Summary Global Political Economy by O'Brian & William (4th Edition)

Chapter 1: Three contending paradigms in Global Political Economy

Three interpretations of the Asian financial crisis of 1997:

The central point of this book is that three contending perspectives have been utilised to explain developments in the global political economy. And although analysts distinguish between these three approaches, there is a wide variety of thought within each approach. In order to make sense of the world and to enable us to take constructive action, humans develop theories to help determine which facts are most important and what significant relationships there are between different events.

Theories are used for a variety of purposes:

• They can prioritize information and allow individuals to turn their attention to the most important issues

• They can be used to make predictions about the future so that action can be taken to prepare for upcoming events

• They can be utilised to plan action or mobilize support for particular action

The Economic Nationalist Perspective

To better understand the world it is best to start with the oldest perspective in global political economy, rooted in the 15^th century. Synonyms to describe this perspective are: mercantilist, neo- mercantilist, statist, state- based theory, power politics or most important realism. This perspective stresses the importance of the state in understanding activities in international relations (IR). States and nations, rather than individuals are the center of focus. The state is prior to the market and market relations are shaped by political power.

This perspective believes that there is a limited amount of wealth available in the world. To gain this wealth it is crucial that a country has a high self-interest. It is the duty of the state to protect its own self-interest. One could also describe this as an anarchical system with a lack of central authority. The wealth between states could only be divided once. If one state wins another state loses. This is known as the zero-sum game.

Thereby the state is the central instrument through which people can attain their goals. Through this logic one could also argue that states are continuously in conflict to gain as much wealth as possible and that there is a constant struggle for power and wealth.

Realist could describe economic factors both in a descriptive and in a predictive way:
- Descriptive: in a sense that markets could only exist when the state continuously intervenes in production, consumption and investment. They believe that markets are not natural and can only exist within a social context.
- Predictive: economic nationalists move beyond description and also provide policy advice. Given their analysis of the dynamics of political economy, such advice is geared towards supporting and maintaining state power.

Economic nationalists recognize the importance of market-based actors such as firms, but subordinate their importance to that of the state. Within this perspective, the economic power of transnational corporations (TNCs) is acknowledged, but the overall power of such firms remains limited. In the end, firms are subject to the dictates of states.

Is the realism perspective still relevant in the world characterised by globalisation? Defensive realists do see globalisation as a threat. They think that globalisation prevents state actors from fulfilling their goals. They are proponents of free trade, but do think that states with the most political and economic power gain the most. Skeptical realists are totally rejecting that globalisation is taking place. So the power of the state remains unchanged. For them states remain the only significant and legitimate power.

In history this perspective is seen in protectionism and the driving force between colonialism. In this era it is could be seen in the protection of domestic manufacturers against foreign manufacturers and the opportunity of investment for local investors over foreign investors.

Think about a game of marbles (figure 1.1, p. 13). The marbles are states with different attributes, strengths etc. They crash into one another to determine a winner.

Liberal Perspective

The liberalist perspective is rooted in the 19^th century. In contrast to the realist perspective, liberalism focuses on a wide range of actors influencing the global political economy. So liberalists do not only focus on the state, but also on the individuals, NGOs, IGOs and corporations. The individual is the main actor and forms the starting point of analysis. The individual is able to make choices and to negotiate with others. Therefore the liberalist perspective also considers cooperation between individuals rather than only conflict. Liberalist belief that if everyone collaborates a positive sum could be achieved (contrary to the realist zero sum). A pie is able to grow bigger when everyone benefits.

Liberalism emphasises that the state has diverse interests, rather than a unitary interest as argued in the realist perspective. The world may be anarchic, but interdependence makes room for cooperation between states. For states it also holds that the benefit will be higher if everyone collaborates (positive sum). The same holds for firms and institutions. Firms are the source of economic wealth according to liberalism

There are several varieties of liberalist perspectives. Some of those would like to see no intervention of the government at all, whilst others stress a partly involved government. Neoclassical liberalist uses the individual as starting point for further analyses. Other liberals focus not only on the individual, but also on firms, states, IGOs and NGOs.

The market is the center of economic life. Intervention in the market will result in less efficiency. Liberalist argue that markets lead to prosperity (wealth). Economic failure is the result of intervention of the government in this economy.

There are also two groups of liberalist who think differently about globalisation. Nevertheless both types see globalisation as positive, but to another degree. Hyper-liberals do see globalisation as a positive force for good. Keynesian liberals are sensitive to some negative consequences of globalisation.

History has shown that protectionism from a realist perspective has led to impoverished state economies. The comparative advantage of David Ricardo and the invisible hand of Adam Smith have shown that the everyone could accumulate wealth even when a state has no absolute advantage at all. There will always be a relative advantage for both countries involved.

Currently, international institutions are based on the principle of free trade. Think for example about the World Trade Organisation (WTO), the International Monetary Fund (IMF) and the World Bank. Thereby, many governments are involved in multinational corporations to get a regional or bilateral free-trade agreement. But what should be the role of government? Liberalism often underestimates the power of governments and firms to manipulate markets. The crisis of 2008 puts some questions around the liberalist perspective and the role of the different actors involved.

Think of a cobweb (figure 1.2, p.17) where complex relationships exist between interdependent actors such as governments, states, individuals and corporations.

Critical Perspective

Marxism emerged in the 19^th century in reaction to liberal thought. Other names for Marxism are radical or critical thought. Marxists seek to change the world and would like to know how the world is structured. There are also other critical perspectives, think for example about feminist and environmentalist perspectives. These perspectives will be dealt with in later chapters. Marxist thought is particular interesting since this is the oldest critical perspective. The perspectives have in common that they are constantly searching for equity.

The Marxist perspective is not primarily concerned with states or individuals, but with class systems. Marxists admire the collective approach of the nationalist perspective, but reject the individualism of the liberalist perspective. The current capitalist stage of the class system contains a clear distinction between owners of production (bourgeoisie) and labour (proletariat). There is a constant conflict between the different classes. The labour class is constantly willing to take control over the production. The forces of production are divided in the instruments of production (land, capital and technology) on one side and the raw materials (inputs of materials) on the other side.

In the class system there is also a division between the base structure and the superstructure. The structure consists of the forces of production together with the relationships between these forces of production. In this base structure planning is required to establish a well-organised and structured system. However in this base structure different cultures, institutions and political power are not taken into account. These factors are taken into account in the superstructure. One could imagine that these factors need a more flexible behaviour and structure. More freedom is needed in the superstructure. The planning approach of the base structure and the freedom approach in the superstructure could result in a collapse between the two.

In this perspective the state is the representative of class interest.

The firm and market are instruments of exploitation. Dominance and exploitation are the main features of Marxist theories. Exploitation in the sense that labour is paid wages in exchange of labour and that the surplus value is expropriated by the owners of the means of production, although the value comes from the labour.

Marxist view international relations as conflictual and unstable, because of three reasons:

1. If the capitalists engage in competition, profits will fall. Lower profits will result in lower wages for the workers.

2. Uneven development. Some centers increase their wealth at the expense of other centers. (see dependency theory)

3. Fluctuations will lead to overproduction or underconsumption.

Dependency theory explains that poor countries faced obstacles to development, because they were vulnerable to economic exploitation from developed states. Development of some states will result in underdevelopment of other states (zero sum game). Conflict is inevitable because of the drive for profit. Lenin argues that conflicts and wars are the result of competition and were necessary to increase profit rates (capitalist imperialism).

Marxists view globalisation as a myth. It will increase the power of capital over labour, the West over the other states and further increase the power of the United States. It increases exploitative relationships and this is bad from the perspective of Marxism.

In history Marx and Engels already criticised the idea of harmony of interest from the liberal perspective. Russia and China did have a Marxist perspective for a long time. Even today many statements could be traced back to the Marxist perspective. Inequalities and imbalance are often the result of the critical perspectives.

Critical theory as a layered cake ( figure 1.3): some classes, genders or races are on top and some others are at the bottom.

For a comparison of the perspectives, see the table below”.

Chapter 2: Methodologies of the three contending paradigms

Definition of the concepts

Three main perspectives are used to support and interpret arguments in the world of global political economy.

To draw conclusions upon the perspectives presented above it is useful to understand the definition of Global political economy and International Political economy and the relationship of these concepts to different fields of study.

Global Political economy: The global and political environment from the last quarter of the 20^th century until today. (an era in which citizens, corporations and states struggle in a world with intensified globalisation)

International Political Economy: The academic field of study surrounding the interactions of economic and political phenomena across state borders until the last quarter of the last century.

Both definitions are often used interchangeably. In the following part the International Political Economy is related to different fields of study.

International Political Economy in different fields of study

Knowledge has grown significantly and therefore some fields of study have become more specialised. Because of this many researchers only focused on developments within their own state or mostly their own nation. This development caused that connections with the outside world were neglected. International Political Economy crosses boundaries and tries to create connections between political and economic factors across nations and states.

Economics: What is produced? By whom? And for what price? These questions basically try to explain how to divide resources most efficiently. A bottom up perspective is taken, because individuals and firms decide how resources are allocated. There are different perspectives in the field of economics:

• Neoclassical economics: In favour of free markets. Individuals should behave in their own self-interest to create the most efficient allocation of resources. Governments should be involved as less as possible. Governments are only needed to provide basic goods ( institutions, armies etc.) to ensure the functioning of the free market.

• Keynesian economics: Governments are needed to achieve the optimal allocation of the resources. Governments should help when there is a recession. Keynesian economics also believe that the government should provide a wider range of public goods.

• Institutional economics: Markets are not natural but created through institutions like legal structures and financial systems.

Keynesian- and institutional economics have a more positive and expansive attitude about the role of the government.

Political science: A top down perspective is taken, because institutions, groups and governments decide how resources are allocated and how power is divided. The study of political science is very diverse, nevertheless some similarities could be perceived.

• It is about power. Some actors decide which decisions are implemented

• Focus on institutions such as the state and government.

Political Economy: Integration of the economics and political vision.

International relations: Instead of focusing on individuals or the institutional structure within a country, international relations focuses on issues such as war and peace, the foreign policies of various states and the operations of international organisations. It is about the interaction between states. IGO’s and MNC’s play a crucial role in the interaction between those states.
 

Methods to study IPE

1. Case studies and large N studies: A case study is a detailed investigation of an particular issue. Large n studies is used to find common features around a particular issue. Case studies are more qualitative and rely on field research whilst large n studies are more quantitative and rely mostly on desk research.

2. Rational choice: explains outcomes as the result of individual actors. Individual actors could be individuals or a group acting as an individual such as a state. It is about maximising the gains and minimizing the losses. Each individual has its own self-interest. But what is rational for one individual is not always rational for a group. Addressing collective action in the areas of public goods and common pool resources also seems a problem in rational choice theories. Public goods could be used by more than one person and people cannot be excluded from their consumption. The problem is that it is not owned by anyone. What is important for an individual could lead to poor outcomes for a group, e.g. game theories such as the prisoners dilemma.

Changing rules, experience and new corporate players might reduce the problems of game theory. Think for example about protectionism. Everyone is better off when not having barriers, however when only one country reduces its barriers it will be worse off. Some countries like to free ride and cheat on the benefits of other countries.

3. Institutionalism: Focus on formal and informal institutions. Think about the institutional economics as elaborated on earlier in this text. This method focuses on rules instead of the self- interest of an individual actor in the rational choice method. Outcome is the result of the interaction between complex rule based institutions. Distinct forms of political, social and economic arrangements explain the continuing variation between countries.

4. Constructivism: This method elaborates on the normative preferences of actors. How have they been created and how have they changed? It is about the values and beliefs of individual actors towards a certain event. These values can be normative when they are shared by enough actors. Crucial is that different interests will result in different behaviour because they are informed by differing norms or values.

Constructivism is more admired by the critical theorists and realists and liberalists admire more the rational choice and institutionalism. Rational choice is in particular admired by the neo classical liberalists since they are in favour of utility maximisation.

Consolidation, Integration and expansion

• Consolidation: The goal is to deepen a specific topic. The boundaries and subject matter are clearly identified. The main advantages of consolidation is its precision, focus and accuracy. It is based on some pre-determined questions and there is agreement upon the theories and methods to be used. The disadvantage is that it narrows the vision and withhold the opportunity to be critical about a certain issue. It could even lead to tunnel vision. Hence this consolidation is not used throughout this book.

• Integration: Integrate different variants of global political economy for example comparative and international political economy.

• Expansion: include new issues in the analysis. In the time of globalisation it is not suitable to only rely on consolidation. Globalisation affects different countries, peoples and regions in diverse ways. Furthermore the developing world is very unstable and definitely needs a second thought before drawing conclusions.

Chapter 3: The roots of the Global Political Economy: 1400-1800

Ideas, institutions and the political economy change over time. To give meaning to a certain event one should understand the context and framework in which the event takes place. Some countries do have developing patterns or perspectives that are historically rooted. A full understanding of today’s global economy requires a familiarity with patterns with roots reaching back hundreds of years.

Culturalists argue that poverty is the result of the behaviour of the poor. Global historicists sees it as a result of the relationship between the rich and the poor. The last group uses history and say that the political and economic relations could be changed to create greater equity.

The main question of the second part of the book is: ‘How far back in history do we have to go in order to gain a better understanding of today’s patterns of inequalities and wealth generation’?

Trading areas in the Global Political Economy

Before the discovery of the United States by Colombus by the end of the 15^th century the world was already divided into trade areas (see map 3.1, p. 45). There was abundant trade between those areas. In this time economic activity was on local level, agricultural production was the norm, trade routes to move luxury goods already existed and there were different groups of civilisation. What are the types of economic activity and political relations for each country?

The Middle East: The Middle East was the gateway between Europe and the Eastern world. Many conflicts arose because of the difference between Christianity in Europe and the Islam in the Middle East. European tried to find other trade routes to Asia by sailing around Africa and into the Atlantic Ocean. The Middle East could be characterised by extensive trade networks, bustling cities and great centers of learning, however political authority were the object of intense rivalry. The Ottoman empire was willing to expand its empire into Europe and to the Eastern world. War and conflict to protect the own market and expands the power were order of the day (realist perspective).

China: Around 1400 China can be characterised as the largest, most advanced and powerful nation in the world. China also had the largest cities and a leading position in advanced technologies. China produced luxury goods such as ceramics and silk that could be traded with other regions. China lost its advantage when the Ming emperors decided not to undertake expeditions to the west anymore.

A reason for this could be that China did not find anything interesting for trade or that the land threats increased significantly. The Ming emperor had absolute political power.

India: Like China, India had high economic wealth and military power. India could be characterised by having a decentralised authority ruled by independent kingdoms. The Mughal Dynasty in the North and the Hindu Kingdom in the South. Each kingdom had its own faith and trading partners.

For India, China and the Middle East it could be concluded that the countries were primarily concerned with land- based expansion and defense. This was different in many European countries.

Africa: Gold and pepper were the main sources of trade with Europe. Slaves, ivory, iron etc were the main source for trade with India. Africa was characterised with a mix of political groupings.

The Americas: Intensive agriculture and large cities were founded after America came in contact with the west. The country was not as advanced as other countries in the same time. Political relationships could be characterised by force and coercion.

Europe: Europe was mainly characterised by the renaissance. A time of art, science and human body research. The stage of expansion was set by increased economic activity and consolidation of European political authorities into rival states.

The increase in economic activity could be explained by:

• new patterns of trade

• the role of money and finance

Consolidation of European political authority could be explained by:

• the emergence of nation-states

• the consequences of changing forms of European welfare.

• New patterns of trade:
  Italians traded heavily with other parts of the world. In particular spices that were useful to mask the taste of rotten food. War and trading skills were needed to stay competitive. Venice was the economic center in the South. In the North, Bruges emerged as a second economic power. It was advanced in the textile industy and had its own stock market. Italian cities were mostly trading luxury goods and North European cities were mostly trading bulk items. Trade increased the economic activity in many parts of Europe. Trade with other parts was extensive, however the luxury goods of China, India and the Middle East were often too expensive to trade for the bulky items manufactured in Europe. Europe had the choice to use power in these regions to get the goods, or to find new resources such as silver and gold. In a later period they used silver from America to buy Asian products.

• The role of money and finance:
  New forms of money and credit developed in this time and were used to increase the economic, politic and military expansion from the 1400s until today.

Multiple coins developed, so how could one be sure of the value of that coin? There was a preference for good money (coins with a better reputation that maintained their value). Another development was that companies had partners and shareholders instead of singular ownership. Money had the risk of devaluation, not paying back etc.

3. The rise of sovereign territorial states:
   The political structure changed from feudal to sovereign territorial states between the 15^th and 17^th century. Sovereignty meant that there was no higher form of political authority than the state government. Territorial meant that the authority was confined to a particular area. States would like to have economic and military independence. The rise of sovereign statehood had some important consequences:

4. Economic resources could be mobilised more efficiently by standardising coinage, developing common laws, protecting private property, ensuring safe and easy transit.

5. Increase in competition. There was economic and military competition for hundreds of years. This had negative consequences for people outside Europe. The foreign colonialised ground was often used to expand the power of the sovereign states.

