks focused on several areas: Services and Intellectual Property
Trade Organization - Going beyond manufactured goods to address trade issues related to services and
intellectual property, and agriculture

The World Trade Organization

- By establishing the WTO, it was hoped that enforcement mechanisms would make
the WTO a more effective policeman of the global trade rules
- The WTO encompassed GATT along with two sisters organizations, the General
Agreement on Trade in Services (GATS) and the Agreement on Trade Related
Aspects of Intellectual Property Rights (TRIPS)

WTO: Experience to - Since its establishment, the WTO has emerged as an effective advocate and
Date facilitator of future trade deals, particularly in such areas as services

WTO as Global Police

- So far, the WTO’s policing and enforcement mechanisms are having a positive effect.
In general, countries have adopted WTO recommendations for trade disputes
- Internet Extra: The WTO site provides a wealth of information on current trade issues.
Go to the site, and click on Trade Topics; browse down the menu to explore the
current situation at the Doha Round, the status of talks on electronic commerce, or
the WTO’s current efforts regarding trade and the environment.

Expanding Trade - In 1997, 68 countries that account for more than 90% of world telecommunications
Agreements revenues pledged to open their markets to foreign competition and to abide by
common rules for fair competition in telecommunications
- Similarly, 102 countries pledged to open to varying degrees their banking, securities,
and insurance sectors to foreign competition
- Like the telecommunications deal, the agreement covers not just cross-border trade,
but also foreign direct investment

The WTO in Seattle: - The 1999 meeting of the WTO in Seattle was important not only for what happened
A Watershed? between the member countries, but also for what occurred outside the building
- Inside, members failed to agree on how to work toward the reduction of barriers to
cross-border trade in agricultural products and cross-border trade and investment
in services
- Outside, the WTO became a magnet for various groups protesting free trade

36
The Future: - Three issues on the current agenda of the WTO are the rise of anti-dumping policies,
Unresolved Issues the high level of protectionism in agriculture, and the lack of strong protection for
and the Doha intellectual property rights in many nations, and continued high tariffs on
Round nonagricultural goods and services in many nations

- Anti-Dumping Actions
+ The WTO is encouraging members to strengthen the regulations governing the
imposition of antidumping duties
- Protectionism in Agriculture
+ The WTO is concerned with the high level of tariffs and subsidies in the
agricultural sector of many economies
- Protecting Intellectual Property
+ Because members believe that the protection of intellectual property rights is an
essential element of the international trading system, TRIPS obliges WTO
members to grant and enforce patents lasting at least 20 years and copyrights
lasting 50 years
+ The WTO would like to bring down tariff rates on nonagricultural goods and
services, and reduce the scope for the selective use of high tariff rates

IV. Instruments of trade policy (Annexe)

There are seven main instruments of trade policy:
1. Tariffs
2. Subsidies
3. Import Quotas
4. Voluntary export restraints
5. Local content requirements
6. Antidumping policies
7. Administrative policies

1. Tariffs - A tariff is a tax levied on imports that effectively raises the cost of imported products
relative to domestic products.
- Specific tariffs are levied as a fixed charge for each unit of a good imported
- Ad valorem tariffs are levied as a proportion of the value of the imported good
Tariffs increase government revenues, provide protection to domestic producers
against foreign competitors by increasing the cost of imported foreign goods, and
force consumers to pay more for certain imports

37
 - So, tariffs are unambiguously pro-producer and anti-consumer, and tariffs reduce
the overall efficiency of the world economy

2. Subsidies - A subsidy is a government payment to a domestic producer.

- Subsidies help domestic producers in two ways:
+ they help them compete against low-cost foreign imports
+ they help them gain export markets
- Consumers typically absorb the costs of subsidies.

3. Import Quotas - An import quota is a direct restriction on the quantity of some good that may be
and Voluntary imported into a country.
Export Restraints - Tariff rate quotas are a hybrid of a quota and a tariff where a lower tariff is applied to
imports within the quota than to those over the quota voluntary export restraints are
quotas on trade imposed by the exporting country, typically at the request of the
importing country’s government a quota rent is the extra profit that producers make
when supply is artificially limited by an import quota
- Import quotas and voluntary export restraints benefit domestic producers by
limiting import competition, but they raise the prices of imported goods

4. Local Content - A local content requirement demands that some specific fraction of a good be
Requirements produced domestically.
- Local content requirements benefit domestic producers, but consumers face higher
prices
- Administrative Policies: Administrative trade polices are bureaucratic rules that are
designed to make it difficult for imports to enter a country.
- These polices hurt consumers by denying access to possibly superior foreign
products

5. Antidumping - Dumping is defined as selling goods in a foreign market below their costs of
Policies production, or as selling goods in a foreign market at below their “fair” market value.
- Dumping is viewed as a method by which firms unload excess production in foreign
markets
- Some dumping may be predatory behavior, with producers using substantial profits
from their home markets to subsidize prices in a foreign market with a view to
driving indigenous competitors out of that market, and later raising prices and
earning substantial profits
- Antidumping polices (or countervailing duties) are designed to punish foreign
firms that engage in dumping and protect domestic producers from “unfair” foreign
competition

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 CHAP 7. THE IPE OF INTERNATIONAL DEBT AND FINANCIAL CRISIS
This chapter describes a number of fundamental elements of the international
monetary and finance structure, including its institutions and who manages them,
who determines its rules, how and why these rules change, and who benefits from its
operation

6 interconnected - First, after World War II the United States and its allies constructed a fairly tightly
arguments in this controlled international monetary and finance system that complemented their
chapter mutual goals of containing communism and gradually deregulating currency and
finance markets. These measures manifested a situation where the United States
could pursue “hegemony on the cheap,” work toward the stabilization of Western
capitalist economies, and contain communism.
- Second, as some of the security and economic interests of the Western alliance
changed and diverged, exchange rates and capital controls were gradually allowed
to reflect market conditions. The 1970s and 1980s, however, were marked by OPEC
oil price hikes, increasing interdependence among states, and later globalization,
along with many efforts to open up international currency and finance markets. At
the same time, many states made efforts to control direct economic growth in
ways that gradually weakened the international monetary and finance structure.
- Third, since the end of the Cold War and pursuant to its continued hegemonic role
in the international political economy, the United States has continued to run huge
deficits in the current account of its balance of payments. Recently emerging
economies such as China and Saudi Arabia have been investing their surplus
capital into the United States and other current account deficit nations, which has
enabled the United States to cover its balance‐of‐payments deficits.
- Fourth, the recent financial crisis jeopardize this U.S. strategy and continues to
weaken the U.S. dollar and U.S. leadership of the current monetary and finance
structure.
- Fifth, the financial crisis has also severely weakened efforts by IOs, others states,
and many nongovernmental organizations (NGOs) to resolve problems in debtor
countries as well as help the developing nations overcome poverty.
- Sixth and finally, the global monetary and finance structure remains vulnerable to
fluctuating market conditions, which should lead to increased state cooperation to
deal with a number of problems that, if not resolved, could result in a global
financial meltdown.

