GLOBAL POLITICAL ECONOMY



GLOBAL POLITICAL ECONOMY

(ECO 374)

SPRING SEMESTER 2009

PROFESSOR: JERRY FOX, PH.D

Global Political Economy

Guidelines for writing assignments

Guidelines for Short Papers

1. Select an article from a newspaper, journal or news website relating to the assigned global political economy topic.

2. Using a word processor, type a short (one page) analysis of the article. Relate the article to the politico-economic perspective that is assigned (e.g., neomercantilism, economic liberalism, structuralism).

3. Stable the article or a copy of the article to the back of your paper.

4. Submit the materials on time.

Guidelines for the Term Paper

Format

1. Double-spaced, 12 point font

2. 1 inch margins—top, bottom and sides

3. Subheadings (e.g., introduction, conclusion, main subtopics)

4. Bibliography—five or more references

5. Footnotes or endnotes: reference all statistics, quotes and key ideas

6. Tables and graphs are useful

7. Normally 7 to 10 pages in length, excluding bibliography, endnotes, tables, graphs.

8. Submit on time.

Subject Matter

1. Choose a topic from chapters 11-20 of the textbook.

2. Select 1, 2 or 3 of the end-of-chapter questions.

3. Answer the research questions thoroughly, using outside sources in addition to the textbook. Give examples and to elaborate on the key concepts.

4. Use critical thinking.

5. Submit the topic to the professor for approval on the assigned date.

You may submit a rough draft of your term paper prior to the final paper due date, so as to receive feedback from the professor regarding possible improvements for your final paper.

Introductory Concepts

Viewpoints for analyzing world events

1. National Viewpoint

2. Regional Viewpoint

3. International Viewpoint

4. Global Viewpoint

Definition of the Global Political Economy: Intersection of the following subjects

1. International Relations

2. Political Science

3. Economics

4. Economics and Politics simultaneously affect each other (Political Economy)

Four Structures in the Global Political Economy

(Economic Security Versus Military Security)

1. Security Structure (Economic and Military)

2. Production Structure—trade, GDP, DCs, LDCs, NICs

3. Finance Structure—money flows, exchange rates, investment, international debt

4. Knowledge Structure—technology, science, information; impact on economic and military security

Three Politico-Economic Ideologies

1. Neomercantilism—national self-interest

2. Economic Liberalism—market forces perspective, democracy

3. Structuralism—inequities in the global structure, Marxism, dependency theory

Neomercantilism

A. Classical Mercantilism and Neomercantilism—involvement of the government into international economic and political matters (e.g., trade, investment, money flows, technology transfer, foreign aid, military policy, the activities of multinational corporations). A win-lose proposition or zero-sum game. One nation gains from a foreign policy, while the partner country becomes worse off. If all states practice neomercantilist policies, then all countries become worse off (lose-lose outcome.

The relation between economic neomercantilism versus political realism.

B. Characteristics of Classical Mercantilism:

1. Prior to the industrial revolution

2. Feudal monarchies

3. Agriculture-based economies, gold standard

C. Objectives of Mercantilism—gold, silver, wealth and treasure of the monarchy through trade, exploration, conquest, war, royal intermarriages, taxation. The power of a kingdom/empire is partly measured in terms of the king’s treasure. Gold and silver were used to mint coins in the feudal monetary system, and to pay for war and construction.

1. Achieve trade surpluses to increase the gold flow to the king

2. Military conquest to increase the treasure of the king (malevolent mercantilism)

3. Colonialization/imperialism of the Americas, Africa and Asia to acquire new gold

4. Mining activities to acquire gold and silver

5. Role of land ownership, serfs, and the merchant class

D. Transition from Mercantilism to Neomercantilism (New Mercantilism)

1. Industrial Revolution—technological shift from agriculture to manufacturing

2. Freedom movements—religious, political, economic

3. Shift from gold standard to fiat money & modern banking/finance

E. Characteristics of Neomercantilism:

1. After the industrial revolution

2. Democracy and capitalism

3. Manufacture-based economies; more recent shifts to information and technology

4. Nation-states, MNCS, international organizations and treaties

5. Win-lose/zero-sum

F. Objective of Neomercantilism—increase the income and wealth of the nation (society). The strength of a nation is measured in terms of employment, national income, GDP, economic growth, etc. Fiat paper currency and bank deposits are primarily used in the modern monetary system. Trade surpluses are used as a means to increase national employment and income.