European Expansion

In the period from 1400 onwards many countries engaged in exploration, expansion and conquest of other countries. Portugal started and Spain, Holland, and Great Britain followed. Europeans generally fought the economic, political and cultural foundations of the societies encountered. This part is about the reasons behind expansion (greed, fear, knowledge and biological fortune) and interaction of Europeans with other civilisations. (See table 3.1, p. 55)

Into the Americas: The Portuguese found a new route to Asia by sailing down the African coast. In this way they did not had to pay taxes to use the routes through the Middle East. The Spanish sailed west hoping to reach India. However they did not reach India, but America. They quickly started plundering the existing wealth. Spanish people brought all types of European diseases to the mainland of America. The citizens in America were not immune to these diseases and millions died because of these diseases. Living in unhealthy conditions increased the probability of illness. The diseases were part of the ecological imperialism.

The Euro-American political economy: The term New world was used to describe America. The political and economic strategy in the new world is both mercantilist and imperialist. Imperialist because the Europeans subjugated local economies to the power of the European states. Mercantilism was used to describe the relationship between European states. Economic activity was viewed as zero sum game as we already saw in the realist perspective. There was almost no contact between states. From a zero sum perspective this could lead to a reduction of wealth and power. Economic barriers were created to reduce the ability to trade.

The new world offered many valuable natural resources such as gold and silver. Silver is available in mines, so the imperialists used slaves for labour in the mines. The social conditions were bad and the locals were converted to Christianity. The native Americans were excluded from the political system, providing labour was their role as they were subjugated by the imperialists. Native Americans were at the bottom of society whilst competition increased. Portugal and Spain divided America, East for Portugal, West for Spain. However the oligopoly was not longlasting. The Dutch, French and English powers became rivals.

Along the African coast: the triangular trade: The risk of diseases and death were also present in Africa. Portugal started to trade textiles, wheat, brass, utensils and glass beads in exchange for gold, pepper, ivory, dyewoods, leather, timber, slaves and later tobacco from brazil. Silver and gold mining as well as tobacco and cotton plantations were all labour intensive and increased the use of slaves significantly. The domestic population in America was not large enough, so the solution was to move labour in large numbers from Africa to the Americas in the form of slaves. These slaves could never return home and often died on the plantation or in poverty. Trading slaves was one side of the triangular trade. See figure 1. The result was discrimination of Africans, resistance towards Europeans and an economic takeoff.

On the peripheries of Asia: Vasco de Gama sailed around Africa and arrived in India. There were some differences in Asia compared to Africa and America. Asian empires were larger, more densely populated and more productive than European countries. Instead of conquest the of whole country the imperialists had seaports and trading posts as strategic pressure points. Eurocentric histories gives us an underestimation of the importance of Asia in that time. Gun bearing sailing ships were a new type of merchant ships that resulted in some victories in direct confrontations, but could do little to subdue the large land empires.

The Dutch, British and Portuguese gained some control in India. The British were able to subjugate India. They imposed for example a new tax control mechanism and created an army. The British were unable to subjugate China. The Chinese were only interested in trading silver and British traded these products for silk porcelain and medicines. China became the tomb of American Silver. Besides silver the Chinese market provided a demand for opium. Opium was exported from India to China. Although initially illegal, the Chinese authorities eventually legalised this drug. This was a success for Europe, but a disaster for China (many Chinese were addicted and traded silver for opium).

A new type of economic organisation was needed because the economic activities demanded large amounts of capital over a long time period. It was the beginning of the modern corporation. The Dutch and British East India Companies are early examples of this. These companies were at three points different from the family or temporary firms.

The organisational structure of these companies was impersonal in the sense that the partners in the company did not have to all know each other.

The owners did not directly own the companies. Directors were elected to run the companies and owners and investors had to accept these directors or had to sell their share of ownership.

The companies were permanent for a unlimited time period.

Results of the period 1400-1800

The period of 1400-1800 is characterised by coercion, not cooperation (realism). There was a transformation of the key frameworks in the Global Political Economy. Changes regarding trade, production, finance, labour, gender, development, environment, ideas, security and governance will be discussed below.

• Trade: A combination of local exchange and international trade. An increased desire to acquire goods that are not produced domestically is characteristic of this period. Luxury goods from the East motivated states and merchants to find new sources of supply (silver from America to China). Trade in this time sometimes had a negative effect on the local economy and undermined the independence of some states (colonialism).

• Production: Mainly agriculture for local use. There were significant changes in who produced what for whom. Imperialists often changed the local structures of production in favour for the home market needs.

• Finance: Long distance trade led to new financial instrument to fund exploration and war. Think about the development of banking and the provision of credit. The economic activity also increased through the development of long standing corporations such as the British and Dutch East India companies.

• Labour: The availability of resources created a clear division of labour. Each country had its own tasks and divisions.

• Gender: If the two communities were more or less equal men often relied on women. However in areas where Europeans exercised power a more unequal set of gender relations emerged.

• Development: In America and Africa the wealth is transformed from the producers of the products (often native people) to the owners of the mines and plantations.

• Environment: Increasing subjugation of nature through human economic activity.

• Ideas: Three aspects relate the role of knowledge. The first is the knowledge structure provided new technologies and know-how of societies. In the field of technology Europe rose from a subordinate position to a dominant position.
  The second is worldviews that could be described as the perceptions and structuring of knowledge about the human environment. The third aspect is the relationship between humans. The world around 1400 was more diverse than the world around 1800.

• Security: The success of Europe could be explained by military superiority. European military success was often dependent on the cooperation of local collaborators.

• Governance: The rise of the modern states in Europe (a state with centralised authority) was the most significant political development. A centralised state was more efficient. This new efficient political system also had its effects on the market. Firstly, a reduction in barriers. Secondly, a common law was created with common currencies and methods of standardisation.

Chapter 4: Industrial Revolution, renewed imperialism and conflict 1800-1945

This period could be characterised by:

1. Power and wealth in hands of the elites. In the mid-1800s Britain had a leading position in the first industrial revolution. Germany and the US had a leading position at the end of the 19th and the beginning of the 20th century during the second industrial revolution.

2. The liberal market was created under bad working conditions for the workers.

3. Benefits of free trade.

4. Two important mechanisms were developed to exclude public opinion in policy making. The gold standard and social and economic adjustment to trade flows. Exclusion of affinity and ideology in the decision making. However democracy started to spread across some powerful European states at the end of the 19th century.

5. The power difference between Europeans and non-Europeans increased. A second wave of colonialism was the result.

6. War was the result of open competition and free trade between European countries.

The Industrial Revolution in Britain

What was the Industrial Revolution? Inventions such as steam power, the application of new and more efficient machinery and the reorganisation of labour resulted in the first industrial revolution in Britain. India was however cheaper and more qualitative in producing textiles, but Britain protected the domestic market and forbid the British East Indian Company to import Indian textiles into the UK.

A factory system arose because mechanised production required the workers to work in one place. To increase productivity even more, working days could be lengthened by the introducing of artificial light with gas lighting. Employees were reluctant to work in the factories since the working conditions were really bad. Because of this trading unions arose.

The growth in the textile industry led to the creation of large metropolitan areas. The industrial revelation was characterised by three elements.

1. Population was divided into capitalists, who owned the factories and equipment and labourers who sold their labour for wages.

2. Production was organised around factories ( factory system).

3. The entire economy was profit driven.

Demand and supply was international in the textile industry. Supply of cotton came mostly from the US were slaves worked on cotton plantations. Domestic demand was not high enough in Britain, that is why they decided to sell the products to other European countries and to India. Because of increasing efficiency and the advance of technologies in the textile industry in Britain they now sold the textile in India for a cheaper price. The result was that the whole textile industry in India collapsed.

The second industrial revolution had developments in iron and coal power. Another tremendous revolution was in the railway industry. In many countries the railways were the result of industrialisation. Inventions such as the steel ship and the new canals across Egypt reduced the time of sea trade.

Why Britain? Why this period?

The answer of these questions could be found when elaborating on the following 4 factors:

1. Growth of culture and knowledge: There was a growth of autonomy in intellectual enquiry, scientist were able to break free of the church. The introduction of Language of proof in scientific fields led to a continuous motivation to research and invent.

2. Technical expertise: Supported by economic and political structures, liberal state economies with more power to markets and punishment of bad behaviour solidified. Political rules created an obligation to work in the industrialised cities.

3. Rise of liberal state: Laissez- faire, laissez- passer, let it be, let it pass. This refers to economies without tolls, taxes or state interventions. From a political perspective the individual rather than the state was the point of attention.
   Because of the bad work conditions of labourers trade unions and democratic movements arose. Karl Marx became the dominant theorist of class relations during this time. His message was to unite the working class and overthrow the capitalist class. Marx would create another form of society based on common ownership of production. A society of equality.

4. Favourable international position: The industrial revolution together with the increased possibilities of transportation caused enormous growth for the world economy.

What about the other countries in the world? Other European nations and the newly founded United States of America (US) had difficulties to catch up with the powerful nation of Britain during the first industrial revolution. France was the most serious rival of Britain during the first industrial revolution. Germany and the US were able to surpass Britain in the second industrial revolution through inventions such as electricity and chemicals. At the end of the 19^th century the US was able to benefit of mass production. Both Germany and the USA used protectionist barriers to protect their industries. Japan was the only non-European country that was able to compete to some degree with the European countries.

Development of Britain

The rise of Britain as a military and industrial power led to a period of peace ( 1815-1914). However there were many areas in which the power of Britain was limited and there were some violent wars. The period of Pax Britannica is crucial because some of the guiding liberal principles of that time are still used today. Britain created three international systems.

1. The gold standard and capital flow: An international monetary system that assists the exchange of goods and services. Today the International Monetary System is the system of exchanging one currency for another. They decide on the exchange rates either floating or fixed, the nature of reserve assets for example gold or foreign currencies and the control of capital movement, so money could flow freely between countries. The balance of payments of these countries could run a deficit and there is the risk of devaluation or deflation. This could lead to unemployment or lowered purchasing power.

The balance of payment problem could be mitigated through the gold standard. Countries had to follow the following three requirements:

• Countries had to fix their currency to gold.

• Countries had allow for the possibility of free movement of gold.

• Currencies could change value in relationship to each other, but both currencies involved stay fixed to gold.

Because of the gold standard countries had to accept automatic deflation. No problem for the capitalists in Britain (who were able to vote), however the working class had to pay for the cost of deflation and unemployment.

The gold standard created the first international capital flows between countries. Communists thought however that this would lead to more imperialism and war, some others thought it would result in peace among the major powers.

2. Free trade: Ricardo showed with his competitive advantage that even weaker economies could benefit from free trade. Many countries did not accept this system of free trade and used protectionism to protect the domestic industry.

3. Balance of power: The era of 1815-1914 could be characterised as relatively peaceful. The security arrangement or the balance of power had 3 characteristics.

4. Concert of Europe, communication and consultation between European countries so that no single state grew too strong.

5. If a state grew too strong a temporarily coalition would emerge which would contain that state.

6. Domestic public opinion had to be excluded.

The British had a powerful navy and enjoyed dominance over the waters of the world. This changed at the beginning of the 20^th century. Germany threatened the dominance of Britain by building its naval capacities. Europe became divided in two camps. The Triple Entente of France, Britain and Russia on one side and the Triple Alliance of Germany, Austria-Hungary and Italy on the other side. Policies were created to protect their own industry. Ultimately this led to the first World War.

Pax Britannica is a bit too optimistic and too focused on the European world. It forgets the violent US civil war, the opium wars in China and the war in the Congo.

A new form of imperialism

Economic exchange was not enough for the traders and states. They would like to have political control. The traders moved from coastal settlements into Africa and Asia. A second wave of colonisation emerged. There were four significant developments:

1. European powers enlarged there empires.

2. Three European states ( Germany, Italy and Belgium) joined the colonial movement.

3. America and Asia succeeded in continental movements.

4. Japan was able to adapt to the industrial revolution and took control of Korea.

In 35 years the whole continent of Africa became under foreign (mainly European) control (see map 4.1, p. 80). The subjugation of Africa could be characterised by the four Cs of Pakenham: Commerce, Christianity, civilisation and conquest.
Europeans thought they had the moral obligation to civilise other parts of the world. Nowadays this attitude is clearly racist.

The most important factors explaining the renewed imperialism center on European political and financial factors. According to Hobson the western system promoted imperialism. Increased consumption and drive for profits created the tendency to expand the power of the states. Redistribution of income throught public policy could solve this according to Hobson. Another reason could be the military and strategic competition between European countries. Colonies served as power and prestige rather than profits. Another explanation is explained by Robinson and could be that the colonies itself were the cause of the renewed imperialism. Imperialists depend on local collaborators rather than European power and abilities. When Europe ran out of local collaborators decolonisation began.

Conflict, war and instability

Economic collapse, ending of liberalism and imperialism were the result of the war and interwar period.

The World Wars: trade patterns suffered in two ways during and following the World Wars. First there was a change of trading partners and the direction of trade and second there was a change in composition of exports, since production shifted towards war production. This allowed some regions in the world to have their own industrialisation. Capital movements were directed to war products. Moreover the gold standard was abandoned. The US became world’s largest creditor and Germany turned as the world’s largest debtor. The balance of power was also discredited by for example secret treaties.

After the first World War president Wilson liked to end secret treaties and promote favour free trade, national self-determination and an international organisation for settling disputes. The international organisation became the League of Nations. Its primary task was to keep international peace. The US did not join the League of nations which reduced the power and legitimacy of the organisation. The League was theoretical a prosperous organisation however practically it was not consistent and often incapable. The security system developed after the first World War failed and led to another World War.

A first consequence of the war is that power shifted from Europe to the US. The US was highly productive and other countries had to pay large sums of money back to the US. A second consequence is that within Europe labour unions and the communist party evolved.

The result of this was that many European states were forced to introduce legislation that distributed the benefits more evenly. A third consequence of the war was the physical destruction of infrastructure. This posed a serious problem for the reorganisation of many states. Another consequence was that the end of the second World War also marked the end of the colonies.

Problems during the interwar period

The value of currencies floated, liberalisation did not work as expected, the gold standard led to high unemployment, inflation was the result of too much government intervention. All of these factors caused a restless period.

Rigid monetary and financial systems: Two aspects seem to be problematic in the monetary and financial system.

1. Use the gold standard again, but in the wrong way. The value of the currency in Britain was for example overvalued which led to less export, less production and higher unemployment.

2. War reparations for Germany to France. The Treaty of Versailles laid out the terms of defeated states. Germany had to pay large amounts of money to France, however the economic impact was not taken into account. This led to international financial crisis.

To prevent people from selling the German currency the German government closed the economy to the outside world. Other countries left the gold standard and concentrated on the domestic economies.

Popular mobilisation and new forms of state: Why did liberalism not work and why did the government have to intervene? It is a kind of vicious cycle, a double movement. The first part of the movement is to create a liberal market system where employees sell their labour in exchange for wages. In this movement employees have little protection from governments and wages could decrease because of the drive of profit. The second movement is a reaction to the first in that the labourers asked for more government involvement to protect their jobs. Because of both movements, other forms of societies started to emerge.

The first new form was communism (Russia and later China, Vietnam, North Korea and Cuba). It emerged during the first World War and we are all familiar with it right now. A second form was fascism (Germany and Italy). Fascists would like to keep a limited market economy, but eliminate all democratic institutions in the industrial and political realm. Fascists were nationalistic and racist. Another form were Keynesian economies (US and Britain).

They suggested that when businesses lost confidence in the economy, governments should increase investments to ensure economic growth.

US role: The US were expected to show leadership during the time of the great recession. However they retreated and raised trade barriers. After this event theorist developed the hegemonic stability theory. It suggest that a superpower is required for the maintenance of the international liberal economic system. Britain did this until the war, however the US did not commit itself to maintenance of the system.

Results of the period 1800-1945

• Trade: Some level of free trade existed, but many countries were not able to compete with Britain and had all kind of trading barriers.

• Production: Development of industrial capitalism and production used for exports.

• Finance: From private to modern corporations. Due to the railway industries companies who needed large investment and profits for in the long run. This led to modernisation of financial investments and securities.

• Labour: Conflict between capitalists and workers. This conflict became subject of the political agenda. The workers had bad living conditions.

• Gender: Initially factory work was performed by children and women.

• Environment: Rising concerns about the pollution of the environment through the processes of the industrial revolution.

• Ideas: In three ways ideas were critical for the evolution. First technological innovation and the introduction of new energy sources. Second ideas about science, technology and religion. Third the ideas related to the social world. Three ideologies, liberalism, nationalism and racism were prevalent during this period.

• Security: Europe experienced no internal war for 100 years, however as already elaborated, in the US and other parts of the world great wars took place. A Eurocentric bias is obvious in the description of this period as Pax Britannica

Chapter 5: The Cold War and post-Cold War period 1945-2010

In this chapter a distinction has been made between three worlds. The first world includes the US and its allies in Western Europe, Canada, Australia, New Zealand and later Japan. The second world consist of the communist states like the Soviet states. The third world consist of countries from the rest of the world which had lower degrees of development.

The Cold War period (1945-1989)

After the Second World War the first world created a new international system. This included a new security structure, new international institutions and foster democracy and economic growth. To maintain monetary stability the IMF, World Bank and Marshall Plan were created. The GATT is formed to liberalize some trade between states. Leftist political forces had some influence through Keynesian state policies. The League of Nations would have to be reinvented to prevent war. The US would play a more active role in the world economy (see box 5.1, p.92 for the 5 lessons Western powers drew from World War II).

