Chapter 12 National Economic Competition

Ps 130 World Politics Michael R. Baysdell Saginaw Valley State University

Theories of International Political Economy

Economic nationalism

Economic internationalism Economic structuralism

Economic Nationalism: Economic Statecraft or Mercantilism

Realist approach
Alexander Hamilton IPE is a zero-sum game Emphasis on political goals

Practices or Strategies
Imperialism/neoimperialism (mercantilist theory) Economic incentives and disincentives Protectionism and domestic economic support
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Economic Internationalism
Liberal approach
Free economic interchange, laissez-faire, capitalism Non-zero-sum game

Practices

Early capitalist theory (Adam Smith, The Wealth of Nations) Mixed Economy approachmodify the worst abuses of capitalism National competition, but cooperation is increasing Limited role of politics in economics Keynesian economics
Use IGOs and national governments to regulate international economic interchange and ensure the spread of capitalism and free trade IMF, GATT, and other organizations to promote trade and ease 4 inequities

Economic Structuralism
Marxism, neoimperialism, neocolonialism Karl Marx, The Communist Manifesto (1848): Bourgeoisie exploits proletariat. Dependency theory: Colonialism hampered the long-term development of LDCs World systems theory: Western dominated capitalist system pits CORE against PERIPHERY. Structure determines politics and structure is based on the haves (EDCs) exploiting the have-nots (LDCs)
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The World Economy: Globalization and Interdependence

Trade International investment

Monetary relations
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Trade
General pattern of expanding trade
Merchandise trade
Primary goods Manufactured goods

Services trade
Includes services from insurance to education

Factors Promoting Expanded Trade

Productive technology (supply) Resource requirements (demand) Materialism (demand) Improved transportation (supply and demand) Free trade philosophy
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International Investment
Foreign direct investment (FDI)
Stake in foreign companies or real estate, with the aim of gaining controlling interest

Foreign portfolio investment

Does not involve control of companies

International Investment and Multinational Corporations (MNCs)

Private enterprises Subsidiaries operating in more than one state Ownership of plants and/or resource extraction in other countries Most based in North Immense wealth gives influence (United Fruit, Royal Dutch Shell
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Monetary Relations
Globalization of money Four main banking centers: Germany, Japan, United Kingdom, United States Globalization of financial services North-South patterns of money and banking International regulation of money dominated by North Exchange ratesthere are advantages and disadvantages to weak currency (good for exports, but consumers lose with more expensive imports) Balance of payments ultimately affected by interest rates Higher U.S. interest rates=stronger dollar=more imports
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The World Economy: Diverse Circumstances

All economic theories recognize that the world is divided into two spheres:
North America and Europe (North) Africa, Asia, and Central and South America (South) But, there are exceptionsdivisions are based more on economic and political factors than on geographic location
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Problems with Classifications

Not a clear dichotomy
Newly industrializing countries (NICs) Countries in transition (CITs)
Inaccurate statisticsdifficulty of measuring and reporting Questionable relevance of data (GNP vs. GNP-PPP)

Poor is a relative term Poor in EDCs much

better off than poor in LDCs.

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North-South Economic Patterns

Trade differences
Dominated by North LDCs dependent on EDCs for export earnings LDCs rely on primary products

Investment differences

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North-South Societal Differences

Disparities
LLDCs (least developed countries)
Lower life expectancy Lower literacy rate Poor health Less access to food, water, and sanitation services

Declining conditions in some LLDCs

Vicious circle of extreme poverty and deprivation
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Evaluating the North-South Gap

Mixed data on development Uneven patterns of development
Disparity among countries Disparity within countries Negative by-products of development
Explosive population growth Rapid urbanization

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National Economic Power

Financial position
Involves net trade, deficit spending, foreign debts, and so on

Natural resources

Industrial output

Possession or lack of energy, mineral, or other natural resources influences levels of self-sufficiency, trade, or dependency Industry is highly concentrated in a few countries
Power of food production (self-sufficiency)
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Agricultural output

