The Politics of International Economic Relations Session 2 31 October 2006

1
The Politics of International Economic
Relations Session 231 October 2006
2
Overview

• Gilpins three perspectives
• General theoretical orientations and specific
  research programs
• IPE as an multidisciplinary field
• Economics
• Comparative Politics-Domestic Politics
• IR
• IR key developments
• The dominance of realist theories
• Liberal challenges and emergence of IPE
• Regime literature and HST
• Neo-Neo Debate
• Rationalism vs. Constructivism

3
Gilpins three perspectives

• 1987 Book Liberalism/ Marxism/ Nationalism
• Cold War Context / A realist tale
• US and major allies subordinated potential
  economic conflicts to the need to maintain
  political and security cooperation
• Emphasis on security interests and alliance
  cohesion provided the political glue that held
  the world economy together...
• Despite the growing importance of the market,
  historical experience indicated that the purpose
  of economic activities is ultimately determined
  not only by markets (...), but also (...) by
  norms, values, interests of the social and
  political systems in which economic activities
  are embedded

4
Gilpins three perspectives

• Intellectual perspectives / three ideologies
• regarding the nature and functioning of the world
  economy
• Marxism
• Liberalism
• Nationalism (Economic Nationalism)/Realism

5
Marxism

• The relevance of Marxism declined (end of
  communism and end of import-substitution of many
  developing countries), Marxism in the sense how
  to run an economy
• For Marxist communist experience in Soviet Union
  and East Europe was an embarrassment
• Marxs social theory still analytically strong
  (dynamism and contradictions of capitalism,
  analysis of crisis)
• Power and wealthy continue to prosper at the
  expense of powerless and poor (world poverty)

6
Marxism

• Central elements of historical materialism
• Economic development is the motor of society
• Legal, political and cultural institutions
  reflect and reinforce the pattern of power and
  control in the economy
• Change in economic base leads to change in the
  legal and political superstructure
• Class struggle, bourgeoisie and proletariat

7
Marxism

• World-System Theory
• Wallersteins world-system theory Core,
  semi-periphery, periphery based on
• Lenins work on imperialism
• and the Latin American Dependency School

8
Marxism

• Gramscianism
• Antonio Gramsci
• why was revolution in the West so difficult
• its hegemony that allows the moral, political
  and cultural values of the dominant group to
  become widely dispersed in the society and to be
  accepted (common sense)
• Robert Cox
• Theories (e.g. neo-realism) serve the interests
  of those who prosper and in particular the ruling
  elite
• Problem-solving vs. critical theory, see
  dominance of neo-liberalism

9
Marxism

• Critical Theory
• Frankfurt School (Horkheimer, Adorno, Habermas)
  not so relevant for IPE, yet for IOs
• Role of the media, culture industry, emancipation
• Habermas promise of communication (radical
  democracy)
• New Marxism

10
Liberalism

• UK and US in 18 and 19th century dominating
  paradigm
• Elements
• Individual most important unit
• Rationality and interest maximization
• Market Efficiency
• Small Government
• Self-restraint
• Explicit normative thinking (Values of Order,
  Liberty, Justice, Toleration, Self-determination)
• States must be part of an IO and be bound by its
  rules and norms

11
Liberalism

• Types of Liberalism
• Commercial liberalism
• Democratic liberalism
• Regulatory liberalism
• Immanuel Kant / Democratic Peace Thesis
• Woodrow Wilson collective security system
• David Mitrany (pioneer of integration theories),
  collaboration in one sector-spill over to
  another, cost of withdrawing increases with
  integration
• Transnationalism
• Interdependence
• Pluralism
• International Regimes
• Francis Fukuyama End of History

12
Gilpins three perspectives

• Perspectives are composed of analytic and
  normative elements
• Liberalism (neo-classical economics, normative
  commitment)
• Marxism (difference of analytical tool or
  critique of capitalism and economic policy
  recipes)
• Economic Nationalism (anarchic nature of IR,
  primacy of state and interests)

13
Gilpins three perspectives

• Gilpin (analytically economic nationalism,
  normative view liberalism)
• For Gilpin these perspectives are not theories
• Perspectives lead to theories (e.g. hegemonic
  stability theory, democratic peace) which feature
  hypotheses (predictions) which can be proved or
  disproved by empirical research (Popperian
  criterion of falsification)

14
Theories vs. Research Programs (Katzenstein et
al.)

• Theory has been thought in a variety of ways
• Two meanings general theoretical orientations,
  specific research programs
• Theoretical orientations as heuristic devices
  /they suggest relevant variables and causal
  patterns (guidelines for developing research
  programs)
• Marxism, liberalism, statism, pluralism,
  historical institutionalism, rational choice
  institutionalism, constructivism
• Specific research programs link explanatory
  variables to a set of outcomes (dependent
  variables), these can be tested with evidence
  (but as it is a non-experimental science in
  general, thus contestation)