Cold War confrontation: Europe was divided between two camps. The Soviet Union had the power in the East and the US and NATO in the West. The US helped Western Europe to reconstruct its economy after the damage of the second World War. The US created the first nuclear weapons and stationed troops in Europe, this to prevent a war with the Soviet Union (SU). The threat of mutually assured destruction was created after the Soviet Union also became able to develop nuclear weapons. There were constant struggles and feelings of rivalry between the US and the Soviet Union.

Most of the conflicts between the two were fought out in other parts of the world. This often led to war, violence, poverty, human casualties and stunted economic growth in these countries.

The economy of the first world: The US was the largest power and so harboured the largest interests in the world. The key features of a new economic system became liberalism, legalism and multilateralism. The goal was to create a liberal system but not to undermine domestic stability. ‘Embedded liberalism’ was the new Keynesian principle. The state was able to intervene to support social purposes and to achieve full employment. The IMF, World Bank and GATT were created to implement the liberal international economic order. Europe created a common market to stimulate economic integration. The process brought European states much closer to a political union. The support of the US to western states caused a golden era with economic growth (1950-1970).

This changed when the spending of the war in Vietnam increased and when the rising oil prices caused a recession and inflation in the US. After the 70s the US and the UK agreed on less state intervention. This undermined the balance of embedded liberalism and put the economy more in a neoliberalist direction.

The economy of the second world: Instead of having a free market the communist system had central planning of the state and only one political communist party. Everything was collective. The SU was able to industrialise quickly and formed a major threat to the US. The SU seemed to be efficient in producing heavy industry and basic goods with much labour involved. However consumer goods which needed application of technology and innovation lacked in the SU. Because of this the SU fell behind in the race with the US. China had a less successful system than the SU. The five year plans led to industrial stagnation and agricultural shortfalls. In the early 90s both China and the SU evolved into a more capitalist economic system.

The economy of the third world: Decolonisation led to the emergence of the third world. The nature and pace of the process varied considerable. Decolonisation took place because European states had taken enormous amounts of damage as a result of the Second World War. Another explanation could be the nationalist movements in the colonies itself. The international organisations were created to serve the interest of developing countries. However many former colonies were still dependent upon the economic ties with their former colonisers

Development success and failure: Japan, Taiwan, Hongkong, Singapore and South Korea were very successful and showed high growth rates, educational levels and advances in particular sectors. China, India, Indonesia, Brazil and most of Africa suffered and did not show high growth rates.

The Post-Cold War period (1990-2010)

Three trends have been increasingly visible after the Cold War

1. Competition Capitalism and state transformation: Rivalry between differing models of capitalism became important during this era. There was no one best system. Each system had shown strengths and weaknesses in times of economic success and times of economic downturn. European states mostly had a broad welfare system for its citizens, but also had high unemployment levels. The US was not able to provide its citizens with basic healthcare, however the unemployment was lower. Also the nature of the state differed among the first world countries.

• From welfare to competition in the North: A competition state is a state that prepares its citizens and corporations for international competition.

• The main focus would not only be welfare for the citizens anymore. A competition state requires that a state should be attractive at macro and micro level. On macro level it should have low inflation to attract investments. At micro level there should be competition and flexibility. To achieve this the government should deregulate and privatize. Another requirement for a competition state is that a state should have policies for full employment and universal social programs. Still nowadays, there are many different examples of the competition state model.

• Liberal and authoritative competition in the South. Two developments caused economic competition in the developing world. The first development is the decision of the Chinese government to allow foreign direct investment. China, India and Indonesia might all be competing to sell the same product to the US. A second development is the debt crisis, that caused developing countries to specialize in niche products.

• The rise of offshore: Offshore refers to the global economy where states create territorial or judicial enclaves characterised by a reduction in regulation. Think for example about tax havens, economic zones to attract FDI or export processing zones (tax free zones). This is done to attract investment into a certain state or territory.

2.The information revolution: The new technologies in IT facilitated the globalisation of economic activity. Better communication is also a direct effect of the new technologies. New sectors are created and productivity increased. However the ethical implications such as cloning have become critical issues today. The gap between the developing world and developed world also increases. Networks appear and this implies that working through institutions with different layers of authority is no longer needed. Lastly the information revolution made American military power much more effective and efficient.

3. International organisation and governance: The number of international organisations has grown significantly in today’s global economy. One of these organisations is the United Nations, the successor of the League of Nations. Other organisations could be categorised as International economic organisations such as IMF, WTO (successor if the GATT). All these institutions have provided support for an renewed form of multilateralism. Despite economic downturn this multilateral system still holds. Some people say that these institutions are too powerful. Another type of international organisations are the corporate and civic organisations. These profit and nonprofit organisations have also been busy expanding their international contacts. Profit organisations such as big corporations have often been accused to lobby with governments an international organisations. Non-profit citizens organisations also lobby with Trans National Companies (TNCs) multilateral economic institutions and governments.

Results of the period 1945-2010

• Trade: Increase in the type and volume of trade. Creation of multilateral trade institutions such as the WTO reduced import tariffs an liberalised trade. Also regional agreements such as the NAFTA and EU were created. Unlike other eras, trade and investment took place under an elaborate system of rules.

• Production: Transnational corporate trade accounts for 50% of world trade. Some of the TNCs have sales larger than the GDP of some countries. There is a debate whether the influence of these TNCs is not too big. Some suggest that the state is losing power or that democracy is threatened. Another development is the increasing production in the East and South East region of Asia. The government in China creates tax free economic zones to attract foreign investment.

• Finance: The financial system had in the 70s transitioned from embedded liberalism to a more open neoliberal state economy. Through the developments in the information technology financial markets react immediately to the latest events. A crisis could go around the globe in a few days.

• Labour: Labour is not restricted to an area anymore. There is a global division of labour.

• Gender: The woman is taking care of the kids and the man is earning money to maintain its family. However women are joining the global workforce more and more.

• Development: After the decolonisation many developing countries still were dependent from private capital flows of their old colonisers. Some countries still struggle to industrialise.

• Environment: A negative effect of the industrialisation was the exploitation of the environment. Global warming and the Kyoto Protocol play a prominent role.

• Ideas: Vigorous debates about what form of capitalism is most appropriate. Also ideas about the globalisation should be taken into account.

• Security: Security issues were dominated by the US and the SU. Wars were often channeled to other countries which had to face the consequences.

• Governance: The proliferation of formal international organisations and the democratisation of state institutions were the most prominent developments.

Chapter 6: Global Political Economy and Trade

Defining the concepts

Trade is the exchange of one commodity for another. Trade could be domestic when two or more individuals exchange goods and services. International trade arises when the exchange is conducted across national borders. When speaking about trade it is always important to consider the following two issues:

1. The barriers or restrictions to trade. In this book only political barriers will be discussed and technical barriers such as travel time and distance are excluded. Protectionism is a way to restrict import of goods mostly by means of a tariff. The tariff is revenue for the government. Protectionism is a way to protect the domestic market against foreign products. Recent forms of protectionism have taken the form of NTB (non-tariff barriers). Think for example about quotas, subsidies, currency controls, administrative regulations and voluntary export restraints (see p. 110 for an explanation of the NTB).

2. The medium of exchange in which trade is conducted. Barter and money could be used. Barter is direct exchange of commodities and money is needed when many commodities need to be exchanged.

Theoretical Perspectives: Free trade and protectionism

What are the costs and what are the benefits of free trade and protectionism? What kind of barriers should be imposed and for what reason? Liberalist emphasises the benefits of free trade. Liberalist argue that everyone is able to benefit from free trade, and that there will be an increase in efficiency and production. Realist and critics argue that free trade undermines national economies, create uneven development and damage the environment.

Proponents of free trade

Liberals argue that free trade has a positive sum effect. This effect is partly based on the comparative advantage of Ricardo. Countries should specialize in producing or trading goods in which they are most efficient. Specialisation improves economic growth and helps the country to become more powerful, stable and efficient. In both countries consumers could benefit of low prices of imported products since both countries are relatively more efficient in producing a certain good. The theory of Heckscher and Ohlin use the concept of factor endowments to explain the division of production between countries. Countries will have an advantage in those industries that concentrate on natural advantages and endowments. In this perspective the whole world is able to benefit. Free trade will also result in economic growth, improvement in skill, higher productivity, faster technological progress and development over time.

Protectionism is seen as inefficient. It reduces competition and it will stimulate monopolies what increases the price. Only the monopoly will benefit in this case. Protectionism will hurt developing countries, not free trade (see box 6.1)

Critics of free trade from a realist and critical perspective

Both realist and critics argue that free trade will have a zero sum effect. One group will gain why another group will lose. Mercantilist and neo mercantilist argue that if one country is able to increase its trade so its wealth, another country will lose some of its trade, therefore its wealth. That is why they are in favour of regulation to enhance state power. In this way they are able to protect some domestic groups from competition.

Realist argue that protection of local production will increase national welfare. Realist offer four main arguments against free trade:

1. Infant industry argument: temporary protection for industries likely to become competitive on the world stage. Protection should be given until these industries become competitive. This argument is particularly relevant for developing countries, which have not found their comparative advantage yet or developing countries which are still industrialising. Developing economies of scale and domestic market stability might also be a reason why the domestic market should be protected. Liberals will say that once given, protection to industry is hard to retract. How could a government decide how long and which industries needs protection?

2. Self-sufficiency argument: countries need to be self- sufficient in the production of certain strategic industries. Dependence on an external market during for example a war can threaten a nation’s security. If the free market jeopardises national security it is necessary for a government to impose restrictions in order to protect society.

3. Strategic trade argument: Find a competitive advantage in industries that are most needed to stay competitive.

4. National culture or cultural imperialist argument: Critics are concerned about the impact of globalisation on the culture of their nation. The culture should be protected.

Three main arguments are used to support the view from the critical perspective;

1. Unequal exchange: historical events such as the imperialist plunder, the difficulty for poorer countries to develop and the lower wages of developing and the higher wages of the developed countries will create unequal exchange of trade. Countries with the strongest economy, largest TNCs and most competitive position will benefit more from free trade.

2. Environmental degradation: Current trading practices are unsustainable and it is in their perspective better to return to local trade.

3. Feminist: trade is not gender neutral. Trade ignores the social cost of trade.

Growth and protectionism as major development

After the second World War trade volume grew at a fast pace. Two times as fast as the production of goods. This created a greater interconnectedness and increased internationalisation of the world. The overall trend of trade after the second World War has been positive. Trade has been an important sector in the global economy and an important drive for economic growth.

Trade promotes growth in two ways:

1. It provides the local industries with resources cheaper than it if it were to produce of harvest those resources domestically. In this way countries are able to consume more.

2. Trade forces domestic producers to produce goods to world market standards. This increases the productivity and quality of the products.

Trade is uneven divided between different countries and regions. Some countries are net importers and some countries are net exporters. In the 50s and 60s manufactured products were the main source of trade. From the 70s onwards the service sector is the fastest growing sector.

Intra industry trade is trade within the same industry. Some countries export and import for example cars. The explanation for this could be price and product differentiation. Intra firm trade is trade between the same firm. This takes place since many TNCs are vertically dispersed and have subsidiaries all over the world.

The period of 1947-1973 was a period of prosperity, economic growth and high outputs. This created a liberal system to trade and abandoned protectionism. However, the rising unemployment in 1973, due to the oil crisis, created a negative attitude towards the liberal system. Countries decided not to impose tariffs, but all types of NTBs. NTBs allowed discrimination between industries and countries. Developing countries were particular discriminated by products in which they had a comparative advantage.

Changing institutional arrangements as major development

After the second World War a liberal system was created based out of the the interest of the US. The US had a preference for open market arrangements and multilateral rule- based systems. The state should only intervene when this is necessary to support domestic goals.

This is embedded liberalism instead of neo liberalism which is totally rejecting the role of the state. The trade system is not totally laissez- faire, but a part is also managed. The trading system after the second World War is based on four key principles.

1. Non-discrimination: Is explained by the most favourable nation (MFN) clause. Any concession to one member should also be extended to all other members

2. Reciprocity: If one country starts to export, another country will follow.

3. Transparency: Any discrimination must be clearly visible, however hard to achieve with all the countries involved.

4. Multilateralism: Agreement of all countries involved. The more countries involved the harder to reach consensus.

After the Second World War, the International Trading Organisation (ITO) was created. However most US businesses feared that the organisation was not sufficiently liberal. They thought that the organisation would make too many concessions to protect domestic industries. The US did not join to the ITO. The ITO did not get much support.

The GATT however created support and significantly increased world trade. The GATT evolved with the goal to reduce the tariffs between countries. In the beginning the GATT achieved success in reducing tariffs in manufactured goods. Industrialised countries were willing to liberalize and so reduce the tariffs of sectors that were expanding, but were reluctant to reduce the tariffs in industries under pressure and under threat. New protectionism emerged after the Tokyo round due to the recession and high unemployment rates. NTBs which are already elaborated upon were the new way to protect the industry. The GATT was not really successful in addressing these NTBs. The GATT also created a normative framework and a dispute settlement mechanism. The GATT contributed with its normative framework to international economic law. The dispute settlement mechanism required unanimous consent of the countries involved and was not very efficient.

At the Uruguay meeting the WTO was created and officially commenced on 1 January 1995. Dissatisfaction about the GATT grew, because the GATT was not able to reverse the new forms of protectionism, the weakness of the dispute settlement procedures and the uneven nature of liberalising processes. The WTO improved the process of dispute settlement significantly. The WTO has its own legal personality and is akin to other intergovernmental organisations such as the IMF and the Worldbank. The liberalisation of trade resulted in a rise of international trade.

Developing countries in world trade

Developing countries have only limited political influence in international trade negotiations. Individually these countries face hard times to exert power, that is why they often form coalitions for a particular issue or for a specific conference. Some developing countries see free trade as beneficial and some will argue that free trade is exploitative and that protectionism is necessary to protect the domestic industries. As more developing countries join the WTO it is harder to create a consensus between all parties involved. The developing countries do not have the will and the EU and US could use their veto power in negotiations.

Agricultural trade liberalisation of the developing world held no crucial importance during the Doha meeting. Many industrialised countries liberalised trade in manufactured goods, but were reluctant to liberalize the agricultural sector. The developed world abandoned its support of the comparative advantage and for a number of economic, political and social reasons implemented discriminatory policies to agree upon the agricultural trade liberalisation.

Another issue is the self-identification of many developing countries. Trade in services, Intellectual property right (IPR) and investment limit the policy making autonomy of developing countries. IPR was addressed by US TNCs who insisted that exports of counterfeiting goods were damaging their profits. Another example of IPR is the patent on drugs and medicines. Many developing countries are able to produce a medicine also produced in developed countries, however the developed countries have a patent, so the developing countries are not able to enter this market.

According to the developing countries there is a need for special and differential treatment (S&D). The ITO and GATT agreed on a special treatment for developing countries, however the WTO moves away from this special treatment. The WTO focuses on the trade needs of the developing countries. S&D under the WTO can be classified in 5 main groups. Until today limited progress is made in meeting these objectives. Most of the provisions have largely been ineffective.

1. Provision aimed at increasing trade opportunity

2. Provision required WTO members to safeguard the interest of developing countries

3. Provisions allowing flexibility for developing countries in rules and disciplines governing trade measures

4. Provisions allowing longer transnational periods to developing countries

5. Provisions for technical assistance

Regional trade agreements (RTAs) in world trade

In last two decades many regional trade agreements were signed. There is a certain level of compatibility between regionalism and multilateralism. The objective of the multilateral WTO is to have worldwide liberalisation of trade. However to solve issues regarding to investment liberalisation, managing economic conflict, domestic economic restructuring and political integration it is more efficient to have a regional trading agreement.

Regionalism has taken place in two phases. During the first phase it was the aim of developing countries to stimulate the industrialisation. Organisations were more concerned with trade diversion rather than trade creation. Trade diversion is the process where low-cost suppliers outside the union are replaced by high-cost suppliers within the union. Trade creation is a situation in which trade is stimulated by dismantling barriers between countries. During the second phase many of the new associations have adopted a policy of open regionalism, making the reductions of trade more compatible with multilateral commitments.

Regional trade agreements vary in their goals and terms. The EU for example has strong institutions and adopted a single currency. The NAFTA on the other side tends to enforce national legislation and has low respect for labour and environmental standards.

The concern of economists is that regional trade agreements will undermine the multilateral trade agreements. It is argued that the regional trade agreements are discriminatory and inefficient.

Legitimacy in world trade

Some groups in society have their concerns about whether the multilateral agreements are democratic or not. They content that political and business elites have considerable input into the structure of the agreements. They also claim that decisions are often made in secret. In their opinion the information for a decision should be more readily available. However reports and investigation showed that the WTO is fully representative and correctly reporting its information.

Other concerns in the discussion regarding the multilateral and regional trade agreements are social policies, environmental degradation and labour standards.
 

Chapter 7: Global Political Economy and Production

There are two ways to study production structures:

1. Transnational Corporation: Examines the production of large multinational firms.

2. Global commodity chains: Examines the production of a single commodity from raw material to end use.

The arguments of the book are based on the first structure.

Defining the concepts

Two types of foreign investment can be dinstinguished:

1. Foreign direct investment: Investment made outside the home country of the investing company. Control over the resources remains with the investor ( influence decisions in company). Resources could be assets or intermediate goods.

