Political Economy of Globalization

Political Economy of Globalization Prof Martin Rhodes This course seeks to provide an in depth understanding of globalization and its differential impact across advanced and developing countries. Globalization is an essentially contested concept, one with strong normative content. Often used lazily by the media, to avoid blame by politicians and for personal aggrandizement by public intellectuals, it must be handled with care. The current financial crisis makes matters more complex still. Our task is to develop a sophisticated understanding of globalization and of its consequences for public policy. We will focus on trade, cross border investment and capital flows, their domestic impacts and consequences for national policy autonomy. These dimensions of globalization can facilitate growth, generate wealth and create employment. But they can be costly as well as beneficial, create losers as well as winners, and arguably also diminish the control that nations have over their own destinies and economic outcomes. As we know from recent years, they can also help generate serious economic crisis. With ongoing global market liberalization, these dimensions of globalization all impact nations differently, depending on the timing, nature and duration of their insertion into the global economy, and the character of their comparative economic and institutional advantage. By the end of the course we will have a thorough appreciation of how, and with what effect, nations have globalized over several time periods the first under the Gold Standard from the mid 19 th century to the 1930s; the second under Bretton Woods from the late 1940s to the mid 1970s; and, our main focus of analysis, the period from the mid 1970s to the present day, including the most recent post 2008 financial crisis and its impact, in particular, on Europe. This course will be taught over ten two hour morning and afternoon sessions (separated by a break) between Monday 21 and Friday 25 October 2013: October 21: 11:00 1:00 and 3:00 5:00 October 22: 2013: 11:00 1:00 and 3:00 5:00 p.m. October 23: 2013: 11:00 1:00 and 3:00 5:00 p.m. October 24: 11:00 1:00 and 4:00 6:00 p.m. October 25: 11:00 1:00 and 3:00 5:00 p.m. Students will be expected to have read the articles assigned before each class. In each session I will introduce the topic for 50 minutes or so, and the rest of the session, after a short break, will be in the form of a seminar. For the seminar part of the session, one or more students may be asked to prepare a short presentation. Those readings marked ** are required reading but do more if you can. Other readings on the list will be useful for your final essay. 20% of your grade will be based on class participation; 80% will be based on your final essay paper, which will be due after the end of your classes, date still to be arranged.

2 In addition to the articles listed, there are two core books for the course which you should get copies of: Martin Wolf, Fixing Global Finance, paperback, Johns Hopkins University Press, 2010. Barry Eichengreen, Globalizing Capital: A History of the International Monetary System, 2nd edition, paperback, Princeton University Press 2008. And please read Frieden, J. (2006), Will Global Capitalism Fail Again?, Bruegel Essay and Lecture Series, Brussels* as preliminary background before the beginning of the course. Class sessions: 1. Monday 21 October: Overview and Historical Background Session I: Globalization and State Autonomy: An Essentially Contested Subject This is an introductory and survey session, reviewing themes and material that will be studied in much greater depth in subsequent sessions. There are two critical questions that frame out subsequent discussions: The nature of state autonomy under globalization and the purported role of globalization as a force for policy convergence (Cerny argues it is disappearing fast; Freeman, Hall and Soskice, Drezner and Garrett provide alternative nuanced picture of why national policy autonomy persists). Cerny, P. G. (1995), Globalization and the Changing Logic of Collective Action, International Organization, 49, 4, pp. 595 625.** Drezner, D. W. (2001), Globalization and Policy Convergence, International Studies Review, 3, 1, pp. 53 78. Freeman, R. (2000), Single Peaked vs. Diversified Capitalism: The Relation between Economic Institutions and Outcomes, National Bureau of Economic Research, Working Paper 6775.** Garrett, G. (1998), Global Markets and National Politics: Collision Course or Virtuous Circle, International Organization, 52, 4, pp. 787 824. Hall, P. A. and D. Soskice (2001), An Introduction to Varieties of Capitalism, in P. A. Hall and D. Soskice (eds.), Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford: Oxford University Press, pp. 1 68.** Session II: Globalization in Historical Perspective This session examines the history of globalization and contrasts its two distinct waves in the 19 th and 20 th /21 st centuries. There are several issues that we need to comprehend: How and why globalization today differs from globalization a century ago (Baldwin and Martin, Bordo et al.); and the nature of globalization under the Gold Standard and the latter s demise (Eichengreen, Kindleberger).