G. Types of neomercantilism: malevolent neomercantilism, trade war, export-led growth, import-substitution, defensive, offensive, countervailing duties, nationalism, protectionism, isolationism.

H. Twentieth/Twentiy-First Century Neomercantilism: three time periods

1. Relationship between WWI, Great Depression and WWII (Trade neomercantilism was one factor associated with the Great Depression, which created political instability that contributed to WWII). Trade War of the 1930s (currency devaluations, tariffs, quotas)

2. Tolerance of neomercantilism during the Cold War

3. Post-Cold War neomercantilist tensions among developed countries

Types of neomercantilism:

A. Malevolent neomercantilism: use or misuse of war based on economic objectives or motivations (e.g., war for control over land, natural resources, oil, wealth)

B. Trade war: escalating trade barriers between countries leading to a lose-lose outcome; total volume of international trade shrinks.

C. Export-led growth: government subsidies to promote exportations, especially to obtain trade surpluses.

D. Import-substitution: tarrifs, quotas, NTBs designed to reduce imports to protect import-competing industries and jobs

E. Defensive trade neomercantilism: retaliation against unfair trade

F. Ofensive trade neomercantilism: unfair trade; aggressive trade policies designed to achieve trade surpluses

G. Countervailing duties: retaliatory import tariffs in response to unfair trade

H. Unfair trade: noncompliance with trade treaties

I. Fair trade: compliance with trade treaties

J. Free trade: absence of trade barriers

K. Dumping: exporting products at prices below average costs of production

L. Nationalism: similar to neomercantilism; emphasis upon political dimension

M. Protectionism: similar to neomercantilism: emphasis upon economic dimension.

N. Isolationism: foreign policies that largely withdraw from international relations

Economic Liberalism: Laissez-Faire (Free Market Ideology)

(Also Political Liberalism—democracy)

1. Economic Philosophers and their Contributions to Economic Liberalism

A. Classical Economic Liberalists

i) Francois Quesnay (1694-1774)—French Physiocrat, Laissez Faire, Say’s Law

ii) Adam Smith (1723-1790)—Invisible Hand, Wealth of Nations(1776), 3 Functions of Government in the Economy (legal framework, print money, national defense), Absolute Advantage, Father of Modern Economics.

iii) David Ricardo (1772-1823)—Corn Laws, Comparative Advantage

(based on resource abundance)

B. Modern Variations of Economic Liberalism

i) John Stewart Mill (1806-1873)—Microeconomic Failures (e.g., education, poverty, government programs)

ii) John Maynard Keynes (1883-1946)—Macroeconomic Failures (e.g., unemployment, unstable business cycle, macroeconomic policies--fiscal and monetary)

2. Hegemony and the hegemonic cycle (from the perspectives of economic liberalism, neomercantilism and structuralism); Is the US a selfish or unselfish hegemon?