2. Foreign indirect investment (portfolio investment): Specific assets and intermediary goods (capital, debt or equity). Control remains with the seller (No influence in decisions of companies). Only financial resources are transferred.

The arguments of the book are based on the first type of investment. FDI increased in the 50s and 60s predominantly in the US. FDI flows from Europe and Japan started to grow in the 80s and 90s due to their recovery after the Second World War, high productivity, better communication technologies etc. Global financial crises reduced the flow of FDI.

The terms multinational enterprises, international firms, transnational enterprises and global corporations are used interchangeably. This book however uses TNCS when talking about a multinational corporation. A transnational corporation (TNC) is a firm that owns and controls production facilities in two or more countries. TNCs vary in size, resources and organisational structures.

Contending paradigms: Explaining the Growth of TNCs

The liberal, critical and realist perspective have different opinions about the growth of TNCs and its impact on the sovereign state.

Two theories could be used for the liberal perspective:

1. Product life cycle model of Raymond Vernon.

2. Ownership, location and internationalisation model of Dunning.

Another theory from Strange emphasises three structural changes in the global economy instead of simply decisions taken by firms.

1. Falling real cost of transport and communication

2. Development of new technologies

3. Creation of new financial instruments.

A traditional theory of Stephen Hymer could also be used. His arguments are based on the oligopolistic business structure in the US and the systematic factors emphasizing the uneven development capital markets.

The liberal perspective argues that the net impact of TNC activity is directly and indirectly positive. Critics however show the direct and indirect negative effects of TNCs. See page 137 and 138 for the arguments.

Major developments

There has been a proliferation of corporate activity and business activity around the world. Organisational forms changed significantly due to the following developments.

1. Technological change: the tendency of companies to be more competitive, innovative, efficient and profitable caused rapid developments in the technological area. Firstly technological change led to new products by means of product differentiation. Secondly, technological change led to greater homogeneity among consumers, since it is more efficient to produce according to a global standard. Another development is the shortened lifetime of products, due the increased competition. Thereby the cost of R&D increased significantly.

2. Communications and transport: Communication creates a fast and reliable way of information sharing between the TNC and its subsidiaries. Geographic distance is not a problem anymore. Transportation makes for products to be able to move cheap and fast between the TNC production and subsidiaries.

3. Finance: Integrated financial markets facilitated global production. TNCs are better able to get funds all over the world. Globalisation in finance is the result of three key factors.

4. Technological innovation

5. Less government involvement in the legal and technical barriers of movement of capital

6. Innovation in financial instruments (interest rates, currency and stock market, swaps and options).

4. Political: Again three political factors that have had an effect on globalisation

5. The interest of the US after the second World War to expand its business enterprises.

6. Liberalisation of the financial market.

7. The relocation of manufacturing and production to the third world. The policies of developing countries were to attract foreign investment. To reach this developing countries created export processing zones (EPZ). This is an area in a country created for export production. Regulations in these areas are often modified to attract investors. TNCs benefit from low wage labour and minimum external cost and governments gain the benefits of foreign currency earnings from exports.

Changing organisational principles.

Changing organisational structure is a direct result of globalisation. Firms figured out that merging resulted in efficiency and lowered external costs. That is why vertical integration had a major impact on the growth of TNCs. In this case the company retains control and does not have the risk of technology dissemination. Another development has been the creation of trans- border production systems.

From Fordist to Post-Fordist production: Mass production and mass consumption resulted in an rapid increase of TNCs in the 50s and 60s. Price competitiveness was the main objective. At the end of the 70s production innovation became most important. Consumer demand became the main objective. Specialisation, quality control and differentiation are the most important objectives today.

Mergers, strategic alliances and joint ventures: There has been an enormous increase in takeovers from the 80s onwards. The reason for these takeovers were technological change, entering new markets, expansion of the service sector and increased pressure of shorter product life cycles. Companies have to respond quickly to the changes in the market and have to be locally aware.

Re-evaluating the benefits of FDI

A generalisation whether FDI is beneficial or not could not be made. Specific country and firm characteristics rather that general orientation of firms and countries need to be taken into account. Economic, political and cultural issues determine whether foreign direct investment is positive or not. This reasoning concludes that FDI could be beneficial from an economic perspective while it is not beneficial from a cultural perspective at the same time.

The attitude of the host country and the development of the government in that country partly determines whether foreign direct investment enhances or inhibits the development of local industries. From the critical perspective one could argue that only low skilled technology is moving toward the developing world, though evidence shows that developing countries that allow FDI industrialised at a faster pace than other developing countries.

However the presence of TNCs might not always lead to a beneficial situation. Industrialisation may take place, but he actual development may be inhibited. A reason for this is that TNCs only use the subsidiaries in host countries as offshore satellites for their main activities. Next one could argue that most of the profits return to the home country. Consequently value adding activities such as R&D remains in the home country itself. TNCs do not help developing countries, rather developing countries serve as an inexpensive source of consumer goods.

State- firm interactions

The issue discussed is the power of states relative to TNCs. Some people fear that the TNCs will get too much power in the future. States need to find a balance between attracting FDI and maintaining the national interest. Four issues are discussed to show state- firm interactions.

1. Changing attitudes: Governments have had different attitudes throughout time regarding foreign direct investment. In the 80s the attitude changed from a negative to a positive attitude. This was the result of neoliberal economic policies, globalisation, learning systems, industrialisation, converging economic structures and more cooperation between investors and governments.

2. Decision making and national autonomy: Due to the globalisation the state is only one player among many and therefore they are losing their autonomy. Firms are no longer dependent on regulation of governments in a single state. TNCs are footloose.

3. Transforming state policies: TNCs also transformed the nature of the state. Competition state is the term used to describe the competition among states to stay attractive to foreign investors. To do so governments have to take a more neoliberal approach.

4. labour: Two issues could be distinguished here. The first is that labour moves from high wage(developed) to low wage (developing) countries resulting in unemployment in the developed countries. The second is the bad working conditions in the developing countries.

Capital regulation and Production

International regulations increase due to the reduction of autonomy of governments and the increased power of TNCs.

Conclusion

The spread of TNCs since the 1950s and the creation of a global production structure have had significant effects on international economic and trade structures, industrial development and government policies. Much of the uneven development and industrialisation that occurred in the final years of the 20^th century can at least partly be explained by differences in TNC involvement and government policies towards foreign investment.

Chapter 8: Global Political Economy and the Financial System

Defining the concepts

Two significant parts of the financial system will be considered.

1. International Monetary System (IMS): The IMS is the currency exchange between countries. Two major developments could be identified after the second World War.

The first is the move from fixed to floating exchange rates. After the breakdown of the gold standard countries wanted a system with stable exchange rates. The solution was the gold exchange of Bretton Woods. In the system the US dollar was fixed to gold. The currency of other countries were fixed to the dollar. In this way it was possible to adjust the value of a currency when for example productivity levels fell. Two institutions were created to make the system work. First the International Monetary Fund (IMF). The IMF could loan money during a temporary downturn of a country. The second institution was the World bank. The system seemed stable, however according to the Triffin’s dilemma there was one shortcoming. Robert Triffin worried what would happen when there were more US dollars outside the US than gold inside the US. The outflow of dollars was needed to help the rest of the world. In the 60s there were more dollars outside the US than gold inside. The US had to change its value of its currency and had to break the link with the gold. The second is the replacement of national currencies for a regional currency (e.g. euro).

2. Global Credit System (GCS): This system is about lending and borrowing money. Europe needed credit to rebuild its economy. The US did this through the Marshall Plan, military spending and foreign investment. The Marshall plan had as requirement that the country liberalised the economy and engaged in free trade. The communist countries were not able to combine free trade with the planned economy, resulting in no Marshall funds. The Marshall funds had a role in the Cold War confrontation between the US and the Soviet Union. Opening up to free trade had as negative effect that countries were not able to manage their balance of payments.

Contending paradigms and the Mundell- Fleming Trilemma

The Mundell- Fleming trilemma could explain financial crises, implication for regional currencies and national autonomy.

The trilemma consist of the following parts:

1. Capital mobility: The ability for money to cross borders freely ( to attract investment and economic growth).

2. Stable exchange rates: The existence of fixed or minimally floating currencies. (Ensure investors that the value of their money will not be lost through a depreciation).

3. Monetary policy: The ability of a country to set its own interest rates to influence growth and employment (control money supply and interest rates to support domestic economic conditions). Many governments assigned a central bank independent of this policy. During slow growth and low inflation banks would lower the interest rates and raise interest rates when the inflation is high.

Only two of the parts of the trilemma could be achieved at the same time.

A change from fixed to floating exchange rate as major development

The economy of Japan and Europe grew, however both economies were reluctant to revalue their currency against the dollar. From the perspective of the US the foreign products were cheap, but the export was expensive for other countries. This led to a deterioration in the trade balance. In 1971 the US imposed a tariff on imports and moved away from the fixed standard. Fixed exchange rates are hard to maintain because:

1. It needs cooperation between countries, which had its limits.

2. Fixed exchange rates are hard to maintain when having increased capital mobility.

The floating exchange rates created the opportunity to make profits from currency transactions. A floating exchange rate could have influence on the interest rate, inflation, growth, export and imports, foreign direct investment and consumption. In the 80s floating exchange rates seemed to create problems. Ad hoc cooperation tried to coordinate the economies in North America, Japan, Germany, UK and France. The 5 countries (G5) agreed to lower the value of the dollar. In Europe there was an exchange rate mechanism to help countries with a trade deficit. The country with the falling currency had to sell their foreign currency in exchange for the domestic currency. This ultimately led to the foundation of the single currency, the euro.

Countries gave up their domestic currency and agreed on the regional currency, the euro. The goal was monetary stability. The European Central Bank is responsible for price stability (low inflation).

The European Central Bank set a single exchange rate for all member states and managed this exchange rate to maintain price stability. The euro had positive and negative effects for the economy. Ultimately closer political ties were the main reason to increase the ties.

Dollarisation is the trend to favour a foreign currency instead of the domestic currency. In fact dollarisation means that national currencies still exist, but that people use the dollar in practice. De jure dollarisation means dollarisation in law. National currency is replaced by the dollar. Reasons for the dollarisation are a loss of faith in the home currency or facilitate trade relations (e.g. Canada) and reduce problems with fluctuations. A disadvantage is that the countries are dependent on the policies in the United States. This may hinder economic growth when the policy has different needs for the dollarised country.

Financial innovation and crises as major development

Two features will be discussed

1. Degree of innovation: Innovation and better communication possibilities allowed for financial transactions to take place at a faster pace and a greater volume. A major financial innovation was the creation of offshore financial markets (Eurocurrency). New instruments such as currency swaps, futures, options and derivatives entered the market. Some of these methods backed individuals against the risk of falling and rising prices and created opportunities for investors to profit. Another development was the rise of sovereign wealth funds (investment companies controlled by the national government) and hedge funds (complicated financial transactions with a combination of short and long term assets).

2. Financial crises: Deregulation of the financial market in for example the UK had a financial crises as result. All the innovations can have positive effects such as growth, stability and prosperity, however the disadvantage can be a financial crisis. This is the result of losing trust in an economy.

Liberalisation in the developing countries and the second oil shock led to a debt crisis in the 80s. US government tried to stop the inflation by raising the interest rate. In this way consumption goes down, reducing demand, resulting in a slowdown of prices.

The recession had an effect on the developed and developing world. The developed world had an decrease in demand for imports and imposed protectionism to ensure domestic jobs. The developing world had to pay higher interest rates over its loans and had more difficulties in selling their products. The effects due to the high loan repayments had an devastating effect on the living conditions in these countries. Privatisation of healthcare and education resulted in low quality institutions.

The IMF offered temporary loans for the countries in need. In return the US government, World bank and IMF asked for liberalisation of the market. This is known as the Washington Consensus.

The second Mexican crisis in 1994 proved that liberalisation of the financial market could lead to a debt crisis. It is also a practical example of the Mundell- Fleming trilemma. (see box 8.9). Due to the globalisation each state could be subject to a financial crisis in a very short time period, despite changing policies.

When investors lose confidence in an economy they spread their money across different countries which will result in more panic and problems. This effect is known as contagion. To reduce this effect two institutions are established.

1. Financial stability Forum (FSF): the FSF is responsible for offshore financial centers, cross border capital flows and highly leveraged institutions or hedge funds.

2. Group of Twenty (G20): The G7, a predecessor of the G20, is a combination of only developed states, while the G20 also includes several developing countries. The G20 concentrates on financial transactions, exchange rate risk, social safety and the environment

Creditors and industrialised countries blame the financial crisis to poor policies at the unit level. States are to blame, because they are accused of having high debts, inefficient economic policies and high levels of corruption. Developing countries and non-governmental organisations blame the global financial system and institutions, because of the rapid flow of capital, unequal benefits and moral hazard. Moral hazard in this case means that private investors could recklessly invest in risky countries because they knew that the IMF would get their money back.

Global credit crisis in relation with the financial system

The financial crisis of 2008 did not, as any other crisis, started in the developing countries but started in the United States. The main cause of the crisis was the inability of people to pay back their mortgage loans. The process is as follows. Low interest rates to stimulate growth increased demand for loans to buy houses people with lower credit ratings also could get a loan. High risk loans loans were sold off to other investors, repackaged as low risk financial securities investments. Declining house prices combined with the inability to pay back by lenders led to banking problems. Recession in the US and the rest of the world resulted in credit loss: less money to consume, less demand, less supply, higher unemployment, and inflation.

Shadow banks (hedge funds, investment banks and insurance companies) encouraged these high risk loans since they did not have the cost of regulatory banks. However these shadow banks are exposed to more risk than deposit banks.

The US crisis quickly expanded to other parts of the world. Great Britain, Ireland, Hungary and Ukraine were hit hard. Iceland even went bankrupt. Export dependent countries such as China saw a reduction in demand. Developing countries had the same problem as China, but also lost development assistance from many states. Many states held the opinion that the US was responsible for the crisis, and therefore responsible for a suitable solution.

The US dollar in relation with the financial system

The US dollar is the world's reserve currency. Central banks of countries use this currency as reserve asset, for the provision of loans and for purchasing products (oil). Countries use the US dollar as a store of value. This means that governments and individuals hold US dollars instead of gold or property. The US dollar has been the worlds primary currency since the end of the second World War. Countries had faith in the US economy. The US does not face additional risk when the value of its dollar falls, because borrowing is done in dollars. Creditors would lose and bear the risk.

Due to the crises of 2008 many countries lost faith in the US currency. China was afraid to lose its largest export market if the US would increase its interest rate. The result was a weaker dollar and less reliable dollar.

The question of many states was: ‘is there an alternative currency’? The euro seemed to be a good alternative. Although the euro is a currency without a state. This means that the countries of the European Union does not have financial and political power in the defense of the currency. The euro is just an alliance of states. Without a state as power it is unlikely that the euro replaces the dollar as international currency. This became evident during the European sovereign debt crisis of 2010. Another alternative is the Chinese currency, but China has too many state involvement. The Chinese state does not allow the renminbi to float on the international market, because China insists on controlling this currency for domestic policy reasons. A rise in the value of the renminbi, could damage the export, so the social stability.

Even a small event could change the world economy. Globalisation makes the world footloose and risky for even the smallest changes.

Sovereign debt crisis and the financial system

After the crisis of 2008 countries had difficulties with servicing their debt. A country’s debt is the total amount of money it owes creditors. It is the result of the sum of budget deficits. Budget deficit is the result of higher government spending in comparison to revenue. Governments sell bonds to get money and pay bonds or bond interest with revenue.

The sovereign debt crisis was a dual crisis. A combination of a credit and monetary system crisis. The crisis started in Greece. Greece had a large deficit and due to the crisis low government revenue. Greece had to increase its interest to finance its debt. Private sectors were afraid that Greece was not able to pay back its loans. European states and the IMF decided to bail out Greece. Bail outs are loans to be paid back with interest. European states would help Greece if Greece would reduce its budget deficits by reducing government spending, reducing the size of public services and curbed pensions in return for loan funds. The country level reforms or the austerity plan resulted in an economic depression.

The currency without a state ran into problems. Three main concerns about the euro:

1. Greece might withdraw from the euro and implement the drachma again. This would stimulate export and tourist spending. Would the euro survive this withdrawal of Greece?

2. Which countries would follow Greece? Portugal, Spain and Ireland followed Greece in the crisis. Portugal had a large public sector and Spain and Ireland had housing bubbles.

3. Fragility of the global financial system.

Results Production

The financial crisis opened a debate whether all countries should converge (pursue similar policies) or whether there should be room for autonomy. The increased power of capital gives more power to the ones who possess wealth. It is easy to transfer money from minute to minute.

Another development is the attention to credit rating agencies such as Moody’s and Standard and Poor’s. A lower rating will result in higher interest rates to compensate for the risk. A poor rating could work out very negative. These credit rating agencies serve often in their own interest and can not be fully rational ( institutionalism). Research showed that agencies give countries a higher rate with which they have strong economic bonds (constructivism).

The practice of democracy might also suffer. People could give their vote to a political party in the government, but if the structural power of capital increases, the financial market rather than the government decides which policies will be implemented.

Chapter 9: Global Political Economy and Labour

Defining the concepts

Division of labour refers to the roles that people occupy in the production process. This division of labour differs between countries. Some countries have a very specialised labour force and some countries have a diverse labour force. This could also differ between urbanised cities and agricultural societies.