I. A primer on foreign exchange

Hard currency - Hard currency is money issued by large countries with reliable and predictably stable
political economies. This legal tender is traded widely and has recognized value
associated with the wealth and power of many industrialized developed nations,
including the United States, Canada, Japan, Great Britain, Switzerland, and the Euro
zone. A hard-currency country can generally exchange its own currency directly for
other hard currencies, and therefore for foreign goods and services - giving it a
distinct advantage. Therefore, a hard currency like the U.S. dollar (USD), the euro, or
the yen is easily accepted for international payments.

Soft currency - Soft currency is not as widely accepted, and is usually limited to its home country or
region. Its value may be too uncertain or the volume of possible transactions
insufficient based on an absence of trade with other countries or conditions that
raise suspicions about the stability of its political economy. Many less developed
countries (LDCs) have soft currencies, as their economies are relatively small and less
stable than those of other
countries.
- A soft-currency country must usually acquire hard currency (through exports or by
borrowing) in order to purchase goods or services from other nations.

39
 - Another problem with a soft currency is that international lenders are generally
unwilling to accept payment in soft currencies. These countries need to earn hard
currency to pay their debts, which tend to be denominated in hard currency.
Because only hard currencies get much international use, we focus on hard
currencies in this chapter.

- An important point to remember is that the exchange rate is just a way of converting
the value of one country’s unit of measurement into another’s. It does not really
matter what units are used. What does matter is the acceptability of the
measurement to the actors (banks, tourists, investors, and state officials in different
countries) involved in a transaction at any given time, and how much values change
over time. Shifts in exchange rates can vary over different periods of time, depending
on a variety of circumstances that impact the demand for one currency or another.
- Many political and economic forces affect exchange rates. These include the
following:
+ currency appreciation and depreciation
+ currency-rate manipulation
+ whether one’s currency is fixed to the value of another currency
+ interest rates and inflation
+ speculation

Currency - When a currency’s exchange price rises - that is, when it becomes more valuable
appreciation
relative to other currencies - we say that it appreciates. When its exchange price falls
and depreciation
and it becomes less valuable relative to other currencies, we say it depreciates.
- For example, the USD depreciated relative to the Japanese yen between 2009 and
2012. A USD cost ¥ 90 in November 2009, but only ¥ 80.02 in November 2012. The fact
that the USD depreciated relative to the yen also means that the yen appreciated
against the USD. Or simply put, in terms of the USD, the yen increased in price from
about 1.11 cents to 1.24 cents during this period. In the case of trade, changes in the
exchange rates tend to alter the competitive balance between nations, making one
country’s goods a better value than another.

Currency‐ - Often exchange rates are set by the market forces of supply and demand. There is
rate manipulation also considerable temptation for nations to purposefully manipulate currency values
so as to achieve a desirable outcome for that state. At times, states (secretly)
intervene in currency markets, buying up their own currency or selling it in an
attempt to alter its exchange value. A central bank will buy (demand) and sell
(supply) enough of its own currency to alter the exchange rate. At other times when
the demand for the country’s currency declines, a central bank will use its foreign
reserves to buy (demand) its own currency, pushing up the value of its currency
again.
- Regardless of market conditions, for many states an undervalued currency that
discourages imports and increases exports can be politically and economically good
for some domestic industries. This shifts production and international trade in that
state’s favor. The dark side of currency depreciation is that when goods such as food
or oil must be imported, they will cost more if the currency is undervalued.
Undervaluation can also reduce living standards and retard economic growth, as
well as cause inflation.
- Sometimes LDCs overvalue their currency to gain access to cheaper imported goods
such as technology, arms, manufactured goods, food, and oil. This may benefit the
wealthy and shift the terms of trade in their favor. Although their own exported
goods would become less competitive abroad, these LDCs could at least enjoy some
imported
items at lower cost.

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 - In practice, it is hard for LDCs to reap the benefits of overvaluation in any meaningful
way because their currencies are usually soft and not used much in international
business and finance. This does not stop them from trying, depending on political
circumstances. In many cases, this invariably winds up choking domestic production
and leaving the LDCs dependent on foreign sellers and lenders for help. Agriculture
seems to be especially sensitive to this problem. In some cases, developing countries
with overvalued currencies have unintentionally destroyed their agricultural sectors
and become dependent on artificially cheap foodstuffs.

Whether one’s - In the 1990s, until the end of the decade, the value of the USD steadily climbed
currency is fixed relative to the value of the currencies of many developing nations. While this helped
to the value of the exports of the emerging nations, their consumers paid higher prices for many
another currency technological imports and value-added products. To stabilize the relationship
between the USD and other currencies, many countries decided to peg (fix) their
currency to the dollar. China pegged the yuan at 8.28 per USD. Because the United
States and the EU are major importers of Chinese goods, if the USD depreciated
relative to the euro and most other world currencies, so did the yuan.

Inflation and - Two other important issues are inflation and interest rates. All else being equal, a
interest rates nation’s currency tends to depreciate when that nation experiences a higher
inflation rate than other countries. Inflation—a rise in overall prices—means that
currency has less real purchasing power within its home country. This makes the
currency less attractive to foreign buyers, and it tends to depreciate on foreign
exchange markets to reflect its reduced real value at home
- Likewise, interest rates and investment returns in general influence the value and
desirability of the investments that a particular currency can purchase. If interest
rates decline in the United States, for example, as they did in the 1990s and
throughout the 2000s, then the demand for dollars to purchase U.S. government
bonds and other interest-earning investments decreases, pushing the dollar’s
exchange rate to a lower value. In the same way, higher interest rates lead to an
increased demand for the dollar, as dollar-denominated investments become more
attractive to foreigners.

Speculation - Speculation is betting that the value of a currency or market price for a certain item
or service will go up and earn the owner a profit when it is sold. A currency generally
rises and falls in value according to the value of goods, services, and investments that
it can buy in its home market. If those who invest in currencies (speculators) believe
(based on their understanding of the foreign exchange market model and
anticipated changes in the various determinants of demand and supply) that a
currency like the peso will appreciate in the future, they will want to buy pesos now
to capitalize on the exchange rate fluctuations.

