International Political Economy

1
International Political Economy
SIS 401 Summer 2005
Wolfram Latsch

• Presentation 4.
• How the West Grew Rich II.

2
Industry

• Organizational change, technological change
• Factory system
• (origins? links to other sectors?)
• Steam power
• Iron and steel
• Agricultural productivity

3
The Corporation

• Ability to voluntarily combine factors of
  production in an autonomous organization
• Bargaining between SiV and SiWC
• Guilds
• Charters
• Franchises
• Joint-Stock (unchartered)

4
Trusts and Stock

• Publicly held stock
• (origins)
• Electricity
• Mass Production
• Integrated production
• Distribution and Marketing
• Decentralizing authority over investments

5
Science and Innovation

• Emergence of a system of innovation
• Political economy of innovation
• winners vs. losers
• who decides the success of an innovation?
• Regulation of market entry/market access

6
Conclusions

• Europe
• conditions of bargaining between SiWC and SiV
• distribution of bargaining power
• changes in governance

7
The European Story

• The core of what we now call citizenship
  consists of multiple bargains hammered out by
  rulers and ruled in the course of their struggles
  over the means of state action, especially the
  making of war
• Tilly, Capital, Coercion, and European States,
  p.102

8
The European Story Revolutions

• Religious Revolution
• Reformation, Religious decentralization,
  Enrichment without guilt, nature serving
  mankind
• Commercial Revolution/Price Revolution
• Towns, Markets, International Trade, Financial
  intermediation, Investment shares and venture
  capital, Book- keeping
• Scientific Revolution/Knowledge Revolution
• Literacy, Printing, Communication, Scientific
  inquiry, Useful knowledge, Industrial
  applications

9
The European Story Revolutions

• Social Revolution
• Mobility, Meritocracy, Entrepreneurship
• Industrial Revolution
• Fossil fuels, Factories/Organization of
  production, Labor markets
• Financial Revolution/Political Revolution
• Government debt/bonds, capital markets, taxation
  and representation, rule of law/constitutional
  government

10
The European Story

• Emergence of the nation state
• Greater centralization of powers (taxes, admin.)
• Monopolization of legitimate violence
• Economic management (money, trade etc.)
• Disaster management
• Provision of public goods

11
The European Story

• Size of political units
• Technological change
• Rivalry and competition
• Changing costs of war
• Evolution of means of finance
• (taxation, borrowing)

Square of power
12
The Square of PowerInstitutional innovation in
Britain after 1688

Parliament/ Parties
Tax Bureaucracy
Central Bank
National Debt
From Niall Ferguson, The Cash Nexus (2001)
13
Conclusions

• What is a market?
• Markets, experiments,
• economic evolution
• Variation (innovation)
• Selection (competition, market tests)
• Heritability (rules as DNA?)
• Unintended outcomes

14
Political and Economic Markets

• Two types of markets in political economy
• Markets for goods and services and ideas
• Whoever has property rights gets to trade
• Markets for the property rights themselves
• Who gets to have property rights?

15
Political and Economic Markets

• Two types of markets in political economy
• Markets for goods and services and ideas
• These markets are made possible by property
  rights in whatever is traded
• These are economic markets

16
Political and Economic Markets

• Two types of markets in political economy
• Markets for the property rights themselves
• Participation in markets is a politically
  determined right who has what rights in the
  first place?
• Property rights are defined and traded in
  political markets

17
Preface

• Absence of overall human design, presence of
  accident, experiment and survival (gradualism,
  evolution)
• Relations between economic and political
  spheres
• Non-hierarchical organizational principles
  markets

18
Introduction

• Focus on institutional mechanismsbuilt deep
  into the structure of Western economiesseeking
  out and adopting growth-inducing changes

19
Introduction Possible Explanations for the Rise
of the West

• Science and Invention
• Natural Resources
• Psychology
• Luck
• Inequalities of Income and Wealth
• Exploitation
• Colonialism and Imperialism
• Slavery

20
Introduction Western Growth System?

• Decentralization
• Domestication of political specialists
• Autonomy of economic specialists
• Less control of exchange
• Broad property rights
• Competitive Markets allocation and reward
• Innovation, Science
• Institutionalized change

21
Introduction Western Growth System?
Bargaining

• Decentralization
• Domestication of political specialists
• Autonomy of economic specialists
• Less control of exchange
• Broad property rights
• Competitive Markets allocation and reward
• Innovation, Science
• Institutionalized change

22
Conclusions

• Political and economic marketsagain
• Economics exchange
• Politics control of exchange
• Wealth-creation Redistribution

23
Development The Big Challenges

• Promote the movement from personal to impersonal
  exchange, the growth of markets, doing business
  with strangers
• which tends to promote the division of labor,
  the growth of productivity and the growth of real
  incomes

24
Development The Big Challenges

• Creating incentives that induce people to compete
  at productivity-increasing margins (development)
  rather than redistributive margins (predation)
• Design market-enhancing government institutions,
  foster economic participation, limit government
  predation, promote fair competition