International Relations Theory Nemzetközi Politikaelmélet Nemzetközi politikai gazdaságtan.

International Relations Theory Nemzetközi Politikaelmélet Nemzetközi politikai gazdaságtan. György László egyetemi tanársegéd BME GTK, Pénzügyek Tanszék, Gazdaságpolitika és Gazdaságtörténet Szakcsoport

What is IPE? Politics Economics How to approach this relationship? (1) Mercantilism (realism) - (2) Economic liberalism - (3) Marxism Free market?

What is IPE? The examination of the complex interplay in the international context between politics and economics, between states and markets MONEY A modern market is based on political rules (if not, it would be a Mafia market based on threats, bribes and force). Wealth and poverty: who gets what in the international system? Some scholars even argue that IPE is the more comprehensive discipline and that IR should consequently be seen as a subfield of IPE! (Alternatively both IR and IPE could be subfields of International Studies) Imperialism of economics

Historical Developments Until the 1970s international economics and international politics were a case of mutual neglect Charles de Gaulle: economics is low politics 70s: crisis of Bretton Woods US economic difficulties due to the Vietnam War Gold-convertibility of $ had to be abandoned Political measures were taken that changed the rules of the game for the economic marketplace Oils crisis: sense of lost invulnerability Why the change of attitude? Decolonization New International Economic Order The end of Cold War and the aim from East- European countries to join the Western political and economic systems

Mercantilism Intimately connected to the establishment of the modern, sovereign state during sixteenth, seventeenth centuries World-view of political elites that were at the forefront of building the modern state Economic activity is and should be subordinated to the primary goal of building a strong state Economics is a tool of politics International economy is an arena of conflict between opposing national interests (rather than an arena of cooperation and mutual gain Economic competition between states is a zero sum game Material wealth accumulated by one state can be served as a basis for military-political power (positive feedback loop) Defensive mercantilism vs offensive mercantilism (imperialism)

Mercantilism 16th century, Spain: supply of gold and silver bullion 17th century, the Netherlands: trade and the creation of the largest possible trade surplus Ever since Britain obtain a leading role: industrialize Mercantilism is popular to countries who lagged behind Britain: catching-up could not be left to market forces; calls for political measures to protect and develop local industry

Mercantilist Thinkers Alexander Hamilton: one of the founding fathers of the USA Calls for protectionist measures USA was probably the most protectionist developing country Friedrich List: The theory of productive power: the ability to produce is more important than the result of producing The prosperity of the state depends not primarily on its store of wealth, but on the extent to which it has developed its powers of production Recent mercantilist thinking focuses on the success of states in East Asia: Japan, South Korea, Taiwan, Singapore, Malaysia E.g. Japanese government 1. Singled out strategic industries 2. Protected them form outside competition 3. Supported their development even by regulating competition between firms

Mercantilist View (Fallows, 1994) Anglo-American theory: economics is by nature a positive sum game Asian history: economic competition is a form of war in which some win others lose Strong wins, gives orders, has independence and control Make difference between us and them Different relationships: Koreans, Canadians, Britons, Chinese or Japanese

Economic Liberalism Critique of the comprehensive political control and regulation of economic affairs Reject theories and policies which subordinate economics to politics Adam Smith: markets tend to expand spontaneously for the satisfaction of human needs (which has its own mechanisms or laws if it is left to itself. e.g.: law of comparative advantage - specialization, efficiency, productivity) Core ideas: 1. Rational individual actor (central) 2. Belief in progress 3. Assumption of mutual gain from free exchange (positive sum game) 4. The key notion that economic marketplace is the main source of progress

Economic Liberalism Individuals and companies would not be active in the marketplace unless it was to their benefit?