3 Baldwin, R. E. and P. Martin (1999), Two Waves of Globalization: Superficial Similarities, Fundamental Differences, National Bureau of Economic Research Working Paper 6904.** Bordo, Michael D, B. Eichengreen and D. A. Irwin (1999), Is Globalization Today Really Different than Globalization a Hundred Years Ago?, National Bureau of Economic Research Working paper 7195. edition, Princeton University Press, ch.2 ( The Gold Standard ) and ch. 3 ( Interwar Instability ). ** Kindleberger, C. P. (1951), Group Behavior and International Trade, Journal of Political Economy, 59, 1, pp. 30 46. 2. Tuesday 22 October: International Monetary Relations and the Liberalization of Finance Session III: Dimensions of Globalization I Bretton Woods and its Demise This session looks first at the re establishment of the international capitalist system after WW2 under embedded liberalism (Ruggie; Horowitz), then seeks to explain the demise of the Bretton Woods system in the 1970s (Eichengreen ch. 4), and contrasts the nature of US postwar international hegemony with that of Great Britain in the 19 th Century (Silver and Arrighi), as a precursor to our analysis in the next session of financial liberalization and global integration from the 1980s on. edition, Princeton University Press, ch.4 ( The Bretton Woods System ).** Horowitz, S. (2004), Restarting Globalization after World War II: Structure, Coalitions and the Cold War, Comparative Political Studies, 37, 2, pp. 127 151. Ruggie, J. (1982), International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order, International Organization, 36:2, 379 415. Silver, B. J. and G. Arrighi (2003), Polany s Double Movement : The Belle Époque of British and U.S. Hegemony Compared, Politics & Society, 31, 2, pp. 325 355.** Session IV: Dimensions of Globalization II Financial Globalization and its Consequences In this session, we explore several different dimensions of financial globalization. The impact of capital mobility on stability and the exercise of power in the global economy (Eichengreen, Obstfeld); its consequences for economic management in the developed and developing countries (Goodman and Pauly, Haggard and Maxfield); and the background to the 2008 12 international financial crisis (Wolf) which we deal with in greater detail in session VII. edition, Princeton University Press, ch. 5 ( After Bretton Woods ).**

4 Goodman, J. B. and L. W. Pauly (1993), The Obsolescence of Capital Controls: Economic Management in an Age of Global Markets, World Politics, 46, 1, pp. 50 82. Haggard, S. and S. Maxfield (1996), The Political Economy of Financial Internationalization in the Developing World, International Organization, 50, 1, pp. 35 68.** Obstfeld, M. (1998), The Global Capital Market: Benefactor or Menace?, Journal of Economic Perspectives, 12, pp. 9 30. Wolf, M. (2010), ch. 2 Blessings and Perils of Liberal Finance, ch. 4 From Crises to Imbalances and ch. 5 Calm before a Storm, in M. Wolf, Fixing Global Finance, John Hopkins University Press.** 3. Wednesday 23 Octoberr: Global Trade Flows and Networks and Developing Countries Session V: Dimensions of Globalization III Trade, MNCs and Global Value Chains In this class we examine how trade, multinationals and global value chains integrate (or fragment) the global economy (Gereffi, Feenstra,) and consider the implications of trade for the insertion of developing countries into the global economy as well as for their developed country counterparts (Akyüz, Pauly and Reich, Lane). Akyüz, Y. (2008), Global Rules and Markets: Constraints over Policy Autonomy in Developing Countries, ILO Working Paper, Geneva. Feenstra, R. (1998), Integration of Trade and Disintegration of Production in the Global Economy, Journal of Economic Perspectives, 12, 4, pp. 31 50. Gereffi, G., J. Humphrey and T. Sturgeon (2005), The Governance of Global Value Chains, Review of International Political Economy 12, 1, pp. 78 104.** Lane, C. (2008), National Capitalisms and Global Production Networks: an Analysis of their Interaction in Two Global Industries, Socio Economic Review, 6, pp. 227 260.** Pauly, L. W. and S. Reich (1997), National Structures and Multinational Corporate Behaviour: Enduring Differences in the Age of Globalization, International Organization, 51, 1, pp. 1 30.** Session VI: Globalization and the Dilemmas for Developing Countries Asia, Latin America and Africa have been located in a hierarchy of development, ranging from successful through to disastrous. This session considers how these region s development strategies account for successful or unsuccessful globalization, centered on: the contrasts between the Asian and the Latin American models of import substitution industrialization (Haggard, Kohli, Narula, Schneider); problems of LDC development and the debate concerning their causes, focusing on Africa (Humphreys and Bates); and the special case of resource curse countries (Karl). Haggard, S. (1986), Newly Industrializing Countries in the International System, World Politics, 38, 2, pp. 343 370.