3. American Political Liberalism versus Economic Liberalism; American Political Conservatism, Democratic Socialism

4. Invisible Hand, Visible Hand, and the Invisible Foot

5. History and Characteristics of International Trade from the Perspective of Economic Liberalism

a. Comparative Advantage versus Competitive Advantage

b. Corn Laws

c. Industrial Revolution and capitalism

d. The shortcomings of capitalism

e. Post-WWII economic liberalism

f. Relationship between economic capitalism and political democracy

g. Tension between neomercantilism and free markets

Politico-Economic Ideology of Structuralism

1. History of Karl Marx (1818-1883)

2. Economic Marx—emphasis upon market failures

3. Political Marx—revolution as a means to replace capitalism with socialism

4. Economic Historical Evolution according to Marx

a. Primitive communism

b. Slavery

c. Feudalism

d. Capitalism

e. Socialism

f. Communism

5. Three Laws of Capitalism according to Marx

a. Law of the falling profit rate

b. Law of disproportionality

c. Law of concentration

6. Fourth Law of capitalism according to Lenin—Law of capitalist imperialism

7. WWI was an imperialist war according to Lenin

8. Structuralism is influential among LDCs

9. International institutions that favor the DCs? (UN, NAFTA, EU, IMF, IBRD)

10. Modern Structuralism versus Classical Marxism

11. Modern World Systems Theory (industrial core, semi-periphery, agricultural periphery)

12. Dependence, Independence, Interdependence

13. Dependency Theory—LDC vulnerability to DC policies, activities and generosity

14. Three eras of dependency

a. Colonial dependence—18th and 19th centuries

b. Financial dependence—19th and 20th centuries

c. MNC dependence—post-WWII period

15. Raul Prebisch View

16. UNCTAD

17. Hegemony from the perspective of structuralism—Is the US a selfish hegemon?

18. LDCs, economic development and the Structuralist perspective

International Trade Concepts

1. Tension between liberal and neomercantilist forces (co-existence)

2. Most trade conducted by MNCs

3. NAFTA, CAFTA, FTAA, GATT, WTO, EU, ASEAN, Andean Group, OPEC, Arab Cooperation Council, APEC

4. Multiple effects of trade—beneficial and detrimental (prices, quantity, variety, jobs, income; effects upon workers, consumers, MNCs, domestic firms, domestic politics, international politics)

5. Trade Deficit

6. Independence, Interdependence, Dependence

7. Infant Industry Case for Protectionism

8. Strategic Trade Policy

9. Factors that have led to increased trade (spread economic liberalism, reduced trade barriers, relative peace among DCs, technological advance in transportation and communication)

10. Effects of NAFTA—beneficial and detrimental; trade deficit with Mexico

11. Comparative Advantage

12. Competitive Advantage

13. Kennedy Round—reductions in tariffs on non-agricultural goods

14. Tokyo Round—reductions in non-tariff barriers (e.g., quotas, dumping, subsidies, licensing, custom valuation, countervailing duties)

15. Uruguay Round—WTO, agriculture, services, intellectual property rights

16. Principles of Reciprocity and MFN

17. Omnibus Trade and Competitiveness Act of 1988—Super 301 Clause

18. Free Trade versus Fair Trade

19. Regional Trade Blocks (North America, EU, Pacific Basin)

20. Fortress Europe

21. Terms of Trade (relative prices of exports across countries)

22. UNCTAD, G-77

23. Export Earnings and Foreign Exchange for LDCs

24. Socialist Strategy for LDC development

25. Trade as a Foreign Policy Tool—sanctions, boycotts, embargoes

26. Effectiveness of Sanctions??

27. Generalized System of Preferences (GSP)

28. Ban and lifting of the ban on Vietnam

29. Three ideological perspectives regarding trade

30. OPEC—trade in oil, especially during the 1970s

31. Tax-free zones

Resolving a Balance of Payments Deficit (International Financial Crisis)

Balance of Payments—capital account (FDI, Portfolio Investment), current account (merchandise trade, trade in services); net inflow of international reserves into and from nations.

--Fixed and flexible exchange rates

Three Main Policies

A. Liquidity—temporary solution for a temporary problem

1. Spend existing international reserves; eventually reserves will be exhausted.

2. Borrow hard currencies from abroad; principal and interest must be paid back. The debt is rolled over and may become larger if the underlying causes for the balance of payments deficit are not resolved.

B. External Measures—adjustment is shifted outside the country; neomercantilist in nature.

1. Trade Protectionism—tariffs, quotas, subsidies, dumping, other barriers, quotas

(improves the current account by promoting exports and limiting imports)

2. Capital Controls—prohibit financial capital from leaving the country (improves capital account)

3. Promotion of direct investment from abroad into the home country (improves the capital account), tax holidays.

4. Exchange Rate Devaluation. (This policy improves both current and capital accounts; exports and direct investment become cheaper; imports become more expensive)

C. Internal Measures or Austerity—adjustment is borne by the country with the deficit

1. Restrictive fiscal policy—Reduce government spending, increase taxes, reduce budget deficit, privatize state-owned enterprises, reduce social programs.