II. Three Foreign Exchange Rate Systems

1. The Classic Gold Standard: Phase I

2. The Bretton Woods System: The Qualified Gold Standard and Fixed Exchange Rates: Phase II

3. The Float‐ or Flexible‐Exchange‐ Rate System: Phase III and the Changing Economic Structure

III. The IPE of International Debt and Financial Crisis

1. The debt crisis of - In 1982 Mexico announces that it would default on its bank debt. This generated fear
the 1980s that other countries that have accumulated substantial debt such as Brazil would
follow Mexico.

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 - LDCs were encouraged to borrow because inflation rates were running ahead of
interest rates on loans-creating negative real rates, which traditionally favors
borrowers.
- IMF debt management policies included austerity measures (cutbacks in state
spending), debt rescheduling with commercial banks, and new public and private
lending.
- Only Turkey and Korea recovered; others went deeper into the red.

The Baker Plan - The Baker Plan‐ was initiated by US Treasury Secretary James Baker. This was made
in order to implement market‐oriented structural changes to debtor economies
combined with efforts to coax commercial banks into providing $20 billion in new
loans over three years.
- This plan did not work because while all the countries tried to export all at once,
commodity and oil prices collapsed, leaving many nations (especially African ones)
worse off than before loans.

Donor fatigue - Donor fatigue ‐ is the period in the late 1980s when social and political tensions
related to policies adopted to relieve the debt grew and dissatisfaction with
international debt management worsened.
- During the 1980s, there were several factors that contributed to donor fatigue. One
of the main reasons was the economic recession faced by many donor countries,
which led to budget constraints and a need to prioritize domestic issues.
Additionally, the global landscape was changing, with geopolitical shifts and the end
of the Cold War, diverting the attention and resources of donor countries towards
other priorities.
- Many donor countries felt that despite the significant aid provided over the years,
progress in achieving sustainable development in recipient countries was slow or
stagnant. This perception of limited impact led to a sense of disillusionment and a
questioning of the effectiveness of aid.
- Reports of corruption, lack of transparency, and inefficient use of resources further
eroded the confidence of donor countries in providing financial assistance.

The prisoner’s - The prisoner ’ s dilemma is the phenomenon when each bank or state wanted
dilemma others to forgive the debt but were unwilling to do so themselves, for fear (rationally
speaking) that those who cooperated to grant the relief would bear a cost that would
not be shared by those who paid nothing to solve the problem.

The Brady plan - The plan introduced in 1989 by George [Link] whereby old debt was exchanged
for new bonds that could be exchanged for new bank loans
- Many countries in Latin America issued these so‐called Brady bonds throughout the
next several decades, marking an upswing in the issuance of emerging markets
debt.
- The payment on the bonds is backed by the purchase of U.S. Treasurys, encouraging
investments and assuring bondholders of timely payments of interest and principal.
- Brady bonds were launched in the late 1980s to provide debt relief to emerging
markets economies by replacing their existing sovereign debt with dollar-
denominated debt backed by long-term U.S. Treasury bonds. This mechanism
allowed countries that were struggling to repay their debts due to currency
instability or economic strain issue sovereign debt and integrate better into the
global financial system

Debt Crises and a - Lender of last resort ‐ an institution that could help debtor nations overcome their
new role for the IMF debt (this is how IMF was seen in 1980s by some experts).
- Structural adjustment policies (SAPs) ‐ a series of conditions or actions to which the
borrowing government must agree before receiving a loan.

42
 - IMF Conditionality ‐ is seen as controversial to the extent that IMF terms reflect the
economic liberal ideas behind the Washington consensus policies and interests of
the United States and not the individual needs of the borrowing nations.

Why do IMF loans - Conditionality helps countries solve balance of payments problems without
include conditions? resorting to measures that harm national or international prosperity. In addition, the
measures aim to safeguard IMF resources by ensuring that the country’s finances
will be strong enough to repay the loan, allowing other countries to use the resources
if needed in the future.
- Member countries that borrow from the IMF have primary responsibility for
selecting, designing, and implementing policies to make their economic program
successful
- The overarching goal is always to restore or maintain balance of payments viability
and macroeconomic stability while setting the stage for sustained, high-quality
growth. For low-income countries, there is an additional objective of reducing
poverty.

How does the IMF Prior actions

assess - These are steps a country agrees to take before the IMF approves financing or
completes a review. They ensure that a program will have the necessary foundation
conditionality?
for success.
- Examples
+ Fiscal revenue measures
+ Clearance of external arrears
+ Governance reform
+ Banking sector restructuring plan
Quantitative performance criteria (QPCs)
- These are specific, measurable conditions for IMF lending that always relate to
macroeconomic variables under the control of country authorities. Such variables
include monetary and credit aggregates, international reserves, fiscal balances, and
external borrowing.
- Example: Ceiling on new public guarantees; Ceiling on external debt; Ceiling on
public sector external arrears
Indicative targets
- Indicative targets, which are flexible numerical trackers, may be set for quantitative
indicators to help monitor progress in meeting a program’s objectives. Heightened
uncertainty and limited capacity may justify greater use of indicative targets under
certain circumstances. As uncertainty is reduced, these targets may become QPCs,
with appropriate modifications.
- Examples: Ceiling on the general government wage bill; Ceiling on domestic arrears;
Ceiling on government borrowing from the central bank
Structural benchmarks
- These are reform measures that often cannot be quantified but are critical for
achieving program goals and used as markers to assess program implementation.
- Examples: Strengthen tax administration; Improve fiscal transparency; Improve anti-
corruption and rule of law; Reform State-Owned Enterprises (SOEs) and their
governance

A balance‐of‐ - Balance‐of‐payments crisis – are the cases when states have borrowed too much
payments financial money to use for development projects, or they cannot export enough to pay for
crisis imports. They may lack foreign investment.
- Capital flight – when investors transfer their bank accounts out of country to “safe
harbour” nations.

