Polisci110G, Week 4 notes
Polisci110G, Week 4 notes Polisci110G
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This 6 page Class Notes was uploaded by Erica Evans on Saturday January 30, 2016. The Class Notes belongs to Polisci110G at Stanford University taught by Kenneth Scheve in Fall 2016. Since its upload, it has received 16 views. For similar materials see Governing the Global Economy in Political Science at Stanford University.
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Date Created: 01/30/16
Polisci 110G Class 7 1/26/2016 What are labor standards? • 4 core labor rights: 1) Elimination of forced labor 2) No discrimination based on race, gender ethnicity or religion 3) Elimination of worst forms of child labor (controversial point because some see household productivity as a necessary stage of economic development) 4) Freedom of association and collective bargaining • It is unfair for Europe and the U.S. because we follow these rules and others don’t, which lowers costs for foreign direct investors. So we are fighting to enforce these rules on everyone • “Race to the bottom” idea: everyone will continually lower their standards and their prices to attract investment until the value reaches zero. • In reality, MNE actually have high costs for violating the 4 standards because no one wants to buy goods made from slave labor. • Also, MNE’s pay higher wages and so we expect non-‐wage conditions to also be better. Effect of Multi-‐nationalization on production and labor standards is heterogeneous: • Firms competing for lowest prices might lead to lower labor standards • Subcontracting/outsourcing: the brand name is not on the building so they are not held accountable. • Directly owned overseas affiliates: we expect that good labor practices from the home country will spill over. There will be greater ease of monitoring, and labor standards will improve. • Market-‐seeking horizontal FDI probably has no effect on labor standards • Efficiency-‐seeking vertical FDI on the other hand might influence labor • The effect is heterogeneous à different depending on the case. Mosley: • Studied data of collective labor rights • 6 categories, 37 items • Found that the averages were declining slightly • However nationally, there was a positive correlation between FDI and labor rights • There is variation by firm and by nationality. For example there is an observable transfer of best labor practices from Scandinavian countries but there might not be from China. Political Risk: • Example: Bolivia and President Morales – • Morales nationalized internationally owned companies and changed the law to make them pay 82% of profits to the state. • Because of the lack of steady legal environment, countries investing never know if they will get expropriated which would discourage investment. Remainder of class: • Group problem activity, see handout Polisci110G Class 8 1/28/2016 Midterm: Short answer (long paragraph) 6 questions: answer 5 Short essay 2 questions, answer 1 (Exam example questions) National Security and IPE International Economic policies can be a policy tool for national security objectives Positive inducements, such as preferential trade agreements or free trade areas are used to reward good behavior strengthen allies or generally promote peace A trade agreement might not matter for U.S. economy, but it matters for them and we want them to be our friend. Trade sanctions can be a form of punishment – on an industry or an entire country National security considerations influence international economic policies Wars tend to increase the cost of trade and reduce the extent of relations Security power can be used to open up markets with military power – force the open of a foreign market (Like imperialist Japan) Hegemonic Powers – free trade as a global public good that requires sacrifices on the part of states in the world – collective action problem: if there’s an asymmetric distribution of firms, we expect that industry to do better of providing that collective good. The “hegemonic power” will provide the good/ push for free trade policies. Ex: U.K. in mid 19 century was influential in promoting free trade. Ex: U.S. in the middle of the 20 century got developed countries to adopt free trade, but less successful among developing countries Hegemonic Stability Theory: Krasner (1976): Argument: Structure of international trading system follows distribution of potential power among states What do states want? Aggregate national income. Free trade exposes a county’s economies to international shocks (a negative, but this matters for some countries more than others) Small states will be more susceptible to international shocks than large states Developing countries have more adjustment costs. B/c developed countries have more mobile factors, makes them able to change economic activities at a lower cost. Political power is the relative cost of closure. Suppose we have a liberal trade regime – whose interests are most threatened? they have the least political power. So large states have more political power. Reason: effects on social stability are bigger in small states and developing countries. Economic growth is a positive for small countries – for large countries it might be good early and not as good later. Krasner identifies 5 main historical periods: 1) Increasing openness 1820-1979 (UK hegemony) 2) Modest closure 1879-1900 (economic growth Germany and U.K. etc.) 3) Greater openness 1900-1913 (all the things we just said are still true… so this doesn't work as well) 4) Closure 1919-1939 (a problem b/c after WWI, the U.S. is an economic hegemon and military hegemon… Krasner does a revision. Says there were too many vested interests in the U.S. to open trade. Some things in the world economy can’t be explained because there are other domestic factors. This institutional “stickiness” is another factor there has to be something big that shakes the system to force change) 5) Great openness 1945-1970 Periods 1,2 and 5 are exactly what Krasner would expect Trade as a Reward Gowa and Mansfield: Think about the prisoner’s dilemma. If trading relations in general are set up this way, trading with allies and adversaries changes how difficult it is to solve this problem. You have to consier economic externalities but also security externalities. Trade and investment are used to achieve national security objectives trade is linked to prosperity and a richer ally is better than a poor one. Both countries will have an incentive to defect on the agreement But when this dilemma is repeated they use “grim trigger strategy” They will start by cooperating and keep doing so as long as the other one does not defect, but if they do defect, then there will be no more cooperation ever. Think about how this game changes if you care about their payoffs a.k.a. they are an ally: How much you care about the future is smaller if it’s an ally. Sometimes politicians and voters don’t really care about the future when you trade with an ally, you don’t have to worry about the future as much. This condition is more easily satisfied. But when you trade with an adversary, you care much more about what happens in the future – are they getting stronger economically? (bad). This is relatively more important in a bi-polar as opposed to a multi-polar world. In a bi-polar world your chances of not being an ally in the future is less, because you don’t have as many choices: just us and them, and you are not likely to flip-flop like that. But in a multi-polar world where alliances are really dynamic, this is more applicable/important. Example: states trade more with their allies during the cold war. Sanctions: Example: current sanctions against Russia. Secretary Kerry announced that it was possible in 2016 to reduce sanctions against Russia because he anticipates an improvement in the situation with Ukraine and the Minsk agreement. Are sanctions an effective foreign policy tool or not? Bi-lateral sanctions: one country against another Multi-lateral sanctions: when you get a whole coalition to impose sanctions Example: We have had harsh sanctions on Cuba, but they haven’t done anything we want them to. Early work suggested that sanctions were relatively effective: they look at 120 cases of sanctions and 34% of the time the objective is met. Pretty good for policy! Then this work got critiqued – what counts as success? In a lot of the cases the sanctions didn’t work by themselves and so countries actually used force to achieve their objective. 8 cases had no evidence, 6 cases trade wars not sanctions, 3 success is debatable So we are only left with 5 successful cases and they are for extremely modest policy objectives, not huge things. So actually, this is not that great…. Is the mechanism through which sanctions are supposed to work actually effective? Surprisingly, the cases where sanctions were most costly for the target, didn’t even lead to success in foreign policy. Problem 1) Sanctions affect the target overall, but not the leadership Problem 2) Transit through third countries: bilateral sanctions frequently fail. Problem 3) Sanctions often target vague or improbably goals (like Cuba becoming a democratic capitalistic country) What about Russia? Putin’s approval ratings are like 90%. He has been able to mobilize Russian nationalism in a big way. Maybe sanctions will force Russia to isolate itself more, rather than realigning with Europe and U.S. EU has been slower to impose sanctions on Russia and appear keener on removing it because their economies are affected more by trade with Russia this might make sanctions less effective though because Russia knows the EU wants them gone as well.