(These policies raise government funds to pay for international payments such as

debt and imports)

2. Restrictive monetary policy—Reduce money supply growth, increase interest rates, reduce inflation (This policy stabilizes the financial system and attracts foreign investment)

*** Internal measures may cause a recession; but in the process the current and capital accounts may be improved ( reduced imports due to lower domestic income, increased direct investment from abroad due to higher domestic interest rates)

** Liberals favor short term liquidity and internal measures. The government should minimize its role in the economy.

** Radicals favor external measures and liquidity. The burden of adjustment should be shifted to DCs instead of LDCs.

** Neomercantilists favor external measures. The government intervenes with international economic outcomes.

** International bankers favor internal measures and external measures. The IMF and multinational banks seek to be paid back for the loans they make.

Elements of the Bretton Woods System—set up in 1944, near the end of WWII

1. Domestic Gold Standard Discontinued

2. International Gold Standard--$35 per oz. of gold

3. International Monetary Fund—determine fixed exchange rates, monitor balance of payments, provide loans to countries that experience international financial crises. (Voting power in the IMF based on economic size)

4. Fixed Exchange Rates

5. Role of the American Dollar as the international reserve currency

History of the Bretton Woods System

1. U.S. was the financial hegemon of western world

--U.S. trade surpluses due to American economic strength

--American foreign investment abroad (Marshall Plan, rebuilding of Western Europe and Japan following WWII, military aid during Cold War)

--U.S. ran balance of payments deficits due to capital account outflow

2. U.S. supplied dollars to the international economy through balance of payments deficits

--U.S. dollar remained strong due to high international demand for American dollars

3. In early 1960s, dollars abroad began to exceed gold reserves

4. Creation of SDRs

5. Western Europe (especially France) began to oppose American hegemony

6. Large U.S. Trade Deficit in 1971

7. Smithsonian Agreement

8. Collapse of Bretton Woods in 1973

9. Shift to flexible exchange rates and abandonment of the international gold standard; hedging through currency futures, forwards and options.

10. Three time periods of the modern international financial system (early success of Bretton Woods, later stresses and breakdown of Bretton Woods, Flexible exchange rate system)

Concepts relating to the International Security Structure

1. National security, international security, global security

2. Relation between strong economy, strong military and strong technology

3. Cold War and international security

4. LDCs and the Cold War

5. Arms Race/Space Race

6. Monroe Doctrine

7. Truman Doctrine

8. Domino theory

9. McCarthyism

10. Detente

11. NATO and the Warsaw Pact

12. MAD, ABM, ICBM, détente, SALT, START, Star Wars (SDI)

13. Vietnam War

14. Military inefficiency-$600 toilet seats?

15. Permanent war economy, military-industrial complex

16. Nixon Doctrine; Vietnam Syndrome

17. Technology and international security

18. Spin-offs from defense spending (e.g., airlines, email, laser, electronics)

19. Balance of power; balance of terror

20. LDCs versus DCs regarding international security

21. Bipolarity, multipolarity, bipolycentrism, polycentrism

22. Polar configuration: democracy vs. dictatorship; capitalism vs. socialism

23. Hegemonic cycle and international security

24. Economic statecraft

25. OPEC

26. Post-cold war order: Gulf War, Iraq, Afghanistan, WMDs, Rogue States, International Terrorism

27. Peace dividend following Gulf War

28. National Security and the major political parties

29. LDC problems-debt, poverty, population, hunger, disease, civil war, ethnic conflict, environment

30. Proliferation of nuclear weapons and mass-destructive weapons

31. Instant media and war coverage

32. Future of international security--bipolar, multipolar or unipolar order?

33. Community of Nations

34. US in decline

35. Role of the UN

36. International Security and the three perspectives—liberalism, structuralism, neomercantilism

37. International Security and Religious Conflicts

38. Is war obsolete as a means of resolving international disputes?

39. Hawks Versus Doves

|Three Politico-economic Perspectives Regarding Globalism |

|Ideas and Issues |Neomercantilism |Economic Liberalism |Structuralism |

|Classical View (based |Feudal Monarchies (pre-industrial |Laissez-faire, invisible hand, |Marx & Lenin--four laws of capitalism |