Economic Liberalism Laissez-faire? John Stuart Mill, Keynes: risk, uncertainty, ignorance potential evils of market economy

Marxism Fundamental critique of economic liberalism Human exploitation and class inequality Zero-sum argument of mercantilism applied to classes But: economics first and state second Classes: bourgeoisie (owns the means of production) and proletariat (owns only its labour) Profit: derived from class exploitation Marx did not see the growth of capitalism as a negative or retrogressive event. Capitalism means progress for Marx! 1. Capitalism destroys previous relations of production, such as feudalism, which were even more exploitative. Capitalism is a step forward in the sense that labour is free to sell 2. Capitalism paves the way for socialist revolution where the means of production will be placed under social control

Marxism Materialist: the core activity in any society concerns the way in which human beings produce their means of existence. Forces of production (i.e. technical level of economic activity) Relations of production (i.e. the system of social ownership which determines the actual control over the productive forces) ARTISAN HANDICRAFT INDUSTRIAL MACHINERY PRIVATE (Feudalism) Capitalism PUBLIC Communism Specific mode of production

Marxism The bourgeoisie, which dominates the capitalist economy through control of the means of production, will also tend to dominate in the political sphere because economics is the basis of politics according to Marxists

The Marxist Framework of IPE 1. States are not autonomous (are driven by ruling-class interests) Wars between countries should be seen in the economic context of competition between capitalist classes of different states 2. Capitalism is expansive: never-ending search for new markets and profit History of IPE: history of capitalist expansion across the globe 1. Imperialism and colonization 2. Economic globalization led by giant transnational corporations Lenin s law of uneven development : capitalist expansion is always uneven and unequal (e.g. Britain and Germany: at the beginning of 20th century as Germany was catching up wanted a redivision of international spheres of influence, according to relative strength of the countries)

The Marxist Framework of IPE Need for detailed historical analysis: events must be analysed in their specific historical context. E.g.: Interdependence around the First World War was often armslength import export relations between independent companies Today it is frequently integrated circuits of production between subsidiaries of the same transnational company (this later is a different and closer type of cooperation with its specific consequences)

The Marxist Framework of IPE Realism Marxism Both agree: perennial competition and conflict between Abstract: existence of independent states as a condition of anarchy. No concrete specification of social forces Unhistorical: same damned things over and over again Criticize the Marxist view that it reduces the state to a simple tool of ruling classes states States are not independent: social forces (ruling classes) drive them Historical: conflict of earlier historical phases require a different explanation (historians have to find the social forces behind conflicts and competition) Conceded point: relative autonomy (safeguarding the capitalist system)

The Marxist Framework of IPE Robert Cox The concept of historical structures: the particular configuration of forces Categories of forces: material capabilities, ideas, institutions Historical structures Social forces (process of capitalist production) Forms of state (ways in which states change) World orders (current organization of international relations)

The Marxist Framework of IPE Robert Cox The task for the analyst is to find out how these relationships play out in the current phase of human history Social forces: economic globalization, meaning an internationalizing of production as well as migration movements. Driven by market forces, but new social movements (NGOs, antiglob movements) will grow with the aim of tighter control and regulation of economic globalization Integration into the global economy is unavoidable (autarchy is not a real solution) Forms of state: Non-territorial power is becoming more important for states (markets and opportunities become more important) World order: long term tendency - replacement of the current global US dominance 1. international order of conflicting power centres 2. post-hegemonic order using the current global framework for peaceful cooperation

The Marxist Framework of IPE Immanuel Wallerstein World system analysis: not necessarily the whole world; unified areas characterized by particular economic and political structures Ties economics and politics together; two basic varieties of world systems in human history: world-empires (political and economic control is concentrated) world-economies (tied together in a single division of labor, but political authority is decentralized)