5 Kohli, A. (2009), Nationalist Versus Dependent Capitalist Development, Studies in Comparative International Development, 44, pp. 386 410.** Humphreys, M. and R. Bates (2005), Political Institutions and Economic Policies: Lessons from Africa, British Journal of Political Science, 35, pp. 403 428. Karl, T. (1999), The Perils of the Petro State: Reflections on the Paradox of Plenty, Journal of International Affairs, 53, 1, pp. 31 48.** Narula, R. (2002), Switching from Import Substitution to the New Economic Model in Latin America: A Case of Not Learning from Asia, LAEBA Working Paper No. 4.** Schneider, B. R. (2004), Varieties of Semi Articulated Capitalism in Latin America, Prepared for the Annual Meeting of the American Political Science Association, Chicago, January 2 5. 4. Thursday 24 October: Globalization and Welfare Session VII: Globalization, Inequality, Employment and Incomes Strong arguments have been made about the detrimental impact of globalization on inequality, both within and across nations, but there is much debate on the issue: Does trade or technology (or both) create unemployment and greater inequality in the developed and developing worlds (Brune and Garrett, Freeman, Kapstein); is there a new form of industrial relocation and outsourcing that adds a further twist to the inequality screw (Baldwin); does globalization induce a race to the bottom for the standards that govern employment? (Gitterman) Baldwin, R. (2006). Globalisation: the Great Unbundling(s), Chapter 1, in Globalisation: Challenges for Europe, Economic Council, Finnish Prime Minister s Office, Helsinki.** Brune, N. and G. Garrett (2005), The Globalization Rorschach Test: International Economic Integration, Inequality, and the Role of Government, Annual Review of Political Science, 8, pp. 399 423. Freeman, R. B. (1995), Are Your Wages Set in Beijing?, Journal of Economic Perspectives, 9, 3, pp. 15 32. Gitterman, D. P. (2002), A Race to the Bottom, a Race to the Top or the March to a Minimum Floor? Economic Integration and Labor Standards in Comparative Perspective, in UCIAS (ed.) Dynamics of Regulatory Change: How Globalization Affects National Regulatory Policies.** Kapstein, E.B. (2000), Winners and Losers in the Global Economy, International Organization, 54, 2, pp. 359 384.** Session VIII: Globalization, Taxation and Social Spending Globalization critics have focused especially on its alleged deleterious impact on welfare states. And yet there is little consensus on this issue either. We focus on the following: How vulnerable are the advanced countries welfare states to globalization pressures? (Moseley, Navarro et al.); how do developing country welfare states differ from advanced welfare states and are they more vulnerable than those of developed countries to globalization? (Esping Andersen; Rudra, Wibbels); what contribution do different political systems make to levels of inequality within nations (Schneider and Soskice)?