|on early perspective |revolution); monarchy control of economy;|comparative advantage (Adam |(falling profits, disproportionality, |

|and experience) |goal--king's control of wealth and power |Smith, Francios Quesnay, David |concentration, capitalist |

| | |Ricardo); goal--economic freedom;|imperialism); capitalism flawed; |

| | |small role of government in the |goal--business wealth |

| | |economy | |

|Modern Variations |Democratic Capitalism (post-industrial |Microeconomic failures (John |World Systems Theory, Dependency |

|(20th-21st century) |revolution); government intervention in |Stewart Mill), Macroeconomic |Theory; vulnerability and lop-sided |

| |international markets for national aims |failures (John Maynard Keynes); |power structure (Raul Prebisch) |

| |(e.g., gdp, employment, income) |government correction of market | |

| | |failures | |

|Economic interest and |State manipulation of international |Individual economic interest |Corporate economic interests |

|moral critique of |capitalism for national self interest; |creates mutually beneficial |simultaneously creates wealth and |

|capitalism |Government policies create win-lose |outcomes; capitalism generally |poverty; emphasis on gap between rich |

| |outcomes among nation-states; possible |beneficial (based on the |and poor (domestically and |

| |lose-lose outcomes (e.g., trade war) |principle of economic freedom) |internationally) |

|International Trade |Trade Barriers--tarrifs, quotas, NTBs |Free Trade, Fair Trade--trade |LDC Preferential Treatment--UNCAD, GSP|

| | |treaties (WTO, NAFTA, etc.) |(Generalized System of Preferences) |

|International Finance |Fixed Exchange Rates, External Measures |Austerity, Market Forces, |Liquidity (low interest loans and |

| |(trade barriers, capital controls, |Flexible Exchange Rates |increased foreign aid), External |

| |currency devaluation) | |Measures |

|International Security |Malevolent Neomercantilism--use of war |Use of war to promote freedom |Foreign wars by DCs against LDCs are |

| |for economic gain |(political and economic) versus |the worst form of exploitation |

| | |avoidance of foreign | |

| | |entanglements | |

|Foreign Aid |Motivated by self-interest; strings |Often ineffective; promotes |DCs should increase aid to LDCs |

| |attached |dependency; market forces | |

| | |superior to foreign aid | |

|Technology Transfer |Protect technology for national interest |Free market forces determines |Faster, cheaper technology transfer |

| | |flow of technology |from DCs to LDCs |

|Environment |National interest motivation--win/lose |Market forces with some |Harm to the environment is a |

| |outcomes (pursue economic interests, |government policies to deal with |consequence of the profit incentive of|

| |while other states pursue |externalities (cooperative |capitalism |

| |environmentalism?) |solution) | |

Global Political Economy, ECO374

Review Questions for First Midterm Exam

Instructor: Jerry Fox

Answer TWO of the following three questions. Each question is worth 50 points for a total of 100 points. Answer completely, use critical thinking, refer to current events and history, and give examples.

1. Discuss the mercantilist policies and characteristics of feudal Europe. Indicate the similarities and differences between neomercantilism and mercantilism. What forces caused mercantilism to evolve into neomercantilism? Describe the various economic effects of mercantilism and neomercantilism? How and why did excessive neomercantilist policies contribute to the occurrence of the Great Depression and World War II?

2. Describe the history and practice of neomercantilism after WWII. Discuss the influence of the U.S. and the U.N. upon post-WWII neomercantilism. Define and contrast the different kinds of neomercantilism and give examples (e.g., export-led growth, import-substitution, defensive neomercantilism, offensive neomercantilism, malevolent neomercantilism, trade war, protectionism). Discuss the concept of hegemony from the viewpoint of neomercantilism.