15
IPE as an multidisciplinary field/Economics

• Methodological individualism / rational actor
  model of human behavior
• Law of diminishing returns / scarcity
• Public-Choice, Neo-classical institutionalism,
  political-economy (is often equated with
  rent-seeking, literature on trade protection)
• History of Economic Theories
• Theory of comparative advantage
• Neo-classical economics

16
Free Trade vs. Protectionism

• Ideas matter!
• Free trade vs. protectionism
• Paul Bairoch 1993, Economics and World History
  Myths and Paradoxes
• Free trade (exception), protectionism (the rule)
• Waves of tree trade
• 1846 (Abolishment of Corn Laws) until 1870s
• GATT Regime 50s und 60s
• 1970 Stagflation/New Protectionism
• 1995 WTO (Uruguay-Round)

17
Free Trade vs. Protectionism

• Mercantilists/Protectionists
• Trade as zero-sum game
• Alexander Hamilton (1755-1804) infant industry
  argument
• Friedrich List (1789-1846)
• Laisser-Faire/Free Traders
• Trade as positive-sum game
• David Hume (1711-1776) Price-specie flow
  mechanisms
• Adam Smith (1723-1790) The Wealth of Nations
  1776, absolute advantage
• David Ricardo (1772-1823), relative advantage

18
H-O Model

• Eli Heckscher and Bertil Ohlin (H-O Model) - 1930
• Assumptions
• Constant economies of scale
• Production technology free available
• Factor proportion as comparative advantage
• Predictions
• A country exports products where factors are
  abundant, e.g. capital-rich countries will export
  capital-intensive products
• Trade benefits sectors which are export-oriented
  and weakens import-competing sectors
• (In the long run, factor prices (salaries for
  work, capital gains) will align)

19
Empirical Evidence and adjustments

• Empirical evidence?
• a) Wassily Leontief Leontief Paradox 1954
• H-O model adjusted
• Human Capital, technological innovation, and
  increasing economies of scale
• b) H-O model can not predict large amount of
  intraindustry trade (predicts interindustry
  trade)
• c) End of 90s 50 US and Japanese Trade
  intra-firm!

20
Business Insights (Theories)

• From comparative to competitive advantage
  (insights from business) Michael Porter
• National Culture
• Demand/Taste
• Industrial Structures (Oligopoly)
• Spill-overs (Clusters)
• National Regulations/Institutions

21
New Trade Theories

• New growth theories/ endogenous growth theories
• Paul Romer 1986 und Robert Lucas 1988
• New Economic Geography
• Paul Krugman Geography and Trade 1991
• Strategic Trade Policy

22
Relevance for IPE

• Based on Trade Theory/Rent-seeking
• Exchange of goods influence interests
• Stolper-Samuelson expansion of world trade
  strengthens owners of abundant factors
• Ricardo-Viner (Specificity of production factors)
• Ronald Rogowski (Effects on lobbying)

23
IPE as an multidisciplinary field/Comparative
Politics

• Comparative Politics
• Pluralism, historical Institutionalism, rational
  choice Institutionalism, sociological
  Institutionalism, etc.
• 90s boundaries between comparative politics and
  IR got blurred

24
IPE as an multidisciplinary field/Domestic
Approaches

• Marxism
• Pluralism
• Institutionalism
• Statism (e.g. bureaucratic politics)

25
Pluralism

• Competition among interest groups
• Access to decisions (agenda-setting)
• Collective action problems

26
Institutionalism

• Interest-Group Organization
• E.g. Organization of labour unions (central-
  decentred)
• Tendency of workers in Japan to be organized
  along firm lines, in North America along
  industrial lines, and in much of European along
  class-wide lines.
• Access of interest groups
• E.g. Party financing, business advisory
  Committees

27
Political Institutions

• Interest are channeled through institutions,
  interest aggregation
• Electoral Institutions (proportional vs.
  majoritarian, referenda)
• Legislative Institutions (Multi-party vs. single
  party governments)
• Bureaucratic institutions (Agent-Principal
  theories on delegation)
• Electoral institutions affect the relationship
  among voters, interest groups and politicians
• Legislative institutions influence the ways in
  which politicians bargain toward policy outcomes
• Bureaucratic institutions shape the ways in which
  policy is made and implemented, depending on the
  degree of autonomy delegated to bureaucrats

28
Statism

• Statism (e.g. bureaucratic politics)
• Autonomy of state institutions
• State as actor (e.g. capture interest groups)
• Interinstitutional settings