Besides the local division of labour there also exists an international division of labour. This is the geographic location which determines which product you export or produce.

Global division of labour emphasises that no particular activity is confined to a particular state. A state might have changed from capital intensive to labour intensive or the other way around. Most software jobs are located in industrialised countries, yet some developing countries also have IT jobs.

A gendered division of labour exists when societies have predetermined jobs particular for men and women. The gender division changes over time through social and economic circumstances. In some countries there is a break down between women´s work and men´s work. However in most countries women are underpaid and seen as most suitable to take care of the family.

Racial and ethnic division of labour groups: People with different ethnic backgrounds and physical differences are mitigated into specific jobs. Slavery is the best example of the racial division.

Contending paradigms and the perspective of Adam Smith

Liberal perspective: Adam Smith started to emphasise the benefits of an increasing division of labour in his book ‘The Wealth of Nations. Breaking down activities would result in a higher productivity. The higher productivity is the result of three factors:

1. Practice one particular task makes someone faster to perform that task.

2. Time is saved by eliminating the need to move from one job to another.

3. Machinery could perform the most easy task which made the process more swift.

States should take steps to establish this kind of division. Smith argued that even the lowest members in a society would be able to benefit from this system. The comparative advantage discussed in chapter 4 is again applicable to this situation.

Critical perspective: According to this perspective specialisation is not natural but shaped by power relations. 3 types of critical perspectives exist:

1. Feminist: Unequal distribution between men and women. Unequal opportunities.

2. Theorists/ Scholars: Some countries are victim of the imperialist activities of more capital intense others. Labour is determined by this imperialism (dependency). E.g. triangular trade. Force determines in which products countries specialise rather than a natural distribution.

3. Realist: States must shape the division of labour. A country could impose rules and regulations to attract or put off labour.

Production process changes as major development

Two main developments could be distinguished in the production process:

1. Introduction of mass production: Henry Ford used mass production and mass consumption. This is also known as Fordism. He standardised the production process and made it more cheap and quick. Mass production was achieved because Ford used the principles of Taylorism. Fredrick Taylor is the inventor of scientific management. He broke down the production process in individual tasks. Key was management control over working time. To increase productivity workers performed simplified tasks. Mass consumption was achieved by redistributing income from wealthy to a broader group of citizens through public healthcare, education and unemployment insurance etc.

2. Flexible specialisation: Methods like just-in-time production, lean production and Toyotism allowed for more flexibility and workers were encouraged to work in teams and learn a variety of skills.

From international to global division of labour as major development

Technological change, improved transport and communication, growing cost in developed states, low-cost in developing states and policies such as export processing zones supported production to move between the developed world to the developing world. These developments had a negative effect on the labour force in the developed world. Companies had to stay competitive and insisted employees to work longer, more flexible and for a lower wage.

In the 21^st century a global division of labour could be identified. The capitalist class benefits of this process, however this group seems to underestimate the social consequences and the increasing inequality between countries and classes

Another dimension of the global division of labour are the migration streams. Many migrants send remittances back to their developing home country while working in a developed country

Remittances have positive impacts since they better target the needs for the poor than aid or FDI. Developed countries are dependent on migrant labour because of shrinking populations and ageing populations.

The rise of India and China and the global labour division

China and India are the two most populous countries in the world and therefore have a significant impact on the division of labour.

China created special economic zones and negotiated with TNCs to get high amounts of Foreign Direct Investment. The FDI inflows created employment and export opportunities for the Chinese markets. The FDI inflows also had negative effects for the internal division of labour. First, the special economic zones created immense migration streams between rural and urban areas. Second, bad working conditions often resulted in demonstrations. Third, governments had hard times in controlling these activities. The cheap labour in China resulted in a debate whether Chinese manufacturing undermined global labour standards or not. The tendency for cheaper products resulted in lower wages and worse working conditions for Chinese employees.

India also became more integrated in the global economy, after its government began a liberalisation program. India had large success in the service sector (e.g. call centers). Some Indians even received a visa to perform specialised tasks in the US itself. This created challenges for the domestic employees in the US. Bangalored is the term used for someone losing his/her job due to a specialised employee from India or Bangladesh. There were also internal pressures in India. Some people worried that governments would help high-tech industries at the expense of the large agricultural production.

Struggle for worker right in the global division of labour

Most international agreements have a liberal purpose. Non business actors and social groups have tried to influence these agreements, however creating labour rights in a globalizing and liberalising world is extremely difficult. Regulation of states and market forces are the main driving force for creating labour rights. The state could impose extraterritorial regulations, that is that a company should behave according to the rules in the foreign country. This however is very idiosyncratic. That is that the rules and regulations are not based upon an international consensus but on national interest.

That is why often multilateral agreements have the preference over extraterritorial regulation. However, multilateral agreements do also have the disadvantage of benefiting the wealthiest and strongest powers.

The International Trade Union Confederation is an international labour movement which goal is to provide each county with:

1. Freedom of association and the effective recognition of the rights to collective bargaining.

2. Elimination of all forms of forced or compulsory labour.

3. Effective abolition of child labour.

4. Elimination of discrimination in respect of employment and occupation.

The International Labour Organisation (ILO) took steps to impose on all countries a minimum level of social protection. Activists, social society groups and other labour organisations also argued for a minimum level of social protection. However, most liberal states argue that interference would lower gains from trade. State regulation led to enforcing new codes of conduct as basic principles for the behaviour of TNCs.

The media also has a strong influence on the working conditions. If companies or governments get bad publicity they often impose new codes of conduct to maintain their reputation.

The increased pressure of labour and consumer groups has led to the global compact initiative in the United States. It encourages basic principles for human rights, labour standards, environmental protection and anti- corruption for companies conducting business outside the US.

Labour unrest and global order in the global division of labour

Labour unrest could lead to war as shown in communist Russia. The International labour Organisation (ILO) is created to ensure basic labour conditions to maintain order among the labour force. Three groups have challenged the stability of global order. All three groups show that the labour force is a strong factor in determining social stability.

1. US workers: This groups is seen as an obstacle for further liberalisation and internationalisation. US workers would like to see international basic labour standards introduced in their country.

2. Workers in the NICs: The financial crisis in Asian countries led to unrest among the citizens. This again led to unemployment and instability.

3. Peasant farmers: What are the implications when peasant- based agriculture is replaced with capitalist agriculture?

Chapter 10: Global Political Economy and Gender

Defining the concepts

Sex is a natural state and biological determined. Gender is about social roles, the ideological and material relation between human beings. Gender could also be a social learning process. Men and women are different biologically, but this sex difference is not the same as the social distinctions.

Devalorisation means that characteristics of masculinity are more valued than characteristics of femininity.

The role of men and women varies between cultures, also the time is important to consider the different social expectations of men and women over time (chapter 3-5).

Gender roles are important because they shape the production, distribution and consumption activities within and across nations. Gender plays a role in access to work, income, wealth, leisure, education, health, political power and decision making. Women are discriminated on basis of their gender. This discrimination could lead to a reduction in economic growth.

Many national and international institutions are currently addressing the gender inequality. Feminism also had strong impacts on the power of women. Feminist would like to have more responsibility and power.

Contending paradigms and the importance of gender

When feminism started to emerge all three paradigms were gender blind. Meaning that they excluded all issues regarding the difference between men and women. Gender differences have been neglected for a long time, also by textbooks in international political economy.

To create a holistic view, to show that men and women are different, and to uncover important topics it is crucial to take the gender issues into account. The world cannot be explained when it is gender blind.

Feminists reshaped the conceptual landscape. Feminist argue that social institutions are not gender neutral and influenced by Devalorisation. Feminist also argue that the conventional focus on the market undermines the full economic value of women.

Integration of women in the workforce as major development

Women have increased their participation in paid work and therefore the visibility of female contribution to economic growth increased. This higher participation does however not lead to less inequality and discrimination.

Currently women are more employed than ever before. Of course there are some regional differences but the overall trend is visible. Female employment rates are higher and there is also a large difference in participation between developed and developing countries.

The increase in participation could be explained by:

1. The shift from agriculture to the service sector

2. Rise of labour intensive manufacturing industries in East Asia. These export reliable industries are largely dependent on women.

3. Women are better in jobs with high levels of communication, social and personal services.

The inequality and discrimination remains. This inequality could be explained by several reasons:

1. Women often work temporarily and have part time jobs. This makes that jobs for women are less secure

2. The working conditions are often bad and women are exposed to sexual harassment

3. Another reason is that women are joining the workforce from a position of poverty and insecurity

4. Women earn on average less than men, even when they have the same occupation

5. Women have limited opportunities to climb the career ladder compared to men

6. Women have poor bargaining and negotiation capacities

7. Educational attainment is often lower for women

Glass ceiling refers to the situation in which women earn less for the same senior management position than men.

The emergence of women in global public policy as major development

Governments, regional organisations and multilateral organisations created more policies specific for women. In this section the role of women in the international sphere will be discussed.

The evolution of the gender difference could be traced back to 1972. In this year the UN proclaimed 1975 as international women’s year. The period between 1974 and 1995 is significant in the development of the role of women. The UN declared several conferences to discuss the rights of women. During these conferences several reports were produced.

The goal of these conferences was to force national governments to consider the impact of their policies on women. The impact of the conferences were limited, but it started a process which would affect all the women worldwide. The fourth world conference held in Beijing in 1995 had the greatest effect on national governments and international organisations.

There are three main features that characterise the current mainstreaming of gender in policy and practice.

1. Normative commitment to gender equality: five documents have reinforced the commitment. See page 209 of the book. The documents have an international character. The millennium development goals (MDG) is an example which shows that gender issues are included. One of the goals is to promote gender equality and the empowerment of women.

2. The reinforcing of the normative developments: It is about whether the abavementioned normative rules also have become part of the UN system. Four functions within the UN merged together and formed the United Nations Entity for Gender Equality and the Empowerment of Women.

3. Mainstreaming gender in international organisations: Many countries and institutions deal with gender differences. Take for example the ILO and the WTO. The Worldbank was slow in integrating gender issues.

Poverty and feminism in relation with gender

The key objective of the United Nations Millennium Declaration shows that poverty and gender inequality are linked: ‘to promote gender equality and the empowerment of women as effective ways to combat poverty, hunger, disease and to stimulate development that is truly sustainable’. Female poverty is the result of the following three factors.

1. Increase in female headed households: Not very conclusive. Regional differences exist.

2. Intra households inequalities: Conclusive. Women have unequal access to education, healthcare etc. This has a negative impact on the level of employment and income generation.

3. The impact of neoliberal economic policies. Women often are more impoverished by the liberal policies than men.

Globalisation and reproductive work in relation with gender

Through globalisation, many activities that took place in a household can now be bought for money and provided through national structures. Three significant aspects are:

1. Sex work: Many women engage in providing personal service to men in wealthier states. This can be cleaning, childcare or prostitution. Negative results of this are AIDS and child sex.

2. Domestic services: Women from developing countries are imported to help provide childcare, do housework, or to help elderly people. The amount of people and the amount of money these people are sending back in the form of remittances is large. Women from developed countries who are willing to work are sometimes dependent on nannies from developing countries.

3. The purchase of brides: another activity that is provided through the transnational structure is mail-order bride. Mail- order brides mostly originate from the developing countries.

Global restructuring in relation with gender

Some connections between globalisation and economic activity of women could be recognised.

Women are involved in the production especially in the EPZs. This is because they have more experience and have more suitable skills to perform the jobs in the EPZs. Thereby they accept poor working conditions and lower wages to take care of their families. In the export zones, unions are often prohibited. Women have to work under dangerous and unhealthy conditions. They also face the threat of sexual harassment.

Capitalism creates inequalities between men and women. The un-gendering of labour is one issue in the development of the global economy.

Chapter 11: Global Political Economy and Economic Development

This chapter deals with the eradication of global poverty, a reduction in equality, and a lessening in the disparities of global power and influence. There is some agreement about how to achieve these goals. However this agreement in not universal. The international community agreed on the Millennium Development Goals (MDGs) of the United Nations (UN). The MDGs are developed to create economic development worldwide.

Defining the concepts

Development is both a process and a condition. A process whereby a society may transform to a self- sustaining country. It is an ongoing process with cultural, political, social and economic change. Conditions are: greater access to new technologies, taking advantage of market forces and individual actors being more aware of economic development.

The definition of development changed over time. The scope also changed. Immediate after the war development consisted solely of an economic indicator of GDP. This approach gave little attention to social and cultural aspects. The definition was based on a trickledown effect. That is that social and cultural development would be achieved if the economy would grow first. The Kuznets Curve shows this relation. First inequality will increase if the economy grows, but this would reverse in the long run. Many people saw the Kuznets curve as a restriction

Researcher argued that the definition of development should include social objectives such as employment, health, shelter and gender. The Human Development Index (HDI) takes these factors into account.

The HDI is based on life expectancy, literacy, education and income. The higher the HDI the more equal the distribution of wealth. The GDP does not take the distribution of wealth into account.

Nowadays everyone accepts that the definition of development should include social aspects. However there is no agreement on how to measure and what to include in this definition

The terminology of developing countries changed over time. The following definitions are used in order of time. Underdeveloped - less developed - developing country - Third world - Global South - Emerging countries.

Contending paradigms and the importance of development

The debate around development could be divided into two issues:

1. Internal or external factors contributing to the success or failure of the economic development of a society. Proponents of the internal factors are the ones who believe in an internal causation theory. The availability of resources will show whether a country is able to grow or not. Causes are found at domestic level. This view is also called modernisation theory.

Proponents of the external factors are the ones who believe in an external causation theory. An example of external causation is the dependency theory. Lack of development was not the result of poverty and the absence of modern values, but was the consequence of modern exploitation. Dependency theory believes in a zero sum game. Development of one country means underdevelopment of another country.

Modern theorisation says that underdeveloped countries could develop when they follow the approaches of the developed countries. Dependency theory says that developing countries have no choice or option and are controlled by external influences.

It could be concluded that development is not a result of solely the internal or solely the external factors. Underdevelopment is rather a combination of both.

2. The role of the state and market in promoting development. The newly industrialising countries (NICs) (Korea, Taiwan, Singapore and Hong Kong) had low inflation, fast growth, macro-economic stability, high saving and high life expectancy and literacy. Neo liberalists argued that this is the result free markets, less government intervention, deregulation and an attractive investment climate. They emphasise the export oriented industrialisation (EOI). Everything should be done to encourage exports.

Developmental school emphasised that the industrialisation could be achieved by import substitution industrialisation (ISI). High tariffs and other actions to promote the domestic industry.

In the tables in the book one could conclude that the EOI is the best approach to use. However in the countries where they rely on EOI, governments had an active role in promoting the export. This is not very liberal, but highly mercantilist.

Liberals admire internal factors. Radicals or critics admire external factors. Nationalists admire both. Nationalist will however admire the role of the state. Liberalist will admire the role of the market. Critics will focus on global capitalism.

National capitalism between 1947 and 1981 as major development

This period is characterised by strong government interventions. Keynesian economic theory sought a balance between intervention and the market. Policies were created to maintain power for the government rather than help the population out of poverty. Developed countries grow until the oil crisis in 1973 and the collapse of the Bretton Woods system in 1971. The developing countries lacked development opportunities. The gap between developed and developing countries grew partly due to the liberal system.

In this time the developed world believed in a trickle down economy and perceived the absence of modern values as main cause for underdevelopment. The dependency theory argued that the domestic failings were not the only cause of underdevelopment. Developing countries also had a preference for ISI. So protecting the domestic industry and create exports for the foreign world.

The trickle down economy did not work. There should also be a focus on rural and agricultural sector instead of only the industrialised sector. For many developing countries relied heavily on agricultural exports.

Elites of the developing countries would like to have their own say in the international order to assert their vision of development. They did this through two main organisations

1. Non- Aligned Movement: mainly concerned about political issues (originally founded to stay neutral in the ideological conflict between the SU and the US).

2. G77: Articulation of demands for the developing countries and a collective voice in the World bank and IMF.

The Cold War also had an influence in this period. Most people saw the war between capitalist and communism as strategic and political, but it certainly had economic aspects. Both capitalism and communism used the developing countries to impose an economic ideology, to get market access and access to resources.

Capitalist states used their money in the battle against communism, however they were not devoted to helping developing countries getting out of poverty.

Neoliberalism between 1982 and 2009 as major development

The era of the 1980s is seen as a lost era, because the number of people living in poverty increased and living standards declined. Developing countries were severly hit by the second oil crisis and recessions. Therefore other countries were not interested in investing in developing countries anymore.

Structural adjustment was needed to improve the conditions in developing countries. The debt crisis in Mexico in 1982 was the beginning of a series of countries undergoing structural change. The international organisations and national governments needed a stable banking system, since problems in the economic system would result in disastrous results for developing countries whilst increasing poverty even more.

The recession led to a larger gap between developed and developing world. There was even a large gap between developing countries. The World bank and IMF felt that they had to impose strong rules for the Third World debtors. A Neoliberal approach of structural adjustment was opted for by the international institutions, believed to be the best method to development.

Structural adjustment program were created to help developing countries. The IMF would provide these countries with loans in exchange for trade liberalisation, privatisation, deregulation, a shift from import to export (ISI to EOI) and credit reduction. Critics however argue that the structural adjustment would ultimately result in lower wages, higher poverty, higher unemployment and disintegration of societies. As already discussed in the chapter of the financial crisis the shift from nationalist to (Neo)liberalist is referred as Washington consensus.