6 Esping Andersen. G. (1990), Three Worlds of Welfare Capitalism, Princeton University Press, ch.1, The Three Political Economies of the Welfare State, pp. 9 33.** Mosely, L. (2000), Room to Move: International Financial Markets and National Welfare States. International Organization 54: 4, pp. 737 773.** Navarro, V., J. Schmitt and J. Astudillo (2004). Is Globalization Undermining the Welfare State?, Cambridge Journal of Economics, 28, pp. 133 152. Rudra, N. (2002), Globalization and the Decline of the Welfare State in Less Developed Countries, International Organization, 56, 2, pp. 411 445. Schneider, B. R. and D. Soskice (2009), Inequality in Developed Countries and Latin America: Coordinated, Liberal and Hierarchical Systems, Economy and Society, 38, 1, pp. 17 52. Wibbels, E. (2006), Dependency Revisited: International Markets, Business Cycles and Social Spending in the Developing World, International Organization, 60, 2, pp. 433 468. ** 5. Friday 25 October: Financial Crisis and the Challenges of Global Governance Session IX: The Political Economy of Financial Crises Prior to the current western world financial crisis, the developing world was rocked by a series of financial crises from the 1980s. We focus on the following in seeking to understand these crises: What is the nature of the contemporary global financial economy (Eichengreen, Wolf); what caused the Asia and Latin American crises? (Best, Summers, Wolf); to what extent does neo liberal deregulation explain the contemporary financial crisis? (Crotty, Suárez and Kolodny) Crotty, J. (2009), Structural Causes of the Global Financial Crisis: A Critical Assessment of the New Financial Architecture, Cambridge Journal of Economics 2009, 33, pp. 563 580.** edition, Princeton University Press, ch. 5 ( A Brave New Monetary World ).** Suárez, S. and R. Kolodny (2011), Paving the Road to Too Big to Fail : Business Interests and the Politics of Financial Deregulation in the United States Politics & Society 39, 1, pp. 74 102. Summers, L. (2000), International Financial Crises: Causes, Preventions and Cures, American Economic Review, 90, pp. 1 16.** Wolf, M. (2010), ch. 3 Financial Crises in the Era of Globalization, and ch. 8 From Imbalances to the Subprime Financial Crisis in M. Wolf, Fixing Global Finance, John Hopkins University Press.** Session X: Global Governance in Question Financial crises, development problems, and the emergence of widespread contestation of the global agenda of trade and financial liberalization, have led to a questioning of the so called Washington Consensus on how best to generalize growth internationally, and a movement (albeit an incoherent one) to reform the architecture of global governance. We focus on the following: The functioning and options for reform of the IMF and the World Bank (Milner, Woods): the difference between the so

7 called Washington Consensus and the Post Washington Consensus (Rodrik); and how these relate to reform of the international financial system (Naude, Wolf, Frenkel and Rapetti). Milner, H. V. (2005), Globalization, Development and International Institutions: Normative and Positive Perspectives, Perspectives on Politics, 3, 4, pp. 833 854.** Frenkel, R. and M. Rapetti (2009), A Developing Country View of the Current Global Crisis: What Should Not Be Forgotten and What Should Be Done, Cambridge Journal of Economics, 33, pp. 685 702. Naude, W. (2011), Global Finance after the Crisis: Reform Imperatives and Vested Interests, Global Economy Journal, 11, 2, article 6. Rodrik, D. (2006), Goodbye Washington Consensus, Hello Washington Confusion?, Journal of Economic Literature, 44, 4, pp. 973 987. Woods, N. (2006), Reforming the IMF and the World Bank, ch. 7 of Woods, The Globalizers: The IMF, the World Bank and their Borrowers, Ithaca: Cornell University Press, pp. 179 213** Wolf, M. (2010), ch. 6 Toward Adjustment and Domestic Reform, and ch. 7 Toward Global Reform, in M. Wolf, Fixing Global Finance, John Hopkins University Press.**