Chapter 12 National Economic Competition

Ps 130 World PoliticsMichael R. Baysdell

Saginaw Valley State University

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Theories of International Political Economy

• Economic nationalism

• Economic internationalism

• Economic structuralism

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Economic Nationalism: Economic Statecraft or

Mercantilism

• Realist approach– Alexander Hamilton– IPE is a zero-sum game– Emphasis on political goals

• Practices or Strategies– Imperialism/neoimperialism (mercantilist theory)– Economic incentives and disincentives– Protectionism and domestic economic support

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Economic Internationalism• Liberal approach– Free economic interchange, laissez-faire, capitalism– Non-zero-sum game

• Practices– Early capitalist theory (Adam Smith, The Wealth of

Nations) – “Mixed Economy” approach—modify the worst

abuses of capitalism– National competition, but cooperation is increasing– Limited role of politics in economics– Keynesian economics

• Use IGOs and national governments to regulate international economic interchange and ensure the spread of capitalism and free trade

• IMF, GATT, and other organizations to promote trade and ease inequities

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Economic Structuralism

• Marxism, neoimperialism, neocolonialism• Karl Marx, “The Communist Manifesto”

(1848): Bourgeoisie exploits proletariat.• Dependency theory: Colonialism

hampered the long-term development of LDCs

• World systems theory: Western dominated capitalist system pits CORE against PERIPHERY. Structure determines politics and structure is based on the “haves” (EDCs) exploiting the “have-nots” (LDCs)

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The World Economy:Globalization and Interdependence

• Trade

• International investment

• Monetary relations

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Trade

• General pattern of expanding trade–Merchandise trade• Primary goods• Manufactured goods

– Services trade• Includes services from insurance to

education

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Factors Promoting Expanded Trade

• Productive technology (supply)• Resource requirements (demand)• Materialism (demand)• Improved transportation (supply

and demand)• Free trade philosophy

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International Investment

• Foreign direct investment (FDI)– Stake in foreign companies or real

estate, with the aim of gaining controlling interest

• Foreign portfolio investment– Does not involve control of companies

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International Investment and Multinational Corporations

(MNCs)

• Private enterprises• Subsidiaries operating in more than one

state• Ownership of plants and/or resource

extraction in other countries• Most based in North• Immense wealth gives influence (United

Fruit, Royal Dutch Shell

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Monetary Relations

• Globalization of money– Four main banking centers: Germany, Japan, United

Kingdom, United States• Globalization of financial services• North-South patterns of money and banking

– International regulation of money dominated by North• Exchange rates—there are advantages and

disadvantages to weak currency (good for exports, but consumers lose with more expensive imports)

• Balance of payments ultimately affected by interest rates• Higher U.S. interest rates=stronger dollar=more imports

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The World Economy: Diverse Circumstances

• All economic theories recognize that the world is divided into two spheres:– North America and Europe (North)– Africa, Asia, and Central and South

America (South)– But, there are exceptions–divisions are

based more on economic and political factors than on geographic location

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Problems with Classifications

• Not a clear dichotomy– Newly industrializing countries (NICs)– Countries in transition (CITs)

– Inaccurate statistics–difficulty of measuring and reporting

– Questionable relevance of data (GNP vs. GNP-PPP)

• “Poor” is a relative term— “Poor” in EDCs much better off than “poor” in LDCs.

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North-South Economic Patterns

• Trade differences– Dominated by North– LDCs dependent on EDCs for export

earnings– LDCs rely on primary products

• Investment differences

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North-South Societal Differences

• Disparities– LLDCs (least developed countries)

• Lower life expectancy• Lower literacy rate• Poor health• Less access to food, water, and sanitation

services

– Declining conditions in some LLDCs• Vicious circle of extreme poverty and

deprivation

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Evaluating the North-South Gap

• Mixed data on development• Uneven patterns of development– Disparity among countries– Disparity within countries– Negative by-products of development• Explosive population growth• Rapid urbanization

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National Economic Power

• Financial position– Involves net trade, deficit spending, foreign

debts, and so on• Natural resources– Possession or lack of energy, mineral, or other

natural resources influences levels of self-sufficiency, trade, or dependency

• Industrial output– Industry is highly concentrated in a few countries

• Agricultural output– Power of food production (self-sufficiency)