North-North Economic Competition

Changes in Norths economic climate
Slowed growth rate
More competition from NICs of the South and between regional trading blocks of nations

Shifts in labor force

Development of high technology and e-commerce means fewer workers and increases in productivity Exporting the service sector of economies Downsizing and outsourcing
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North-North Economic Competition

Changes in Norths political climate
Shifting postCold War alliances Concern over safety of Chinese products and enormous trade deficits with China places strains on China's political relations with US and EU Differences between US and EU nations over Iraq and Middle East policy and development of LDCs threaten to spill over into disputes over bilateral economic and 19 trade issues

North-South Economic Competition

Increased tension
LDCs are now asserting with mounting intensity their claim that they have a right to a much greater share of the worlds economic wealth North has generally rejected LDC demands for economic concessions Some LDCs have become major exporters of manufactured goods and, to a lesser degree, services that directly compete with the EDCs products and services, thus undermining EDC dominance in those economic areas LDCs compete for resources ($2200 Tata car will be a problem, price of pork and beef last 5 years) 20 Widespread piracy of Norths intellectual property by South

The Souths Reform Agenda

New International Economic Order (NIEO)
Trade reforms Monetary reforms Institutional reforms Economic modernization Greater labor migration Elimination of economic coercion Economic aid Debt relief and cancellation Control of human and natural resources

Norths response: limited, barriers to 21 development are internal, not our fault

Applied Economic Nationalism

Using economic means to achieve economic ends
Trade and investment barriers Quotas, tariffs, domestic content regulations, labor laws, and health and safety regulations Trade and investment supports Agricultural & industrial subsidies, price supports, and loans to domestic producers

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Trade and Investment Barriers

Tariffs Nontariff barriers
Quotas Pricing limits Health and safety standards (S. Korea Mad Cow) Administrative requirements Japanese culture (segregating foreign products)

Monetary barriers Investment barriers

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Trade and Investment Supports

Ways in which governments intervene in free trade to gain an unfair advantage in the international marketplace: Providing domestic subsidies Encouraging dumping products onto foreign markets Forming cartels All violate international trade agreements
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Using Economic Means to Achieve Noneconomic Political Ends

National security restrictions

Economic incentives Economic sanctions

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History of Sanctions
Date back to the city-states of Athens and the use of trade embargoes Use of economic instruments to promote policy is ancient Increased use of sanctions in 20th century Used by both international organizations and individual countries

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Effectiveness of Economic Sanctions

Limited success rate, but they remain a regularly used tool When do they accomplish their goals?
Goal is modest Target is politically unstable and weak Sender and target are friendly and trade with each other Imposed quickly and decisively Sender avoids high cost to itself Effectively enforced with minimal evasion or 27 cheating

Drawbacks of Sanctions
There may be unintended victims Country imposing sanctions can be hurt They may be used by EDCs to maintain dominance over LDCs They can harm relations with countries not supporting sanctions They can harm those whom they seek to assist

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The Future of Economic Nationalist Policy

Capitalism has triumphed over other competing economic models, particularly Marxism and socialism Greater economic interdependence Yet, powerful arguments against and forces opposed to globalization still exist
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In Conclusion
Economic nationalism still remains the dominant approach to global economic affairs even though the trend toward international economic liberalization has grown in importance.
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Chapter Objectives
After reading this chapter, students should be able to:
1. Explain why politics and economics are intertwined aspects of international relations. 2. Analyze international political economy (IPE). 3. Discuss the economic nationalist doctrine. 4. Discuss the economic internationalist approaches to IPE. 5. Discuss the economic structuralist approaches to IPE. 6. Discuss how trade, international investment, and monetary relations affect the world economy. 7. Analyze the economic patterns of the North and the South. 8. Analyze global economic competition in terms of the North/South divide. 9. Understand how economic means can be used to achieve both economic and noneconomic ends. 10. Analyze the future of economic nationalist policy.

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