Establishing the Capitalist World Economy (Wallerstein) In the long 16th century (1450-1640) International division of labour covered Europe first Within division of labour a process of specialization took place - because of two reasons in north-west Europe: Diversify its agriculture Connect it with industrial advance in textiles and shipping Capitalist world-economy is built on a hierarchy of CORE areas (complex and advanced economic activities controlled by an indigenous bourgeoisie) PERIPHERAL areas (produce primer goods) SEMI-PERIPHERAL areas (economically mixed, shock absorber) Basic mechanism is UNEQUAL EXCHANGE Accentuated by the emergence of strong state-machineries Capitalist system as such does not change, but states can move from one category to another

Establishing the Capitalist World Economy (Wallerstein) Prospect is the demise of the capitalist system: contradictions of the system are now unleashed on a world scale. Success, not failure, is the real threat to global capitalism When the possibilities for expansion are all used up, the never ending quest for more profit will lead to new crises in the world capitalist economy which sooner or later will spell its transformation

Waltz vs Wallerstein Waltz (realist) Wallerstein (structuralist) Focus on the system What happens to the countries much depends on their position in the system System as a hierarchy with strong states at the top Relative political-military power Analyzing international balance of power in the 20th century Putting politics first Economic power and capability connected to political power Analyzing historical development from the 16th century Putting economics first and politics second

IPE: Contemporary Debates 1. The relationship between politics and economics: the debate on US hegemonic stability 2. The development and underdevelopment in the Third World 3. Economic globalization and changing role for the states

Development or Underdevelopment in sub-saharan Africa PROGRESS Between 1960 and 2003 life expectancy at birth increased from 40 to 47 years In the past decade the proportion of the population with access to safe water nearly doubled - from 25% to 43% During the past two decades adult literacy more than doubled - from 27% to 55% between 1960 and 1991 the net enrollment ratio at the primary level increased from 25% to 50%, and at the secondary level from 13% to 38% Over the period 1975-2003 four countries - Botswana, Cape Verde, Lesotho and Mauritius - had an annual GDP growth rate more than 3% HEALTH EDUCATION INCOME AND POVERTY CHILDREN DEPRIVATION There is only one doctor for every 18.000 people, compared with 6.000 in the developing world as a whole and 390 in the industrial countries More than 10 million people are infected by HIV (2/3 of the world) Only about half the entrants to grade 1 finish grade 5 At the primary and secondary levels more the 80 million boys and girls are out of school ABout 170 million people (1/3 of total) do not get enough to eat During the past three decades the military to social spending ratio increased from 27% in 1960 to 43% in 1991 Over the past three decades the infant mortality rate dropped from 167 per thousand live births to 97 About 23 million children in the region are malnourished, and 16% of babies are underweight

Development and Underdevelopment in the Third World Colonial development Neomarxist issue (1950-) after decolonization and newly emerging countries became member of UN Cold War issue Modernization theory (liberal): making the long path from agrarian society towards a modern, industrial, mass-consumption society on the shortest way (Economic) Dualism Relative isolation Reservoir of labour

The Liberal Economic Development Theory Traditional society Modernization Modern society Essential modernization factors: a market economy, free of political interference take off : a growing rate of economic investment foreign direct investment

Dependency Theory (Structuralist and/or critical constructivist) Critique of liberal theory Neither Marxist, nor Soviet Rather a Socialist model which is more decentralized and democratic Attack on late capitalism Difference between underdevelopment and undevelopment 1. Underdevelopment is caused by external factors. Third World countries are dominated by foreign interests. 2. Development and underdevelopment are both results of a single process of global capitalist development 3. Underdevelopment is due to external, primarily economic forces; these forces result in crippled and distorted societal structures inside Third World countries 4. To overcome underdevelopment a delinking from external dominance is required

Mercantilism, The Middle Way Prebisch (1950) and Myrdal (1957) already argued against free trade based on comparative advantage Between autonomy and full integration Between the market and the state Finding a balance between bureaucratic vs market failures red tape problems of high cost and inefficiency are as dangerous as monopolies, externalities, provision of public goods E.g. Japan is a good example of state led modernization and economic development and that political and bureaucratic establishment is unable or unwilling to devise new strategies for viable economic development TNCs have the potential for benefiting Third World development, but only under certain conditions (e.g. cluster model in Singapore). Host government has to be strong enough to oversee TNC activity Third World countries need a fairly high political-administrative capacity

E.G. Then and now.