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North-North Economic Competition

• Changes in North’s economic climate– Slowed growth rate• More competition from NICs of the South and

between regional trading blocks of nations

– Shifts in labor force• Development of high technology and e-

commerce means fewer workers and increases in productivity• Exporting the service sector of economies• Downsizing and outsourcing

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North-North Economic Competition

• Changes in North’s political climate– Shifting post–Cold War alliances– Concern over safety of Chinese products and

enormous trade deficits with China places strains on China's political relations with US and EU

– Differences between US and EU nations over Iraq and Middle East policy and development of LDCs threaten to spill over into disputes over bilateral economic and trade issues

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North-South Economic Competition

• Increased tension– LDCs are now asserting with mounting intensity their claim

that they have a right to a much greater share of the world’s economic wealth

– North has generally rejected LDC demands for economic concessions

– Some LDCs have become major exporters of manufactured goods and, to a lesser degree, services that directly compete with the EDCs’ products and services, thus undermining EDC dominance in those economic areas

– LDCs compete for resources ($2200 Tata car will be a problem, price of pork and beef last 5 years)

– Widespread piracy of North’s intellectual property by South

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The South’s Reform Agenda

• New International Economic Order (NIEO)– Trade reforms– Monetary reforms– Institutional reforms– Economic modernization– Greater labor migration– Elimination of economic coercion– Economic aid– Debt relief and cancellation– Control of human and natural resources

• North’s response: limited, barriers to development are internal, not our fault

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Applied Economic Nationalism

• Using economic means to achieve economic ends– Trade and investment barriers• Quotas, tariffs, domestic content

regulations, labor laws, and health and safety regulations

– Trade and investment supports• Agricultural & industrial subsidies, price

supports, and loans to domestic producers

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Trade and Investment Barriers

• Tariffs• Nontariff barriers– Quotas– Pricing limits– Health and safety standards (S. Korea “Mad

Cow”)– Administrative requirements– Japanese culture (segregating foreign products)

• Monetary barriers• Investment barriers

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Trade and Investment Supports

• Ways in which governments intervene in free trade to gain an unfair advantage in the international marketplace:– Providing domestic subsidies– Encouraging dumping products onto

foreign markets– Forming cartels

• All violate international trade agreements

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Using Economic Means to Achieve Noneconomic Political

Ends

• National security restrictions

• Economic incentives

• Economic sanctions

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History of Sanctions

• Date back to the city-states of Athens and the use of trade embargoes

• Use of economic instruments to promote policy is ancient

• Increased use of sanctions in 20th century

• Used by both international organizations and individual countries

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Effectiveness of Economic Sanctions

• Limited success rate, but they remain a regularly used tool

• When do they accomplish their goals?– Goal is modest– Target is politically unstable and weak– Sender and target are friendly and trade with

each other– Imposed quickly and decisively– Sender avoids high cost to itself– Effectively enforced with minimal evasion or

cheating

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Drawbacks of Sanctions

• There may be unintended victims• Country imposing sanctions can be hurt• They may be used by EDCs to maintain

dominance over LDCs• They can harm relations with countries not

supporting sanctions• They can harm those whom they seek to

assist

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The Future of Economic Nationalist Policy

• Capitalism has triumphed over other competing economic models, particularly Marxism and socialism

• Greater economic interdependence• Yet, powerful arguments against

and forces opposed to globalization still exist

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In Conclusion…

Economic nationalism still remains the dominant approach to global economic affairs even though the trend toward

international economic liberalization has grown in importance.

Chapter ObjectivesAfter reading this chapter, students should be able to:• 1. Explain why politics and economics are intertwined as pects of

international relations.• 2. Analyze international political economy (IPE).• 3. Discuss the economic nationalist doctrine.• 4. Discuss the economic internationalist approaches to IPE. • 5. Discuss the economic structuralist approaches to IPE.• 6. Discuss how trade, international investment, and monetary relations

affect the world economy.• 7. Analyze the economic patterns of the North and the South.• 8. Analyze global economic competition in terms of the North/South divide.•  9. Understand how economic means can be used to achieve both

economic and noneconomic ends.•  10. Analyze the future of economic nationalist policy.

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