29
IPE as an multidisciplinary field/IR

• International Relations Theories
• Realism / Neo-Realism
• Liberalism / Neoliberal Institutionalism
• Constructivism

30
IR key developments

• IPE reaction to
• 70s economic and political events
• Dominance of realism

31
Dominance of Realism

• Idealism (Woodrow Wilson League of Nations)
  Utopism
• Realism-Key assumptions
• The State as central actor (Statism)
• Survival first priority for state leaders
• Self-help in an anarchic world

32
Elements of Realist Theories

• Nation-states as key actors (Westphalian System
  since 1648)
• States as unitary actors
• Internal Sovereignty (legitimate use of force,
  territory, people, taxes, military)
• External Sovereignty (no intrusion through
  superior authority)

33
Elements of Realist Theories

• Life in an anarchic system without superior
  authority
• Self-help system - Survival
• Actors follow rational behavior (national
  interest)
• zero-sum game / relative gains

34
Elements of Realist Theories

• World Politics is struggle for power
• The role of power is important to push interests
  through
• Power in a Resource Perspective/Capacities (e.g.
  military power)
• Max Webers power definition Power' (Macht) is
  the probability that one actor within a social
  relationship will be in a position to carry out
  his own will despite resistance, regardless of
  the basis on which this probability rests.
• Robert Dahl (A has power over B to the extent
  that he can get B to do something that B wouldnt
  otherwise do).
• Security dilemma
• Balance of power States act preventively to
  counter dominant states (e.g. alliance in the 19
  century), natural equilibrium/ equilibrium via
  diplomacy

35
Different Realisms

• Historical Realism Machiavelli (Prince) E.H.
  Carr, (Twenty Years Crisis) Policy
  Prescriptions for state leaders (Power and
  Morality, Coercion and Appeasement)
• Classical Realism (human nature) Hans Morgenthau
  (Politics Among Nations) humans are selfish,
  competition-oriented
• Neo-realism or Structural Realism (Waltz,
  Mearsheimer), Structure determines actions (in
  the context of the Cold War)

36
Liberal Challenges and Emergence of IPE

• Liberal Institutionalism Creation of
  institutions after WW2 (UN, Bretton Woods)
• Liberal Realism/English School of IR
• (Hedley Bull) there is, despite the condition
  of 'anarchy' a 'society of states'
• Democratic Peace (Kant - Perpetual Peace A
  Philosophical Sketch )
• Functionalism / David Mitrany The State in
  Modernity needs to cooperate to tackle
  externalities, exit costs increase with
  integration
• Neofunctionalism (Ernst Haas)
• Other sources of influence transnationalism,
  pluralism, imperialism/marxism

37
IR key developments /1970s

• Transnationalism difficult to operationalize
• Marxism marginalized
• Neofunctionalism in crisis
• The rise of HST
• HST encountered logical and empirical anomalies
• The rise of regime theories
• 70s Interdependence (Keohane and Nye)
• 1977 Power and Interdependence

38
IR key developments /1980s

• Neo-Neo Debate
• The rise of game-theory and rational choice
  approaches
• Behavior of states in conflict and cooperative
  situations
• Neo-realists (security issues, power, survival),
  neoliberals (political economy, cooperation,
  institutions)
• Late 80s constructivism (shared norms and values)
  rationalism (including realism and liberalism)

39
Rationalism vs. Constructivism

• Constructivism
• Influential
• John Ruggies work (ideas and norms in
  international relations)
• Alexander Wendt (agent-structure problem),
  international normative structure shaped
  identities and interests of states, practices and
  interactions re-create the structure
• Friedrich Kratochwil (regulative rules vs.
  constitutive rules)
• Epistemic Community Literature

40
Constructivism Key components

• Ideas, beliefs, roles, traditions
• ideologies shape behavior and outcomes
• Social construction of reality
• The way actors understand their own interests
  depends on dominating beliefs and patterns of
  thinking in the world-economy, many of which are
  embodied in institutions
• Policies within the world-economy are affected by
  historical and sociological factors
• Logic of consequences and the logic of
  appropriateness

41
Constructivism Norms and Mechanisms

• Life Cycle of Norms (Finnemore and Sikkink)
• Norm emergence (norm entrepreneurs, framing,
  embodied in institutions, threshold)
• Norm cascade (dynamic of imitations,
  socialization processes (e.g. conformity,
  legitimation, self-esteem)
• Norm internalization (taken-for-granted quality)
• Different levels of socialization through
  interaction with an IO (Jeffrey Checkel)
• From strategic calculation (instrumental
  rationality)
• cognitive role playing (bounded rationality)
• normative suasion (communicative rationality -
  preference or identity shift)

42
Outlook

• Hegemonic Stability Theory
• The Emergence of Regime Theories