E.G. Then and now. Lee Kuan Yew

E.G. Then and now. Lee Kuan Yew Suharto

E.G. Then and now. Lee Kuan Yew Suharto Kádár János

E.G. Then and now. $ 625 $ 26.991 $ 54 $ 1.289 $ 457 $ 10.818 GDP per capita GDP per capita GDP per capita Singapore (43x) Indonesia (23x) Hungary (23x)

E.G. Then and now. SIngapore in the 50s Singapore today

E.G. Then and now. Indonesia today Indonesia today

Modernization and Growth as a Complex Issue Specific problems: particular historical experiences and variation in local conditions Many different voices: grass-roots, NGOs, peasant movements, political parties and governments, international institutions, international research community Mainstream view on growth and modernization vs alternative view focusing on distribution and welfare (democracy, participation, freedom and self-realization) UNDP (United Nations Development Programme): annual Human Development Report examines male-female gaps, child nutrition, health profiles, rural-urban gaps, and North-South gaps Millennium Development Goals (2000): ambitious targets to reduce poverty

Annex.

Recent Theoretical Developments in IPE Rational choice theory - imperalism of economics Methodological individualism: New institutional theory ( New Economics of Organization ) - starts with the rational and selfinterested actor Neo-Marxists: argue against the basic idea that individuals are always rational and self-seeking and that they always know what they want Cost of voting - why to vote? Altruism? Preferences created in a process of interaction with others

The Relationship Between Politics and Economics Hegemonic stability theory (Kindleberger, Gilpin): a hegemon, a dominant military and economic power is necessary for the creation and development of a liberal world market economy Why? Because world order is (with all symptoms) a public good Free-riders, underprovision, non-excludability What is needed from a hegemon? Capability (power resources) Willingness Commitment (in recession as well)

Power Resources Military power Plus control over four sets of world economic resources (Keohane) 1. Raw materials 2. Capital 3. Markets 4. Hegemon s competitive advantage in the production of goods that can command a very high value Soft power: or co-optive power. I.e. the ability to structure situation so that other nations develop preferences or define their interests in ways consistent with one s own nation (Nye, 1990) (modernization vs westernization, Huntington)

Power Resources Is the United States or the Western World still in the position of the hegemon? SOURCE OF POWER USA RUSSIA EUROPE JAPAN CHINA Tangible Basic resources Military Economic Science/technology Intangible National cohesion Universalistic culture International institutions

The West and the REST West 1920 2020 Control of world Territory 49% 24% Population 48% 10% Economy 70% 30% Industrial output 84% 24%

The story... 1950 - US hegemony dominant economic and military power. Able and willing to set up a liberal world economy. 1950s, 1960s - reconstruction of Japan and Western Europe 1970s - US hegemony in decline: decreasing economic power 1980s - debt crises (debt trap) 1970s - US looks after its own interests. The liberal world economy in crisis. + Oil money appears in the world finance system 1990s, 21st century - gobalization of the liberal world economy, Washington Consensus

Power Resources SOURCE OF POWER USA RUSSIA EUROPE JAPAN CHINA Tangible Basic resources strong strong strong medium strong Military strong medium medium weak medium Economic strong medium strong strong medium Science/technology strong weak strong strong weak Intangible National cohesion strong medium weak strong strong Universalistic culture strong medium strong medium medium International institutions strong medium strong medium medium

Summary TRUE CLAIM FALSE CLAIM Mercantilism Political regulation creates a framework for economic activity Politics is in full control of economics Marxism Economics affects and influences politics Economics determines politics Liberalism The market has an economic dynamic of its own The market is an autonomus sphere in society