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The seven stages of - Displacement – refers to an external shock or some “news” that fundamentally alters
financial crisis the economic outlook in a market, shifting concerning future profits in some
significant way. When investors and speculators are focused in a specific country.
- Expansion – the stage when the boom is fed by an increase in liquidity (investment
money), which provides the means for the boom to grow, perhaps becoming a
bubble. This is when there is a pool of potential investors or speculators, when even
the grandmothers start to invest. This is also called “over‐trading” and “pure
speculation”.
- Euphoria – is when the purpose of buying becomes to sell and take capital gain as
the price rises higher and higher.
- Distress – is the stage when between euphoria and revulsion when there is concern
that the strength of the market may be fragile or that the limits of liquidity may be
near.
- Revulsion – is a sharp shift in actions and expectations caused by new information or
significant event. “Insiders” realize the importance of the news and sell first, at the
top of market, while “outsiders” are still buyig. Liquidity dries up and causes discredit.
- Torschluspanik – gate shut panic‐ describes how falling prices feed on themselves,
creating self‐fulfilling prophecies. The result is a crisis which might be a crash
(collapse in price) or panic (sudden needless flight).
- Contagion crisis – is the financial crisis that spreads internationally to the extent that
it causes a worldwide depression.

3 options to bring According to Kindle Berger there are 3 options to bring financial crisis to an end:
financial crisis 1. crisis might turn into a “fire sale” with prices falling until buyers are eventually
to an end brought back into the market,
2. Trading may be halted by some authority, limiting losses,
3. a lender of last resort (IMF) may step to provide the liquidity necessary to bring the
crisis to a “soft landing”.

2. The peso crisis - This is about financial crisis in Mexico in 1990s. In those years everyone was thinking
and the tequila of investing in Mexico because of development of financial markets. As the number
hangover of investor increased the prices were increasing too. When the presidential
candidate was killed in 1994, people were starting to doubt about the stability of their
investments. Mexico now was in the middle of a political and financial crisis, so the
clever investors were running for the closing gates. The crisis occurred and with it
the unemployment rose sharply, inflation rose, interbank interest rates soared. Not
only Mexico but also other countries suffered from this crisis which was also called
“tequila hangover”.

3. The Asian - Asian financial crisis started when in Thailand there was a currency crisis. Thai
financial crisis government guaranteed an exchange rate of 25 baht per dollar.
- Everyone started to go to Thailand because of higher interest rates. But there were
a lot of bad loans in Thai banks, so foreign investors started to get worried about their
money. They started to pull their funds out of there.
- The reserves of dollars of Thai government were going down and the government
now had to abandon the pledge, so the baht fell from 25 baht per dollar to 30 baht
per dollar. Later this changed to a rate of 50 baht for a dollar.
- For Thai citizens foreign products were more expensive, and for US citizens Thai
products were cheaper. Many citizens that were hoping to profit now found
themselves bankrupt.
- This crisis was not only the case in Asia but also all over the world, ex. US was affected
by Thai companies not ordering Boeing airplanes because of economic problems.
- Currency crisis – when a certain currency collapses in value.

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 - Crony capitalism – a type of corruption when companies receive favorable
treatments from government in return for financial considerations given under the
excuse of loans.
- Speculative attack – is a confrontation between central bank, which pledges to
maintain its country’s exchange rate a certain rate and international currency
speculators, who are willing to wager that the central bank is not fully committed to
its exchange-rate goal.
- Hedge fund – is an investment instrument that attempts to make a profit from the
fact that an asset such as stock or bond might be trading at different prices in
different places or have some similar pricing imperfection.

4. The IMF and the - In general there were 2 crises at once in Asia: an internal crisis of lower incomes,
Asian crisis higher unemployment, and rising social tensions; and an external crisis in the form
of a current account deficit and rising foreign debt.
- Bail‐in ‐ lenders trying to protect their investments by extending additional credit
rather than pulling funds out of the country.
- Moral suasion – when IMF tried to persuade the banks to bail‐in, using variety of tools
including veiled threats, implicit promises, and moral suasion.

5. The Argentine - In 1991, Argentina fixed its exchange rate at one peso per US dollar. But in the coming
Financial Crisis years US dollar appreciated dramatically against most other currencies pulling peso
with it. Argentina’s currency was overvalued compared to economic competitors
such as Brazil. A lot imported goods were coming to Argentina and this led to debt.
At the beginning Argentina did not break the link from a depreciation of the peso
because:
1. the fear that the old corrupt political economy would return, and
2. the debt burden was affected by the exchange rate.
- But finally in January 2002 Argentina abandoned its fixed exchange rate with
disastrous economic and political consequences.

6. Lessons from - There are 3 important lessons from the Asian financial crisis:
these crises 1. The economic crisis can happen anywhere.
2. Little was learned from the Mexico peso crisis.
3. Global finance creates the possibility of a global financial crisis
- Moral hazard – is the problem that people will take one more and more risk if they
believe that someone will bail them out if any loss they incur.
- Transparency – is the public’s ability to see how the decisions are made within the
IMF, which provides more information to investors to make better decisions.

7. Long term debt - HIPC initiative – the man idea here was to push all players in finance and debt
and the HIPCs structure to accept debt cancellation. This effort failed.
- Odious debt ‐ is the obligation incurred by a former corrupt regime that left a new
government owing billions to outside agencies. Ex. Iraq‐Saddam Hussein.
- Poverty reduction strategy paper (PRSP) ‐ an economic measure that required
consultation with civil society before action could be taken on the debt.
- UN Millennium Development Goals ‐ measures taken by UN, IMF, and the World
Bank as an effort to target poverty.

7.1. Liberals’ point of - Liberals in general favour increased international trade and investment
view opportunities which are available by flexible exchange rates and capital mobility.
Neoliberals say that IMF and World Bank have played a positive rile on promoting
economic liberal goals and policies. They are worried about the weakness of US dollar
and also the growing problem of speculation. Globalization has an undermining
effect to the extent that it threatens to destabilize the entire international economy.
Although criticizers of globalization, in the financial structure, liberals say that

45
 developing countries must protect themselves to some extent, at least until they can
compete with the industrialized states on a more equal basis. IMF is not and cannot
be the global lender of last resort.
- Casino capitalism – speculators may do no harm as bubbles in the stream of
enterprise. But the position is serious when enterprise becomes the bubble on
whirlpool of speculation. When the capital development of a country becomes the
by‐product of the activities of a casino, the job is likely to be ill‐done.

7.2. Mercantilists’ - There is a temptation of a mercantilist nation to either devalue or overvalue its
point of view currencies to satisfy some combination of domestic and international objectives.
Some developing countries with overvalued currencies unintentionally destroyed
their agricultural sectors and became dependent on artificially cheap foodstuff.
Many states have supported the globalization campaign as a part of strategy to
compete with other states for foreign investment, enhancing their wealth and
power. Although it is not easy, there should be some global efforts to reform the IMF
and The World Bank.