NGOs grow in their level of importance. The NGOs brought welfare, development relief and social services to the poor. NGOs were most important when states where incapable of meeting basic needs.

The end of communism resulted in an open global market and a battle between third world and former communist countries to get investment from the developed countries. The end of the Cold War and sustainable development had an impact on the governance issues.

The result of the crisis of 2008 on the developing countries are not totally visible yet. Some are weaker trade, tighter global financial conditions, lower remittances and higher unemployment. It is very clear that the poorest countries will be hurt.

The role of organisation on economic development

Development is not only organised nationally, but also organised internationally. The World Bank is a good example of this. The World Bank is world’s premier multilateral development agency and compromises five organisations. The bank fulfils three main functions:

1. Providing loans to developing countries

2. Developing international norms

3. Resolving disputes.

In the 90s the main focus moved towards sustainable development. Because of criticism the World Bank developed an environmental policy. The role of the World Bank is controversial. Opponents will argue that the bank fights poverty, critics will argue that the bank distorts development. The World Bank itself has a liberal perspective. The bank made a switch from Keynesian liberalism to neo liberalism.

Critics argue that the organisation is not democratic but based on economic contribution the participating countries have in the organisation. Critics would like to see one country one vote. Developing countries would like to have a voice in the World Bank, but the developed countries deny them this voice (box 11.6). Thereby the Word Bank is not open for civil society groups.

The role of debt relief on economic development

High debt ratios reduces spending power, the ability to fund education, health and other social programs. Furthermore it weakens the economic growth since debtor countries are not attractive to invest in. That is why many civil society organisations campaign for cancellation of debt.

Western countries and international organisations agreed to reduce the debt of developing countries. Two multilateral debt relief organisations were created:

1. Heavily indebted poor countries (HIPC): Reducing in debt when a country meets certain criteria. Critics say the organisation is not transparent and too much focused on paying debts instead of reducing poverty and stimulating economic growth. The HIPC did some transformations and many countries benefited of the organisation.

2. Multilateral debt relief initiative (MDRI): 100% debt relief for a selected group of low income countries. Collaboration between World Bank, IMF, Inter- American Bank and the African development Bank.

The role of North- South conflict on economic development

The North- South conflict refers to the political differences and diplomatic conflict between the governments of advanced industrial countries and those of developing countries.

The dissatisfaction of developing countries about the liberal policies started in the 50s. In the 70s the New International Economic Order (NIEO) increased the conflict. Developing countries argued that the economic order was too much focused on the developed world and failed to incorporate support for developing countries. In the last three decades the gap between rich and poor increased even further.

Third world solidarity will result in changes in the global political economy. The debt crisis resulted in high debts which reduced the independency of developing countries. Current issues, for example the DOHA round, showed that the developing countries are organizing, but struggling to get a say in the international organisations.

Chapter 12: Global Political Economy and Environmental Change

Defining the concepts

International or global governance: Intersection between environmental concerns and the global political economy. International cooperation is needed to manage domestic and global environmental problems in a way that does not place a particular state at a political or competitive disadvantage.

Sustainability: The environmental problems in the global economy due to consumption, production and distribution.

Environment: Human activity on the natural environment. Attention is paid to the use and misuse of resources.

Environmental degradation: Human uses nature in ways that threaten the sustainability of the natural resources and create unwanted problems such as pollution. Is the historical result of capital accumulation and the pursuit of economic growth.

Sustainable development: Development that meets the needs of the present generation without jeopardizing the resources available to the future generation.

United Nations Conference on Environment and Development (UNCED), known as the Earth Summit: Their goal is to preserve environmental quality and combating environmental degradation. Sustainable development is seen as a new approach to development.

There are 5 main accepted features about environmentalism (box 12.1). Political, economic, social and ethical dimensions are involved in these features.
 

Contending paradigms and the importance of the environment

Human practices influence environmental degradation. The different perspectives in the domain of political economy have different opinions about the causes and solutions of environmental degradation.

The perspectives mentioned earlier (liberalism, nationalism and Marxism) devoted little or no attention to environmental issues. However after the environment became a main topic in global economy the perspectives developed their opinions about the international coordination, environmental degradation and sustainability.

Nationalists argue that all nations act in their own self-interest and that international cooperation is hard to achieve.

Realist also argue that issues regarding the environment will also be in the advantage of the most dominant (developed) states. Realist are skeptical about international cooperation.

Sustainable development will only be achieved when states pursuit policies to be in their self-interest. States rather admire economic growth than sustainable development. That is why sustainable development will be no reality but an aspiration.

Liberals argues that there is a mutual interest to work together at issues regarding the environment. A network of independencies will result in a positive sum for the whole society. Non-governmental and intergovernmental organisations also help to create a positive sum outcome.

Environmental degradation is explained by market failure.

Critical: Conflicts between capitalist states makes cooperation impossible. And if cooperation is made possible the results will be in the advantage of the most dominant states what would create larger inequality.

Environmental degradation is explained by the development of capitalism. The capitalist system is exploitive by nature and therefore not suitable for sustainability.

To extend the analysis of environmental degradation and sustainability it is important to take two other perspective into account:

1. Environmentalism (technocentrism): The main objective is to satisfy the needs of humans. This perspective is based on western cultural values and the capitalist system. Two variants could be recognised. Reformist (modern economic growth is the main cause of environmental degradation) and conservatives (capitalism and personal liberation are the drivers for change.) Environmental degradation is the result market failure. To protect the environment it is important to first determine the real cost and then the most efficient solutions. Managerial environmentalism is the term used to describe this policy.

2. Ecologist (ecocentrism): The main objective is the survival and progress of the environment.

For all the differences between both perspectives see box 12.2.

New wave of environmentalism as major development

Limiting the spread of nuclear weapons, wilderness and wildlife conservation, and fighting maritime pollution are international agreements made at the beginning of the 21^st century. However, the concept of environmental degradation is relatively new and stems from three sources:

1. UN international conferences: The UNCED held in Rio in 1992 created concerns about the environment for international economic diplomacy. Non-governmental and governments were all involved in the Earth Summit. Agenda 21 was created to monitor and implement policies to reduce the problems with environmental degradation. In 2002 an evaluation was held in Johannesburg (Rio +10) to discuss the result of the Earth Summit and to settle new targets for the future. During both rounds sustainable development had an important contribution.

2. Scientific knowledge: The discovery of the hole in the ozone layer create concerns about the future of the earth. Epistemic communities link environmental degradation with the society. This community consist out of experts who are able to provide solutions to the environmental problems. They create awareness among the citizens regarding environmental issues.

3. Environmental disasters: The link between the environment and the economy is more visible when considering disasters like Chernobyl. These disasters show that industrialisation and new production methods do have negative consequences for health and safety. The disasters led to a second wave of demonstrations of environmentalist action and contributed to the end of the Cold War.

Mainstreaming the environment as major development

After the conference in Rio many domestic and international politicians have placed the issues regarding the environment on their agendas. Three feature characterise the current mainstreaming of the environment.

1. Environmental regulation at the domestic level

2. International organisations are concerned with environmental issues. An example of such an institution is the World bank. The World bank did not recognize environmental issues in the first place. This changed through the post- UNCED World Bank.

3. Behaviour of major firms.

Sustainable development and the environment

Sustainable development is like globalisation a hot issue to talk about. Opponents and proponents have different views about sustainable development. Some say it will reduce economic growth and some say it will increase economic growth. Radicals will say that the capitalist system is responsible for economic degradation and perpetuation of poverty. However in socialist societies many environmental disasters also occured.

The main goals of sustainable development are to eradicate poverty and to reduce the damage caused by production and consumption. Poverty is seen as main cause of environmental degradation in developing countries. Economic growth in these countries could result in less environmental degradation.

There is no clear definition about sustainable development and there is also no consistent way to measure it. Some emphasise the overproduction and some emphasise the over consumption.

The most used definition of sustainable development is the development that meets the needs of the present generation without jeopardizing the resources available to the future generation.

Themes that are discussed regarding sustainable development are efficiency in reshource use, the welfare of future generations, intra and inter country effects (so called North South issues), shift of focus from economic to social development. Many governments, international organisation and firms do see the importance, but are reluctant to implement these issues. Stakeholders that are concerned about the environment could help to implement such issues. Sustainable development has become a competitive advantage.

Trade and the environment

Some will argue that trade will enhance sustainable development, while others will argue that trade promotes unsustainable patterns of production and consumption.

Opponents have the following reasoning. In a world of free trade and competition, companies will move their production to countries with lower environmental regulations to stay competitive. Other countries will also reduce their environmental protection to battle the other countries. Pollution havens will be used to attract investment. These countries will have higher pollution. Governments will argue that there is no relationship between free trade and environmental regulation. They say that environmental cost are not a major determinant of location.

Process and production methods (PPMs) are rules to treat domestic and foreign products alike. Governments may decide to restrict imports of a certain product because of product characteristics, but they may not restrict a product on the basis of the process used to produce the product. This will result in lowered sustainability of production processes. Environmentalist are campaigning for PPMs to also incorporate equal processes. The WTO rejects these PPMs. They say that some developing countries are forced to use environmentally friendly processes. So they are imposed with eco- imperialism.

Another difficulty when implementing PPMs is the best way to monitor. The focus has to be on the process rather than the product. Life cycle analysis focuses on the production, consumption and disposal of products.

Climate change and the environment

The Kyoto Agreements and the United Nations Framework Convention on Climate Change (UNFCCC) increased the awareness of climate change. Governments should halt the global warming by emission reduction and the search of renewable energy. The UNFCC held meetings to develop a global policy on climate change. The result of one of the meeting was the Kyoto Protocol. Kyoto Protocol consist of three mechanisms:

1. Emission trading

2. The clean development mechanism

3. Joint implementation

The lack of US commitment, the eco- imperialism, the self-interest of countries and the denying of the global warming have created difficulties implementing a global policy.
 

Chapter 13: Global Political Economy and Ideas

Defining the concepts

Knowledge structure: determining what knowledge is discovered, how it is stored, who communicates it, by what means, to whom and on what terms.

Ideas: Knowledge structure+ mental images how the world operates. It is also about human interaction.

Worldview/ideology: assumptions that drive human nature and opinions about appropriate actions. The prevalent ideologies are the main perspectives such as liberalism, realism, Marxism etc. Worldviews have been argued to simply be common sense. Common sense however, changes over time and could have major impacts on human beings.

Technology: Technical know- how to produce products. Objects produced by knowledge.

Information: News, data, facts or intelligence material.

Knowledge: Understanding and interpreting information in the right way.

Wisdom: Is a type of knowledge gained from experience and reflection.

Contending paradigms and the importance of ideas

There are different perspectives about how people think the world influences human interaction.

Epistemic communities represent the liberal perspective. As already discussed epistemic communities are networks of professionals in a particular domain with an authoritative claim to policy-relevant knowledge. The main interest of the communities is not the state, government, or other political actors, but keeping with the science.

Critics about the epistemic communities say that the communities are not independent from the political system in determining policies. They are caught up in the battle for political and economic interests. This makes them less reliable. Another disadvantage of the communities is the different vision of communities between different countries. Different social contexts could lead to a different conclusion about the same phenomenon.

Constructivist: Knowledge and action are socially shaped. Constructivism is interest in the way how preferences are created, instead of pre assuming preferences. Constructivist uses the establishment norms for explanation.

Rationalism: Based on a set of presumed preferences. Primacy to material structures. Rules, norms and social institutions are secondary.

Post structuralism/interpretive constructivism: Reality is interpreted in many different ways. It stresses the important role of language systems to communicate our reality. Language is needed to conduct global finance and provides privilege to some voices over others.

Ideas become embedded in institutions. Legal codes and international organisations are created in a specific historic context which reflect the dominant ideas of that time. Once institutions are created they conflict with new institutions shaped by ideas of that time.

Information revolution as major development

The information technology is reshaping the global political economy and has an impact on economic, social and political structures. New economy, knowledge economy, networked economy and digital economy are terms used to describe the impact of IT. In this new economy, knowledge and technology are key drivers for economic growth. Services are also new sources of economic growth and a direct result of IT. The invention of the microchip and the internet have connected people and systems over the whole world and made services possible.

The term new economy has been criticised a lot. Whether technology will lead to economy growth is questionable. New world is a suitable term for the United States but concerns exist in other parts of the world.

IT will change the way people in the whole world work, spend their leisure time and their consumption. It will also create new ethical issues.

Digital divide is the term used to emphasise the unequal access to technology. Access to IT does have a positive influence on development and economic growth. National governments and international organisations have their concerns about countries that do not have proper access.

Washington consensus as major development

Changes in ideas guided dominant countries and shaped economic institutions.

Most Western countries had embedded liberalism as main approach during the 40s until the 70s. Just like developing countries states played a crucial role in assisting the development process. In the period from the 80s until 1997 elites decided to agree on a free market without intervention. Neoliberalism became the dominant principle in economic policymaking. The Washington consensus had broad support among officials in the US government, IMF and the World Bank. Neoliberalism was the result of several developments.

1. Epistemic communities created a neoclassical approach.

2. Embedded liberalism did result in crises and unemployment

3. Washington consensus gave countries the possibility to get loan in return for liberal reforms (the aformentioned stuctrural adjustment programs provided by the IMF).

The Washington consensus was very powerful. The US, World Bank and IMF promoted the consensus, the fall of communism created that there was no alternative and countries not following the consensus could get in great trouble.

A weakness of the consensus was that most countries only adapted a small part of the consensus. Another weakness was the implementation of countries. Some argued for shock therapy (implemented radically) and some others argued for gradual reforms. Thereby In some countries were protests of key social groups and movements about the increasing inequality. The consensus was beneficial for the elites, but not for the largest part of the society.

By the end of the 90s the power of the consensus eroded. Even when countries implemented the consensus they were viable to crises and lower economic growth. The proponents of the consensus said that the countries implemented the consensus in the wrong way.

In 2005 there was a consensus to develop a post Washington Consensus. Confusion existed what to include in this consensus. Suggestions were in favour for more democracy, state intervention and equal distribution.

Technical diffusion and the role of ideas

Technology diffusion might result in less equality, because the diffusion only benefits the industrialised countries. Firms in developing countries do not have the possibility to implement the technology in their development process. The uneven distribution could be seen in the number of patents and Nobel Prize winners. If a country issued many patents it has more knowledge and inventions.

Property rights and the role of ideas

In 1995 the WTO was mandated to protect Intellectual property rights (IPR). The trade related intellectual property rights (TRIPS) states that ‘patents shall be available for any inventions, whether products or processes, in all field of technology, provided that they are new, involve an inventive step and are capable of industrial application’. In this way companies and individuals should be able to protect their knowledge. The technology may only be used when people pay the inventor an agreed price.

In the USA a cure was developed for HIV/Aids. To protect the US companies who invented the drug they received an IPR from the WTO. The inventors sell the drug under a brand name, what makes the product too expensive to sell in the areas with HIV/ Aids.

That is why the WTO agreed that countries would be able to produce and import lifesaving products themselves. It is quite contradictory that many patents of drugs were held in the developed countries while the problems occurred in the developing countries. The question arises whether companies could get product protection in exchange for human lives? Bio piracy is the term used to describe this type of exploitation of human lives.

Global financial crises and the role of ideas

The financial crises of 2008 was the result of inadequate regulation of financial institutions in particular in the US. In the 90s they believed that less regulation would result in the most efficient financial system. The market would resolve mistakes. After the crisis of 1929 many people wondered why countries would again trust a liberal financial system.

However this time the financial system was actively engaged in the political system. Banks were modified and firms took higher levels of risk. Banks grew in size and engaged in new activities. Profits appear more profitable than they actually were.

Because the banks grow in size and had more power it was impossible to impose regulation. The more risky behaviour of firms and credit rating companies were the main causes for the crisis of 2008 (see also chapter 8). This can be seen as the return of a more constructivist view of political economy.

Chapter 14: Global Political Economy and Security

Defining the concepts

Security: to be protected against threats. But no contention about precisely who and what is secured. Three different approaches to security:

1. Traditional state- centric: In this approach security is related to the security of the state (national security). The international system is seen as anarchic with no overarching authority. Countries are constantly in battle of power to achieve security. This approach is characterised by sovereignty, military and the integrity of the state. The negative side of this perspective is the security dilemma. That is that increasing security makes countries less secure. Country A may feel pressure to increase its security when country B also increases its security system.

2. New security studies: When comparing the new approach with the traditional approach, the security is modified in several ways.

3. National security does not always protect individuals.

4. The effect of national security is not seen as simple and straightforward.

5. The definition of security not only includes military issues, but also economical environmental, societal and political matters.

6. Individuals instead of states are used as main point of analysis.

3. Human security: This approach has concerns about the number of threats to human lives caused by interstate warfare. The Cold War reduced the interstate wars, but increased the intra state wars. This approach focuses on international security, developing countries, intra state wars and human security.

Contending paradigms and the importance of security

The economic resources on one side and the military power on the other, give a rise to a number of dilemmas.

Liberals: Ignore the relationship between the Global Political Economy and security. Liberals favour no government intervention, the economy determines equilibrium. Free trade will reduce the probability of a war and therefor no security is needed. Humans are rational. War would diminish economic and social warfare. This is also explained in the Interdependence Theory. This theory argues that under conditions of complex economic interdependence countries will contribute to a peaceful solutions to conflict and will reduce the resort of violence.

