Chapter 1: International Political Economy
How does the global economy affect life?
● impact on items we consume
● global economy makes consumers better off by reducing the prices of goods and
services and by expanding the range of choices
● IPE studies how the enduring political battle between the winners and losers from
global political economic exchange shapes the evolution of the global economy
What is International Political Economy?
● winners and losers of global economic exchange
○ e.g. lumber tariffs US: beneficial for US lumber manufacturers, but hurtful to
manufacturers who rely on lumber due to increased prices
● how the battle between winners and losers shapes the economic policies that
governments adopt
● issue areas
○ international trade system
■ central player WTO each country gains access to markets on equal
terms
○ international monetary system
■ enables people living in different countries to conduct economic
transactions with each other
○ multinational corporations
■ firm that controls production facilities in at least two countries
○ economic development
■ focus on the strategies developing countries’ governments adopt
● two important questions in IPE
○ How does society make about how to use the resource available to them?
○ What are the consequences of these decisions?
● consequences of choice
○ welfare consequences - determine the level of societal well-being
○ distributional consequences - influence on how income is distributed
among groups
● fields of inquiry
○ explanatory studies: why questions, asking for an explanation
○ evaluative studies: oriented towards policy outcome
○ welfare evaluation: if a particular choice raises or lowers social welfare
studying international political economy
● marxist school
○ critique on capitalism
○ three dynamics for a worker revolution
○ state plays no autonomous role, but acts as an agent of the capitalist class
■ natural tendency to the concentration of capital
■ capitalism as associated with a falling profit rate
1
, ■ imbalance between ability to create and purchase goods
○
● mercantilist school
○ 17th/18th century
○ relationship between economic activity and state power
○ three tenets
■ economic strength is a critical component of national power
■ trade is to be valued for exports, but governments should discourage
imports whenever possible
■ some forms of economic activity are more valuable than others
○ manufacturing preferred
○ large role for the state in allocating resources
● liberal school
○ Adam Smith & David Ricardo
○ the purpose of economics is to enrich the individual, not to enhance state
power
○ countries gain from trade regardless of whether the balance of trade is
positive or negative.
○ countries are made wealthier by making products that they can produce at a
relatively low cost at home and trading them for goods that can be produced
at home only at a relatively high cost
○ governments should make little effort to influence the country’s trade balance
or to shape the types of goods the country produces
○ market based system of resource allocation
● how politics shapes the allocation of resources
○ Mercantilism: state guides resource allocation in line with objectives for
national power
○ Liberalism: politics ought to play a small role, instead the role of market based
transactions of individuals should be big
○ Marxism: the most important decisions are made by large capitalist
enterprises supported by the political system that is controlled by the
capitalist class
2
,interests and institutions in IPE
● interests
○ the goals or policy objectives that the central actors in the political system and
the economy want to use foreign economic policy to achieve
○ assumed that actors prefer policies that raise rather than lower their income
● material interest
○ interests that arise from one's position in the global economy
● ideas
3
, ○ mental models that provide a coherent set of beliefs about cause-and-effect
relationships
● political institutions
○ establish the rules governing the political process
○ enables groups within countries and groups of countries in the international
system to reach and enforce collective decisions
the global economy in historical context
● first wave of globalization (19th century)
○ driven by the interaction between technological change and politics
○ invention of steam engine and telegraph
○ Britain first to adopt free trade policy in 1840
● Bretton woods
○ birth of WTO, IMF, WB
○ postwar planning
4
How does the global economy affect life?
● impact on items we consume
● global economy makes consumers better off by reducing the prices of goods and
services and by expanding the range of choices
● IPE studies how the enduring political battle between the winners and losers from
global political economic exchange shapes the evolution of the global economy
What is International Political Economy?
● winners and losers of global economic exchange
○ e.g. lumber tariffs US: beneficial for US lumber manufacturers, but hurtful to
manufacturers who rely on lumber due to increased prices
● how the battle between winners and losers shapes the economic policies that
governments adopt
● issue areas
○ international trade system
■ central player WTO each country gains access to markets on equal
terms
○ international monetary system
■ enables people living in different countries to conduct economic
transactions with each other
○ multinational corporations
■ firm that controls production facilities in at least two countries
○ economic development
■ focus on the strategies developing countries’ governments adopt
● two important questions in IPE
○ How does society make about how to use the resource available to them?
○ What are the consequences of these decisions?
● consequences of choice
○ welfare consequences - determine the level of societal well-being
○ distributional consequences - influence on how income is distributed
among groups
● fields of inquiry
○ explanatory studies: why questions, asking for an explanation
○ evaluative studies: oriented towards policy outcome
○ welfare evaluation: if a particular choice raises or lowers social welfare
studying international political economy
● marxist school
○ critique on capitalism
○ three dynamics for a worker revolution
○ state plays no autonomous role, but acts as an agent of the capitalist class
■ natural tendency to the concentration of capital
■ capitalism as associated with a falling profit rate
1
, ■ imbalance between ability to create and purchase goods
○
● mercantilist school
○ 17th/18th century
○ relationship between economic activity and state power
○ three tenets
■ economic strength is a critical component of national power
■ trade is to be valued for exports, but governments should discourage
imports whenever possible
■ some forms of economic activity are more valuable than others
○ manufacturing preferred
○ large role for the state in allocating resources
● liberal school
○ Adam Smith & David Ricardo
○ the purpose of economics is to enrich the individual, not to enhance state
power
○ countries gain from trade regardless of whether the balance of trade is
positive or negative.
○ countries are made wealthier by making products that they can produce at a
relatively low cost at home and trading them for goods that can be produced
at home only at a relatively high cost
○ governments should make little effort to influence the country’s trade balance
or to shape the types of goods the country produces
○ market based system of resource allocation
● how politics shapes the allocation of resources
○ Mercantilism: state guides resource allocation in line with objectives for
national power
○ Liberalism: politics ought to play a small role, instead the role of market based
transactions of individuals should be big
○ Marxism: the most important decisions are made by large capitalist
enterprises supported by the political system that is controlled by the
capitalist class
2
,interests and institutions in IPE
● interests
○ the goals or policy objectives that the central actors in the political system and
the economy want to use foreign economic policy to achieve
○ assumed that actors prefer policies that raise rather than lower their income
● material interest
○ interests that arise from one's position in the global economy
● ideas
3
, ○ mental models that provide a coherent set of beliefs about cause-and-effect
relationships
● political institutions
○ establish the rules governing the political process
○ enables groups within countries and groups of countries in the international
system to reach and enforce collective decisions
the global economy in historical context
● first wave of globalization (19th century)
○ driven by the interaction between technological change and politics
○ invention of steam engine and telegraph
○ Britain first to adopt free trade policy in 1840
● Bretton woods
○ birth of WTO, IMF, WB
○ postwar planning
4