7.3. Structuralists’ - Structuralists say that the finance and monetary system is not as stable as neoliberals
point of view think it is. They say that the market’s invisible hand has failed in many of the poor
countries. According to structuralists finance structure courages exploitation and
imperialism. Globalization only gives more power to US and other developed nations
to dominate developing nations. The structures of IPE do not operate effectively and
there are many unresolved and unsolved issues in the world. IMF and World Bank
should necessarily change but structuralists don’t have any specific plan for that.

46
 CHAP 8. KNOWLEDGE AND TECHNOLOGY STRUCTURE
1. Knowledge and - Knowledge is power, and is wealth too for those who know how to use it.
Technology: The + Influence and Decision Making
Basis of Wealth and + Problem Solving
Power + Personal Development
+ Empowerment and Confidence
- “In a manufacturing state there is not a path which leads more rapidly to wealth and
position than that of invention and discovery” – Friedrich List
+ Innovation and Competitive Advantage
+ Intellectual Property Rights
+ Job Creation and Economic Growth
+ Export and Trade Opportunities
+ Technological Advancement and Infrastructure Development

2. Three important The pace of technological changes has quickened.

trends have - Knowledge and technology are increasingly dispersed.
become - Information moving from desk to desk very easy, or from country to country.
apparent over the ➔ These three trends show that Knowledge is wealth and it is power
last twenty years:

2.1. The pace of - The rapid pace of technological changes signifies the continuous evolution and
technological advancement of human knowledge and capabilities. Technology has become an
changes has integral part of various aspects of our lives, from communication and transportation
quickened. to healthcare and entertainment.
- The accelerated pace of technological changes enables the development of
innovative products, processes, and solutions that drive economic growth, improve
efficiency, and enhance the quality of life. Those who possess and leverage the latest
knowledge and technologies have a competitive advantage in industries, markets,
and societies.

2.2. Knowledge and - Knowledge and technology are no longer concentrated in a few centralized entities
technology are or locations. In the past, knowledge and technological expertise were primarily held
increasingly within a limited number of research institutions, corporations, or countries.
dispersed - However, with advancements in communication, collaboration, and global
connectivity, knowledge and technology have become more accessible and
widespread.
- Today, individuals, organizations, and countries around the world have greater
access to knowledge and technology, enabling them to participate in innovation and
contribute to economic and social progress. This dispersion of knowledge and
technology democratizes opportunities and empowers individuals and communities
to create wealth and wield power.

2.3. Information - The ease of information movement, facilitated by advancements in communication

moving from desk technology and globalization, has revolutionized how knowledge and ideas are
to desk or from shared.
country to country - Information can now be transmitted rapidly and effortlessly across borders,
very easy organizations, and individuals. This has led to unprecedented levels of collaboration,
exchange of ideas, and access to information. The free flow of information enables
individuals and organizations to acquire knowledge, stay updated with the latest
developments, and leverage information for decision‐making and problem‐solving.
- In this interconnected world, those who can effectively access, interpret, and apply
information have a significant advantage in terms of wealth creation and power.

47
3. The International - The International knowledge structure ‐ is the set of relationships that govern access
knowledge to knowledge and technology around the world, a web of rules, practices,
structure institutions, and bargains that determines who owns and can make use of
knowledge and technology where, how and on what terms.

4. Technology and - Technology: refers to the application of scientific knowledge, tools, methods, and
technological materials to solve problems, meet needs, and achieve specific objectives. It
innovation encompasses a wide range of tangible and intangible elements, including
machinery, equipment, processes, systems, software, and techniques.
- Technology can be used to create, modify, or improve products, services, or
processes, leading to advancements and efficiencies in various domains.
- Technological Innovation: Technological innovation refers to the process of
introducing or creating new or significantly improved technologies, products, or
processes.
- It involves the development and implementation of new ideas, concepts, or
methodologies to address existing challenges, improve efficiency, or meet evolving
needs.
- Technological innovation often results in the discovery, invention, or adoption of new
technologies that offer superior performance, functionality, cost-effectiveness, or
other
- competitive advantages.
- Technological innovation plays a crucial role in driving progress, economic growth,
and societal development by fostering creativity, competitiveness, and the ability to
adapt to changing circumstances. It is a key driver of advancements in various fields,
including science, engineering, healthcare, communication, transportation, and
many others.

4.1. Key - Novelty: Technological innovation introduces new elements, approaches, or

characteristics of solutions that differ from existing technologies or practices. It involves a departure
technological from the status quo and often brings about disruptive changes.
innovation - Improvement: Technological innovation aims to enhance existing technologies,
products, or processes by introducing advancements, efficiencies, or better
performance. It seeks to overcome limitations, solve problems, or meet emerging
demands.
- Value Creation: Technological innovation creates value for individuals, organizations,
or society as a whole. It can generate economic benefits, improve quality of life,
increase productivity, enable new opportunities, or address societal challenges.
- Implementation: Technological innovation involves the practical implementation
and deployment of new technologies or processes. It requires translating ideas and
concepts into tangible products, services, or systems that can be effectively used or
adopted
- Iterative Process: Technological innovation often involves an iterative and
continuous process of refinement, learning, and adaptation. It may go through
multiple stages of research, development, testing, feedback, and improvement to
reach its full potential.

4.2. Innovation - Innovation is a comprehensive concept that can not be defined by using a singular
concept factor. We mentioned concept, precisely because innovation can be seen as a
process, mentality, culture, technology, human resources and many other notions
that are at the basis of it.
- Two types of innovation – product innovation and process innovation. These two
categories are regularly present on the market, these days, being part of an approach
to innovation that is based on its objective.
- Product innovation is a type of innovation that is more noticeable for the consumer
and it is related either to the enhancement of a company’s older products, either to

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 the development of new products which are based on new technologies or which
solve new needs of a consumer.
- When product innovation is conducted through the development of a new product,
it can either solve an older consumers’ problem in a new (innovative) way, or solve a
new consumers’ problem, which occurred as a consequence of the evolution of the
factors previously mentioned – social, cultural and economical.
- Process innovation focuses on the innovation of facilities, skills and technologies
used for the production and delivering of products and services. As opposed to
product innovation, the effects are not as noticeable to the consumers.
- Product innovation can result in a decrease in production cost and time and the
improvement of certain processes or the elimination of certain barriers from the
production process orconsumption.