Nationalist: Financial and industrial strength (security) does have a positive influence on military strength. State should protect national economic interest and should therefore have a strong army.

Marxist: States might engage in imperialism, because of domestic needs, but this would weaken the security since the state creates opposing views.

Defense procurement is an area where political economy and national security overlaps. Defense procurement is the process by which national governments procure military equipment and services. The overlapping between the political issues and the economic interest make it a continuous issue.

In the debate about the link between democracy and peace, liberals argue that a peaceful international system requires a large number of democratic states. Critics say that there is not enough evidence to prove this.

Thereby critics argue that the capitalist system has a negative influence on the violence between groups and states. Unequal distribution will create tension between these groups and countries.

Security structure in the Cold War period as major development

Security structure is an overarching framework of material, institutional and ideational resources.

In the period from 1948 to 1989 state interest was prominent. The power of the US and the SU led to a bipolar distribution of power. This battle could be seen as an ideational battle between communism and capitalism. Three issues are important to explain the bipolar distribution.

1. The role of the state was conceived as self-preservation. Weapons were needed for the defense and security. The security dilemma could be applied in this case. The US and SU were in battle to get the most powerful (nuclear) weapons.

2. Both the US and the SU created their own international institutions. The US institutions were based on the concept of free trade and the institutions in the SU were based on central planning.

3. The economic ideology of both powers was that capturing developing countries would enhance the national security system.

Eisenhower highlighted the threats of having large amounts of weapons and arms. This could be a threat to democracy but also to personal liberty.

Security structure in the post-Cold War period as major development

The end of the Cold War changed the security system in many countries. The end of the Cold War meant that the US was the sole military power left. To prevent a new security dilemma, international cooperative multilateral institutions were created to keep the peace. However national security remained vital for many states.

Another development was the shift from Traditional state- centric approach to a more human centric approach. Humans and individuals rather than states became the main concern for security. The doctrine of the responsibility to protect (R2P) is a good example for human protection.

The period after the Cold War is a period of new wars such as civil wars. These wars are mostly within countries and are the result of weak central authority. These states are sometimes referred to as failed states. Local military forces finance their activities by extracting money from the local population and tapping external sources of money. These external financial resources could be the result of selling diamonds or drugs in the international market. Remittances are also an external source of money. Companies do facilitate the movement of these products into the marketplace by buying these products. The result of the new wars in failed states is that the local economy collapses and the population is impoverished.

Another feature of the period after the Cold War is global terrorism. Global terrorism led to a shift in international security and raised three key issues.

1. Military threats shifted from state actors to non-state actors. The non-state actors are small groups with their own strategy ( e.g. flying bombs 9/11).

2. The fear that terrorist can strike at any given time anywhere increased the levels of domestic and international security.

3. It changed the interstate relations regarding political and security issues.

Economic statecraft and the role of security

Economic statecraft links economic security with foreign policy. It is the use of economic resources to exert political influence by the state. Two issues have been prominent in studies about economic statecraft.

1. Economic aid: Emphasise lies on bilateral development aid and economic assistance supporting political and security goals. The focus of the aid is on economic growth and meeting political and security goals. Some goals are compatible. Changes in the aid policy are the result of changing circumstances, changing norms, changing international development policies and changing views about the efficacy of aid.

After the Cold War democracy promotion became the main goal for foreign aid. However this economic aid of developed to developing countries is often seen as coercive. Mostly because the developing country itself might not yet be ready for democracy. Developing countries blame developed countries that they deal in their own self-interest, that they fail to distinguish democracy from other objective such as development and health assistance.

2. Economic sanctions: Controversial issue in global political economy. Sanctions are penalties threatened or imposed as a declared consequence of the target’s failure to observe international standards or obligations. Sanctions became prominent with the creation of the League of Nations. Sanctions are important to preserve international peace and security. Sanctions have been utilised in cases of abusing human rights, terrorism and nuclear proliferation. Governments impose sanctions for instrumental, but also for expressive or symbolic reasons. Debates arise about the humanitarian consequences of the action.

Transnational crime and the role of security

Organised crime became a major issue and a threat to national security. Organised crime could be defined as a ‘structured group of three or more persons, existing for a period of time and acting in concert with the aim of committing one or more serious crimes or offences in order to obtain directly or indirectly a financial or material benefit.’ Examples of offences are drug trafficking, human trafficking, money laundering, weapons trafficking, corruption and bribery etc.

Organised crime could be explained by increased globalisation. Organised crime does not only have an impact on the nation, but also on humans living in that country. A result could be territorial zones outside the control of the central government. Organised crime could also result in a threat for the legal markets and a negative impact of economic growth and development.

Pandemics, diseases, and the role of security

A link has been made between health and security. Scholars focus on the risks of diseases like HIV/AIDS and malaria. Health is important for the human security. Some people argue that diseases influence the national security by increasing health expenditures and a lower productivity of the workforce. Tourism and trade are the main causes of the spread of the diseases. A disease could spread from regional to international to global in a short time period. Again globalisation has a prominent role in this debate.

Chapter 15: Global Political Economy and Governance

Defining the concepts

Global governance: is an ‘overarching system that regulates human affairs on a worldwide basis.’ The mechanisms and rules are created by actions and agreements of key actors in the global system. These actors are states, corporations and civic associations. In the last 50 years international organisations also became key actors.

Contenting paradigms and the importance of governance

There is an intense debate about the future of the state. How much autonomy and power should the state have? Regarding governance the state has an important role. The state is the only institution that could impose binding laws on all citizens within a territory.

Some states have more influence on the governance issues than others. The US and EU have a significant influence. If domestic policies in either the EU or US changes this would have major consequences for other countries.

Probably the world would be more multipolar in a few years through the emerging BRIC countries. Brazil, China and India insist that OECD countries open up to free trade. China has a strong financial position, because the economy consist mostly of the exporting sector. China and Russia possesses nuclear weapons making their view on security relevant. These countries are better able to compete with the US and EU than small or developing countries.

The state does not disappear but the state changes its role due the interconnectedness (globalisation) of the world. Corporations (TNCs) become important to states. All states are involved in a ‘beauty contest’ to attract as much FDI as possible.

Change is important to consider in the debate of governance. In history change in governance led to crises, transformations and wars. Current changes are small, but it is predicted that major changes in the structure will result in a next war.

Proliferation of governance as major development

Governance is taking place at a regional, national, international level and global level.

Multilevel governance refers to vertical power relations. Authority and policymaking is shared across sub national, national and supranational levels. The debate is whether the power should be at a national or regional level. The problem that international rules often contradicts the rules in different regions.

State governments are often referred to as regimes. Regimes are ideas and rules about how states should behave. Regimes could influence behaviour in the following ways.

1. The WTO exercises a strong regime vis-a-vis its members. Sanctions will be executed when the legal framework is not followed. The World bank and IMF provide loans only if recipients follow some policies.

2. Appeals to morality. The ILO for example imposes minimum labour standards.

3. Reports that advise states to change their policies.

4. Structural power. The nature of the global system makes that countries encourage behaviour that attracts foreign direct investment. The structure of governance favour the power of markets at the expense of social values.

Proliferation of corporations and civil society as major development

Due to the globalisation corporations grew in power. Governments created policies to attract FDI and corporations influence the governments investment policies. So corporations can influence global governance. An example of this is the intellectual property law and the increasing level of private authority of many firms.

The business conflict theory emphasises that all firms have things they experience as more important than others. International firms do have more power than domestic firms and are therefore more able to influence the governance structures.

Voluntary citizen organisations are also influencing the global governance. Civic associations are composed of voluntary or nonprofit organisations. Civic associations differ from NGOs, because NGOs are profit seeking. The objective of most associations is equity and justice.

Civic associations put citizen security and autonomy at the center of the government questions. Groups of women, men and environmentalist are trying to change the anti- democratic actions of their own states. This is described as democratic internationalism. Examples are Greenpeace and Amnesty international. There are also civic associations that lack civility, e.g. the Mafia. Actors in the covert world respond to the incentives of the overt world to provide illegal services often through the use of violence against defenseless people.

Both corporations and civic organisations have a strong influence on the governance structure. Ignoring them would result in an governance breakdown.

The global compact as major development

Some corporation is needed between the three main actors (corporations, state and civic organisations) to create a fair and efficient governance structure. The UN global compact is designed to identify and disseminate good practices and ask world leaders to publicly commit themselves to good labour and environmental practices. Because it is voluntary one could question the effectiveness.

The global compact shows three main results

1. It illustrates the importance of civic associations. The UN is taken the human aspect into account. Corporations implement codes of conduct to respond to the civic associations.

2. It shows the failure of existing global governance. Civic associations feel that they are not being heard.

3. The difficulty to create new government arrangements that satisfy all needs.

Development and growth and the role of governance

One of the goals of the UN millennium declaration is to eradicate poverty and provide all citizens with basic material, healthcare and education. A shift from economic growth to social factors is visible.

Another development is the eradication of the gender blind world, by giving women equal opportunities as men. This process is not only needed in the developing countries, but also in the developed countries were women are still undervalued. Glass ceiling is the concept that describes that women face an invisible barrier and so they are limited in reaching the highest positions in the organisations.

Regional, national and international organisations are promoting the development. However some problems arise.

1. Governmental, intergovernmental and nongovernmental can pursue different and conflicting interest within a single country or region.

2. Problems with international finance and regulation.

3. Inability to move forward in the climate change of the Post-Kyoto agreement.

Equality and justice and the role of governance

History showed that economic exchange will always bring winners and losers. Equity and justice is more pressing than ever. Inequality is the direct result of globalisation.

Developing countries gain little benefits of the globalisation and even within the developed countries wealth is unequal distributed. The Washington Cconsensus becoming less important proved that there is a move away from the liberal perspective of free markets and a move towards more equality.

A result of the inequality is migration. People migrate because they think to get a better life in another country. Developing countries are only able to gain from globalisation when they get support from international institutions and create an effective and efficient domestic system.

Many civic associations are trying to promote social justice. The goal of the Jubilee Act Campaign is to give developing countries a full remission of their debt. They have not achieved this goal completely but several governments already gave the developing countries debt cancellation.

Democracy and regulation and the role of governance

Rules and norms are needed to guide state, corporate and citizen activity. However new institutions such as the IMF, World bank and the WTO raise questions around the democratic process imposing these rules.

The legitimacy of institutions implementing global governance will remain an important issue in this century.

Many countries and institutions take a more democratic character. When not doing so they will be regarded as unjust and illegitimate. Democracy is becoming the global norm.

Three arguments are used to not make the global governance democratic

1. The role of non-state centers of authority.

2. Regional and global organisations give limitations to state sovereignty.

3. The development of economic law.

BulletPoints

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Chapter 1: Three contending paradigms in Global Political Economy

• There are three main contending perspectives to explain developments in GPE

• Wide variety within each approach

• For a comparison of the perspectives, see the table below:

Chapter 2: Methodologies of the three contending paradigms

• GPE: The global and political environment from the last quarter of the 20^th century until today

• IPE: The academic field of study surrounding the interactions of economic and political phenomena across state borders until the last quarter of the 20th century.

• IPE crosses boundaries and tries to create connections between political and economic factors across nations.

• Economics: What is produced? By whom? For what price? - There exist different perspectives within this field.

• Neoclassical economics: in favour of free markets, no government interventions

• Keynesian economics: governments are needed and should provide a wider range of public goods

• Institutional economics: markets are not natural but created through institutions

• Political science: focusses on power dynamics and institutions (state/government)

• Political economy: integration of the economics and political science vision.

• International relations: focuses on issues such as war, the foreign policies of states and the operations of international organisations. Is about interaction between states.

• Ways to study IPE:

  • Case studies and large N studies

  • Rational choice

  • Institutionalism

  • Constructivism

• Consolidation: the goal of consolidation is to deepen a specific topic. The boundaries and subject manner are clearly identified. The main advantages: precision, focus, accuracy. Disadvantage: narrows down the vision.

• Integration: integrate different variants of GPE (e.g. comparative and IPE)

• Expansion: include new issues in the analysis.

Chapter 3: The roots of the Global Political Economy: 1400-1800

• Culturalists: poverty is the result of the behaviour of the poor

• Global historicists: poverty is the result of the relationship between rich and poor (use of history)

• Trading areas in the GPE: before the discovery of the U.S. by Colombus, the world was divided into trade areas (p. 45, map 3.1) (before 1400)

  • Trade already existed

  • Economic activity on a local level, agricultural production

  • Trade routes to move luxury goods already existed

  • Different groups of civilization

• Around 1400s:

• Europe's increase in economic activity could be explained by: new patterns of trade and the role of money and finance

• Consolidation of European political authority could be explained by:

• The emerge of nation-states (economic resources could be mobilized more efficient and there was an increase in competition)

• The consequences of changing forms of European welfare

• European expansion: from 1400, many countries engaged in exploration, expansion, and conquest of other countries (see table 3.1, p. 55). Portugal started, Spain, Holland, and Great Britain followed.

• Into the Americans: Spain first reached America. They started plundering their wealth and brought all kind of diseases into America (the diseases were part of the ecological imperialism).

• The Euro-American political economy: ‘New world’ is used to describe America. A combination of mercantilist and imperialist. Economic activity was a zero sum game.

• The New World offered many valuable natural resources, bad labour conditions, native Americans were at the bottom of society.

• Along Africa: the triangular trade: domestic population in America was not large enough so slaves were moved to America. Raw materials were moved to Europe from America. Europe moved manufactured goods to Africa.

• On the peripheries of Asia: Vasco da Gama sailed around Africa and arrived in India. The difference with Asia was that Asia was larger, more densely populated, and more productive.

• The imperialist conquest seaports and major trading posts as strategic pressure points.

• A new type of economic organisation was needed because the economic activities demanded large amounts of capital over a long period, thus beginning modern corporation. The companies differed at three points from the family or temporary firms:

  • impersonal (a partner in the company did not have to know all of others)

  • the owners did not directly own the companies

  • the companies were permanent (for an unlimited period)

• 1400-1800 was characterised by coercion, not cooperation (realism)

Chapter 4: Industrial revolution, renewed imperialism and conflict 1800-1945

Characteristics of this period:

• Power and wealth was in hand of the elites

• Bad working conditions

• Benefits of free trade

• Development of 2 important mechanisms: the Gold Standard and the Exclusions of affinity and ideology. (However, democracy spread after 19^th century)

• A second wave of colonialism

• War as a result of open competition and free trade between European countries

The first Industrial Revolution in Britain: started due to inventions such as steam power, application of new and more efficient machinery and the reorganization of labour.

Revolution was characterised by 3 elements:

• Population divided into capitalists and workers

• Production was organized in factories (factory system arose)

• Entire economy was profit driven

The second Industrial Revolution: development such as iron and coal power. Also, development of railway industry. Inventions such as the steel ship and the new canals reduced the time of see trade.

Why Britain? Why this period?

• Growth of culture and knowledge

• Technical expertise

• Rise of liberal state (laissez-fair)

• Favourable international position

Other European nations and the U.S. had difficulties catching up with Britain.

The period of Pax Britanica is crucial because some of the guiding liberal principles of that time are still used today. Britain created 3 international systems:

• The Gold standard and capital flow

• Free trade (David Ricardo)

• Balance of power (security arrangement)

Pax Britannica: too optimistic and too focused on the European world

Beginning of the 20th century: dominance of Britain was threatened by Germany. Europe became divided into two camps. Policies were create to protect the own industry - ultimately led to World War I.

Result of the war and interwar period: economic collapse, ending of liberalism and imperialism.

The World wars:

• Trade patterns suffered

• Capital movements were directed to war products

• The gold standard was abandoned

• The U.S. became world’s largest creditor and Germany world’s largest debtor.

After World War I: creation of the League of Nations: its task was to keep international peace

• Consequence of World War II: Power shifted from Europe to the U.S, destruction of infrastructure, end of the colonies

• Problems during the interwar period: The value of currencies floated, liberalisation did not work, the gold standard led to high unemployment, inflation was the result of too much government intervention.

Problematic aspects in the monetary and financial system:

• Gold standard was used wrong.

• War reparations for Germany to France - led to international financial crisis

Communism was established (Russia, and later, China, Vietnam and Cuba). Hereafter, Fascism (Germany and Italy). Fascist would like to keep a market economy, but eliminate all democratic institutions in the industrial and political realm.

Results of the period 1800-1945

Chapter 5: The cold war and post-cold war period 1945-2010

• The first world: U.S. and its allies in Western Europe, Canada, Australia, New Zealand and Japan.

• The second world: the communist states like the Soviet Union.

• The third world: countries from the rest of the world (some degree of development)

The cold war period (1945-1989)

• After the Second World War the first world created a new international system (which consisted of a new security structure, and international institutions to foster democracy and economic growth)

• Also World Bank, IMF, and Marshall Plan were created to maintain monetary stability

• The GATT was formed to liberalize trade between states.

• (See box 5.1, p. 92)

• Cold war confrontation: Europe was divided into two camps.

• Mutually assured destruction: was created after the Soviet Union also became able to develop nuclear weapons.

• Most of the conflicts between U.S. and S.U. were fought out in other parts of the world.