3. Discuss the ideology of economic liberalism. What are the main contributions of Francois Quesnay, Adam Smith, David Ricardo, John Stuart Mill and John Maynard Keynes? What are the functions of government in the economy according to economic liberals? Describe the role of the United States and the United Nations upon the spread of economic liberalism after WWII. Discuss the concept of hegemony from the viewpoint of economic liberalism.

ECO 374

Review Questions for Second Midterm

Dr. Fox

Answer two of the three questions. Each question is worth 50 points for a total of 100 points on the exam. Use critical thinking and give examples.

1. Discuss the two main accounts that form the balance of payments. Why do these two accounts tend to offset each other? Describe the relationship between the U.S. and Japanese balance of payments. Why is a large balance of payments deficit usually problematic? What policies may be utilized to resolve a balance of payments crisis? Refer to the triangle model. Discuss the significance of internal measures, liquidity and external measures. What roles do the three ideological perspectives and the IMF play in resolving a balance of payments crisis?

2. Discuss the ideology of structuralism. Describe the ideas of Marx and Lenin. What are the four laws of capitalism according to Marx and Lenin? Are those laws realistic? Explain. What is the difference between the economic Marx and the political Marx? Discuss dependency theory and the world systems view. Describe the concept of hegemony from the viewpoint of structuralism. What is the modern structuralist perspective regarding the economic development of LDCs?

3. What factors have led to increased international trade since WWII? Explain the concept of comparative advantage. What were the results of the Kennedy Round, the Tokyo Round and the Uruguay Round upon international trade? Discuss the relation between GATT and the WTO? What are the effects of regional trading blocks in the global political economy (e.g., NAFTA, EU, Pacific Basin). Has NAFTA been successful? Explain. Describe the effectiveness of trade as a foreign policy tool (.e.g., sanctions, boycotts, embargoes).

Economics 374, Global Political Economy

Review Questions for Final Exam

A. Is the US a hegemon in decline? Explain. Discuss the perspectives of structuralism, liberalism and neomercantilism as they apply to US hegemony. Give some examples to support your argument (e.g., trade, investment, security, technology). Is the theory of the hegemonic cycle relevant to world today? Explain.

B. Discuss the similarities and differences of the three ideological perspectives. Discuss the strengths and weaknesses of each of the three ideological perspectives. Which perspective is most useful for understanding and solving current global politico-economic problems? Explain.

1. What is the difference between national security and international security? Discuss the issue of American foreign policy from the perspectives of structuralism, liberalism and neomercantilism. Describe the international security structure of the Cold War. How and why has US foreign policy and the international security structure changed since WWII? Explain the difference between the hawks and the doves.

2. Discuss the issue of foreign aid from the viewpoint of DCs and LDCs. Describe the history of U.S. foreign aid since the end of WWII. What is donor fatigue? Discuss the issue of foreign aid from the perspectives of liberalism, structuralism and neomercantilism. How well does the US do in terms of foreign aid? Should US foreign aid be increased, decreased, or remain steady? Explain. Discuss the relation between the Nixon Doctrine and Donor Fatigue. How and why has US foreign aid policy changed since WWII?

3. Why and when was the Bretton Woods system created? How effective was this system? Refer to the international gold standard, the role of US dollars, fixed exchange rates, SDRs and the IMF. Discuss the influence of U.S. balance of payments deficits upon the international monetary system. Why did the Bretton Woods system collapse? How has the international monetary system changed since the end of Bretton Woods? What is the difference between the World Bank and the IMF?

4. Discuss the determinants that influence the technological capabilities of a country? Discuss the issue of technology transfer from the perspective of DCs and LDCs. Explain the concept of brain drain. Indicate the liberal view, the neomercantilist view and the radical view regarding technology transfer. What is the role of intellectual property rights in the transfer of technology? What are the main methods of technology transfer?

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