4.3. The Nature and - Rapid technology change has many important effects in the world around us. Three
Effects of that are worth special mention are the product life cycle, the nature of high tech
technology (knowledge), and creating comparative advantage.
Innovation - Product life cycle it illustrates how technological change leads to globalization of
production. With regards to process or product innovation, the process innovation
has become perhaps the more important technological innovation.
- Schumpeterian Industries (the nature of high‐tech industries) named after Joseph
Schumpeter, according to him only firms with some degree of monopoly power
would likely have the incentive and the ability to invest in risky, expensive, and
longterm research and development projects.
- Creating Comparative Advantage – to have an advantage in producing something
compared to other countries.
- High-value-added-goods are products that generate substantial income flows for
the firms and workers that produce them. Some nations that have demonstrated
remarkably the ability to create comparative advantage in the production of high
value added goods are Japan, the Asian “Tigers” which are Hong Kong, South Korea,
Taiwan, and Singapore.

From Invention to While invention depends upon creativity, successful technological innovation requires
Innovation integrating new knowledge with multiple business functions.

Innovation – What The creation of new ideas/processes which will lead to change in an enterprise’s
is it? economic or social potential

What is Innovative - A means of generating innovation to achieve two objectives that are implicit in any
Thinking? good business strategy:
+ make best use of and/or improve what we have today
+ determine what we will need tomorrow and how we can best achieve it, to avoid
the « Dinasaur syndrome »
- Innovative thinking has, as a prime goal, the object of improving competitiveness
through a perceived positive differentiation from others in:
+ Design/Performance
+ Quality
+ Price
+ Uniqueness/Novelty

Obstacles to - Competitive position

Successful - Market judgement
Innovation - Technical performance
- Manufacturing expertise
- Financial resources

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Innovation Process

- An innovation starts as an idea/concept that is refined and developed before

application.
- Innovations may be inspired by reality (known problem). The innovation (new
product development) process, which leads to useful technology, requires:
+ Research
+ Development (up‐scaling, testing)
+ Production
+ Marketing
+ Use
- Experience with a product results in feedback and leads to incrementally or radically
improved innovations.

5. The IPE of Technology and Intellectual Property Rights

- Intellectual Property Rights are the rights of controlling the use of intellectual
property, an innovation or a creative work such as a novel or poem.
- Property Rights are the rights control use the use of something, such as house, or a
car, or a book.
- Patents are issued by a government and confer the exclusive right to make, use, or
sell, an invention for a period generally ranging from fifteen to twenty years.
- Trademarks are signs or symbols registered by a manufacturer or merchant to
identify goods and services. Protection usually granted for ten years and is
renewable.
- Copyrights a type of intellectual property that gives the creator of an original work,
or another right holder, the exclusive and legally secured right to copy, distribute,
adapt, display, and perform a creative work, usually for a limited time

- One goal of the Uruguay Round of the GATT negations was to reach some agreement
regarding intellectual property rights.
- The result of this round was the Trade Related Aspects of Intellectual Rights (TRIPS)
agreement, which requires some minimum level of IPR (intellectual Property rights)
enforcement for all member of WTO (World Trade Organization).

- Non-rival knowledge is the knowledge one firm uses can also be used by other firms

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 - Rival knowledge the knowledge or resources used by one firm cannot be used by
another one.

6. Three Perspectives on Intellectual Property Rights

6.1. Liberalism - The Liberal Perspective of IPR says that the international protection of IPRs is
essential if the world market economy is to enjoy the extraordinary benefits of rapid
technology growth.
- This perspective adds that the winners in this process will be consumers and the
world overall, and the only real losers are the firms that won’t be able to profit from
the copying of the creative, innovative ideas.

6.2. Mercantilism - Mercantilists see knowledge as being a source of national wealth and power.
Production is the true measure of a nation’s wealth and power. Nations must develop
and then closely guard their own technology, and technology controlled by other
nations must be acquired.
- The protection of IPRs for domestic firms is clearly appropriate in order to foster
domestic technological innovation. Equal protection of foreign technology is unlikely
to be in the national interest.
- Protect only your national firms domestically and internationally.
- List and Hamilton argue that just like the free trade benefits mostly developed
countries in expense of developing countries, the protection of IPRs benefits those
nations with the most advanced technological capabilities at the expense of the less
technologically developed nations.
- In this aspect the mercantilist and structuralist thought is similar.

6.3. Structuralism - The structuralists contend that IPRs increase the dependency theory of the
periphery on the core.
- IPRs are just tools of dependency. So the core nations or the developed countries
make use of the semi‐peripheral or peripheral countries which are developing or
third world countries for their own benefits.

7. North – South - This section is basically about the two views of the IPRs, to promote even more the
Conflicts Over protection of IPRs or let it loosen up for a little so that developing countries have
Intellectual higher rates of development.
Property Rights - It relates to things that we have discussed in class, how the developed countries
emphasis the protection of IPRs heavily, where is other countries don’t because they
see it as means of controlling them.
- The north all the time refers to the developed countries, so if there will be any
question with like North Commission or South commission, know that north is
developed countries and south if developing countries.
- Jeffrey Sachs, Harvard University, argues how today’s world is less divided by
ideology than by technology. Many regions particularly the poorest tropical
countries are technologically excluded regions.
- Sachs recommends a fundamental change in World Bank policies: a move away
from a country-based model entailing conditionality provisions to a broader focus on
the creation and dissemination of knowledge for development.

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 CHAP 9. GLOBAL SECURITY STRUCTURE
Bipolar balance of - Bipolar balance of power is a security arrangement under which US and Russia (the
power two superpowers of that time‐ 1940s & 1950s) organized international political,
military, and economic alliances in opposition to each other. So, some countries
made agreements with Russia and others with the US.

Nuclear weapons - Nuclear weapons were the more dangerous and threatening in this fight between
superpowers and it was mainly a zero-sum game, meaning that if one got stronger
the other was weaker.
- Even though Russia and US were so strong, the defeats of US in Vietnam and Russia
in Afghanistan showed that weak nations could present a threat to the security of
stronger nations, or at least weaken them.

weak nations - Even though Russia and US were so strong, the defeats of US in Vietnam and Russia
=threats in Afghanistan showed that weak nations could present a threat to the security of
stronger nations, or at least weaken them.

Globalization - 1990s was the decade of globalization which emphasized the economic growth,
wealth and power based on spread of capitalism and in the meantime more security.
This proved to be wrong in 9/11.
- Geopolitics emphasizes in protecting national boundaries.

1. Security - Defining security is a highly political matter

+ The classical (realist) definition, argues that a nation’s security is determined by
its ability to defend itself against threats.
+ Liberal understanding of ‘international’ security argues that statesmen must try
to see problems from the point of view of other nations and diplomacy and must
seek to make all nations equally secure. This contrasts with the views of some
realists that security is a zero-sum game, that a nation is secure to the extent that
others are not.
+ Critical writers, on the other hand, define security very differently. They argue
that security should be holistic and not focused primarily on the state or military
conflict.
- Security is a form of power, a ‘political technology’ that operates on individuals and
populations at the same time. It thus must be ‘deconstructed’ and placed under
suspicion.

