Realism, Liberalism, and International Political Economy
Realism, Liberalism, and International Political Economy PSC 1003
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This 4 page Class Notes was uploaded by Kerrigan Unter on Monday October 19, 2015. The Class Notes belongs to PSC 1003 at George Washington University taught by Olson, L in Fall 2015. Since its upload, it has received 16 views. For similar materials see Introduction to International Politics in Political Science at George Washington University.
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Date Created: 10/19/15
PSC 1003 Realism Liberalism and International Political Economy Liberalism and International Political Economy Liberals advocate the creation of complex interdependence through economic ties between states Complex interdependence consists of 2 levels of interdependence 0 Sensitivity interdependence where states are tied together to such a degree that the decisions of one state have some effect on others 0 Vulnerability interdependence where states are tied together to a greater degree such that the decisions of one state can cause such a detrimental effect on other states that the other states are forced to alter their policies These alterations usually feedback and affect the first state These two levels of complex interdependence constrain state action particularly in economic policymaking Adam Smith The Invisible Hand One of the philosophical foundations for the liberal defense of free trade Smith opposed mercantile economic systems where in many cases corporations would be given monopoly rights by the state For Smith this encouraged corruption and discouraged individuals from participation in the market If a free market is created it will lead to greater common benefits than a mercantile system can produce 0 The invisible hand states that if each individual acts according to their rational self interest in a free market they will inadvertently contribute to an overall common benefit 0 This will encourage individuals to participate in the market which will facilitate the self regulating mechanisms of the market David Ricardo Comparative Advantage The second philosophical pillar in the liberal defense of free trade Ricardo argues most states can produce everything they need but this is an inefficient use of I39CSOUI39CCS Instead of seeking autarchy states should specialize in the good in which they have a comparative advantage the good they can produce most efficiently in the domestic market and then engage in trade to get the other goods they need Comparative Advantage An Example Great Britain can produce cloth for 8 a bolt can produce wine for 11 a bottle Portugal can produce cloth for 7 a bottle can produce wine for 5 a bottle According to Ricardo Great Britain should specialize in producing cloth and Portugal should specialize in wine even through Portugal can produce both at a lower cost For Ricardo both states will make the most efficient use of their available resources and minimize opportunity costs in the process If Portugal produces both for every bolt of cloth they produce this represents 7 that could have been more efficiently used in producing wine When the states engage in trade they will both benefit more than they would if they did not specialize The World Trade Organization Founded in 1995 the WTO represents the transition from the GATT regime to a formal institution Specifically intended to manage disputes between states and the bolster the free trade regime at the system level Each member of the WTO is required to extend mostfavored nation status to all other members of the WTO 0 MFN treatment is a principle of nondiscrimination which states that each country must extend to all other members the same trade relationship it has with its best trading partner 0 Exceptions to this policy are made with regard to integrated regional blocs such as free trade areas where tariffs within the area are zero but states maintain their own barriers to trade or common markets where internal tariffs are zero and a single tariff covering the whole common market is put in place World Trade Organization Dispute Settlement The purpose of the WTO is to maintain a level playing eld where each member has an equal opportunity to participate in global trade Members who believe unfair trade practices are being pursued by other members can bring disputes to the WTO 0 Since 1995 the WTO has resolved several hundred disputes between states while the GATT only resolved around 300 from the end of WWII to 1995 If a state loses a dispute it has 3 choices 0 Alter the offending law and drop the barrier to trade 0 Compensate the other state with trade concessions in another area 0 Accept retaliation through the imposition of equivalent barriers by the winning state Realism and Hegemonic Stability Theory Realists argue that economic integration at the system level is most robust when there is a hegemonic power in place that can enforce stability and integration Economics is a zerosum game and hegemons will support integration because it is in their interest to do so and they gain the most from an integrated global economy The hegemon is able to enforce integration because it is the most powerful in terms of hard power state in the system and it is the most technologically advanced leading to high demand for its export goods The Hegemon s Role The hegemon provides 4 goods to the global economy 0 Security through its preponderance of power 0 Markets in the sense that the hegemon unilaterally opens its markets to imports but remains a net exporter 0 Hard currency which serves as a stable international currency 0 Loans due to the fact that the hegemon as a net exporter maintains a current account surplus When the hegemon is at the height of its power the global economy is most integrated However hegemony is costly As the power of the hegemon declines and challenger states emerge the global economy moves towards fragmentation Realism and Strategic Trade Theory Realists also argue in favor of state intervention in the economy through the promotion of certain industries in order to make them more competitive at the system level For certain new particularly hightech industries the cost of entry into the market is high deterring firms from investing However once they reach a certain point they can exploit economies of scale Realists argue states should assist national firms in surmounting this high entry cost Economies of Scale See graph in powerpoint If a firm is able to surmount the high cost of entry into the market it can enjoy monopoly rents as the first firm to exploit the market In most cases only one firm can be profitable in the market so once a firm overcomes the high cost of entry other firms are deterred from entry due to the fact that potential profits might not outweigh the costs For realists When national firm is able to reach a market first it represents a relative gain for the state The classic example of strategic trade theory is Boeing backed by the US and Airbus backed first by France then by the EU Some realists argue that green energy technology is a market Where strategic trade theory could work Liberals generally argue it is impossible to predict the profitability of these markets so it is better to rely on market mechanisms rather than state intervention