The Post-Cold War period (1990-2010)

3 trends have been increasingly visible after the cold war:

• Competition capitalism and state transformation

Competition state: a state that prepares its citizens and corporations for international competition. A state that should be attractive at macro and micro level. - to achieve this, governments should deregulate and privatise.

The rise of offshore: Offshore: the global economy where states create territorial or juridical enclaves characterised by a reduction in regulation.

• The information revolution: new technologies in IT facilitated the globalisation of economic activity. The gap between the developing and developed world increases.

• International organisation and governance: the number of international organisations has grown.

Results of the period 1945-2010

Chapter 6: Global Political Economy and Trade

2 issues when speaking about trade:

1. The barriers or restriction to trade

2. The medium of exchange in which trade is conducted

(see box 6.1)

• Critics of free trade form a realist and critical perspective: free trade has a zero sum effect.

Realist offer 4 main arguments against free trade:

1. Infant industry argument: protection should be given until infant industries become competitive.

2. Self-sufficiency argument: dependence on an external market can threaten a nation’s security.

3. Strategic trade argument: find a competitive advantage in industries that are most necessary to stay competitive.

4. National culture argument: critics are concerned about the impact of globalisation on the culture of their nation. The culture should be protected.

Arguments against free trade from the critical perspective:

1. Unequal exchange: some countries benefit more than others

2. Environmental degradation

3. Feminist

Trade promotes growth in 2 ways:

• It provides the local industries with resources cheaper than it would produce domestically - countries can consume more

• It force domestic producers to produce goods to the world standards - increases productivity and quality of the products.

Intra industry trade is trade within the same industry.
Intra firm trade is trade between the same firm.

The trading system after the 2^nd world war is based on 4 main principles:

• Non-discrimination

• Reciprocity

• Transparency

• Multilateralism

Developing countries have limited influence in international trade organisations - they often form coalitions.

Chapter 7: Global Political Economy and Production

• There are two ways to study production structures:

1. Transnational Corporation: Examines the production of large multinational firms.
2. Global commodity chains: Examines the production of a single commodity from raw material to end use.

• Foreign direct investment: Investment made outside the home country of the investing company. Control over the resources remains with the investor ( influence decisions in company). Resources could be assets or intermediate goods.

• Foreign indirect investment (portfolio investment): Specific assets and intermediary goods (capital, debt or equity). Control remains by the seller ( No influence in decisions of companies). Only financial resources are transferred.

• A transnational corporation (TNC) is a firm that owns and controls production facilities in two or more countries.

• There has been a proliferation of corporate activity and business activity around the world. Organizational forms changed significantly due to the following developments:

• Technological change

• Communications and transport

• Finance: integrated financial markets facilitated global production

• Political: the interest of the U.S. to expand its business enterprises; liberalisation of the financial market; the relocation of manufacturing production to the 3^rd world.

• Economic, political and cultural issues determine whether FDI is positive or not.

• The attitude of the host country and the development of the host country’s government partly determines whether FDI enhances or inhibits the development of local industries.

• Some people fear that TNCs will get too much power in the future - State needs to find balance between attracting FDI and maintaining the national interest.

Conclusion

• The spread of TNCs since the 1950s and the creation of a global production structure have had significant effect on international economic trade structures, industrial development and government policies.

• Much of the uneven development and industrialisation that occurred in the final years of the 20^th century can at least partly be explained by differences in TNC involvement and government policies towards foreign investment.

Chapter 8: Global Political Economy and the Financial System

2 significant parts of the financial system:

1. International monetary system (IMS): The IMS is the currency exchange between countries. Two major developments could be identified after the second world war:

2. The move from fixed to floating exchange rates.

3. The replacement of national currencies for a regional currency

2. Global credit system (GCS): This system is about lending and borrowing money. Europe needed credit to rebuild its economy.

The Mundell- Fleming trilemma could explain financial crises, implication for regional currencies and national autonomy.

The trilemma consist of the following parts:

• Capital mobility: The ability for money to cross borders freely

• Stable exchange rates: The existence of fixed or minimally floating currencies.

• Monetary policy: The ability of a country to set its own interest rates to influence growth and employment

Only two of the parts of the trilemma could be achieved at the same time.

• Countries agreed on regional currency: to foster currency stability and price stability

• Dollarization is the trend to favour a foreign currency instead of the domestic currency.

• Innovation and better communication possibilities allowed for financial transaction to take place at a faster pace and a greater volume.

• When investors loss confidence in an economy they spread their money across different countries which will result in more panic and problems - this effect is known as contagion. To reduce this effect two institutions were established:

• Financial stability Forum (FSF)

• Group of Twenty (G20)

Financial crisis of 2008: main cause: inability of people to pay back their loans.

• Shadow banks (hedge funds, investment banks and insurance companies) encouraged these high risk loans since they did not have the cost of regulatory banks.

• Crisis started in U.S. and quickly expanded to the rest of the world.

• The U.S. dollar (world’s primacy currency) is the world’s reserve currency, meaning central banks of countries use the dollar as reserve asset, for the provision of loans and for purchasing products.

• Also U.S. dollar as a store of value - governments and individuals hold U.S. dollars instead of gold or houses.

• Due to the crisis of 2008, many countries lost faith in the U.S. Currency. The question arose with many states if there is an alternative currency possible.

After the crisis of 2008, many countries had difficulties with servicing their debt.

• Budget deficit: the result of higher government spending in comparison to tax revenue.

• The sovereign debt crisis: dual crisis: combination of credit and monetary system crisis (started in Greece)

• Bail out(s): loans to be paid back with interest.

3 main concerns about the euro:

1. Greece might withdraw from the euro and implement the drachma again

2. Which countries would follow Greece? (will the euro survive this?)

3. Fragility of global financial system

The financial crisis opened a debate whether all countries should converge and pursue similar policies or whether there should be room for autonomy.

Chapter 9: Global Political Economy and Labour

• Division of labour refers to the roles that people occupy in the production process

• International division of labour: the geographic location determines which product you export and so produce.

• Global division of labour emphasises that no particular activity is confined to a particular state.

• A gendered division of labour exist when societies have predetermined jobs particular for men and women.

• Racial and ethnic division of labour groups people with different ethnic backgrounds and physical differences into a specific job.

Production process changes as major development

Two main developments could be distinguished in the production process:

1. Introduction of mass production (Henry Ford)

2. Flexible specialisation (just-in-time production, lean production, Toyotism)

3. Moving production to the developing world has a negative effect on the labour force in the developed world.

4. Developed countries are dependent on migrant labour because of shrinking population and ageing population.

5. China and India are the most populous countries in the world, and therefore, have a significant impact on the division of labour.

• The International Trade Union Confederation is an international labour movement which goal is to provide each county with:

  • Freedom of association and the effective recognition of the rights to collective bargaining.

  • Elimination of all forms of forced or compulsory labour.

  • Effective abolition of child labour.

  • Elimination of discrimination in respect of employment and occupation.

• The International Labour Organization (ILO) is created to ensure basic labour conditions to maintain rest under the labour force.

Chapter 10: Global Political Economy and Gender

• Sex is a natural state and biological determined.

• Gender is about social roles, the ideological and material relation between human beings.

• Devalorisation: means that characteristics of masculinity are more valued than characteristics of femininity. Feminist argue that social institutions are not gender neutral and influenced by devalorisation.

• The role of men and women varies between cultures, also the time is important to consider to see the different social expectations of men and women over time.

Currently women are more employed than ever before. The increase in participation could be explained by:

• The shift from agriculture to the service sector

• Rise of labour intensive manufacturing industries in East Asia. These export reliable industries are dependent on women.

• Women are better in jobs with high levels of communication, social and personal services.

The inequality and discrimination remains. This inequality could be explained by several reasons:

• Women often work temporarily and have part time jobs. This makes that jobs of women are less secure

• The working conditions are often bad and women are exposed to sexual harassment

• Another reason is that women are starting to work because of poverty and insecurity

• Women earn on average less than men, even when they have the same occupation

• Women have limited opportunities to climb the career ladder

• Women have poor bargaining and negotiation capacities

• Educational attainment is often lower for women

   

• Glass ceiling refers to the situation in which women earn less for the same senior management position than men.

• Governments, regional organisations and multilateral organisations created more policies specifically for women.

• Evolution of the gender difference started in 1972.

Poverty and gender inequality are linked, female poverty is the result of the following:

• Increases in female headed households

• Intra households inequalities

• The impact of neoliberal economic policies

Chapter 11: Global Political Economy and Economic Development

• Trickledown effect: first inequalities will increase if the economy grows, but this would reverse in the long run (shown in the Kuznets curve)

Debate around development can be divided into 2 issues:

1. Internal or external factors contributing to the success/failure of the economic development of a society (internal causation theory/ external causation theory/ modernisation theory)

2. The role of the state and market in promoting development. The NICs had low inflation, fast growth, macro-economic stability, high saving and high life expectancy and literacy (export oriented industrialisation / import substitution industrialisation)

National capitalism between 1947 and 1981 as major development - period with strong government interventions.

Elites of the developing countries would like to have their own say in the international order to assert their vision of development through 2main organisations:

1. Non-Aligned movement (concerned about political issues)

2. G77 (articulation of demands for the developing countries and a collective voice in the World bank and IMF)

• Capitalist states used their money in the battle against communism, however they were not devoted helping developing countries getting out of poverty.

• The era of the 1980s is seen as a lost era, because the number of people living in poverty increased and living standards declined. Developing countries were hard hit by the second oil crisis and recessions.

• Structural adjustment was needed to improve the conditions in developing countries. The debt crisis in Mexico in 1982 was the beginning of the structural change.

• Structural adjustment program was created to help developing countries. The IMF would provide these countries with loans in exchange for trade liberalization, privatization, deregulation, a shift from import to export (ISI to EOI) and credit reduction.

• The result of the crisis of 2008 on the developing countries are not totally visible yet. Some are weaker trade, tighter global financial conditions, lower remittances and higher unemployment.

The World Bank is world’s premier multilateral development agency and compromises five organizations. The bank fulfils three main functions:

1. Providing loans to developing countries

2. Developing international norms

3. Resolving disputes.

4. High debt ratios reduces spending power, reduces the ability to fund education, health and other social programs.

Western countries and international organizations argued to reduce the debt of the developing countries. Two multilateral debt relief organizations are created:

1. Heavily indebted poor countries (HIPC): Reducing in debt when a country meets certain criteria.

2. Multilateral debt relief initiative (MDRI): 100% debt relief for a selected group of low income countries.

The North-South conflict refers to the political differences and diplomatic conflict between the governments of advanced industrial countries and those of developing countries developing countries argue that the economic order was too much focused on the developed world.

Chapter 12: Global Political Economy and Environmental Change

• International or global governance: Intersection between environmental concerns and the global political economy. International cooperation is needed to manage domestic and global environmental problems in a way that does not place a particular state at a political or competitive disadvantage.

• Sustainability: The environmental problems in the global economy due to consumption, production and distribution.

• Environment: Human activity on the natural environment. Attention is paid to the use and misuse of resources.

• Environmental degradation: Human uses nature in ways that threaten the sustainability of the natural resources and create unwanted problems such as pollution.

• Sustainable development: Development that meets the needs of the present generation without jeopardizing the resources available to the future generation.

There are 5 main accepted features about environmentalism (box 12.1). Political, economic, social and ethical dimensions are involved in this features.

• Nationalist argues that all nations act in their own self-interest and that international cooperation is hard to achieve.

• Realist also argue that issues regarding the environment will also be in the advantage of the most dominant (developed) states. Realist are skeptical about international cooperation.

• Liberals argues that there exists a mutual interest to work together at issues regarding the environment. A network of independencies will result in a positive sum for the whole society.

• Critical: Conflicts between capitalist states makes cooperation impossible. And if cooperation is made possible the results will be in the advantage of the most dominant states what would create larger inequality.

To extend the analysis of environmental degradation and sustainability it is important to take two other perspective into account:

1. Environmentalism (technocentrism): The main objective is to satisfy the needs of humans.

2. Ecologist (ecocentrism): The main objective is the survival and progress of the environment.

(For all the differences between both perspectives see box 12.2)

3 features characterise the current mainstreaming of the environment:

1. Environmental regulation at a domestic level

2. International organisations are concerned with environmental issues

3. Behaviour of major firms

4. Sustainable development: development that meets the needs of the present generation without jeopardizing the resources available to the future generation. Some argue that trade will enhance this, others say that it will harm this.

5. Process and production methods (PPMs) are rules to threat domestic and foreign products alike - Governments may decide to restrict imports of a certain product because of product characteristics, but they may not restrict a product on the basis of the process used to produce the product. This will result in low sustainable processes

6. The Kyoto agreements and the United Nations Framework Convention on Climate Change (UNFCCC) increased the awareness of climate change

Kyoto protocol consist of three mechanisms:

1. Emission trading

2. The clean development mechanism

3. Joint implementation

• The lack of US commitment, the eco- imperialism, the self-interest of countries and the denying of the global warming will create difficulties implementing a global policy.

Chapter 13: Global Political Economy and Ideas

• Knowledge structure: determining what knowledge is discovered, how it is stored, and who communicate it, by what means, to whom and on what terms.

• Ideas: Knowledge structure+ mental images how the world operates. It is also about the human interaction.

• Worldview/ideology: assumptions that drive human nature and opinions about appropriate actions. Ideology are main perspectives such as liberalism, realism etc.

• Technology: Technical know- how to produce products. Objects produced by knowledge.

• Information: News, data, facts or intelligence material.

• Knowledge: Understanding and interpreting information in the right way.

• Wisdom: Is a type of knowledge gained from experience and reflection.

• Constructivist: Knowledge and action are socially shaped.

• Rationalism: Based on a set of presumed preferences. Primacy to material structures. Rules, norms and social institutions are secondary

The information technology is reshaping the global political economy and has an impact on economic, social and political structures. Whether technology will lead to economic growth is questionable.

• Digital divide is the term used to emphasise the unequal access to technology.

• Technology diffusion might result in less equality because the diffusion only benefits the industrialised countries. Firms in developing countries do not have the possibility to implement the technology.

• In 1995 the WTO was mandated to protect intellectual property rights (IPR). The trade related intellectual property rights (TRIPS) states that ‘patents shall be available for any inventions, whether products or processes, in all field of technology, provided that they are new, involve an inventive step and are capable of industrial application’.

• In this way companies and individuals should be able to protect their knowledge. The technology may only be used when people pay the inventor an agreed price.

• Bio piracy is the term used to describe the exploitation of human lives.

Chapter 14: Global Political Economy and Security

• Security: protection from threats. But no contention about who and what is secured. Three different approaches to security:

  • Traditional state-centric

  • New security studies

  • Human security

• Liberals: Ignore the relationship between the Global Political Economy and security.

• Interdependence theory: argues that under conditions of complex economic interdependence countries will contribute to a peaceful solutions to conflict and will reduce the resort of violence.

• Nationalist: Financial and industrial strength (security) does have a positive influence on military strength. State should protect national economic interest and should therefore have a strong army.

• Marxist: States might engage in imperialism, because of domestic needs, but this would weaken the security since the state creates opposing views.

• Defence procurement is an area where political economy and national security overlaps.

• Security structure is an overarching framework of material, institutional and ideational resources.

• In the period from 1948 to 1989 state interest was prominent. The power of the US and the SU led to a bipolar distribution of power. This battle could be seen as an ideational battle between communism and capitalism. Three issues are important to explain the bipolar distribution:

1. The role of the state was conceived as self-preservation

2. both the U.S. and the S.U. created their own international institutions

3. The economic ideology of both powers was that capturing developing countries would enhance the national security system

• The end of the Cold war changed the security system in many countries. The end of the Cold war meant that the U.S. was the sole military power left.

• The period after the Cold war is a period of new wars. These wars are mostly within countries and are the result of weak central authority. These states are sometimes referred to as failed states. The result of the new wars in failed states is that the local economy collapses and the population is impoverished.

• Another feature of the period after the cold war is global terrorism. Global terrorism led to a shift in international security and raised three key issues:

• Military threat shifted from state actors to non-state actors

• The fear that terrorist can strike at any given time increased the level of domestic and international security

• Changed the interstate relations regarding political and security issues.

Chapter 15: Global Political Economy and Governance

• Global governance: overarching system that regulates human affairs on a worldwide basis. It deals with the question how many autonomy and power a state should have. Some states have more influence on the governance issues than others

• Probably the world would be more multi-polar in a few years due to the emerging BRIC countries.

• Role of state changes, TNCs become more important.

• Multilevel governance refers to the vertical power relations. Authority and policymaking is shared across sub national, national and supranational levels.

• The business conflict theory: emphasises that all firms have things they experience as more important than others. International firms have more power than domestic firms and are therefore more able to influence government structures.

• The UN Global compact: designed to identify and disseminate good practices and ask world leaders to publicly commit themselves to good labour and environmental practices.

• 3 main results:

  • Illustrates the importance of civic associations

  • Shows the failure of existing global governance

  • The difficulty to create new government arrangements that satisfy all needs.

• Main goals of the UN millennium declaration: eradicate poverty and provide all citizens with basic material, healthcare, and education - shift from economic growth to social factors is visible.

• The Washington consensus proved that there is a move away from the liberal perspective of free markets and a move towards more equality.

• The goal of the Jubilee act campaign is to give developing countries a full remission of their debt. They have not achieved this goal totally but several governments already gave the developing countries debt cancellation.