1.1. Realist - The realist paradigm focuses upon national security.

approaches - Realist approaches privilege the state as the object of security and see threats
primarily emerging from the military and economic competition between states.
+ They emphasise what they call the ‘self-help’ capacities of states in developing
strong military forces and strategic alliances with other states.
+ They are skeptical of the value of international law or ‘collective security’,
although they do occasionally endorse the creation of coalitions of to punish or
discipline a state that has acted in ways detrimental to their national interests or
security.
+ They regard war as a perennial tendency in human nature and argue that it
cannot be abolished or controlled through law or moral suasion.
+ Instead, they believe that the fear of unacceptable punishment (the core idea of
‘deterrence’), or prudence in the face of unacceptable costs or a chaotic result,
will restrain statesmen from acting aggressively.
- On the use of force, realists have divided into two groups.
+ A more hawkish group, associated with strategic studies endorses violence as a
tool of statecraft and is more concerned with technical issues of weapons
systems, military preparedness, and military tactics and strategy.

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 + A second group argues that the use of force should always be a last resort and
often has chaotic and costly effects that can’t be anticipated.

1.2. Liberal - Liberals argue that it is inadequate for security to be based on the power balancing
approaches and deterrence calculations of individual states, believing that the two world wars
and the dangers of nuclear holocaust require the development of international rules
and cooperative institutions.
- This attitude has influenced the development of an important body of international
law and a number of global and regional institutions relating to security.
- The most important of these are the UN and its Charter, which outlaws armed
aggression and will only authorize the use of force in defence against attack with the
concurrence of the fifteen-member Security Council.
- Key treaties, which have moral force of international law, include Non-Proliferation
of Nuclear Weapons (NPT), the Chemical Weapons Convention, the Comprehensive
(Nuclear) Test Ban Treaty, and the Ottawa Convention banning land mines.
- Not only does the UN seek to control when states go to war, it also seeks to control
how states may conduct wars through the Geneva Conventions regulating war.
These operate against the background of a long list of other conventions protecting
fundamental freedoms and human rights.
- Liberals thus define their thinking and policy around three key concepts:
a) Collective security generally refers to efforts to build rules and laws at the
international level, to create regional or global decision-making bodies and
institutions, and to act in concert to enforce those rules.
b) International security must rest on a commitment to joint survival rather than
on a threat of mutual destruction
c) Cooperative security is an idea promoted by former Australian foreign minister
Gareth Evans in the context of the formation of the ARF, one that he claimed could
fold collective, common and comprehensive security into a conceptual whole.

2. The Multilayered - The top layer made up of world’s remaining superpowers lie the US, Great Britain,
Security Structure France, Russia and some strong developing countries like Brazil, Indonesia, and
China (also known as newly industrialized countries (NICs).
- The second tier (layer) made up of international organizations (IOs) that usually
reflect the interests of minor –state powers as well as serving the interests of their
creators, major powers. Examples of IOs are UN Security Council and NATO. This
category includes NGOs as well.
- The third tier includes the poor developing countries that are weak and lack hard
and soft power to protect their territory and people.

2.1. The Top Layer It’s up to the state to grant security and as such it should be the primary concern of each
government.
There are three options to best distribute the power structure: unilateralism,
multilateralism, and isolationism.

a. Unilateralism Unilateralism is the idea that only one superpower (i.e. US) should have the opportunity
to act as a liberal (benevolent) hegemonic power and impose a set of rules and
regulations for peace and security on other nations.
Now the US is entitled for the sake of global stability to promote values of freedom,
democracy, and individual rights.
A unilateralist view is what Bush did with Iraq. After 9/11 the Bush admin thought that
they were the ones that had to do something to fight terrorism not only for the US but
for the whole world.
They feared weapons of mass destruction (WMD) which include nuclear, biological, and
chemical weapons. But the invasion of Iraq by US and Britain was a complete failure as
WMDs were not found.

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 Rogue states- states that did not adhere to the norms of international system
National Missile Defense (NMD) was a defensive antiballistic missile program that hoped
to destroy incoming ballistic missiles before they reach their targets.
Antiballistic Missile (ABM) Treaty outlawed the development of space based missile
defense system. But Bush withdrew from it.
Because of Iraq invasion, many consider that US was put on an arrogant position of
deciding to broadly of what constitutes a military threat and as such, other means like
multilateralism and even isolationism are better means.

b. Multilateralism - Multilateralism is the idea that US should have an alliance with other major power(s)
to form a multipolar (more than two) balance of power configuration.
- This option also suggests the idea of using soft-power as a more intimately and a
surer long-lasting road to security.
- In a global world, hard power no longer assures security.
- While we live in a technologically advanced world, we are more vulnerable to threat.
- Communication systems and other technological inventions that we depend on can
easily be damaged.
- Also, while trying to come up with inventions terrorists can still attack with
something low-tech
- Some consider that there’s even not much risk but all these measures are taken to
develop the weapon industry. But even though there are alternatives to how it could
be managed, there are no real potential two countries that could share this
responsibility.

c. Isolationism - Isolationism basically encourages that each country looks after itself and use force
only if directly attacked.
- This ideology says that unless US’s core national interests are at stake, they don’ have
the right to intervene.
- According to isolationists, US has proven to be bad at conflict resolution, especially
taking into account that Afghanistan and Iraq people don’t accept liberal values and
principles but only have hate towards each other and other nations.

2.2. The Second - Includes NATO, UN peacekeeping and International Criminal Court (ICC) and shows
Layer ways how institutions and both major and minor power states manage security
issues.

a. The UN - The UN: After the Vietnam War superpowers looked at the UN to establish number
of treaties, conventions, and protocols to potentially solve the problem of nuclear
powers and other arms race.
- The Non- Proliferation Treaty (NPT) of 1968 obliged states with nuclear weapons not
to transfer them to other states, and non nuclear states not to receive nuclear
weapons or devices from other states. It’s been signed by 180 states and it was quite
successful in limiting the spread of nuclear weapons in developing states
- Biological and Toxic Weapons Convention (BWC) of 1972 was signed by 100 nations
and it restricts research on biological weapons to defensive measures, but makes no
provision for inspection because biological weapons are easy to hide.
- The Chemical Weapons Convention (CWC) of 1992 was signed by 157 countries that
pledged to eliminate al chemical weapons by 2007 and never develop, produce, or
use them again, The Missile Technology Control Regime (MTCR) prohibits the export
of missiles and related technology.
- Still rogue states don’t comply with these treaties, and as such can easily buy
weapons through different means. Also, less developed countries (LDC) make up 2/3
of all arms sales, half of which go to Middle East, where oil export revenues help the
purchase of arms.

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b. NATO and UN - NATO has 31 members. One of the first roles of NATO was in Kosova. Air strikes were
Peacekeeping authorized in October 1998, but began in March 1999 until June, when Serbia agreed
to withdraw its troops. However, NATO in early stages did not really have clear
military strategies and political objectives.
- Still there are many questions with regard to NATO. Who should pay how much,
what strategies should it adopt to deal with civil wars, and more? UN Peacekeeping
efforts use the periodic use of member state troops to help settle disputes and
resolve conflicts.
- It was initially formed as a mechanism that would deal with aggression and conflict
by not directly involving superpowers or other permanent members of the Security
Council.
- It is supposed to be neutral and maintain order in states that request them. It has
been present in many countries but considered to have failed in conflicts like
Rwanda, Somalia and some Balkan countries

c. Human Rights - The authority to manage a variety of human rights issues dealing with “war crimes”
and the ICC and “crimes against humanity” was transferred to the UN. It built two international
war crime tribunals to deal with the crimes done in the Balkans and Rwanda. For
some time, it didn’t work but with the trial of Milosevic and Jean Kambanda
(Rwanda) it showed that it had some influence.

d. International - By 2000, ICC was signed by 138 countries to hear cases of genocide, war crimes, and
Criminal Court crimes against humanity from anywhere in the world as of July 1, 2002.
- Clinton signed it, but Bush opposed it not wanting Americans to be trailed under
another court other than American one.

2.3. The Third Layer - This layer includes countries that are weak to deal with internal or external threats
to their security. Many of them are labeled as “failed states” because of their
domestic violence and economic underdevelopment. Also, many depend on UN
peacekeeping and NGOs in order to function.
- Security and development – security problems either delay or prevent economic
development by wasting resources. For this reason, sometimes it’s hard to help some
countries because of so many economic issues. Also, economic problems lead to
future social unrest, especially is Mid-East where unemployed youth can easily
become a part of extremist clans. Poverty and underdevelopment lead to tensions
between religious or ethnic groups that can end up in human rights violations and
genocide.
- Structuralists consider the attempt to “help” poor countries as a way to exploit them
and extend imperialism.
- One increasing trend is the growing importance of NGOs like the Red Cross, Amnesty
International, Greenpeace and others. One of the first successes of NGOs was the
Campaign to Ban Land Mines. But NGOs benefit by the so called CNN Effect which
is using media to show people how some countries suffer and then influence their
perceptions either by getting them to contribute or other ways.

The Iraq War: Why The Systematic Level- the way Iraq was invaded…story
The Quagmire? - Bush admin decided to invade Iraq showing evidence that Saddam was building
WMD. Anticipating that it would find them and win, the whole story ended in failure.
There is even some evidence that Saddam got them to believe this knowing that
there was no chance on winning a guerrilla war with the US. This was US lost as they
faced insurgent groups (rebels). It went to such an extreme that US started to violate
the liberal freedoms it tried to promote by using rendition (the act of transferring
suspects to places where torture is allowed like Egypt).
- Also, US did not take into account the post war planning (providing medicine, water,
and food). To top up this failure, critiques think that the US should distinguish

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 between PREEMPTION (initiating a conflict because it appears that an enemy is
about to strike, but Saddam wasn’t going to) and PREVENTIVE WAR (not an reaction
to an immediate threat, rather it is based on fear of long term measures and add up
to a major threat in the long term).

The Subsystematic Level- the policies related to Iraq invasion

- Lack of victory undermined Bush credibility and domestic support for war. Bush
provided the Congress with “credible” evidence that Iraq is developing WMDs and
then the Congress authorized the intervention.
- After the failure, Democrats and many Republicans felt they were lied to and wanted
the withdrawal of troops.

The Actor Level- the role Bush gave to himself

- The president played the major in the entire Iraq story. Bush believing that it was
God’s message to him to do this mission carried it out the way he did!!More
importantly, going against the values US goes by (freedoms, democracy and others)
questioned whether US could lead antiterrorism campaigns and act unilaterally.

REVISION
1. Define and outline the major features of globalization. Explain the connection between economic liberal
ideas and globalization.
2. Based on what you have learned so far and from reading newspapers, outline a few things you know about
the connection between globalization, the financial crisis, and capitalism. Do you agree with those who
suggest that the financial crisis raises serious concerns about the viability of capitalism? Explain.
3. Explain how the Corn Laws debate in nineteenth century Britain illustrates the conflict between mercantilist
and economic liberal views of international trade. Which side of the debate do you favor? Explain.
4. Ronald Reagan and Margaret Thatcher are often cited for their support of neoliberalism. Summarize their
policies and discuss how they differ from those of their economic liberal predecessors.
5. Why there is the re-emergence of Keynesian thought among heterodox interventionist liberals (HILs) in the
recent financial crisis?
6. How much is economic globalization a threat to nation-states? Make a brief list of the positive and negative
potential effects of a more integrated global economic system, and explain the basis for your opinion.
7. If the U.S. dollar depreciates dramatically relative to the Chinese yuan, what effect would this likely have on
consumers and businesses in each country? When is a falling dollar good or bad for the United States?
Explain.
8. How have globalization and economic liberal ideas shaped developments in the monetary and finance
structure? Cite specific examples.
9. Compare and contrast some features of the Great Depression with those of the global financial crisis today.
If Keynes were alive, what do you suppose he would propose the state do about the current crisis?
10. Summarize the four main contributions of Marxism to contemporary structuralism.
11. Outline the essential characteristics or features of neo-imperialism, dependency theory, and the modern
world system approach.
12. Outline the key elements of the structuralist explanation of the current financial crisis.
13. Explain the role of the IMF in helping to solve balance-of-payments crises. Do you feel the IMF could do
more? Why? Why not?
14. If you were to write up a brief outline of how to solve current crises, what measures would you emphasize?
Explain.
15. Discuss several ways in which economic developments in the last twenty years have contributed to a
weakening of U.S. military and economic power.
16. Outline some of the security threats and issues that IOs and NGOs deal with. Discuss some of the reasons
why they do not have more success solving these sorts of problems. What would it take for them to be more
successful?

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